Joint EPA/State Agreement on Pursue Regulatory Innovation

ENVIRONMENTAL PROTECTION AGENCY

[FRL-5914-7]

Joint EPA/State Agreement on Pursue Regulatory Innovation

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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SUMMARY: The purpose of this notice is to solicit public comment on the

draft Joint EPA/State Agreement to Pursue Regulatory Innovation. This

draft was prepared jointly by the EPA and the Environmental Council of

the States (ECOS). The agreement will provide a framework for how EPA

and the States will promote and implement future regulatory innovation

efforts. A copy of this notice is available on the Internet at http://

www.epa.gov/reinvent.

DATE: Comments are due by November 28, 1997.

ADDRESSES: Comments may be submitted to: Gail Robarge, Office of

Reinvention (mailcode 1102), 401 M Street, SW., Washington, DC 20460;

email address: [email protected]. ECOS members may submit

comments to: Tina Parker, Environmental Council of the State, 444 N.

Capitol Street, NW., Suite 305, Washington, DC 20001; email address

[email protected].

FOR FURTHER INFORMATION CONTACT: Gail Robarge, EPA Office of

Reinvention, phone 202/260-9101, email [email protected]; or

Bruce Brott, Minnesota Pollution Control Agency, phone 612/297-8380,

email [email protected].

SUPPLEMENTARY INFORMATION:

Background

In order to find new, better and more efficient and effective ways

to improve environmental protection, the ECOS and EPA Administrator

formed a joint task group to develop an agreement on EPA-State

regulatory innovation. The purposes of the agreement are to: improve

environmental protection in the United States; improve EPA/State

environmental management systems; and provide for timely decision-

making on innovation proposals.

The agreement establishes guiding principles for innovation and an

efficient process that is receptive to innovative proposals from the

States for achieving shared environmental objectives. The agreement

will encourage and facilitate the exploration of ideas which are

potentially more cost-effective and/or have a better environmental

impact. It will improve decision-making between the States and EPA on

innovation proposals, emphasizing clear lines of communication,

decision authority, accountability and timeliness. It will provide

opportunities for stakeholder involvement at the state and national

levels.

An informal stakeholder meeting was held to discuss the draft

agreement in September. Participants offered many thoughtful comments

and constructive suggestions (a summary of this meeting is posted on

the Web at http://www.epa.gov/reinvent). Comments from the meeting will

be taken into consideration by EPA and ECOS as we review other comments

received during the next 30 days.

A public meeting to discuss the draft agreement will be held on

Nov. 20, 1997, in Washington, D.C. Please contact Louise McLaurin (202/

260-4261 or [email protected]) to register for the

meeting and to obtain details regarding time and location.

TEXT OF DRAFT AGREEMENT

Part 1

Joint EPA/State Agreement To Pursue Regulatory Innovation

``* * * We must encourage innovation by providing flexibility with

an industry-by-industry, place-by-place approach to achieving

standards,* * * But we will require accountability that such

standards be met. Rather than focusing on pollutant-by-pollutant

approaches, attention must shift to integrated strategies for whole

facilities, whole economic sectors, and whole communities.''

[Excerpt from President Clinton's ``Reinventing Environmental

Regulation,'' March 16, 1995]

The U.S. Environmental Protection Agency and the states agree on

the need to experiment with new approaches to improve our nation's

environment. These new approaches can help us identify cleaner,

cheaper, smarter ways

[[Page 56183]]

to ensure that all Americans enjoy a clean environment and healthy

ecosystems. Through this joint commitment, EPA and the states agree to

encourage, evaluate, implement, and disseminate ideas that seek better

ways of achieving our environmental goals. This agreement presumes that

EPA and the states will find ways to help good ideas succeed, and that

joint EPA and state efforts to promote and test new ideas will result

in the maximum benefit to the American people and their environment.

Two years ago, EPA and the states entered into an historic

agreement to establish the National Environmental Performance

Partnership System (NEPPS). That agreement recognized that we have

achieved significant progress since environmental protection programs

were created more than 25 years ago. Yet to meet today's new

challenges, we agreed that states and EPA must manage for environmental

results, increase public involvement, and use environmental indicators

to track our progress. We agreed that states and EPA must become true

partners in implementing federal programs, and that different state

programs need different levels of federal involvement.

This new partnership creates an environment in which state and

local regulatory innovations can, and should, flourish. As the primary,

front-line delivery agent for environmental programs, states are a

natural laboratory for testing new ideas. State and local environmental

professionals are closest to environmental problems and communities,

and can often develop the most practical solutions. These professionals

should be encouraged to seek innovative solutions that may not fit

within the traditional approaches. We agree that our efforts to promote

innovation must, in the end, be directed toward achieving our public

health and environmental goals in a more efficient or effective way.

EPA also seeks to promote regulatory innovations at all levels.

This agreement complements, but does not supplant, other national or

state efforts to develop regulatory innovations. Its purpose is to

establish a clear pathway and decision-making process for state

innovations that have encountered federal barriers or need greater

attention to help them succeed.

States and EPA agree that the following principles should guide us

as we develop, test and implement regulatory innovations:

Experimentation

Innovation involves change, new ideas, experimentation and some

risk of failure. Experiments that will help us achieve environmental

goals in better ways are worth pursuing when success is clearly

defined, costs are reasonable, and environmental and public health

protections are maintained.

