oversight

Environmental Protection: Challenges Facing EPA's Efforts to Reinvent Environmental Regulation

Published by the Government Accountability Office on 1997-07-02.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to Congressional Requesters




July 1997
                  ENVIRONMENTAL
                  PROTECTION
                  Challenges Facing
                  EPA’s Efforts to
                  Reinvent
                  Environmental
                  Regulation




GAO/RCED-97-155
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division

      B-276854

      July 2, 1997

      Congressional Requesters

      In response to your request, this report examines (1) what EPA’s reinvention initiatives are and
      how the agency is structured to carry them out and (2) what key issues need to be addressed
      for these initiatives to have their intended effect.

      As arranged with your offices, unless you publicly announce its contents earlier, we will make
      no further distribution of this report until 30 days after the date of this letter. At that time, we
      will send copies to the appropriate congressional committees; the Administrator, EPA; and the
      Director, Office of Management and Budget. We will also make copies available to others upon
      request.

      Please call me at (202) 512-4907 if you or your staff have any questions. Major contributors to
      this report are listed in appendix II.




      Peter F. Guerrero
      Director, Environmental Protection
        Issues
B-276854

List of Requesters

The Honorable John Chafee
Chairman, Committee on Environment
  and Public Works
United States Senate

The Honorable Christopher Bond
Chairman, Subcommittee on VA, HUD,
  and Independent Agencies
Committee on Appropriations
United States Senate

The Honorable Tom Bliley
Chairman, Committee on Commerce
House of Representatives

The Honorable Michael Oxley
Chairman, Subcommittee on Finance
  and Hazardous Materials
Committee on Commerce
House of Representatives

The Honorable Bud Shuster
Chairman, Committee on Transportation
  and Infrastructure
House of Representatives

The Honorable Sherwood Boehlert
Chairman, Subcommittee on Water
  Resources and Environment
Committee on Transportation
  and Infrastructure
House of Representatives

The Honorable Jerry Lewis
Chairman, Subcommittee on VA, HUD,
  and Independent Agencies
Committee on Appropriations
House of Representatives




                     Page 2             GAO/RCED-97-155 Reinventing Environmental Regulation
B-276854

The Honorable David McIntosh
Chairman, Subcommittee on National
  Economic Growth, Natural Resources,
  and Regulatory Affairs
Committee on Government Reform
  and Oversight
House of Representatives




                   Page 3               GAO/RCED-97-155 Reinventing Environmental Regulation
Executive Summary


             By most accounts, the United States has substantially improved its
Purpose      environment since the Environmental Protection Agency (EPA) was
             founded in 1970, but at a growing cost. For example, the costs of abating
             and controlling pollution rose from about $64 billion in 1973 to over
             $121 billion in 1994 (1995 dollars). EPA’s leadership notes that future
             environmental challenges will be more complicated than those of the past,
             requiring fundamentally different regulatory approaches. EPA has sought to
             meet these challenges by comprehensively reexamining and reshaping its
             efforts to protect the environment. As noted in a March 1996 report on its
             progress in “reinventing” environmental regulation, the agency is
             undertaking a number of initiatives to “. . . apply common sense, flexibility,
             and creativity in an effort to move beyond the one-size-fits-all system of
             the past and achieve the very best protection of public health and the
             environment at the least cost.”

             To better understand EPA’s initiatives and progress in implementing them,
             several congressional committees asked that GAO provide a broad
             overview of EPA’s reinvention efforts. GAO was asked to focus on (1) what
             the initiatives are and how the agency is structured to carry them out and
             (2) what key issues need to be addressed for these initiatives to have their
             intended effect.


             Since the early 1970s, EPA’s organization and approach toward
Background   environmental regulation have mirrored the statutes that authorize the
             agency’s programs. These statutes generally assign pollution control
             responsibilities according to the regulated environmental medium (such as
             water or air) or category of pollutant (such as pesticides or other chemical
             substances). As a result, the statutes have led to the creation of individual
             EPA program offices that focus on reducing pollution within the particular
             environmental medium for which each office has responsibility—rather
             than on reducing overall pollutant discharges. This structure has, among
             other problems, made it difficult for the agency to base its priorities on an
             assessment of risk across all environmental problems and to take into
             account the cost and feasibility of various approaches. The agency’s
             traditional approach toward environmental regulation has also been
             criticized as precluding innovative and more cost-effective ways to reduce
             pollution and as being inflexible in dealing with other “stakeholders” in the
             regulatory process, such as states, regulated entities, and environmental
             organizations.




             Page 4                       GAO/RCED-97-155 Reinventing Environmental Regulation
                   Executive Summary




                   EPA’s efforts to address these issues go back at least as far as the
                   mid-1980s, when then-Administrator Lee Thomas called on the agency to
                   manage its resources and activities so that they (1) account for the relative
                   risks posed by environmental problems, (2) recognize that pollution
                   control efforts in one medium can cause pollution problems in another,
                   and (3) lead to achieving measurable environmental results. Other efforts
                   have sought to involve stakeholders more collaboratively in the process,
                   calling, for example, for more negotiated rulemakings. Since that time,
                   however, GAO and other organizations have stressed the need to make
                   significantly greater progress in this direction.

                   The passage of the Government Performance and Results Act of 1993
                   strengthened EPA’s efforts to protect the environment more efficiently and
                   effectively. The Results Act requires agencies to consult with the Congress
                   and other stakeholders to clearly define their missions, establish long-term
                   strategic goals (and annual goals linked to them), and measure their
                   performance against the goals they have set. Rather than focusing on the
                   performance of prescribed tasks and processes, the statute emphasizes the
                   need for agencies to focus on and achieve measurable program results.


                   EPA maintains that its reinvention initiatives generally seek to reduce
Results in Brief   paperwork and eliminate obsolete rules; make it easier for businesses to
                   comply with environmental laws; use innovation and flexibility to achieve
                   better environmental results; and/or engage states, tribes, communities,
                   and citizens in partnerships to protect public health and the environment.
                   The agency launched a comprehensive reinvention effort in March 1995
                   with 25 “high-priority actions” and 14 “other significant actions” to expand
                   the Administrator’s ongoing efforts to improve the current regulatory
                   system and lay the groundwork for a new system of environmental
                   protection. In February 1997, the Administrator announced her decision to
                   create an Office of Reinvention, which will provide overall direction and
                   support for the agency’s reinvention initiatives and play a direct role in
                   leading certain key initiatives. In addition, (1) EPA’s program offices
                   participate in agencywide initiatives and have generated some of their
                   own, more medium-specific initiatives and (2) each of EPA’s regional
                   offices has established varied structures and strategies to implement both
                   the EPA-wide and program-specific initiatives.

                   While many of EPA’s reinvention efforts are consistent with both the
                   Results Act’s goal of focusing on achieving results and with past
                   recommendations by GAO and other organizations to achieve a more



                   Page 5                       GAO/RCED-97-155 Reinventing Environmental Regulation
                                Executive Summary




                                integrated, cost-effective approach toward environmental protection, the
                                agency faces significant challenges that must be addressed effectively if
                                reinvention is to succeed:

                            •   Key stakeholders in the reinvention process have expressed concern over
                                the large number of complex and demanding initiatives now being
                                undertaken, as well as confusion over the underlying purpose of some of
                                the agency’s major initiatives.
                            •   EPA has had difficulty achieving “buy-in” among the agency’s rank and file,
                                who have grown accustomed to prescriptive, medium-by-medium
                                regulation during the agency’s 27-year history.
                            •   The agency has had difficulty achieving agreement among external
                                stakeholders, including federal and state regulators and industry and
                                environmental organization representatives—particularly when
                                stakeholders perceive that unanimous agreement is required before
                                progress can be made.
                            •   The agency’s process for resolving miscommunication and other problems
                                involving EPA headquarters staff, regional staff, and other stakeholders
                                does not distinguish between problems that require the attention of senior
                                management and those that should be resolved at lower levels within the
                                agency.
                            •   EPA has an uneven record in evaluating the success of many of its
                                initiatives. Evaluation is needed both to show EPA management what does
                                and does not work and to provide convincing evidence to external
                                stakeholders that an alternative regulatory strategy is worth pursuing.

                                In addition, the current prescriptive, medium-specific environmental laws
                                impose requirements that have led to, and tend to reinforce, many of the
                                existing regulatory and behavioral practices that EPA is seeking to change.
                                As a consequence, the agency will be limited in its ability to “reinvent”
                                environmental regulation within this existing legislative framework.



Principal Findings

How Initiatives Are Being       The precise number of initiatives under way at EPA is difficult to establish
Implemented                     because, in addition to the 25 “high-priority actions” and 14 “other
                                significant actions” listed,1 the agency is implementing other projects with
                                reinvention-related components through its program offices and regional

                                1
                                 See app. I for a list of these initiatives, including those that EPA has identified as its “larger, more
                                cross-cutting efforts.”



                                Page 6                                   GAO/RCED-97-155 Reinventing Environmental Regulation
Executive Summary




offices. Moreover, EPA reinvention officials stressed that a major thrust of
the reinvention effort is to change the agency’s culture so that staff are
supportive of innovative approaches to environmental regulation.

While EPA has not formally set priorities among its initiatives, the agency
has clearly identified several of them as central to its efforts to reinvent
environmental regulation. Among them are (1) Project XL, which allows
individual facilities to test innovative ways of achieving environmental
protection if they can demonstrate that the proposed changes will yield
superior environmental performance, and (2) the Common Sense
Initiative, which seeks to identify innovative environmental regulatory
practices for different industrial sectors (e.g., the printing and
metal-finishing industries). In addition, the agency is seeking to improve
its working relationship with the states through its National
Environmental Performance Partnership System. This effort is viewed as
particularly significant in light of the states’ central role in directly
implementing many of EPA’s most significant regulatory programs.

EPA is implementing its key reinvention activities through both its
headquarters and its regional offices. In February 1997, the Administrator
announced her decision to create the Office of Reinvention to coordinate
the agency’s reinvention efforts and to help implement Project XL, the
Common Sense Initiative, and several other key agencywide initiatives. As
of June 1997, the exact date of this office’s establishment had not been
determined. In addition, EPA’s program offices are implementing their own,
more medium-specific initiatives. The Office of Water, for example, is
promoting “effluent trading” in watersheds, while the Office of Prevention,
Pesticides, and Toxic Substances is encouraging chemical industries to
develop more environmentally friendly practices through the Green
Chemistry Challenge. Similarly, the Office of Air and Radiation is
attempting to consolidate federal air rules for individual industries.

EPA’s regional offices work directly with regulated entities and other
parties in implementing the initiatives and are using various organizational
structures in doing so. For example, EPA’s Atlanta regional office, which
has maintained its medium-by-medium office structure, forms ad hoc
teams from these offices to implement initiatives as needed. The agency’s
Chicago office has also generally retained its medium-by-medium offices
but has drawn from these offices to form a number of more permanent
“cross-media teams” to implement initiatives. The Boston office, however,
has more fundamentally restructured its organization along the lines of its
multimedia initiatives. Thus, for example, it has replaced its



Page 7                       GAO/RCED-97-155 Reinventing Environmental Regulation
                             Executive Summary




                             medium-specific divisions with an Office of Environmental Stewardship
                             and an Office of Ecosystem Management to facilitate a more cross-cutting
                             approach to environmental management.


Issues to Address If         GAO found that while EPA has made some progress in implementing its
Reinvention Efforts Are to   reinvention initiatives, the agency still has a long way to go in resolving
Succeed                      several key issues if environmental regulation is to be truly “reinvented.”

                             Greater Focus on Key Initiatives Could Improve Prospects of Success.
                             Successful reinvention efforts require a clear understanding of an
                             organization’s mission and of how individual efforts work toward
                             achieving that mission. However, GAO’s discussions with key participants
                             in EPA’s reinvention process suggest that the large number of initiatives
                             under way may be diverting attention from high-priority efforts most in
                             line with the agency’s reinvention objectives. Specifically, officials from
                             two of the three EPA regional offices GAO visited cited the large number of
                             initiatives as a problem and indicated that setting priorities among the
                             initiatives would make the most efficient use of the agency’s resources.
                             Under the current situation, they noted, the regional offices are expected
                             to carry out reinvention activities with few resources beyond those the
                             regions receive to carry out traditional program responsibilities. Officials
                             from each of the states GAO contacted cited similar problems. The problem
                             is further compounded by confusion both within EPA and among other
                             stakeholders over the primary purpose of some of the agency’s most
                             important initiatives. An EPA-contracted analysis of the Common Sense
                             Initiative, for example, pointed to the absence of specific objectives and
                             expectations, noting that “instead of encouraging out-of-the-box thinking
                             as hoped, this has led to delays . . . as [stakeholders] tried to figure out
                             what EPA wanted or would accept instead of inventing their own priorities
                             and processes.”

                             Extent of Commitment to Reinvention Is Questioned. EPA staff and state
                             officials contacted by GAO generally agreed that EPA’s top management has
                             articulated a clear commitment to the agency’s reinvention effort.
                             However, significant disagreements have surfaced in recent months,
                             leading some key stakeholders to question EPA management’s direction in
                             reinventing environmental regulation. Notably, a recent resolution by the
                             Environmental Council of the States (which represents state
                             environmental agency leaders) expressed frustration over its recent efforts
                             to “establish a consensus framework for true environmental regulatory
                             innovation” that would identify appropriate roles and responsibilities for



                             Page 8                       GAO/RCED-97-155 Reinventing Environmental Regulation
Executive Summary




the states. At the staff level, GAO found that program and regional offices
do encourage staff, to varying degrees, to participate in reinvention
activities and that these efforts have engendered wider staff participation.
Nonetheless, all participants GAO interviewed—both inside and outside
EPA—agreed that achieving a full commitment to reinvention by the
agency’s rank and file will be difficult and will take time. One senior
program official, for example, noted that it will take time for culture
change to filter down to EPA line staff and to see if the change takes hold.

Agreement Among All Stakeholders Is Difficult to Achieve. Under EPA’s
reinvention strategy, the agency’s goal is to share information and
decision-making with all stakeholders, including those “external” to the
agency, such as state regulators and representatives of industry and
environmental organizations. Among other things, the agency hopes the
strategy will help to avert litigation by getting up-front agreement among
the affected parties and a commitment by industry representatives to meet
requirements they acknowledge to be achievable. GAO found that the
agency has, indeed, made strenuous efforts to involve stakeholders with
different interests and perspectives but that achieving and maintaining
consensus has been an enormous challenge. EPA’s greatest difficulties have
come when the agency has sought to achieve—or was perceived as
seeking to achieve—100 percent agreement. Officials from the three states
GAO contacted noted that efforts to achieve unanimous agreement have
been problematic, particularly in Common Sense Initiative negotiations.
Industry representatives agreed, some of whom have cited the problem as
a reason why they have considered terminating their participation in the
initiative.

Sustainable Process Is Needed to Resolve Problems. Some of EPA’s earlier
reinvention projects were affected by miscommunication and other
problems among the agency’s headquarters and regional offices and other
participants. For example, an XL project submitted by the 3M Company
foundered when Minnesota and 3M officials withdrew their participation
because they believed EPA headquarters and regional offices were raising
new issues late in their negotiations. To help address these kinds of
problems, the agency designated certain senior managers in
September 1996 as “reinvention ombudsmen” to respond to stakeholders’
questions and resolve problems in a timely fashion. This new process has
helped in the negotiation of recently approved XL projects, but many
stakeholders have noted that in the longer term, senior management will
not be able to intervene each time a problem arises. They cite the need for
a more sustainable process that distinguishes between problems that can



Page 9                       GAO/RCED-97-155 Reinventing Environmental Regulation
Executive Summary




be resolved at lower levels within the agency and those that require senior
management’s attention.

EPA Is Not Systematically Evaluating Initiatives’ Effectiveness. Measuring
performance allows organizations to track their progress toward achieving
their goals and gives managers crucial information needed to make
organizational and management decisions. EPA has, in fact, made some
progress in measuring the effectiveness of its reinvention initiatives. For
example, the agency hired a contractor to formally evaluate the success of
its stakeholder process. EPA also asked an advisory group to identify
criteria the agency can use to measure the progress and success of other
reinvention projects and of its overall reinvention efforts. At the same
time, officials with the agency’s Regulatory Reinvention Team
acknowledged that the agency has neither sufficient performance data nor
an evaluation component for many of its initiatives.

Stakeholders Disagree on the Need for Statutory Change. GAO found wide
disagreement over whether the current environmental statutes must be
revised for reinvention to succeed. Many state and industry officials have
cited the need for statutory revisions, both in the near term to encourage
experiments in alternative methods of achieving environmental
compliance and in the longer term to achieve a more fundamental change
in the conduct of environmental regulation. For example, after identifying
problems experienced by industry participants in some of EPA’s initiatives,
a September 1996 industry report concluded that “there is no short-cut, no
way around the difficult task of trying to legislate a better system.”
Meanwhile, EPA, supported by some in the environmental community,
maintains that the current statutory framework contains sufficient
flexibility to allow for real progress on most reinvention initiatives.

GAO  has concluded—on the basis of its past evaluations, the results to date
of EPA’s key reinvention efforts, and its contacts with a variety of
stakeholders—that constructive modifications can be made under the
current environmental statutory framework. However, the framework
does establish standards that lead to many of the existing regulatory and
behavioral practices the agency is seeking to change. Consequently, as GAO
and other organizations have noted in the past, EPA will be limited in its
ability to achieve major changes in environmental regulation within the
existing legislative framework. According to the Deputy Administrator, the
agency will reexamine this issue when it receives the recommendations of
a key advisory group (the Enterprise for the Environment) later this year.




Page 10                     GAO/RCED-97-155 Reinventing Environmental Regulation
                      Executive Summary




                      GAO   recommends that the Administrator, EPA,
Recommendations
                  •   direct the Associate Administrator, Office of Reinvention, to review the
                      agency’s reinvention initiatives to (1) determine whether there are any that
                      no longer support the agency’s overall reinvention goals and should
                      therefore be discontinued, (2) set priorities among those that will be
                      continued, and (3) issue clarifying guidance, as needed, to help ensure that
                      the specific objectives and expectations of continuing initiatives are clear
                      among stakeholders within and outside the agency;
                  •   improve the prospects for achieving consensus among concerned parties
                      in the agency’s reinvention efforts by clarifying the circumstances under
                      which unanimous agreement is required;
                  •   develop a systematic process to help resolve problems in a timely fashion
                      by identifying which kinds of problems can be resolved at lower levels
                      within the agency and which should be elevated for senior management’s
                      attention; and
                  •   direct that each of the agency’s initiatives include an evaluation
                      component that measures the extent to which that initiative has
                      accomplished its intended effect.


                      GAO  provided copies of a draft of this report to EPA for its review and
Agency Comments       comment and discussed the agency’s response with the Director of EPA’s
                      Regulatory Reinvention Team and his staff. The EPA officials said that the
                      report was balanced and addressed the most important issues facing the
                      agency’s reinvention efforts. They also expressed general agreement with
                      the report’s recommendations. The officials suggested that GAO modify its
                      recommendation to develop evaluation components for EPA’s initiatives to
                      reflect the difficulty in developing “outcome-based” measures in all cases.
                      GAO modified the wording of this recommendation to reflect this
                      suggestion.

                      The Director of the Regulatory Reinvention Team was concerned that
                      some readers might infer support on GAO’s part for changes in the
                      media-based structure of the nation’s environmental statutes, even though
                      the report did not specifically recommend such changes to facilitate
                      reinvention. He further noted that GAO’s study did not assess how changes
                      in environmental law could improve environmental protection. GAO
                      acknowledges that such an assessment was outside the scope of its
                      review, although the draft report did reflect the views of EPA officials,
                      industry and environmental groups, and other participants in the
                      environmental regulatory process on this issue. GAO also acknowledges



                      Page 11                     GAO/RCED-97-155 Reinventing Environmental Regulation
Executive Summary




that EPA, in consultation with its advisers and key stakeholders, is
ultimately responsible for assessing whether changes to environmental
statutes should be recommended to the Congress. At the same time, GAO
believes that any discussion of the issues affecting the success of
reinvention would be incomplete without mention of the inherent
limitations to fundamental change posed by the statutes’ present
medium-by-medium focus. Such limitations have been acknowledged by
EPA in past years, documented consistently by GAO and other organizations,
and cited as a key issue by the large majority of officials interviewed for
this report.

Finally, the officials suggested that the report focuses on the most visible
of EPA’s initiatives, such as Project XL and the Common Sense Initiative,
and does not sufficiently acknowledge (1) the agency’s smaller, less visible
initiatives and (2) the extent to which reinvention principles are being
applied throughout EPA’s day-to-day activities. Although GAO did not
analyze all of EPA’s reinvention initiatives in detail, focusing instead on the
efforts emphasized by the EPA and state officials contacted during GAO’s
review, the draft report acknowledged that EPA has undertaken numerous
other initiatives and listed many of them in appendix I. The draft report
cautioned against measuring the success of reinvention by the large
number of initiatives under way, noting that EPA may need to reduce the
number of initiatives to improve the prospects of success for its
highest-priority efforts. In regard to the extent that reinvention principles
are being applied throughout EPA’s day-to-day activities, chapter 3 of the
draft report had, in fact, discussed many of the agency’s efforts to instill
reinvention principles into the staffs’ day-to-day activities, emphasizing
that EPA management considers cultural change to be a major goal of its
reinvention efforts. Here, too, however, the draft report discussed the
agency’s difficulties in achieving this goal, noting in chapter 3, for
example, “widespread agreement among EPA officials, state officials, and
others that the agency has a long way to go before reinvention becomes an
integral part of its staff’s everyday activities.”

The officials’ specific comments on GAO’s conclusions and
recommendations, along with GAO’s responses, are included at the end of
chapter 3. In addition, the officials offered other corrections and
clarifications throughout the report, which were incorporated as
appropriate.




Page 12                      GAO/RCED-97-155 Reinventing Environmental Regulation
Page 13   GAO/RCED-97-155 Reinventing Environmental Regulation
Contents



Executive Summary                                                                                   4


Chapter 1                                                                                          16
                       Current Structure Limits EPA’s Flexibility                                  16
Introduction           Agency Has Tried to Address Limits of Existing Structure                    18
                       Objectives, Scope, and Methodology                                          20
                       Agency Comments                                                             21

Chapter 2                                                                                          22
                       EPA Reinvention Initiatives Cover a Broad Range of Activities               22
EPA’s Reinvention      Headquarters and Regional Offices Will Carry Out Reinvention                27
Initiatives and          Initiatives
                       Conclusions                                                                 31
Structure for
Implementing Them
Chapter 3                                                                                          32
                       Greater Focus on Key Initiatives Could Improve Prospects for                33
Issues to Address If     Success
Reinvention Efforts    Stakeholders Have Questioned EPA’s Commitment to                            37
                         Reinvention
Are to Succeed         Consensus Among All Stakeholders Is Difficult to Achieve                    41
                       EPA Is Not Systematically Evaluating Reinvention Initiatives’               47
                         Effectiveness
                       Environmental Statutory Framework Limits Potential to Reinvent              49
                         Environmental Regulation
                       Conclusions                                                                 54
                       Recommendations                                                             56
                       Agency Comments                                                             56

Appendixes             Appendix I: EPA’s Major Regulatory Reinvention Initiatives                  60
                       Appendix II: Major Contributors to This Report                              63




                       Page 14                    GAO/RCED-97-155 Reinventing Environmental Regulation
Contents




Abbreviations

CERCLA     Comprehensive Environmental Response, Compensation,
                and Liability Act
CSI        Common Sense Initiative
ECOS       Environmental Council of the States
EPA        Environmental Protection Agency
GAO        General Accounting Office
GPRA       Government Performance and Results Act
NAPA       National Academy of Public Administration
NEPPS      National Environmental Performance Partnership System
NRDC       Natural Resources Defense Council
PPG        Performance Partnership Grant
RCRA       Resources Conservation and Recovery Act
XL         Project XL


Page 15                   GAO/RCED-97-155 Reinventing Environmental Regulation
Chapter 1

Introduction


                    Substantial progress has been made in addressing the nation’s
                    environmental problems since the Environmental Protection Agency (EPA)
                    was created in 1970. Among other improvements, some of our most
                    serious air and water quality problems have been alleviated, dangerous
                    pesticides have been banned, and health threats posed by lead in gasoline
                    and paint have been reduced. However, these strides in environmental
                    protection have come to the nation at a growing cost. For example, the
                    costs of pollution abatement and control have risen significantly—from
                    $64 billion in 1973 to over $121 billion in 1994 (constant 1995 dollars).

                    EPA’s top leadership acknowledges that such resource constraints,
                    combined with (1) the increasing complexity of environmental problems
                    and (2) the limited effectiveness of EPA’s traditional medium-by-medium
                    structure to address the full spectrum of pollution problems in an
                    integrated manner, have forced the agency to fundamentally rethink its
                    approach to environmental protection. Toward this end, EPA is currently
                    experimenting with ways to improve its existing program activities and to
                    lay the groundwork for a new, more flexible, integrated system of
                    environmental protection—one that will allow the agency to deliver the
                    highest quality protection possible in the most cost-effective manner. The
                    passage of the Government Performance and Results Act of 1993 (GPRA)
                    has provided further impetus for the agency to improve its management
                    practices, in part through the requirement that it develop measurable
                    program results.