Environmental Performance

Innovations must seek more efficient and/or effective ways to

achieve our environmental and programmatic goals, with the objective of

achieving a cleaner, healthier environment and promoting sustainable

ecosystems.

Smarter Approaches

To reinvent environmental regulation, regulators must be willing to

change the way we traditionally look at environmental problems and be

receptive to innovative, common sense approaches.

Stakeholder Involvement

Stakeholders must have an opportunity for meaningful involvement in

the design and evaluation of innovations. Stakeholders may include

other state/local government agencies, the regulated community, citizen

organizations, environmental groups, and others. The opportunities for

stakeholder involvement should be appropriate to the type and

complexity of the innovation proposal.

Measuring and Verifying Results

Innovations must be based on agreed-upon goals and objectives with

results that can be reliably measured in order to enable regulators and

stakeholders to monitor progress, analyze results, and respond

appropriately.

Accountability/Enforcement

For innovations that can be implemented within the current

regulatory framework, current systems of accountability and mechanisms

of enforcement remain in place. For innovations that involve some

degree of regulatory flexibility, innovators must be accountable to the

public, both for alternative regulatory requirements that replace

existing regulations and for meeting commitments that go beyond

compliance with current requirements. Regulators will reserve full

enforcement authority to ensure compliance with alternative regulatory

requirements, and must be willing to explore new approaches to ensure

accountability for beyond-compliance commitments.

State-EPA Partnership

The states and EPA will promote innovations at all levels to

increase the efficiency and effectiveness of environmental programs. We

must work together in the design, testing, evaluation and

implementation of innovative ideas and programs, utilizing each other's

strengths to full advantage.

EPA agrees to establish a process that ensures timely review and

decision-making on state innovation proposals based on implementation

of the above seven principles. The states agree to consult early with

EPA, to develop proposals consistent with the above principles, and to

involve stakeholders. EPA and the states agree on the need for a

clearinghouse of regulatory innovations so that promising ideas can be

shared across state lines and within EPA.

We agree that the principles and process described in this

agreement should be open to continual improvement. As part of ongoing

review and evaluation, EPA and the states agree to evaluate the need to

further institutionalize the broad principles and process to help

future innovations succeed.

Through this agreement, as detailed in Part 2, states and EPA are

committed to work together and with all stakeholders to apply the

lessons learned from successful innovations in creating the best

possible system to achieve greater environmental protection at a

reasonable cost. We agree to encourage innovation that will prepare us

for meeting our environmental challenges well into the 21st century.

Part 2

I. Overview of This Agreement

This agreement embodies a set of general principles and a process

for EPA/State innovation activities. This agreement includes:

--Statements of purpose and scope of the agreement;

--Over-arching principles that will govern joint EPA/state

regulatory innovation activities;

--The process EPA and the states will use to identify good ideas,

including both the continuation of existing State/EPA interactions to

start innovation projects, and the establishment of a new mechanism for

making decisions on innovative proposals that do not fit into ongoing

reinvention programs; and

--Guidelines for how EPA and the states will evaluate the success

of innovation activities carried out under this agreement.

This agreement builds on the many reinvention efforts that are

underway in the states and EPA. It is intended to ensure joint

decision-making, timely review, broad public involvement, and continued

progress in fostering and implementing ideas that are good for

[[Page 56184]]

our environment and the people we serve.

II. Purpose and Scope of the Agreement

A. Purpose

The Administrator of the U.S. Environmental Protection Agency (EPA)

and senior State environmental officials agree to three purposes for

this effort: to improve environmental protection in the United States;

to improve EPA/State environmental management practices; and to provide

timely decision-making on good ideas. These purposes are described

below.

1. Improved Environmental Protection

The Administrator of the U.S. Environmental Protection Agency (EPA)

and senior State environmental officials agree that the states and EPA

need to encourage, seek out, and try innovative approaches to improve

our nation's environment. These innovative approaches can offer

mechanisms that are more cost-effective, less adversarial and

contentious, and have a better environmental impact. To support

sustainable development and continuous environmental improvement,

innovations should utilize pollution prevention methods rather than

pollution control whenever possible. While we have made significant

progress in environmental protection, much remains to be done and no

backsliding can be permitted. Innovative approaches offer us tools to

improve current environmental protection programs and to tackle the

environmental problems of the future.

2. Improved EPA/State Environmental Management Practices

Through this agreement, EPA and the states will develop improved

management practices that promote collaboration and shared

responsibility for innovations. This agreement is consistent with the

concepts embodied in the National Environmental Performance Partnership

System (NEPPS). In fact, NEPPS was established, in part, to encourage

innovative approaches by states, consistent with agreed-upon

environmental goals and indicators. The agreement recognizes that

states and local governments are natural laboratories for testing new

ideas and that EPA has an important role in promoting innovation at all

levels, while continuing to ensure that the states provide fundamental

public health and environmental protection. This agreement identifies

how we will work together to identify and promote innovative ideas and

better ways of doing business. It is intended to help us communicate

and evaluate such ideas and to encourage joint decision-making on how

such innovations can be fostered, designed and implemented.