                    To better understand EPA’s initiatives and strategy to implement them,
                    several congressional committees asked that we provide a broad overview
                    of EPA’s reinvention efforts, focusing on (1) what the initiatives are and
                    how the agency is structured to carry them out and (2) what key issues
                    need to be addressed for these initiatives to have their intended effect.


                    EPA was created in 1970 under an executive reorganization plan that
Current Structure   combined various environmental components of other federal agencies.
Limits EPA’s        This left EPA without a formal overarching mission and statutory
Flexibility         framework to guide its activities. Initially, the agency was charged with the
                    general task of cleaning up environmental pollution—giving early
                    attention to air and surface water. As further environmental needs were
                    identified, the Congress enacted laws to address specific pollution
                    problems. As a result, a dozen or so statutes govern the agency’s activities,
                    and several congressional committees are responsible for environmental
                    issues. However, these statutes are not coordinated or integrated, and in



                    Page 16                      GAO/RCED-97-155 Reinventing Environmental Regulation
Chapter 1
Introduction




some cases they contain differing approaches and reflect different
philosophies. Hence, the agency has no overall system for setting priorities
across all environmental problems and for identifying and addressing the
most critical environmental needs first.

In response to these legislative mandates, EPA has organized its activities
around environmental media (such as air, water, or land) and the
substances it regulates (such as hazardous waste, pesticides, and toxic
substances)—resulting in a structure that closely parallels the statutes that
authorize its activities. Each of these program offices focuses primarily on
implementing medium-specific or substance-specific responsibilities
detailed in these statutes, rather than addressing the full range of pollution
sources in a cross-cutting manner. The agency’s medium-specific focus
can result in both the intended and unintended transfer of pollution from
one medium to another. For example, removing contaminants from public
sewage systems or industrial smokestacks can create sludge and waste
that can themselves be toxic and lead to further air, water, or land
pollution. As a result, EPA and others have acknowledged a need for
increased attention to such intermedia transfers to ensure that the
agency’s pollution reduction strategies have the best overall impact on the
environment.

While organizing EPA’s activities in this manner has facilitated the
implementation of individual environmental statutes and has reduced or
prevented many threats to human health and the environment, it has also
created problems for the agency. Most significantly, it has limited EPA’s
ability (1) to set risk-based priorities across the full spectrum of
environmental problems and target its limited resources to the most
pressing of these problems and (2) to take into account the cost and
feasibility of various approaches to reduce pollution. It has also impaired
the agency’s ability to experiment with innovative and more cost-effective
ways to address pollution problems, such as pollution prevention
(eliminating or minimizing pollution at its source versus containing it at
the end-of-the-pipe) or market-based incentives (such as taxes on
pollution or trading emission pollution “rights”). Such approaches give
polluters financial reasons to reduce pollution without prescribing the
methods for doing so. The current structure has also restricted EPA’s




Page 17                      GAO/RCED-97-155 Reinventing Environmental Regulation
                      Chapter 1
                      Introduction




                      ability to exercise flexibility with regulated entities, states, environmental
                      groups, and other stakeholders in the regulatory process.1


                      Since at least the mid-1980s, EPA has taken steps to address the problems
Agency Has Tried to   associated with its medium-specific structure. For example,
Address Limits of     then-Administrator Lee Thomas—recognizing that environmental
Existing Structure    problems are complex and interrelated—directed the agency to manage its
                      programs and activities so that they (1) account for the relative risks
                      posed by environmental problems to help ensure that limited resources
                      are directed to the most pressing environmental needs; (2) recognize that
                      pollution control efforts in one medium can result in a transfer of pollution
                      to another (and, when feasible, that pollution should be eliminated or
                      minimized at its source); and (3) lead to the achievement of measurable
                      environmental results.

                      While our 1988 general management review2 of EPA credited the agency
                      with taking steps to address these concerns, it urged the agency, among
                      other things, to (1) fill important gaps in its efforts to manage for
                      environmental results (including setting priorities in measurable terms and
                      ranking them to ensure that the most pressing needs are addressed first)
                      and (2) establish more effective partnerships with the states, since they
                      serve as the agency’s key partners in implementing environmental
                      programs. Since that time, GAO, EPA’s Science Advisory Board, the National
                      Academy of Public Administration, and other organizations have all
                      pointed to the need to make significantly greater progress in this direction.

                      In our 1991 report, Environmental Protection: Meeting Public
                      Expectations With Limited Resources (GAO/RCED-91-97), for example, we
                      noted that for EPA to achieve environmental goals with limited resources, it
                      needs to (1) link budget priorities to relative risks to the environment and
                      public health rather than rely on public perceptions of risk; (2) measure
                      changes in environmental conditions rather than measure activities (such
                      as the number of permits issued) to obtain meaningful information on the
                      effectiveness of its investments in environmental protection; and
                      (3) combine traditional and innovative approaches (such as pollution


                      1
                       For example, until recently, EPA was limited in its ability to grant states the flexibility to combine
                      grant funds authorized under separate environmental statutes (such as those set aside for cleaning up
                      air and water pollution) into one or more “consolidated” grants to address the states’ most important
                      environmental needs. These grants (authorized by the Congress in April 1996) are now a key tool for
                      the agency in providing the states with flexibility in spending federal environmental grant resources.
                      2
                      Environmental Protection Agency: Protecting Human Health and the Environment Through Improved
                      Management (GAO/RCED-88-101, Aug. 16, 1988).



                      Page 18                                GAO/RCED-97-155 Reinventing Environmental Regulation
Chapter 1
Introduction




prevention and the use of market incentives) to ensure that the most
cost-effective methods for controlling pollution are used. The report
observed, however, that EPA was hampered in setting priorities across all
environmental problems by the lack of integration among environmental
statutes.

The National Academy of Public Administration (NAPA) came to similar
conclusions in its 1995 report, Setting Priorities, Getting Results. In
particular, the report noted that EPA lacks a clear statutory mission
because it derives its authority from many different statutes. It also noted,
among other things, that the agency needs to encourage innovation among
its regulated community (localities, states, and industries) to find the most
appropriate methods for achieving environmental protection.

EPA has responded to these and similar concerns by taking a number of
steps to “reinvent” its approach to environmental protection. For example,
the agency launched its Common Sense Initiative (CSI) in 1994 to allow
industrial sectors (such as printing and metal finishing) and their key
stakeholders to work collaboratively to, among other things, (1) identify
opportunities to get better environmental results at less cost;
(2) streamline permitting, recordkeeping, and reporting requirements; and
(3) provide industry with incentives to develop innovative, cost-effective
technologies to meet or exceed environmental standards. EPA has also
increased the involvement of stakeholders in its decision-making
processes.3

More recently, in March 1995, EPA launched a more comprehensive effort
to fundamentally reexamine and reshape its efforts to protect the
environment. As noted in a March 1996 progress report on its efforts to
reinvent environmental regulation, the agency is presently undertaking a
number of initiatives to apply “. . . common sense, flexibility, and creativity
in an effort to move beyond the one-size-fits-all system of the past and
achieve the very best protection of public health and the environment at
the least cost.”




3
 This effort is in keeping with Executive Order 12866 (Sept. 1993), which directed federal regulatory
agencies to consider the use of consensual mechanisms (such as negotiated rulemaking) when
developing regulations.



Page 19                                GAO/RCED-97-155 Reinventing Environmental Regulation
                             Chapter 1
                             Introduction




Government Performance       The provisions of GPRA, also known as “the Results Act,” are consistent
and Results Act Requires a   with the principles of reinvention and reinforce many of EPA’s reinvention
Focus on Measurable          efforts. One key provision requires EPA and other agencies to (1) consult
                             with the Congress and other stakeholders to clearly define their missions,
Results                      (2) establish long-term strategic goals and annual goals that are linked to
                             them, and (3) evaluate their performance on the basis of the goals they
                             have set and report on their success. Rather than focusing on the
                             performance of prescribed tasks and processes, the statute emphasizes the
                             need for agencies to focus on and achieve measurable program results.


                             To address questions about EPA’s current efforts to reinvent environmental
Objectives, Scope,           regulation, a number of committees asked that we provide information on
and Methodology              (1) what the agency’s reinvention initiatives are and how the agency is
                             structured to carry them out and (2) what key issues need to be addressed
                             for these initiatives to have their intended effect.

                             In addressing the first objective, we interviewed EPA officials responsible
                             for the agency’s reinvention efforts, including the Deputy Administrator,
                             the designated Associate Administrator of the future Office of Reinvention,
                             and members of EPA’s Regulatory Reinvention Team. We also interviewed
                             officials in selected EPA program offices (such as the Office of Water; the
                             Office of Prevention, Pesticides, and Toxic Substances; and the Office of
                             Air and Radiation) to better understand how these offices were structured
                             to implement both agencywide and program-specific reinvention
                             initiatives. Following our initial contacts with headquarters officials, we
                             visited three EPA regional offices—in Atlanta, Boston, and Chicago—to
                             obtain insights into how the agency’s regional offices are structured to
                             carry out the agency’s reinvention efforts. These offices were suggested to
                             us by headquarters officials because they had experience in implementing
                             some of the agency’s key initiatives. The issues discussed with the
                             headquarters and regional officials included (1) EPA’s reinvention
                             philosophy and goals, (2) details on key agencywide and program-specific
                             initiatives, and (3) the agency’s structure for carrying out these initiatives
                             (both at headquarters and among the regional offices).

                             In addressing the second objective, we asked the same EPA officials
                             questions about the challenges facing the agency in achieving its
                             reinvention goals. Our questions focused largely on efforts by the agency
                             to communicate its goals for change to its staff and to external
                             stakeholders, its efforts to systematically evaluate the success of its
                             activities, and other issues that are widely viewed among management



                             Page 20                      GAO/RCED-97-155 Reinventing Environmental Regulation
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                  Introduction




                  experts as essential ingredients in successfully achieving desired
                  organizational change. We also posed these questions to other key
                  stakeholders, including state environmental officials in Georgia,
                  Massachusetts, and Minnesota (because of their association with the three
                  regions we visited and their involvement with key reinvention efforts), key
                  national environmental and industry organizations (such as the Sierra
                  Club, the Natural Resources Defense Council, the Environmental Law
                  Institute, and the American Petroleum Institute, among others), and other
                  organizations familiar with EPA’s reinvention efforts, such as Resources for
                  the Future and NAPA.

                  Through these contacts, we identified specific projects to examine in more
                  detail in order to gain a fuller understanding of the issues and challenges
                  involved in applying reinvention principles and programs. In these
                  instances, we contacted industry participants, as well as other
                  stakeholders in these projects (e.g., representatives of environmental
                  groups and state regulatory officials).

                  We conducted our work from October 1996 through May 1997 in
                  accordance with generally accepted government auditing standards.


                  We provided copies of a draft of this report to EPA for its review. GAO staff
Agency Comments   discussed EPA’s reaction with officials from the Office of the Deputy
                  Administrator’s Regulatory Reinvention Team. Their comments, and GAO’s
                  response, are discussed at the end of chapter 3.




                  Page 21                      GAO/RCED-97-155 Reinventing Environmental Regulation
Chapter 2

EPA’s Reinvention Initiatives and Structure
for Implementing Them

                      EPA maintains that it is seeking, through reinvention efforts, to
                      fundamentally reexamine and reshape its approach to protecting the
                      environment. According to the agency, these efforts will (1) achieve better
                      environmental results through the use of innovative and flexible
                      approaches to environmental protection; (2) encourage states, tribes,
                      communities, and citizens to share in environmental decision-making;
                      (3) make it easier for businesses to comply with environmental laws by
                      offering them compliance assistance and incentives to prevent pollution at
                      its source; and (4) eliminate unnecessary paperwork.

                      To achieve changes of this magnitude, EPA is implementing a range of
                      specific initiatives addressing one or more of these overall objectives. The
                      Administrator recently announced her decision to create the Office of
                      Reinvention to provide overall direction and support for the agency’s
                      reinvention efforts and to lead certain key initiatives. In addition, (1) EPA’s
                      program offices participate in agencywide initiatives and have generated
                      some of their own medium-specific initiatives and (2) each of EPA’s
                      regional offices has established varied structures and strategies to
                      implement both the EPA-wide and program-specific initiatives. Reinvention
                      “ombudsmen” have also been identified in the agency’s program and
                      regional offices to focus senior management’s attention on
                      reinvention-related issues.


                      In March 1995, EPA announced 25 “high-priority actions” and 14 “other
EPA Reinvention       significant actions” aimed at improving the current regulatory system and
Initiatives Cover a   laying the groundwork for a new system of environmental protection.1
Broad Range of        However, the precise number of initiatives is difficult to establish because,
                      in addition to these 39 efforts, the agency is implementing less centralized
Activities            projects through its program offices and regional offices. These projects
                      have either a reinvention focus or reinvention-related components. For
                      example, EPA’s Boston regional office has initiated its own
                      reinvention-specific activities (including a database to track the progress
                      of its reinvention activities) and other efforts that have reinvention-related
                      elements (such as integrating environmental considerations into
                      transportation planning). Similarly, EPA’s program offices have initiated
                      their own medium-specific reinvention efforts, such as the Office of
                      Water’s efforts to improve the nation’s water quality monitoring
                      information through strategies and recommendations developed by an
                      intergovernmental task force. In addition, a senior regional official told us

                      1
                       See app. I for a list of these initiatives, including those that EPA has identified as its “larger, more
                      cross-cutting efforts.”



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                        for Implementing Them




                        that it is difficult to determine the universe of reinvention initiatives
                        because many of the innovative practices being undertaken in different
                        parts of the agency have been under way for years but are not necessarily
                        tied directly to the 39 initiatives formally identified as “reinvention”
                        initiatives.


EPA’s Key Reinvention   While EPA has not formally set priorities among its initiatives, the agency
Initiatives             has clearly identified several initiatives as central to its efforts to reinvent
                        environmental regulation. According to EPA, Project XL and the Common
                        Sense Initiative (CSI) are the cornerstones of EPA’s central objective of
                        working with industry to “. . . achieve the very best protection of public
                        health and the environment at the least cost.” In addition, the agency is
                        seeking to significantly improve its working relationship with the states
                        through its National Environmental Performance Partnership System
                        (NEPPS). This effort is viewed as particularly important in light of the
                        states’ central role in directly implementing many of EPA’s most significant
                        regulatory programs.

Project XL              The President announced Project XL in March 1995, noting that “this
                        program will give a limited number of responsible companies the
                        opportunity to demonstrate excellence and leadership. They will be given
                        the flexibility to develop alternative strategies that will replace current
                        regulatory requirements, while producing even greater environmental
                        benefits”.2 According to EPA, the project was created in response to the
                        concerns expressed by numerous companies, facility managers, and
                        communities that current applications of environmental rules do not
                        necessarily provide the best possible environmental protection at the least
                        cost. Further impetus was given by the experiences of some in the
                        regulated community, who found that they could achieve substantial cost
                        savings and improve environmental protection through more flexible,
                        site-specific solutions to environmental protection.

                        Under Project XL, EPA allows companies to test innovative ways of
                        achieving environmental protection at both the facility and the community
                        levels if they can demonstrate that the proposed changes will yield
                        superior environmental performance. This requires applicants to achieve
                        results superior to the level of environmental performance that would
                        have occurred without XL. To test such innovative approaches, project

                        2
                         Project XL (which stands for Excellence and Leadership) conducts projects in four areas:
                        (1) corporate facilities, (2) industrial sectors, (3) federal facilities, and (4) communities. Recognizing
                        that community-based projects differ substantially from other types of XL projects, EPA issued
                        separate guidelines for communities in November 1995.



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                          EPA’s Reinvention Initiatives and Structure
                          for Implementing Them




                          sponsors collaborate with key stakeholders (including communities
                          located near a project, state and local governments, and environmental
                          and other public interest groups, among others) to develop project
                          proposals. These proposals culminate in Final Project agreements that
                          must be approved by EPA, the state environmental agency, and the project
                          sponsor in order to be implemented.3

                          For example, a Final Project Agreement signed last year with Intel
                          Corporation for its manufacturing site in Chandler, Arizona, includes a
                          number of innovative features through which the company agreed to
                          comply with all statutory and regulatory requirements (but to achieve
                          them more effectively) and to go beyond current requirements to improve
                          its overall environmental performance. In return, the agreement gives Intel
                          the flexibility to (1) implement a sitewide environmental master plan that
                          integrates both mandatory and voluntary environmental undertakings
                          across all media—air, water, solid waste, and hazardous waste—rather
                          than operating strictly under separate medium-specific permits;
                          (2) develop new procedures that will reduce paperwork and other
                          procedural burdens; and (3) operate under a streamlined air permitting
                          strategy that gives the company “preapproval” to add new
                          semiconductor-related facilities as long as the facilities do not exceed
                          emission limits or fail to comply with other specified requirements (such
                          as those for reporting). In addition, Intel agreed to report its progress
                          (using nonproprietary information) to the public in a consolidated,
                          user-friendly format to allow the public to track the company’s progress in
                          meeting the goals established for each medium.

                          Working with corporations and key stakeholders (including states,
                          localities, and environmental groups), EPA has also approved Project XL
                          agreements with Berry Corporation in LaBelle, Florida, to consolidate its
                          citrus juice manufacturing operations under a comprehensive single
                          multimedia permit, and with Weyerhaeuser Corporation, to reduce the
                          overall impact on the environment of its mill operations in Flint River,
                          Georgia.

Common Sense Initiative   The EPA Administrator launched CSI in July 1994, as a way to bring
                          government officials at all levels, environmentalists, and industry leaders
                          together to create industry-by-industry strategies that will work toward

                          3
                           While a Final Project Agreement is, at a minimum, signed by EPA, the state environmental agency,
                          and the project sponsor, it does not (1) contain legal rights or obligations; (2) serve as a contract or a
                          regulatory action, such as a permit or rule; or (3) represent a legally binding commitment on any party.
                          However, according to a notice issued by EPA in April 1997, future XL projects will have an
                          enforceable component, described in the Final Project Agreement, but also contained in a legally
                          binding document (such as a permit, rulemaking or administrative order).



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                           “cleaner, cheaper, and smarter” ways to achieve environmental protection
                           through consensus-based decision-making. CSI is similar to Project XL in
                           that both initiatives attempt to reduce pollution in the most cost-effective
                           manner. However, their approaches are somewhat different—Project XL is
                           currently focused on protecting the environment at individual facilities
                           and involves stakeholders in a relatively informal process to approve
                           facility-specific proposals for operating flexibility, while CSI centers on
                           particular industrial sectors and involves stakeholders in a formal
                           negotiation process.4

                           EPA has convened representatives from both its program and its regional
                           offices, six pilot industries (automobile manufacturing, computers and
                           electronics, iron and steel, metal finishing, petroleum refining, and
                           printing), and key stakeholders (including governmental entities, industry,
                           labor, environmental groups, and environmental justice and community
                           organizations) to review environmental requirements for each of these
                           pilot industries. According to the operating principles developed by EPA for
                           the CSI Council and its related subcommittees, “the purpose of the [CSI]
                           Council and industry-focused Subcommittees is to hold meetings, analyze
                           issues, conduct reviews, perform studies and projects to develop
                           recommendations for administrative, regulatory, and statutory changes
                           and carry out other related activities.” Subcommittees gather information
                           in support of a given recommendation primarily through pilot projects to
                           determine whether a proposal is worthy of being elevated to the full
                           Council for approval and subsequent submission to EPA in the form of a
                           recommendation.

Performance Partnerships   As noted in our 1995 report entitled EPA and the States: Environmental
                           Challenges Require a Better Working Relationship (GAO/RCED-95-64, Apr. 3,
                           1995), EPA has had long-standing difficulties in establishing effective
                           partnerships with the states. Among the key issues affecting EPA-state
                           relationships are concerns that EPA (1) is inconsistent in its oversight
                           across regions, (2) sometimes micromanages state programs, (3) does not
                           provide sufficient technical support for state programs’ increasingly
                           complex requirements, and (4) often does not adequately consult the
                           states before making key decisions affecting them.




                           4
                            The Common Sense Initiative Council (established within EPA in October 1994 as the agency’s
                           national advisory committee for formulating recommendations and advice on the nation’s pollution
                           control and prevention programs relating to industrial sectors) was directed by EPA to operate by
                           consensus decision-making. In contrast, recognizing that XL projects and the circumstances that affect
                           them differ, EPA has not prescribed a single model for involving stakeholders in developing projects.



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                            for Implementing Them




                            In establishing the National Environmental Performance Partnership
                            System (NEPPS) in May 1995, the Administrator and leaders of state
                            environmental programs indicated they were seeking to

                            “. . . strengthen our protection of public health and the environment by directing scarce
                            public resources toward improving environmental results, allowing states greater flexibility
                            to achieve those results, and enhancing our accountability to the public and taxpayers.
                            [We] believe that this new environmental performance system will achieve more integrated
                            environmental management, promote pollution prevention, and enhance environmental
                            results.”


                            A key element of the partnership system is the agency’s commitment to
                            give states with strong environmental performance greater flexibility and
                            autonomy in running their environmental programs.

                            While NEPPS provides the overarching framework for developing
                            partnership agreements, the Performance Partnership Grants (PPG)
                            program, authorized by the Congress in April 1996, serves as a major tool
                            for implementing them. This program allows eligible states and tribes to
                            request that funds from two or more categorical grants (such as those
                            authorized under the Clean Water Act or those used to implement the
                            Clean Air Act Amendments) be combined into one or more grants to give
                            governmental entities greater flexibility in targeting limited resources to
                            their most pressing environmental needs. These grants are also intended
                            to be used to better coordinate existing activities across environmental
                            media and to develop multimedia programs.

                            As of April 1997, EPA had signed performance partnership agreements with
                            27 states and environmental performance partnership grants with 21
                            states.5



Achieving Cultural Change   While EPA has cited Project XL, CSI, NEPPS, and other initiatives as tangible
                            efforts to reinvent environmental regulation, agency officials stress that
                            reinvention is more than a collection of individual projects. They
                            emphasize that reinvention reflects a new philosophy that will require a
                            significant cultural change across the agency—shifting its orientation from
                            the traditional command-and-control, medium-by-medium focus toward a
                            new, more integrated system that targets the most serious environmental
                            problems and then seeks to address them in the most efficient manner.

                            5
                             There are three categories of performance partnership grants—environmental, health, and
                            agricultural. In addition to the 21 environmental grants, as of April 1997, EPA had signed 2 health and
                            13 agricultural grants.



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                             They stress that this new philosophy will need to filter down to the
                             program level until it is ingrained in the day-to-day activities of the
                             agency’s line staff, and they caution that such a fundamental change will
                             take time.


                             EPA is implementing its reinvention initiatives through both its
Headquarters and             headquarters program offices and regional offices. At headquarters, some
Regional Offices Will        of the initiatives are coordinated agencywide, while other, more
Carry Out Reinvention        medium-specific activities are being led by the Office of Water, Office of
                             Air and Radiation, and other program offices. The recently announced
Initiatives                  Office of Reinvention, to be located in the Office of the Administrator, will
                             provide overall direction and support for reinvention activities and play a
                             direct role in leading some of the agency’s key initiatives.

                             EPA’s regional offices also participate in agencywide and program-specific
                             initiatives and, in some cases, have initiated their own reinvention-related
                             efforts. Our visits to 3 of EPA’s 10 regions identified somewhat different
                             structures and approaches for carrying out the agency’s reinvention
                             efforts.

                             To further support reinvention activities, EPA has also created a position
                             for an ombudsman (at the senior management level) in each program and
                             regional office. These officials are charged, among other things, with
                             ensuring the quick resolution of reinvention-related issues that arise both
                             inside and outside the agency.


EPA Headquarters             In February 1997, the Administrator announced EPA’s plans to establish an
Structure for Implementing   Office of Reinvention, to be located in the Office of the Administrator. This
Reinvention                  office will provide direction and leadership for the agency’s reinvention
                             activities and take the lead responsibility for implementing some of EPA’s
                             core initiatives, such as CSI and Project XL.6 The Administrator decided that
                             a formal structure was needed to provide effective coordination of
                             reinvention activities across the agency, including improved
                             communication among staff working on separate key reinvention efforts.
                             The agency is currently drafting a proposal that will, among other things,
                             outline the functions and responsibilities of this office and determine how
                             its work will be coordinated with that of other EPA offices and reinvention
                             efforts that fall outside its immediate purview.


                             6
                              As of June 1997, the exact date for establishing the Office of Reinvention had not been determined.