3. Timely Decision-Making on Good Ideas

Finding better ways to accomplish our environmental goals is part

of the everyday practice of good government. Current processes through

which many successful state innovations have been carried out should

continue. We recognize that the most challenging regulatory innovation

proposals have been difficult to address. This agreement establishes an

optional avenue for prompt consideration and evaluation of innovation

proposals.

EPA and States may conclude that some successful regulatory

innovation projects demonstrate that changes in EPA regulations,

policies, guidance, or interpretations are needed to improve the

nation's environmental protection system. Where such changes can be

made under existing law, EPA will initiate the process for making the

changes--following applicable procedures. EPA and States may also

initiate policy discussions on potential statutory changes that may be

needed to enable nation-wide adoption of innovative approaches.

B. Scope of the Agreement

As used in this agreement, ``regulatory innovation'' is a broad

concept. It encompasses the process of proposing, testing, evaluating,

refining and sharing innovative approaches to environmental regulation

in order to achieve national, regional, state, tribal, and local

environmental objectives. Regulatory innovations should be more

efficient and/or provide greater environmental protection than current

approaches, foster cooperation, and include opportunities for strong

stakeholder involvement.

Many types of innovations are possible, and potential innovations

will vary in scope, complexity, ease of implementation, environmental

benefits, and other characteristics. At this point in time, it is

difficult to design a single system or process that is appropriate for

all potential innovations. Innovations should be accomplished through

the normal course of business whenever possible. This agreement

provides a clear pathway for innovative proposals that need extra

attention or are too complex to be handled through normal channels.

Proposals that are less complex can be implemented more quickly,

leading to early success, while more difficult projects will likely

need more analysis and stakeholder participation. This agreement builds

on and complements other innovation activities, but is not intended to

replace them.

III. Principles for EPA/State Regulatory Innovation

EPA and the States agree to a set of basic overarching principles

which will guide our joint regulatory innovation activities. There are

seven overarching principles relating to regulatory innovation

activities--Experimentation, Environmental Performance, Smarter

Approaches, Stakeholder Involvement, Measuring and Verifying Results,

and Accountability/Enforcement, and State-EPA Partnership.

A. Experimentation

Innovation involves change, new ideas, experimentation, and some

risk of failure. Experiments that will help us achieve environmental

goals in better ways are worth pursuing when success is clearly

defined, costs are reasonable, and environmental and public health

protections are maintained.

1. The States and EPA should recognize the value of prudent risk-

taking and value-added experiments to achieve improved results.

2. The States and EPA should seek ways to make good ideas work,

presuming that change and innovations consistent with environmental

goals are worth our investment.

3. The States and EPA should carefully monitor and manage

innovations to ensure that problems are immediately identified and

remedied. Experimentation should be based on sound judgment, reasoning

and common sense.

4. If a promising experiment encounters difficulties, but

environmental protection is not jeopardized, project sponsors should be

allowed sufficient time to fix problems before the experiment is

abandoned in favor of the traditional approach.

5. Innovations with greater potential benefits may warrant some

additional risk-taking.

6. Experimentation does not include relaxing health or

environmental standards or reducing protection of public health or the

environment.

B. Environmental Performance

Innovations must seek more efficient and/or effective ways to

achieve our environmental and programmatic goals, with the objective of

achieving a cleaner, healthier environment and promoting sustainable

ecosystems.

1. Protecting public health and the environment are the primary

goals of

[[Page 56185]]

both EPA and State environmental agencies, and we agree that

innovations can help us find cleaner, cheaper, smarter ways of

improving our nation's environment.

2. Many opportunities exist to improve environmental protection

through innovations that have the clear potential to provide

environmental and ecosystem benefits. In addition, innovations may be

designed primarily to improve the cost effectiveness of achieving

environmental goals; these projects must ensure that there is no

adverse impact on: environmental protection, public access to

information, and public access to the decision-making process.

3. For projects that have a greater uncertainty of the

environmental outcome, or that involve experimental technologies or

approaches, alternative requirements should be expected to have the

clear potential to provide increased environmental protection, promote

ecosystem sustainability, or both. EPA and the state agency, in their

best judgment and in consultation with stakeholders, will determine

whether such proposals have the clear potential to produce appropriate

gains in environmental protection, improved sustainability of the

ecosystem, or both.

4. Innovations may be designed to fit local and regional

conditions, as long as local solutions do not create environmental

problems for other localities, such as undesired downwind and

downstream effects, or undermine national standards.

5. No population group should be subjected to unjust or

disproportionate environmental impacts as a result of the innovation.

C. Smarter Approaches

To reinvent environmental regulation, regulators must be willing to

change the way we traditionally look at environmental problems and be

receptive to innovative, common sense approaches.

1. Regulators should seek creative ways to remedy environmental

problems or improve environmental protection in a community, facility,

sector or place.

2. Regulators should work with industry and communities to solve

environmental problems by removing barriers that prevent prudent,

common sense solutions.

3. Regulators should be professional, accountable and deserving of

the public's trust.

4. Regulators should seek to understand all perspectives, and help

stakeholders find common ground.

5. Regulators should act promptly to evaluate, and implement,

proposals that are straightforward, technically achievable, and have

clear advantages, while ensuring adequate public review.