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                            EPA’s program offices participate in both agencywide reinvention efforts,
                            as needed, and their own, more medium-specific efforts. For example, a
                            program office may be called upon to review the program-specific
                            elements of a Project XL proposal for which it has responsibility and/or
                            work with a regulated entity to determine whether its request for
                            flexibility can be accommodated. This type of review is especially
                            important when a project proposal has the potential to set a national
                            precedent. For example, such reviews were required by EPA’s Office of
                            General Counsel and Office of Air and Radiation when a Project XL
                            proposal by the 3M Company requested major deviations from the Clean
                            Air Act’s requirements.7

                            Program offices also have the lead responsibility for high-priority,
                            medium-specific reinvention efforts. For example, the Office of Water is in
                            charge of one of the agency’s 25 “high-priority actions” to promote effluent
                            trading in watersheds on a national level to encourage cost-effective
                            reductions in water pollution. Similarly, the Office of Air and Radiation is
                            participating in another high-priority effort to consolidate all federal air
                            rules for a given industry into a single rule and, in turn, to streamline the
                            requirements for emission limits, monitoring, recordkeeping, and
                            reporting. Other medium-specific activities include the Design for the
                            Environment—Green Chemistry Challenge Program. Through this
                            program, the Office of Prevention, Pesticides, and Toxic Substances
                            recognizes outstanding accomplishments by industries—large and
                            small—and academic institutions in designing “environmentally friendly”
                            chemicals and processes (such as replacing traditional solvents used in a
                            manufacturing process with alternatives that pollute less).


Regional Offices’           EPA’s regional offices participate in the agencywide and program offices’
Structures and Strategies   reinvention initiatives (as well as their own reinvention-related efforts),
for Implementing            working as needed with regulated entities, other external stakeholders,
                            and EPA headquarters staff. Over the past 2 years, EPA has given its regional
Initiatives                 offices broad latitude to restructure their operations in order to
                            experiment with integrating activities across environmental media. Among
                            the three regional offices we visited, we found considerable variation in
                            the choice of structure—a decision that has a direct impact on each
                            office’s implementation of reinvention activities.




                            7
                             Ultimately, this proposal was withdrawn by the 3M Company and Minnesota, in part because of
                            unresolved differences over the flexibilities that 3M had requested.



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for Implementing Them




Atlanta Office (Region 4): EPA’s Atlanta office has maintained a traditional
medium-by-medium program structure and carries out its reinvention
initiatives through ad hoc, multimedia teams with part-time, voluntary
membership. According to the Deputy Regional Administrator, the office
has only one full-time staff dedicated to reinvention efforts—specifically,
Project XL—in part because it has found that spreading the workload for
reinvention efforts out among its staff has allowed it to participate in
reinvention while also allowing it to fulfill its traditional program
responsibilities. While the Atlanta office has not formally revised its
appraisal system to encourage staff to become involved in reinvention
activities, staff are informally encouraged to participate through the
region’s awards program.

Chicago (Region 5): The agency’s Chicago office has also largely retained
its traditional, medium-specific organizational structure but has
established (1) a new Office of Strategic Environmental Analysis to,
among other things, oversee regulatory reinvention for the region and
(2) more permanent cross-cutting teams to carry out reinvention activities.
The cross-cutting teams draw upon the expertise of the region’s program
office staff, as needed, to implement reinvention activities. In addition, the
region has 10 geographical place-based teams that have some involvement
in reinvention efforts. These teams were created to address the most
critical needs of 10 principal places (such as the Great Lakes, the upper
Mississippi River, and northwest Indiana) where the environmental
stresses are so great that concentrated efforts are needed to restore
resources and improve the quality of life. Regional officials said that
reinvention has not been formally integrated into the region’s performance
appraisal system but that some managers do include this type of
information in staff performance appraisals.

Boston (Region 1): EPA’s Boston office undertook the most fundamental
reorganization of its activities by adopting a structure that integrates all
media activities into a cross-cutting framework. For example, it replaced
traditional program offices (e.g., air and water) with five new major
divisions: (1) an Office of Environmental Stewardship to carry out
enforcement, compliance assistance, and pollution prevention activities;
(2) an Office of Ecosystem Management, which has established
cross-cutting teams for each state in the region to facilitate a holistic
approach to environmental protection, to develop environmental
standards and goals and to build the capacity of states and localities to
implement them; (3) an Office of Site Restoration and Revitalization to
meet requirements under the Resource Conservation and Recovery Act



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                            (RCRA) and the Comprehensive Environmental Response, Compensation,
                            and Liability Act of 1980 (CERCLA) and to implement related reinvention
                            activities; (4) an Office of Environmental Measurement and Evaluation to
                            provide the infrastructure to measure environmental results; and (5) an
                            Office of Management and Budget to provide workforce support. This new
                            organization was designed to give the region more flexibility in solving
                            complex environmental problems and in integrating its activities across
                            environmental media.

                            In conjunction with this restructuring, responsibility for implementing
                            reinvention activities has been integrated into these new offices and, as
                            appropriate, incorporated into the routine responsibilities of regional staff.
                            In turn, regional staff are held accountable for their contributions to
                            reinvention efforts through the region’s performance appraisal system.
                            According to the Boston office’s Reinvention Ombudsman, the office
                            currently has over 40 full-time-equivalent staff dedicated to
                            reinvention-related activities and has developed a computer tracking
                            system to monitor the office’s progress in implementing them.


Reinvention Ombudsmen       EPA recently designated certain high-level managers as “reinvention
Designated to Assist With   ombudsmen” in its national program offices and regional offices. These
Implementation              individuals serve as senior management points of contact for
                            reinvention-related matters both inside and outside the agency—especially
                            those involving significant policy or legal matters. This action was
                            prompted by lessons learned during early reinvention efforts—specifically,
                            that the active involvement of senior EPA management enhances the
                            likelihood that these efforts will be successful. In a September 1996
                            memorandum to EPA senior managers, the Deputy Administrator directed
                            each regional office and national program office to designate a reinvention
                            ombudsman to ensure that (1) significant legal and policy issues are
                            brought to the appropriate management level for timely resolution; (2) all
                            stakeholders have easy access to the information and issues being
                            reviewed and stakeholders’ involvement is structured to ensure
                            meaningful input; and (3) entities seeking to participate in EPA’s
                            reinvention efforts receive timely answers to their applications, questions,
                            and requests. The Deputy Administrator asked that these reinvention
                            ombudsmen give “special emphasis” to facilitating Project XL agreements.

                            In addition, the memorandum set out separate but related responsibilities
                            for reinvention ombudsmen in the regional and national program offices.
                            For example, regional reinvention ombudsmen were given the lead



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              responsibility for facilitating site-specific projects; ensuring timely and
              authoritative responses to inquiries from external stakeholders (such as
              states, businesses, and environmental groups); and coordinating efforts, as
              necessary, with senior program officials in headquarters. Reinvention
              ombudsmen in the agency’s national program offices were directed to take
              responsibility for reinvention activities that involve national precedents
              and/or multimedia issues and, when necessary, work with their regional
              counterparts to resolve medium-specific issues. He stressed that this new
              structure was intended to improve coordination, not to replace the
              agency’s existing decision-making framework.


              EPA’s effort to achieve a more flexible, integrated, and cost-effective
Conclusions   approach toward environmental management represents a major
              transition for an agency that has focused, since its inception in 1970,
              primarily on a medium-specific, command-and-control approach. In recent
              months, EPA has responded organizationally in a manner that seeks to
              provide greater visibility for, and improved coordination of, its reinvention
              initiatives. Among the most notable of these measures was the agency’s
              decision to create an Office of Reinvention, both to coordinate agencywide
              initiatives and to provide direct leadership for some of EPA’s key initiatives.

              Given the fundamental changes being sought by the agency, further
              organizational changes, both at headquarters and among the regional
              offices, seem probable as EPA gains more experience with reinvention.
              Achieving the most appropriate organizational structure, however, is but
              one challenge facing EPA. Other key challenges are discussed in chapter 3.




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                  Many of EPA’s reinvention efforts are consistent with GPRA’s goal of
                  focusing on achieving results, as well as with the recommendations of GAO
                  and other organizations to achieve a more integrated, cost-effective
                  approach toward environmental protection. Two of the agency’s initiatives
                  in particular, Project XL and the Common Sense Initiative, seek to provide
                  industries with substantially greater regulatory flexibility in order to find
                  the cheapest, most efficient way to comply with environmental
                  regulations. However, our contacts with EPA headquarters and regional
                  staff; state, industry and environmental organization officials; and other
                  stakeholders in the environmental regulatory process—together with the
                  experiences of other organizations that have attempted to achieve
                  fundamental change—suggest that the agency faces significant hurdles
                  that must be addressed effectively if reinvention is to succeed:

              •   Key stakeholders in the reinvention process have expressed concern over
                  the large number of complex and demanding initiatives currently being
                  undertaken, as well as confusion over the underlying purpose of some of
                  the agency’s major initiatives.
              •   EPA has had difficulty achieving “buy-in” among the agency’s rank and file,
                  which have grown accustomed to prescriptive, medium-by-medium
                  regulation during the agency’s 27-year history.
              •   The agency has had difficulty achieving agreement among external
                  stakeholders, including federal and state regulators and industry and
                  environmental organization representatives—particularly when
                  stakeholders perceive that unanimous agreement is required before
                  progress can be made.
              •   The agency’s process for resolving miscommunication and other problems
                  involving EPA headquarters staff, regional staff, and other stakeholders
                  does not distinguish between problems that require the attention of senior
                  management and those that should be resolved at lower levels within the
                  agency.
              •   EPA has an uneven record in evaluating the success of many of its
                  initiatives. Evaluation is needed both to show EPA management what does
                  and does not work and to provide convincing evidence to external
                  stakeholders that an alternative regulatory strategy is worth pursuing.

                  In addition, the current prescriptive, medium-specific environmental laws
                  impose requirements that have led to and tend to reinforce many of the
                  existing regulatory and behavioral practices that EPA is seeking to change.
                  As a consequence, the agency will be limited in its ability to truly
                  “reinvent” environmental regulation within this existing legislative
                  framework.



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                              Most of the headquarters and regional officials we interviewed cited the
Greater Focus on Key          large number of individual initiatives under way, coupled with limitations
Initiatives Could             on the agency’s resources, as a key issue to be resolved as EPA moves
Improve Prospects for         forward with reinvention. We also found that progress on some of EPA’s
                              high-priority initiatives has been impeded by unclear objectives and/or
Success                       guidance.


Large Number of Initiatives   Literature on organizational reinvention and reengineering stress that an
May Be Diverting Attention    organization needs to have a strong focus and a clear vision of what it is
From High-Priority Efforts    trying to achieve. A June 1996 GAO report examining federal management
                              reforms under the Results Act notes that an organization brings its efforts
                              into focus through a clear understanding of how individual efforts will
                              support the organization’s overall mission.1 A 1994 report by the Brookings
                              Institution states, in particular, that government reform efforts should
                              “focus . . . on results and avoid having the reform spin off into scores of
                              different, unconnected directions.”2 Our interviews suggest that while
                              many of EPA’s initiatives are, in fact, in line with the agency’s goal of
                              “achieving the very best protection of public health and the environment at
                              the least cost,” it may be appropriate at this time for EPA to reexamine
                              whether all the initiatives now under way are directly linked with this
                              basic mission.

                              Officials from two of the three EPA regional offices we visited cited the
                              large number of initiatives as a problem and indicated that setting
                              priorities among the initiatives would make the most efficient use of the
                              agency’s resources. Currently, they noted, the regional offices are
                              expected to carry out reinvention activities with few resources beyond
                              those the regions receive to carry out traditional program responsibilities.
                              For example, according to the Director of the Office of Strategic
                              Environmental Analysis in EPA’s Chicago office, the office has 17 teams
                              dealing with various reinvention-related efforts, including sustainable
                              development, enforcement and compliance, emissions testing,
                              brownfields,3 and data management. Regional officials said that although


                              1
                               Executive Guide: Effectively Implementing the Government Performance and Results Act
                              (GAO/GGD-96-118, June 1996).
                              2
                                Donald F. Kettl, Reinventing Government? Appraising the National Performance Review, Brookings
                              Institution, Center for Public Management (Aug. 19, 1994), p. viii.
                              3
                               Brownfields are abandoned, idled, or unused industrial and commercial facilities where expansion or
                              redevelopment is complicated by real or perceived environmental contamination. Under the
                              Brownfields Initiative, EPA is working with states, cities, community representatives, and other
                              stakeholders to overcome barriers to assessing, cleaning up, and redeveloping brownfields.



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all of these are worthwhile, the office must face the reality that resources
are limited and are already stretched too thin.

Similarly, one of the two Deputy Regional Administrators in EPA’s Boston
office said that staff in that office are already being pushed beyond their
limits because they are doing both traditional and reinvention activities.
This official observed that some of the agency’s initiatives are extensions
of efforts that are about 15 years old and suggested that the agency review
all of its reinvention-related initiatives and eliminate those that are no
longer a priority. The Deputy Regional Administrator in EPA’s Atlanta office
agreed that it is difficult for staff to perform all traditional and reinvention
activities with the limited resources available but said that he was
responsible as a senior manager for making trade-off decisions under such
circumstances.

Other stakeholders interviewed by GAO echoed the concerns of the Boston
and Chicago officials about the number of reinvention initiatives under
way. Among them were the Commissioner of the Minnesota Pollution
Control Agency, who told us that addressing the problem could help EPA
better track and implement the initiatives that it considers the most
important. He suggested that the head of EPA’s future Office of Reinvention
take on this responsibility. In a similar vein, a representative of the
National Governors’ Association said that state officials have complained
that they are having difficulty managing the large number of initiatives. A
representative of Resources for the Future, a research group that has
examined EPA’s reinvention efforts, also questioned the value of supporting
the current number of initiatives.4

EPA officials, including the agency’s Deputy Administrator, noted that the
agency has no specific plans to systematically review and prioritize its
reinvention initiatives. The Deputy Administrator said he agreed that
decisions should be made periodically over which initiatives should be
undertaken and continued. However, rather than being performed as a
single event, he maintained, these decisions should be part of an iterative
process that takes into account the results of evaluations of the initiatives’
success. He echoed the Minnesota commissioner’s view that such a



4
 The Keystone Center—a nonprofit public policy and educational organization—issued a report in
May 1997 entitled Regulatory Reinvention Assessment: Summary of Stakeholder Comments, which
reported similar findings. The report, prepared for EPA’s Regulatory Reinvention Team, summarized
comments by 20 external stakeholders or organizations and more than a dozen EPA staff on various
regulatory reinvention topics. Stakeholders representing both EPA and industry suggested that EPA
select a few key reinvention efforts and focus the agency’s attention and resources on these.



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                             function would most appropriately be carried out by the Associate
                             Administrator of the Office of Reinvention.


Key Initiatives Have         To further complicate concerns about too many reinvention initiatives and
Required Greater Resource    not enough resources to implement them, two of EPA’s major reinvention
Commitment                   efforts—Project XL and CSI—have proved to be more difficult and
                             time-consuming than originally anticipated. In particular, the Deputy
                             Assistant Administrator of Project XL said that one year after that initiative
                             began, it became apparent that the effort had grown so large that it needed
                             to be managed more like a program than a series of pilot projects. As a
                             result, a full-time manager was appointed to coordinate XL activities at EPA
                             headquarters. Before this, XL coordinators were appointed in each regional
                             office.5

                             The growth of this program is also evident in the agency’s annual budget
                             requests. For fiscal year 1997, EPA requested $2.5 million for the XL
                             program. In its fiscal year 1998 budget request, the agency asked for
                             approximately $4 million for Project XL, which includes the redirection of
                             20 workyears to the regions for Project XL support. This request represents
                             an increase of approximately 68 percent over the preceding fiscal year’s
                             budget request.

                             Progress with CSI has also been slower and more difficult than originally
                             expected. According to a February 1997 contractor study, CSI participants
                             representing all industrial sectors and stakeholder groups expressed
                             concern over the pace of the CSI process, noting that it has taken longer
                             than expected to develop working relationships among the participants
                             and to reach consensus on issues.6 These increased demands are reflected
                             in CSI’s budget, which has grown by over 50 percent during the program’s
                             first 3 years of operation.


Unclear Objectives and       The challenges posed by the large number of reinvention initiatives have
Guidance Pose Barriers for   been further compounded by confusion over the fundamental objectives of
Two Key Reinvention          some of the agency’s key initiatives, particularly Project XL and CSI. When
                             EPA announced the creation of Project XL in March 1995, the agency
Programs                     described XL projects as real world tests of innovative strategies that

                             5
                              In this connection, Atlanta regional officials pointed out that their office dedicated the equivalent of
                             five full-time staff to its Project XL activities. Chicago officials said they dedicated five full-time staff
                             specifically to negotiate the 3M Company’s Project XL proposal.
                             6
                              Review of the Common Sense Initiative, The Scientific Consulting Group, Inc. (Feb. 19, 1997).



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achieve cleaner and cheaper results than conventional regulatory
approaches. Officials from two of the three regional offices we visited, as
well as from all three states, said that this statement (together with others
made when Project XL was initially announced) promoted Project XL as an
initiative that would allow companies great flexibility to experiment with
new ways of achieving environmental compliance.

According to officials from the Minnesota Pollution Control Agency, it was
with this understanding that officials from the state and the Minnesota
Mining and Manufacturing (3M) Company proposed the first XL project in
March 1996. The 3M project proposed taking a “one-stop” approach to
permitting by developing a single comprehensive permit for air, water, and
waste at one of its facilities in Minnesota. Minnesota officials said that
they felt they had been given the go-ahead by EPA for the project and were
surprised when EPA headquarters and regional officials subsequently
raised major issues, questioning whether the proposal was sufficiently
protective of the environment.7 These officials said that EPA’s suggested
changes were prescriptive and were not in keeping with the initial concept
of Project XL.

Miscommunication between EPA officials and officials from Minnesota and
3M over the meaning of “superior environmental performance” also
caused difficulties for the 3M project. According to EPA, Project XL is
intended to allow companies that are environmental leaders to test
creative, common sense ways of achieving superior environmental
protection at their facilities and in their communities. In the case of the 3M
project, which involved a facility that was already performing above
current federal standards, both Minnesota and 3M officials thought that
EPA would give the company credit for this “superior” performance. EPA
agreed that the company should receive credit for past superior
performance but disagreed with the company over the way in which the
credit should be provided. Officials from Minnesota and 3M observed that
EPA’s definition of superior environmental performance did not make it
worthwhile for companies that are already exceeding standards to
participate in Project XL. As a result of these disagreements, Minnesota and
3M withdrew the proposal from consideration in September 1996.

The Deputy Assistant Administrator for Project XL has acknowledged that
in the program’s early stages, the agency was vague in communicating its
vision. This caused a number of problems—particularly a widespread view

7
 Specifically, EPA staff from the agency’s Office of Air and Radiation and Office of General Counsel
expressed concern that the project would require significant deviations from requirements imposed
under the Clean Air Act.



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                    that the agency was not “speaking with one voice” when companies and
                    states raised issues about project proposals. To help address these
                    problems, EPA has sponsored quarterly meetings with interested parties to
                    further explain the agency’s expectations for project proposals. The
                    agency has recently clarified its Project XL guidance, including what it
                    means by “superior environmental performance.”

                    According to the February 1997 contractor study evaluating CSI’s progress,
                    the EPA Administrator said in introducing the program that everything was
                    on the table. She challenged CSI participants, the study said, to look
                    comprehensively at industrial sectors in an effort to imagine the best
                    possible environmental performance for each sector, identify the barriers
                    to this level of performance, and develop solutions based on consensus
                    among stakeholders to overcome these barriers. However, the study found
                    that while the overall goals of CSI were articulated clearly by the
                    Administrator in initiating the program, specific objectives and
                    expectations for the program were not. The study reported that as a
                    consequence, instead of encouraging out-of-the-box thinking as hoped, the
                    CSI effort was delayed while confused participants tried to figure out what
                    EPA was willing to accept. The study concluded that EPA should provide
                    more guidance on the types of recommendations and projects that the
                    agency would find most useful for CSI.8


                    For EPA, as for other large and complex organizations, the success of its
Stakeholders Have   reinvention efforts will depend greatly on the strength of the commitment
Questioned EPA’s    expressed by its management and achieved by its rank and file. The EPA
Commitment to       staff and state officials whom we interviewed generally agreed that top EPA
                    management has articulated a clear commitment to the agency’s
Reinvention         reinvention efforts. However, disagreements have surfaced in recent
                    months that have led some key stakeholders to question EPA
                    management’s direction of the reinvention efforts. At the staff level, we
                    found that program and regional offices do encourage staff, to varying
                    degrees, to participate in reinvention activities and that these efforts have
                    engendered wider staff participation. Some staff, however, have resisted
                    participation for a variety of reasons.




                    8
                     GAO came to similar conclusions in its ongoing review of CSI. Specifically, GAO’s preliminary
                    findings indicate that EPA should better define CSI’s goal and expected results, including specific
                    guidance on how the results will be accomplished.



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Top EPA Management Has     Reengineering literature supports the view that an organization’s culture
Articulated a Commitment   must be receptive to the goals and principles of reengineering. During a
to Reinvention             1994 GAO symposium on reengineering best practices,9 for example,
                           panelists from leading organizations emphasized that without a compelling
                           and well-communicated vision by top management of where reengineering
                           will take the organization, suspicion and mistrust among staff can prevail.

                           EPA management has clearly taken steps to communicate its commitment
                           to reinvention, both to the agency’s staff and to external audiences. For
                           example, in testimony before the Senate Committee on Appropriations on
                           February 29, 1996, the Deputy Administrator said that EPA “is working to
                           change the way the Agency accomplishes its mission” and “remains
                           committed to setting priorities that allow the Agency to apply limited
                           resources where they will gain the most public health and environmental
                           benefits.” Later, in September 1996, he stated in a memorandum to all EPA
                           regional administrators that the Administrator and he “remain committed
                           to reinventing the way public health and environmental protections are
                           delivered in this country” and asked for the commitment of senior
                           management to ensure that the agency “can take full advantage of
                           reinvention opportunities.”

                           As a more tangible expression of this commitment, the Administrator
                           announced her decision to create an Office of Reinvention in
                           February 1997. As noted in chapter 2, this office will be charged with
                           providing overall direction and support for reinvention activities, as well
                           as direct leadership for some of the agency’s key initiatives (such as CSI
                           and Project XL). Currently, the agency is further defining this office’s
                           responsibilities. According to its newly appointed Associate Administrator,
                           the decision to create this office reflects an understanding that to make
                           reinvention happen, an overarching structure is needed to provide ongoing
                           guidance to the rest of the agency. He added that another purpose of the
                           office will be to help ensure that reinvention efforts and ideas are shared
                           across the agency.




                           9
                            Reengineering Organizations: Results of a GAO Symposium (GAO/NSIAD-95-34, Dec. 13, 1994).



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Stakeholders Have          Most of the EPA, state, industry, and environmental organization officials
Questioned the Extent of   we contacted acknowledged the agency’s expressions of commitment to
EPA’s Commitment to        reinvention, but some have questioned the extent of the agency’s
                           commitment to fundamental change. For example, a recent report
Reinvention                prepared for an industry group10 notes that the agency is inherently
                           organized and structured to implement statutes and that “nonstatutory”
                           programs (such as EPA’s reinvention initiatives) tend to be treated in an “ad
                           hoc” fashion.

                           The state officials we interviewed all acknowledged EPA management’s
                           expressed commitment to reinvention, but some cited differences over the
                           roles of EPA and the states in developing and implementing new projects
                           and processes. These differences centered around issues such as how
                           much flexibility the states have to negotiate and approve reinvention
                           projects and how to include stakeholders in negotiations. These
                           differences came to a head in February 1997 when EPA temporarily
                           withdrew from negotiations on a proposal jointly prepared by leaders of
                           the Environmental Council of the States (ECOS) and EPA staff outlining an
                           overarching framework for how EPA and the states will promote and
                           implement regulatory reinvention efforts. Among other things, the
                           proposal was intended to “establish guiding principles for reinvention and
                           an efficient process that is receptive to innovative proposals” and
                           “improve decision-making between states and EPA on innovation
                           proposals, emphasizing clear lines of communication, decision authority,
                           accountability, and timeliness.” However, EPA’s Deputy Administrator
                           temporarily withdrew EPA’s agreement with the proposal, noting, among
                           other things, that specific conditions must be met before regulatory
                           flexibility can be granted.11

                           In response, ECOS initially asserted that EPA’s withdrawal “damaged trust
                           and [raised] questions about [EPA’s] commitment to working in partnership
                           with the states to create a better environmental system. . . .” EPA and ECOS
                           subsequently renewed negotiations and plan to meet regularly to maintain
                           an ongoing dialogue on reinvention issues. However, according to the
                           Commissioner of the Minnesota Pollution Control Agency, who has led
                           this effort on behalf of ECOS, the experience points to some fundamental

                           10
                            Industry Incentives for Environmental Improvement: Evaluation of U.S. Federal Initiatives,
                           Resources for the Future (Sept. 1996). This report is addressed to the Global Environmental
                           Management Initiative, a nonprofit organization of 21 leading corporations dedicated to helping
                           businesses achieve environmental, health, and safety excellence.
                           11
                             Specifically, the Deputy Administrator’s letter stated, among other things, that proposals seeking
                           regulatory flexibility must achieve “superior environmental performance” and that “the degree of
                           superior performance must be proportional to the degree of flexibility sought.”