D. Stakeholder Involvement

Stakeholders must have an opportunity for meaningful involvement in

the design and evaluation of innovations. Stakeholders may include

other state/local government agencies, the regulated community, citizen

organizations, environmental groups, and others. The opportunities for

stakeholder involvement should be appropriate to the type and

complexity of the innovation proposal.

1. Innovations should include opportunities for early, open, and

inclusive stakeholder involvement in project development, specifically

including those who may be affected by the decisions. Stakeholders

should be provided adequate time to review proposals and participate in

the process.

2. Consistent with the principle of providing meaningful

opportunity for stakeholder involvement, each State should have the

flexibility to use its own stakeholder participation process, as long

as applicable federal and state requirements are met or exceeded. EPA

and States will identify national program issues and ensure

opportunities for active involvement from national stakeholder groups.

3. Project proposals and the process for their consideration should

be made transparent to stakeholders so that the benefits of the

proposed change can be fully evaluated. Information needed to

understand the proposed innovation and to verify compliance and

environmental performance should be publicly available in an

understandable form. EPA and States commit to provide regular analysis

of the types of innovations implemented and their environmental

impacts.

E. Measuring and Verifying Results

Innovations must be based on agreed-upon goals and objectives with

results that can be reliably measured in order to enable regulators and

stake-holders to monitor progress, analyze results and respond

appropriately.

1. The success of innovations should be judged by the results they

achieve. Goals and objectives should be: established in advance,

measurable, and based on the desired results.

2. Results should be verifiable by reliable measurements and both

process and results should be understandable to regulators and the

public.

3. Regulators should have access to high quality information

sufficient to verify the environmental performance of an innovation.

4. Regulators and the public should have a full understanding of

the differences between the innovation and traditional approaches,

including expectations for the project, accountability for performance,

and any potential risks.

F. Accountability/Enforcement

For innovations that can be implemented within the current

regulatory framework, current systems of accountability and mechanisms

of enforcement remain in place. For innovations that involve some

degree of regulatory flexibility, innovators must be accountable to the

public, both for alternative regulatory requirements that replace

existing regulations and for meeting commitments that go beyond

compliance with current requirements. Regulators will reserve full

enforcement authority to ensure compliance with alternative regulatory

requirements, and must be willing to explore new approaches to

establish accountability for beyond-compliance commitments.

1. During the project, existing statutory and regulatory

requirements remain in effect and fully enforceable for persons or

activities not covered by the innovation project.

2. If a promising innovation project encounters difficulties, but

environmental protection is not jeopardized, flexible enforcement

responses should be used to allow project sponsors sufficient time to

fix problems before a project is abandoned in favor of the traditional

approach.

3. Regulators must have authority to address such circumstances as

imminent and substantial endangerment, actual harm, or criminal

conduct.

4. Innovations may include both: (a) Enforceable ``alternative

regulatory requirements'' that provide protection equivalent to current

environmental standards, and (b) other ``beyond-compliance

commitments'' which seek to exceed current standards or requirements.

Alternative regulatory requirements and beyond-compliance commitments

should be clearly distinguished in advance.

Alternative Regulatory Requirements:

--Alternative regulatory requirements should be enforceable with

all the remedies available under current law.

--Regulators should use enforcement discretion in choosing remedies

when a facility fails to meet alternative regulatory requirements.

--Potential responses for failure to meet such alternative

regulatory

[[Page 56186]]

requirements should be identified in advance.

Beyond-Compliance Commitments

--As part of an innovation, facilities may agree to beyond-

compliance commitments in exchange for regulatory flexibility or some

other incentive.

--Potential responses for failure to meet such beyond-compliance

commitments should be defined in advance.

--Responses for failure to meet beyond-compliance commitments

should fit the circumstances. They may include trying a different

approach, modifying the innovative approach, or reverting to the

traditional approach, but they should not include enforcement

penalties.

G. State-EPA Partnership

The States and EPA will promote innovations at all levels to

increase the efficiency and effectiveness of environmental programs. We

must work together in the design, testing, evaluation and

implementation of innovative ideas and programs, utilizing each other's

strengths to full advantage.

1. As the primary front-line managers of many environmental

protection programs, the States and local governments are a natural

laboratory for innovations. The States should manage their own

programs, adapt to local conditions, and test new approaches for

delivering more environmental protection for less.

2. The federal government should ensure good science, strong

national health and environmental standards, and should work in

partnership with the States by providing analysis, expertise, and

facilitating learning among the States. EPA should promote innovation

at all levels (national, regional, state, tribal, place-based,

community, and in the private sector). EPA retains its role to set

national standards and measures, implement programs not delegated to

states or tribes, address interstate issues, apply and interpret

national statutes and regulations, and ensure fair and effective

enforcement, thus ensuring that all States provide fundamental public

health and environmental protection.

3. EPA and State roles in innovations must be clearly designed to

utilize each party's unique strengths and avoid duplication. Decision

makers should be clearly identified.

4. Assigned roles and responsibilities should be honored and

respected, and joint problem-solving should be encouraged.

5. Communication must be open, honest, frank and frequent. The

States and EPA should work to understand each other's perspectives,

achieve consensus on major issues, make decisions in a timely manner,

and resolve conflicts quickly and efficiently.