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                          differences between at least some of the states and EPA management over
                          the future roles of EPA and the states in managing the reinvention process.
                          He maintained that it is unclear at this point whether these differences can
                          be resolved. As of June 1997, EPA—in consultation with ECOS—expects to
                          publish a new draft proposal in the Federal Register for public comment
                          later this year.


Achieving Commitment by   Despite some differences between various stakeholders and EPA
Rank and File Will Take   management over the future direction of reinvention, all participants in the
Time                      process we interviewed—both within and outside EPA—agreed that
                          achieving full commitment to reinvention by the agency’s rank and file will
                          be difficult and will take time. The Special Assistant for Reinvention
                          Efforts in EPA’s Office of Prevention, Pesticides, and Toxic Substances
                          reflected many of these views when he told us that it will take time for
                          culture change to filter down to EPA line staff and to see if the change takes
                          hold.

                          The three EPA regions we visited are taking different approaches to
                          achieving commitment by line staff to reinvention. For example, the
                          Atlanta office encourages staff to participate voluntarily in ad hoc media
                          teams that are working on reinvention initiatives. While this region has not
                          formally revised its reward system to emphasize reinvention activities, the
                          Regional Administrator has made it clear to the staff that he views
                          reinvention as a top priority and values participation. Even so, the Office’s
                          Deputy Regional Administrator acknowledged that the reaction of the
                          regional staff to reinvention has been mixed, noting that the staff that
                          participate in these initiatives are generally those that accept change more
                          readily. He noted that some staff have raised various issues about
                          reinvention, including concerns that (1) some reinvention projects may
                          not provide adequate protection for the environment and public health and
                          (2) some projects may not be legal under current statutes. He
                          acknowledged that although some of these concerns may be well founded,
                          others stem from a desire to maintain traditional ways of regulating.

                          The Chicago office also encourages staff to voluntarily participate in
                          reinvention efforts through cross-media teams. According to regional
                          office management, as teams are formed to focus on various reinvention
                          efforts, participation is “spreading like roots” through the regional office.
                          Like the Atlanta office, the Chicago office has not formally revised its
                          reward system to include a reinvention component, but staff participation
                          in reinvention efforts can be reflected in performance ratings. Chicago



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                       officials further noted that wider participation can be expected as the
                       region gains more experience—and achieves more success—with
                       reinvention efforts.

                       As noted in chapter 2, the Boston office recently reorganized so that
                       reinvention activities are an integral part of its program activities.
                       According to one of the office’s Deputy Regional Administrators, the
                       practical effect of this reorganization, which is reinforced by regional
                       office management, is that reinvention is expected to be a routine part of
                       all staff activities. She added that internal incentives “to reinvent” are built
                       into staff job descriptions.

                       Yet in spite of the efforts both at headquarters and among the regions, we
                       found widespread agreement among EPA officials, state officials, and
                       others that the agency has a long way to go before reinvention becomes an
                       integral part of its staff’s everyday activities. For example, the Director of
                       EPA’s Regulatory Reinvention Team acknowledged that reinvention goals
                       have been slow to trickle down to line staff. This official pointed out that
                       many staff are comfortable with traditional ways of doing business and
                       consider their program-specific job responsibilities as their first priority
                       and reinvention projects as secondary.

                       Many state and other officials shared this perception. Overall, these
                       officials said that the existing incentive system leads staff to focus on
                       traditional ways of regulating and discourages them from being open to
                       new approaches to environmental regulation. Similarly, the report
                       prepared for the Global Environmental Management Initiative maintains
                       that EPA personnel “give the non-statutory programs low priority because
                       most of their effort is devoted to meeting requirements set by Congress
                       and the Courts.”


                       EPA’s reinvention strategy includes the goal of sharing information and
Consensus Among All    making decisions with all stakeholders, including those that are external
Stakeholders Is        to the agency, such as state regulators, industry officials, and
Difficult to Achieve   environmental organization officials. We found that EPA has made great
                       efforts to include external stakeholders in the reinvention process but that
                       achieving consensus—especially full consensus—on reinvention-related
                       issues among parties with varying, and often conflicting, interests has
                       proved to be very difficult. As noted in chapter 2, to help deal with issues
                       raised during negotiations among stakeholders, the agency has designated
                       reinvention ombudsmen to elevate difficult issues for EPA management’s



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                          attention in a timely manner. However, most of the EPA regional and state
                          officials we interviewed saw this process as a useful but temporary
                          solution. These officials maintained that, in the long term, EPA needs to
                          develop a process for resolving less controversial issues at lower levels
                          within the agency.


Reinvention Stresses      Since the early 1970s, EPA’s regulations and actions have been the subject
Collaboration Over        of constant litigation, frequently delaying the implementation of
Confrontation             environmental controls while at the same time adding considerably to the
                          cost of compliance by industry and to the costs of regulation by state and
                          local governments. In recent years, the agency has increasingly tried to
                          address this problem by seeking consensus among the key stakeholders
                          on broader regulatory approaches, as well as specific actions. This
                          strategy is intended to help avert litigation by getting agreement up front
                          among affected parties and by getting a commitment by industry to meet
                          requirements it acknowledges are achievable. It is consistent with
                          Executive Order 12866 (issued on Sept. 30, 1993), which directed each
                          federal regulatory agency to consider the use of consensual mechanisms,
                          including negotiated rulemaking, when developing regulations. It was
                          further reinforced by the President’s March 1995 Report on Reinventing
                          Environmental Regulation, which stated that

                          “the adversarial approach that has often characterized our environmental system precludes
                          opportunities for creative solutions that a more collaborative system might encourage.
                          When decision-making is shared, people can bridge differences, find common ground, and
                          identify new solutions. To reinvent environmental protection, we must first build trust
                          among traditional adversaries.”


                          To help build trust among interested parties, the report states that
                          (1) environmental standards must be set with full public participation;
                          (2) an inclusive decision-making process must be employed that will
                          provide states, tribes, communities, businesses, and individual citizens
                          with an opportunity to participate; (3) state, tribal, and local governments
                          will serve as full partners in developing and implementing policies to
                          achieve national goals; and (4) EPA will become a partner providing
                          information and research to empower local decisionmakers.


Definition of Consensus   EPA reinvention officials acknowledge that the agency is searching for a
Varies Among EPA          workable definition of what it means to achieve consensus among
Initiatives               stakeholders. To date, the agency has defined consensus in various ways.




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                           For example, the Deputy Assistant Administrator for Project XL told us
                           that the goal of negotiating with stakeholders under this program is to get
                           all participants’ concerns on the table and to show that the agency
                           respects and is receptive to varying views on issues. However, this official
                           stressed that EPA may not agree with the positions raised by the
                           stakeholders and that the agency reserves the right to make the final
                           decision on whether to approve a project.12 In the case of CSI, however,
                           stakeholder groups have generally been seeking to achieve 100 percent
                           agreement among participants.


Achieving Full Consensus   Most stakeholders we interviewed agreed that achieving consensus among
Has Been Challenging       stakeholders is one of the most difficult challenges EPA faces in attempting
                           to reinvent environmental regulation. They noted that the challenge has
                           been particularly difficult when the agency has sought to achieve—or was
                           perceived as seeking to achieve—100 percent agreement. Officials from
                           two of the three states that we contacted, for example, agreed that EPA
                           goes to great lengths to include external stakeholders in these negotiations
                           but noted that efforts to achieve unanimous agreement have been
                           problematic, particularly in CSI negotiations. According to an official from
                           Georgia, EPA is “bending over backwards” to include stakeholders, but
                           when unanimous consent is required, any stakeholder has the power to
                           veto a project. In this state official’s opinion, this approach is an invitation
                           for gridlock and should give way to a less stringent definition of
                           consensus.

                           Industry representatives have also voiced concerns about the feasibility of
                           achieving 100 percent agreement among stakeholders. This concern
                           contributed to the ambivalence some industry groups expressed about
                           continuing to participate in CSI. A representative of the American
                           Petroleum Institute said, for example, that trying to achieve 100 percent
                           agreement among stakeholders essentially paralyzes negotiations and is
                           one of the key reasons why participating in CSI has been very costly and
                           labor intensive for the petroleum industry. He told us that giving every
                           participant the power to veto a project “creates a huge road block,”
                           especially when participants assume polarized positions. According to this
                           official, without more tangible results, the Institute cannot justify its
                           continued participation in CSI.



                           12
                            For example, although EPA worked with environmental groups to address a number of their
                           concerns, the agency ultimately approved the Weyerhaeuser project even though one major
                           environmental group was concerned that the regulatory flexibility was not merited.



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The 1997 contractor study of CSI, discussed above, supported many of
these factors. The study concluded that CSI participants perceive that
consensus has been defined as unanimity, thus providing each individual
with veto power. It cited the belief by many participants that consensus
should be redefined to require less than complete agreement so that an
idea can move forward even if some participants do not favor it but can
“live with it.”

In response to these concerns, officials from EPA’s Regulatory Reinvention
Team said that the agency is currently working with CSI participants to
explore the use of a less restrictive definition of consensus. The officials
caution, however, that some CSI groups may prefer to continue to define
consensus as 100 percent agreement among stakeholders.

In contrast, under Project XL, where EPA does not seek unanimous
consensus among stakeholders, the agency has experienced increasing
success in finalizing project proposals through negotiations with
stakeholders.13 As discussed previously in this chapter, EPA was unable to
resolve stakeholders’ concerns about the first XL project proposal,
submitted by the 3M Company. However, since this time, EPA has
successfully completed negotiations on three XL projects. According to
EPA’s Deputy Assistant Administrator for Project XL, this success is due, in
part, to the agency’s insistence that it has the right to make the final
decision on whether to approve or disapprove a project. For example,
during negotiations for two recently approved XL projects proposed by
Intel Corporation and Weyerhaeuser, EPA decided to approve these
projects even though all stakeholders’ concerns were not resolved.14
Summarizing EPA’s approach under Project XL, the Deputy Assistant
Administrator stressed that while EPA always wants to get all stakeholders’
issues on the table and have them thoroughly discussed, the agency does
not expect unanimous support from stakeholders for all XL projects.




13
 According to an April 1997 Federal Register notice outlining updated guidelines for Project XL, the
agency allows a project’s sponsor and stakeholders to determine the ground rules for a project, such
as what type of decision-making process will be used. However, EPA reserves the right to decide
whether to approve a project for implementation.
14
  According to EPA, in the case of the Intel project, an environmental group was concerned about the
way in which the permit was structured. Also, a local citizens’ group said, among other things, that the
Final Project Agreement should have a much stronger focus on pollution prevention. In the case of the
Weyerhaeuser project, the Natural Resources Defense Council objected to a provision of the project
proposal that would allow EPA to waive certain permitting requirements under the Clean Air Act and
the Clean Water Act.



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Some Environmental and       Another issue affecting the ability of key stakeholders to achieve
Local Interest Groups Lack   consensus stems from the difficulties many environmental and local
Resources to Participate     groups face in trying to participate fully in project negotiations. A
                             representative of the Natural Resources Defense Council (NRDC) noted, in
Fully in Project             particular, that these groups do not have enough staff and/or technical
Negotiations                 expertise to evaluate project proposals and to fully gauge the impact of
                             these proposals. She noted, for example, that although NRDC’s resources
                             are already stretched to the limit, the group had to dedicate two attorneys
                             and one staff researcher just to evaluate the Weyerhaeuser XL project
                             proposal and to participate in negotiations on that project. To address this
                             problem, the NRDC representative said that EPA needs to take steps to
                             ensure that groups representing environmental and local concerns have
                             the resources to participate meaningfully in project negotiations.

                             EPA responded to this problem in January 1997 by announcing that it is
                             prepared to offer technical assistance to all Project XL stakeholder groups
                             to help them evaluate project proposals. The agency plans to offer up to
                             $25,000 in technical assistance for each project.


EPA Initiates a Process to   An official from EPA’s Regulatory Reinvention Team acknowledged the
Help Address                 need to improve the agency’s process for including external stakeholders
Stakeholders’ Issues         in project negotiations. As one step in this direction, EPA has established a
                             process for reinvention ombudsmen to assist in resolving disputes during
                             project negotiations. In a September 1996 memorandum, EPA’s Deputy
                             Administrator instructed each regional office and headquarters program
                             office to designate a senior official to serve as a reinvention ombudsman.
                             According to this memorandum,

                             “The primary role of the reinvention ombudsmen is to facilitate quick resolution of issues
                             arising in reinvention projects by raising them to the appropriate management levels
                             throughout the Agency for attention and appropriate action. The reinvention ombudsmen
                             are not meant to replace existing decision-making frameworks, but serve as a single point
                             of contact to ensure that necessary decisions are coordinated and made in a timely
                             manner.”