IV. Process for Considering State Innovations Proposals

EPA and the states are engaged in many successful efforts to

reinvent environmental regulation. These efforts should continue

unimpeded. EPA and the States agree that, where procedures currently

exist, innovation proposals should be handled through normal EPA/state

program activities or other ongoing reinvention activities. Proposals

that do not fit into an existing pathway can be handled via the new

process established under this agreement.

The process of developing Performance Partnership Agreements (PPAs)

under National Environmental Performance Partnership System offers one

opportunity for States and EPA, working with stakeholders, to agree on

innovative approaches to pursue. However, participation in a PPA is not

the only avenue for States and EPA to work on innovative approaches.

Memorandum of Agreements and/or Work Plans can serve the same function

as a PPA. Inclusion of anticipated innovative approaches in the PPAs or

other agreements will allow the states and EPA to allocate staff

resources and establish priorities for innovative projects. For

example, individual states may choose to place higher priority on

innovation projects which promote clear cost or environmental benefits

for the public. It is envisioned that States will include in the PPAs

or other agreements a discussion of potential innovative activities,

indicating how the innovations link to environmental goals and

providing a picture of proposed changes.

A. Use Existing Pathways

This agreement is designed to supplement, rather than replace,

ongoing innovation activities underway in EPA and the States. Such

innovation activities should continue. State innovations that do not

require a change to Federal guidance, regulations or statutes can

proceed without EPA review. EPA's role will consist of support and

advice, if requested. EPA and States should continue to work together

on innovations that may involve using existing flexibilities in current

law and regulation, and on existing innovation programs such as Project

XL.

B. New Process Established Under This Agreement

The States and EPA agree to establish an optional process which

States may use to get timely decisions on innovation proposals. This

process includes senior-level management attention and specific time

frames to ensure prompt decisions by EPA. The following process

establishes a management framework so that actions and next steps,

along with interested participants and decision-makers, can be clearly

identified and taken into account. EPA's Regional Administrators are

responsible for ensuring that the process moves forward; individual

states are expected to establish similar senior-level points of contact

to manage the State's role in the innovation process.

This process is intended to be flexible. For example, EPA Regional

Offices, EPA Headquarters Offices, and the States are encouraged to

maintain open lines of communication at both staff and management

levels beyond the formal process described below, and states are

encouraged to invite EPA into the early discussion stages of any

project. Early consultation between EPA and the States is important in

identifying obstacles early and in determining who needs to be involved

so that the project can move forward expeditiously.

EPA will also work with individual States as needed to establish

priorities in the review of proposals based on guidance developed in

the Performance Partnership Agreement or other EPA/State agreed

mechanism. EPA and the States recognize that the success of this

process will be affected by the quality and clarity of proposals and

the effectiveness of communication between EPA, the state, and

stakeholders. The States and EPA are committed to working together to

ensure that communications are frequent, open, honest, and directed to

finding means to allow innovations to succeed.

While one of the objectives of the innovation proposals is

efficiency, the very act of designing an experiment, testing the

hypothesis, and evaluating the results may be resource intensive for

all parties. The optimum management of resources by EPA and the State

will help ensure the success of the review process, the implementation

of the projects, and adherence to time lines.

1. Stage One--Developing Quality Proposals

States and EPA recognize that clear, well-developed proposals will

facilitate review and speed decision-making.

[[Page 56187]]

States are encouraged to consult with EPA as early as possible in the

development of a proposal. The States should be able to use this early

consultation process to develop a clear understanding of their

proposals with EPA and key stakeholders.

During the early consultation, the State and EPA will identify

issues that need attention, possible barriers to implementation,

uncertainties regarding risks, and value added to all parties. These

discussions will be open and candid and will provide the States with

information that will be important and useful for the development of

the proposal. While early consultation is encouraged, not all proposals

will require the same degree of discussion and/or consultation.

EPA and States will bring a positive, constructive approach to

consideration of proposals and seek ways to help good ideas to succeed.

States will prepare proposals that: (a) Are consistent with the

principles described in this agreement, and (b) clearly present the

objective of the proposal, the expected benefits, a description of the

activities, and a determination as to whether the proposal: may require

a change to Federal guidance, policy, past practices or rule

interpretation, but not regulations or statutes; may require a change

to or waiver from Federal regulations, but not statutes; or, may

require a change to a Federal statute.

EPA will: (a) Provide clear statements of its position, along with

timely and authoritative answers to questions about what changes,

variances, or associated approvals a particular proposal may require;

and (b) work with the State to identify the most efficient path by

which a particular proposal could be implemented.

In addition, States will provide meaningful opportunities for

stakeholder involvement in the development of regulatory innovation

proposals. The degree of stakeholder involvement depends on the nature

of the proposal. Where a proposal would involve a change in or variance

from existing national guidance, regulations, or statutes, early

consultation among EPA, states, and national stakeholder groups can

help identify critical issues that need to be addressed. If EPA

believes that national stakeholder involvement is warranted, EPA will

contact the State and identify, in partnership with the State, an

approach to obtain such involvement as early in the process as

possible.

The Senior State Environmental Official or their designee then

submits a written description of the regulatory innovation proposal to

the EPA Regional Administrator, who then initiates the review process

described below. The State will designate a high-level official as the

single point of contact for each project.

2. Stage Two--Review of Proposal and Decision

a. EPA Review. The EPA Regional Office will have primary

responsibility for review of the innovation proposal. This

responsibility includes proposal distribution within the Region and to

the affected EPA National Program Managers and the Office of

Reinvention; review and response to the State; and appropriate

stakeholder involvement. In cases where national policy or regulatory

issues are involved, the Regional Administrator must ensure complete

review by relevant national program offices.

EPA will consider several factors in the review of the innovative

proposals, including

(1) Consistency with the principles in this agreement;

(2) Comments from stakeholders;

(3) Type of flexibility from federal guidance or regulation needed

to implement the proposal;

(4) Clear presentation and analysis of issues;

(5) Potential benefits of the innovation as compared to the

investment of time and resources required for implementation, and

impact on agencies' resources and workloads.

The review process is intended to be flexible. EPA and the State

should maintain open lines of communication at all levels--staff and

management--to ensure that questions and concerns are raised and

discussed. During the review process, EPA may seek input from other

States and stakeholders, including environmental groups and the

regulated community, to fully identify the strengths and weaknesses of

the proposal.

b. EPA Decision. Upon completion of the consultation and review

period, the Regional Administrator will make a decision to accept or

reject a proposal. If a proposal involves a national policy or

regulatory issue, the decision will be made jointly with relevant

National Program Managers and the Office of Reinvention. This decision

will be communicated verbally and in a written form to the designated

Senior State Environmental Official. If the proposal is not accepted,

the decision will include the rationale for the determination.

EPA and the State will determine the category into which the

proposal falls. The type of proposal will have an impact on the time

frame for implementation. The categories are:

Category 1: Straight-forward, transparent proposal with clear

advantages, few obstacles, technically achievable, and minimum

environmental risk.

Category 2: Experimental proposal that has a greater uncertainty of

environmental outcome; requires more attention to design,

implementation, and evaluation; and may involve some risk of failure.

The unpredictability of the experiment means that it will be more

resource intensive and may require more time.

Category 3: Strategic proposal that involves broad-based, new

approaches (e.g., statutory changes) and requires policy discussion to

further develop concepts. Proposals may be assigned to an existing

policy forum for discussion or a new forum could be established.

If the proposal requires changes of interpretation or substance

regarding national statutes, regulations or policies before proceeding

with an innovation project, both EPA and the State will reach agreement

on all proposed changes. These projects will be accomplished through

mechanisms available under Federal law and regulation, which may

include variances, site-specific rules, legal interpretations, or other

means.

c. Appeals. In the event that a dispute arises during this process

or a State disagrees with a Region's decision, the State may appeal in

writing to the EPA Deputy Administrator. The State may also request a

review by a panel consisting of EPA Senior Managers and State

Commissioners. The panel will review the proposal, the issues, and

merits of the dispute, and submit recommendations to the EPA Deputy

Administrator for a final decision.

4. Time Frames for Decision

EPA and the States are committed to working together to ensure

timely responses to State proposals.

a. Initial response to proposal. EPA will respond to the State with

follow-up questions, clarifications, and initial reactions including an

initial identification of obstacles to approval within four weeks of

its receipt of a written innovation proposal from the State.

b. Decision to proceed with proposal: EPA will decide whether to

make a favorable recommendation within 3 months of the receipt of a

proposal from the State. Decisions on proposals may be reached more

quickly for proposals that are straight-forward, with clear

[[Page 56188]]

advantages, widely supported, technically achievable, and implementable

in the short-term.

V. Measuring and Evaluating Success

Before an approved proposal is implemented, we must define success

and how we will measure it. This can help eliminate misunderstandings

about whether or not the process and innovation as a whole is

progressing effectively, and if it is not, what steps need to be taken

to correct any problems.

Therefore, EPA and the States agree on the importance of evaluating

the success of regulatory innovation activities that flow through the

process outlined in Section IV. The challenge is to develop useful

measures without choking the very creativity we seek to stimulate. We

want to ensure that a variety of ideas are being proposed, that

decisions are made in a timely fashion, and that the most promising

innovations are being implemented successfully. To accomplish this, we

must measure both the success of our decision-making process and the

success of the innovations themselves.

A. Measuring the Process

We must ensure that the decision making process is effective, or

the process will not be used. The success of the process depends

primarily on the effectiveness of the communications between EPA and

the States and the timeliness of decisions. Measurements include: (1)

the number and quality of innovation projects proposed, (2) the number

and quality of innovations implemented, (3) the timeliness of the

actions taken in the process, (4) the number of proposals appealed, and

(5) the speed with which information about successful innovations are

disseminated to other states. EPA and states will also evaluate other

factors that are difficult to measure but are critically important to

successful outcomes, including the degree of EPA-State cooperation and

stakeholder participation. EPA should collect this information and make

it available at a central location so it can be used by the States,

EPA, and stakeholders. Within 60 days of signing this agreement, EPA

and ECOS will designate a central location.

B. Measuring the Innovation's Impact

The success of the innovation project's impact will depend on how

well it was designed and the results achieved. Successful innovation

project designs should be clearly described so successful projects can

be used to improve the entire system, and/or adapted to other site

specific situations. The quality of the projects implemented can be

measured by: (1) Environmental impact, (2) efficiency, and (3) other

relevant indicators. In addition to providing information about the

success of an individual innovation project, these measurements also

provide guidance on improving future innovation projects. States and

EPA should agree in advance who is responsible for collecting and

disseminating this information.

The proposed measures in Appendix A provide a starting point for

discussion in terms of a framework and some common criteria for

innovations. Common criteria allow the states and EPA to evaluate the

progress in innovations state-wide and nationally.

VI. Information Sharing

Accepted state innovation proposals and completed projects are most

valuable when widely available to state and local regulators, the

regulated community, environmental organizations and the public at

large. We agree on the need to share information, track commonalities

and analyze barriers to promising state innovations. Knowledge of both

successes and failures will help the states, EPA and stakeholders

develop better approaches for achieving our environmental goals.

Because sharing information and innovative ideas among the states is

core to ECOS' mission, ECOS will set up a regulatory innovation

clearinghouse that highlights the results of this agreement and other

state/EPA innovations that EPA Regional Reinvention Ombudsmen or State

Commissioners deem appropriate.

VII. Next Steps

EPA and the States agree on the following steps to ensure prompt

implementation of the agreement:

A. Joint Evaluation

By October 1998, states and EPA will begin to evaluate the success

of regulatory activities that have been reviewed under the new process.

The evaluation will consider both the environmental and efficiency

benefits derived from each innovation, and the efficiency of the new

review process. The results of the evaluation will be shared with EPA,

the states and stakeholders.

B. Modifications to the Agreement

If the evaluation indicates a need to modify or amend this

agreement, EPA and the states agree to discuss such modifications or

amendments and make needed changes by January 1999.

Attachments:

A. Model for Core Performance Measures

B. Examples of Regulatory Innovations

Attachment A--EPA/State Environmental Regulatory Innovations Core

Performance Measures

Environmental Goal

A sustainable environment with healthy communities and

ecosystems

Environmental Objectives

--Air quality improvements

--Water quality improvements

--Land quality improvements

Program Objectives (Outcomes)

--More effective and efficient environmental regulatory systems

--Reductions in releases to the environment

--Reductions in resources expended to implement the regulatory

process, by regulators, regulated entities, other stakeholders:

time, workyears, money

--Increased stakeholder participation in the regulatory process

--Large majority of high priority, high quality innovation

projects are successfully implemented

--Successful results of innovation projects are: clearly

described, widely disseminated, adopted in other site specific

situations, used to improve entire systems

Program Activities (Outputs)

--Number of innovation projects proposed

--Number of innovation projects implemented

--Quality of projects implemented: environmental, efficiency,

other indicators

--Stakeholder participation

--Timeliness of actions taken in process

Attachment B--Examples of Regulatory Innovations

To encourage creative thinking and the development of good

regulatory innovation proposals, EPA and the States have developed

the attached examples of regulatory innovation projects. Four

examples of potential regulatory innovations are provided. Examples

1, 2 and 3 are suggestions of innovative ideas that states have

developed--they are intended to illustrate the kinds of proposals

that may be developed. These examples have not been reviewed or

accepted by EPA as projects for this process. Example 4 describes an

innovative proposal that was recently implemented in North Carolina.

Example 1: Mercury in Wastewater Effluent

Objective: Substitute sludge testing and limit requirements for

mercury in place of effluent limits and monitoring requirements in

NPDES permits for municipalities.

Description and expected benefits: Mercury cannot be detected

accurately in municipal wastewater effluent. Dilution of mercury in

effluent leads to non-detectable monitoring results. In addition,

mercury test methods at the low levels seen in municipal effluent

can easily pick up contamination of sampling and analysis and lead

to false positives. As a result, most municipalities

[[Page 56189]]

can show compliance with mercury effluent limits and need take no

steps to reduce mercury in their effluent.

This proposal would eliminate effluent limits from NPDES permits

for municipalities, and instead substitute sludge monitoring (where

mercury concentrates in the wastewater treatment process). If

mercury in sludge exceeds federal clean sludge levels,

municipalities would be required to develop mercury source reduction

programs. Since mercury can be more accurately detected in sludge,

this would lead to better targeting of the municipalities that need

to develop mercury source reduction programs.

Federal obstacle halting or hindering progress: Requires changes

in either federal statute or variance/change in federal regulations.

Attorneys state that sludge requirements as proposed cannot be tied

to surface water standards.

Additional background information: This proposal was strongly

supported by municipalities, environmental groups, Wisconsin DNR

staff, and EPA staff. All saw that this proposal would lead to

greater environmental benefits than the current NPDES system.

State: Wisconsin Department of Natural Resources, Bureau of

Watershed Management.

Example 2: Continuous Emissions Monitoring for Air Pollutants

Objective: Create a flexible approach to compliance

demonstration for air emission limits that have been consistently

achieved. In exchange, install continuous emissions monitoring for

other toxic pollutants for which more data is needed. This approach

would reward facilities which have demonstrated superior

environmental performance with simplified compliance demonstration

requirements.

Description and expected benefits:

--Federal guidance on practical enforceability requires that

compliance demonstration schemes use available technology which

produces verification of compliance data as frequently as

practically possible.

--A facility is required to use continuous emission monitors

(CEMs) to show compliance with an air emission limit. Data has been

gathered for several years and it shows consistent emission levels

at or lower than 50% of the limit. In addition, other surrogate

process parameters are continuously monitored.

--The permittee wishes to show compliance by an alternative

compliance method which requires periodic testing to assure

continued compliance. The surrogate parameters will continue to be

monitored and will be used to ensure that the operating conditions

remain within the range under which compliance has been demonstrated

by periodic testing.

--In exchange, the facility agrees to install CEM for certain

toxic organics from certain processes. The nature and levels of

these toxics are not very well defined based on mass balance

approaches. The information generated by these CEMs will be useful

for an air toxics analysis being conducted in the area.

Federal obstacle halting or hindering progress: Requires change

or deviation from established EPA policies regarding federal

enforceability as a practical matter on emission limits. However,

the demonstrated level of confidence on compliance warrants a less

rigorous approach, particularly because it includes a periodic

verification process.

Additional background information: The permittees believe that

it is important to build a trust relationship with regulators to be

able to re-direct resources to areas where the need is greater to

realize further improvements or to generate new information on

environmental matters.

State: Minnesota Pollution Control Agency, Air Quality Division,

Permits Section

Example 3: Tiered Permitting System for Hazardous Waste Facilities

Objective: Create a permitting system for hazardous waste (HW)

management facilities that are presently exempt from the existing

RCRA Part B permitting system but still pose a potential threat to

human health and the environment if improperly designed and

operated.

Description and expected benefits:

--Current RCRA regulations exempt recycling facilities from any

permitting requirements, but require a Part B permit if HW is stored

prior to recycling.

--Environmentally safe recycling is preferable to disposal and

should be encouraged.

--Recycling facilities can be as complicated as treatment and

disposal facilities and require some oversight to ensure that they

are protective of human health and the environment.

--Requiring the standard Part B permit for recycling facilities

creates a disincentive and may greatly limit the number of recycling

facilities.

--A less onerous tiered permit provides regulatory oversight and

does not pose the same disincentive as a Part B permit for recycling

facilities.

--The tiered permit incorporates performance standards and

financial assurance as appropriate and is custom tailored to the

facility without requiring all of the elaborate features of a Part B

permit.

Federal obstacle halting or hindering progress: May require a

variance from federal statutes and regulations that prescribe

standards and require a Part B permit for storage of HW depending on

what type of storage activities are covered under the tiered permit.

Additional background information: State legislation required

fluorescent lamp recyclers to be permitted. Rules are in the

development stage with extensive regulated community involvement.

The tiered permitting system will be extended to all types of HW

facilities for which a Part B permit is not required or not

appropriate, including recyclers and some types of storage

facilities.

State: Minnesota Pollution Control Agency, Hazardous Waste

Division, Regulatory Compliance Section.

Example 4: River Basin-Based Planning and Permitting

Objective: To coordinate stream modeling and permitting on a

river-basin or sub-basin scale instead of in a piecemeal fashion.

Description and expected benefits:

River-basin based planning and permitting would:

--Enable better planning and resource allocation

--Increase consistency between permits

--Increase consideration of basin-wide pollutant inputs (point

and nonpoint) for better decision-making and planning

--Improve efficiency of modeling, data collection for modeling,

and permitting activities

--Provide opportunity for greater stakeholder involvement in the

planning process

Federal statutes prohibit permits with a term greater than five

years. To synchronize NPDES permit renewal for an entire river

basin, the state had to issue five year permits followed by an

additional short-term permit. The burden on permitting and modeling

staff was further increased because EPA Region IV was also pressing

NC to address its permit backlog. The state lacked sufficient

modeling resources to address the existing backlog and also issue

short term permits in selected basins. The state proposed to reissue

the short-term permits with existing limits without modeling and to

refocus its permitting staff away from the permit backlog and toward

the basin-wide permitting approach. Region IV was hesitant to

endorse the basin-wide concept.

Contact with EPA Headquarters (Office of Water) convinced EPA to

hire a facilitator to help the state develop an implementation

strategy for the basin-wide planning and permitting approach. EPA

Headquarters also sponsored a workshop to obtain input from

surrounding states. This involvement allowed the state to develop a

convincing strategy, and subsequently, Region IV agreed to the

proposal. EPA also provided a 104(b)(3) grant to increase monitoring

and modeling in the Tar-Pamlico River Basin to help pilot the

approach.

Federal obstacle halting or hindering progress: Required change

in EPA past practice.

Additional background information: At first, permittees reacted

to the short-term permits due to the extra burden of completing

permit applications and paying application fees. However, the

concerns of permittees were quelled by pointing out the long-term

improvements in consistency among permits in the river basin and in

efficiency of issuing these permits. Environmental stakeholders were

supportive of the approach from the start due to a greater

opportunity for involvement in the planning process.

State: North Carolina.

Dated: October 16, 1997.

J. Charles Fox,

Associate Administrator, Office of Reinvention.

[FR Doc. 97-28553 Filed 10-28-97; 8:45 am]

BILLING CODE 6560-50-P