                             The process has met with some success. According to a Georgia state
                             official involved with the Weyerhaeuser project, the intervention in
                             negotiations by the Atlanta office’s Deputy Regional Administrator—the
                             designated reinvention ombudsman—was instrumental in resolving
                             outstanding concerns. The Commissioner of Minnesota’s Pollution Control
                             Agency told us that having a reinvention ombudsman could have helped to




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resolve some of the problems that ultimately caused the 3M project to
unravel.

While acknowledging the benefits of using a reinvention ombudsman to
facilitate the Weyerhaeuser negotiations, the Georgia official pointed out
that the negotiations appeared to consume a great deal of the Deputy
Regional Administrator’s time and questioned whether such senior
officials can commit so much time whenever a reinvention initiative
encounters a problem. The other state officials we interviewed echoed this
sentiment, pointing out that the reinvention ombudsman process should
be viewed as a short-term solution to the types of problems that have
occurred during project negotiations. In the opinion of these officials, a
longer-term solution should employ a process that distinguishes between
problems that can be resolved at lower levels within the agency and those
that need to be elevated for senior management’s attention.

In this connection, ECOS and EPA are working to develop an alternative plan
to facilitate the approval of reinvention project proposals. A February 1997
draft of the plan acknowledged that the process for developing, evaluating,
and acting upon proposals for innovation must be improved. The draft
outlined a process for classifying projects into one of four categories and
identified, for each category, which parties are responsible for reviewing
and approving the proposals.15 While the Deputy Administrator withdrew
the proposal the following month for a variety of reasons, he told us that
EPA is still committed to working with the states to establish a system that
effectively resolves stakeholders’ issues and provides for distinguishing
between problems that are best addressed at lower levels in EPA and those
that must be resolved at higher levels.




15
  For example, project proposals viewed as potentially inconsistent with a federal statute or regulation
would have been placed in categories 1 and 2. EPA headquarters, the EPA regional office, and the state
would then have jointly reviewed the proposal. Project proposals viewed as potentially inconsistent
with federal guidance, policies, and past practices or interpretations of the rule would have been
placed in category 3. The state and EPA regional office would have had the primary responsibility for
reviewing the proposals. Project proposals requiring no changes in federal guidance, past practices,
regulations, or statutes would have been placed in category 4. Under these circumstances, the states
would have been free to proceed without EPA’s review.



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                             GAO found that EPA has yet to develop a systematic process for evaluating
EPA Is Not                   the effectiveness of its initiatives, although it has made some progress in
Systematically               certain instances. The agency is currently taking initial steps toward
Evaluating                   developing criteria that can be used to evaluate the success both of
                             individual projects and of its overall reinvention efforts.
Reinvention
Initiatives’
Effectiveness
Measurement of Progress      GAO and other organizations have maintained that a system for measuring
Is Important but Difficult   progress is of paramount importance in helping to ensure successful
                             organizational change. In a June 1996 report on implementing GPRA, GAO
                             observed that “measuring performance allows organizations to track the
                             progress they are making toward their goals and gives managers crucial
                             information on which to base their organizational and management
                             decisions.”16

                             In March 1996, GAO testified on the contribution that the Results Act can
                             make to congressional and executive branch decision-making and noted
                             that striving to measure outcomes is one of the most challenging and
                             time-consuming aspects of reinvention. According to the report “many
                             [federal] agencies are having difficulty in making the transition to a focus
                             on outcomes.” Such findings were substantiated by a recent report by the
                             National Academy of Sciences, which focused on industry-initiated efforts
                             to achieve environmental compliance through alternative means. While
                             emphasizing the value of developing such measures, the report cautioned
                             that “it is not easy and often not possible to quantify the effectiveness of
                             most industry-initiated programs. . . .”17


EPA’s Efforts to Measure     EPA has had some experience in systematically measuring the effectiveness
Progress Have Thus Far       of new programs. For example, an independent research firm under
Been Limited                 contract with EPA issued a report in 1995 on the effectiveness of its “33/50”
                             program, which seeks voluntary cooperation from industrial firms to




                             16
                              Executive Guide: Effectively Implementing the Government Performance and Results Act
                             (GAO/GGD-96-118, June 1996).
                             17
                              Fostering Industry-Initiated Environmental Protection Efforts, National Academy of Sciences
                             (Washington, D.C.: 1997), p. 2.



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reduce toxic chemicals through source reduction.18 At the end of 1996, the
agency hired a contractor to evaluate the effectiveness of its processes for
involving stakeholders. In May 1997, the contractor issued a report
summarizing comments made by various internal and external stakeholder
groups that were interviewed regarding their expectations for reinvention,
opinions on possible performance measures and criteria for measuring the
success of reinvention, and general advice on regulatory reinvention.
Among other things, the stakeholders agreed that measures of
environmental health should be the primary performance criteria for
measuring reinvention success. EPA is currently evaluating the report’s
findings.

Nonetheless, EPA reinvention officials acknowledged that a large number
of reinvention projects do not currently have evaluation components. They
added that among the projects that do have such components, the quality
varies widely. These officials explained that, in part, it is too early to
evaluate some of the reinvention efforts. For example, the February 1997
contractor review of CSI’s first 2 years found that it is too early to observe
the effects of CSI on statutes and regulations as well as on environmental
compliance; environmental indicators; quality of life; public health;
productivity; and burden on industry, government, and society.

Even though it may be too early to observe the effects of reinvention
initiatives, we believe it is not too early to build evaluation components
into reinvention projects so that observable effects down the road can be
evaluated. The agency has recently taken initial steps toward this end.
Specifically, the Administrator has asked the National Advisory Council
for Environmental Policy and Technology’s Reinvention Criteria
Committee to identify criteria the agency can use to measure the progress
and success of specific reinvention projects and its overall reinvention
efforts. In October 1996, the committee completed a 6-month review of
seven separate EPA reinvention initiatives to determine how they might be
evaluated. These initiatives include CSI, Self-Policing/Audit policies,
Self-Certification efforts, the Environmental Leadership Program (ELP),
Project XL, NEPPS and the Sustainable Development Challenge Grants
Program. This review found that two of the seven reinvention
initiatives—ELP and NEPPS—had begun to define evaluation criteria. Since
this review, the committee held a 2-day public meeting in April 1997 to
solicit perspectives on defining evaluation criteria from representatives of

18
  The nonprofit environmental research firm INFORM found that 31 percent of the reductions in toxic
releases claimed by EPA had been initiated before the announcement of the 33/50 program. The firm
also found that most companies relied on “end-of-pipe” treatment technologies or on-site recycling and
energy recovery, rather than source reduction, to reduce their toxic releases.



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                           state and local government, academia, industry, environmental
                           organizations, and nongovernmental organizations. The Committee plans
                           to hold another meeting in July 1997 to continue discussions on defining
                           evaluation criteria.


                           GAO  found considerable disagreement among stakeholders on whether
Environmental              changes to the current statutory framework are needed to facilitate the
Statutory Framework        regulatory reform process. Most of the state and industry officials we
Limits Potential to        interviewed cited the need for (1) statutory authority to waive certain legal
                           requirements that they believe impede experiments designed to test
Reinvent                   alternative methods of achieving environmental compliance and/or
Environmental              (2) more fundamental changes to the environmental statutory framework
                           to encourage changes in the way environmental regulation is conducted
Regulation                 nationwide, or both. In contrast, EPA maintains—and some in the
                           environmental community agree—that the current statutory framework is
                           sufficiently flexible to allow for real progress in most of the agency’s
                           reinvention efforts and that substantial changes in the statutes could
                           compromise protection of the environment and public health. The agency
                           further notes that it will need to consider the results of an analysis by an
                           advisory group that is currently assessing this issue.

                           On the basis of past evaluations by GAO and others, the experiences to date
                           of EPA’s key reinvention efforts, and our contacts with a variety of
                           stakeholders for this review, we believe that some constructive
                           modifications can be made under the current environmental statutory
                           framework. Nonetheless, the framework does impose requirements that
                           have led to and reinforce many of the existing practices the agency is most
                           seeking to change. Consequently, as GAO and other organizations have
                           noted in the past, EPA will be limited in its ability to achieve fundamental
                           changes in environmental regulation within the legislative framework as
                           currently constructed.


Current Statutory          As noted in chapter 1, EPA has no formal, overarching legislative mission
Framework Discourages      because it was created under an executive reorganization plan. Instead, its
Cross-Cutting Approaches   statutory responsibilities are set forth in a dozen or so separate pieces of
                           legislation that generally assign pollution control responsibilities
                           according to environmental medium (e.g., air and water) or category of
                           pollutant (e.g., pesticides). These numerous legislative mandates have led
                           to the creation of individual EPA program offices that focus primarily on
                           reducing pollution within the particular environmental medium for which



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they have responsibility, rather than on reducing overall pollutant
discharges.

The complications arising from this framework have been documented by
GAO and other organizations for many years. In our 1988 general
management review of EPA,19 we cited several problems, including
difficulties in setting risk-based priorities across environmental media
because each statute prescribes certain activities to deal with its own
medium-specific problems. In addition, different statutes require the use of
different approaches in developing and evaluating regulatory
options—often resulting in “fragmentation of effort, conflict in resource
allocation, bias against new chemical/pesticide products, and multiple risk
assessment documents for the same substance.” In 1991, we touched on
these issues again, noting, for example, that “numerous legislative
mandates have led to the creation of individual EPA program offices that
have tended to focus solely on reducing pollution within the particular
environmental medium for which they have responsibility, rather than on
reducing overall emissions.”20 More recently, in testifying on efforts by EPA
to improve its working relationship with the states and to provide them
with additional flexibility,21 we concluded that “as long as environmental
laws are medium-specific and prescriptive and EPA personnel are held
accountable for meeting the requirements of the laws, it will be difficult
for the agency to fundamentally change its relationships with the states to
reduce day-to-day control over program activities.”

As an alternative to modifying the statutory framework, a bill introduced
at the end of the 104th Congress would have authorized a demonstration
program under which the EPA Administrator could modify or waive an
agency rule if, among other things, a regulated facility could demonstrate
that an alternative compliance strategy would achieve better overall
environmental results than would be achieved under current regulatory
requirements. Under the bill, the Administrator could not approve an
alternative compliance strategy that would result in a violation of a
national environmental or health standard.




19
 Environmental Protection Agency: Protecting Human Health and the Environment Through
Improved Management (GAO/RCED-88-101, Aug. 16, 1988).
20
   Environmental Protection: Meeting Public Expectations With Limited Resources (GAO/RCED-91-97,
June 18, 1991).
21
 Environmental Protection: Status of EPA’s Initiatives to Create a New Partnership With States
(GAO/T-RCED-96-87), p. 8.



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EPA Believes Statutory   According to the Deputy Administrator, EPA has taken the position that it
Framework Allows for     needs to review the results of the Enterprise for the Environment Initiative
Innovation               (E4E) before it considers the need for legislative changes. This initiative is
                         examining, among other things, whether policy reforms are needed to shift
                         the current regulatory system toward one that is more performance-based
                         and flexible and that uses market mechanisms and alternative
                         enforcement and compliance approaches to achieve environmental
                         protection.22 Participants in this effort plan to deliver a package of
                         recommendations to the Congress and the administration in 1997. The
                         Deputy Administrator added, however, that the agency’s experience to
                         date with reinvention confirms that much can be accomplished within the
                         existing statutory framework. EPA reinvention officials supported this
                         view, maintaining that as they have evaluated proposed projects on a
                         case-by-case basis, they have found that proposed changes have been
                         achievable within the constraints posed by existing statutes.

                         In addition, according to these officials, the agency can deal effectively
                         with potential regulatory barriers through “site-specific rulemakings” that
                         allow it to offer additional flexibility to participating companies. Under
                         these rulemakings, EPA can promulgate a rule that will permit the agency
                         to approve the terms of a project employing an alternative regulatory
                         approach. According to EPA, the authority for such a rule would be based
                         on an alternative interpretation of a statute applicable only to the specific
                         site. The facility would then comply with this site-specific rule.

                         Many in the environmental community also believe that statutory change
                         is not needed and that much flexibility already exists in environmental
                         statutes. An attorney with the Natural Resources Defense Council cited
                         the Clean Water Act as an example, noting that the law allows site-specific
                         variances from water quality-based effluent limitations. Using this
                         flexibility, facilities can have up to 5 years to comply with water quality
                         effluent limitations.




                         22
                           The Center for Strategic and International Studies—an independent, nonprofit, nonpartisan
                         institution founded in 1962 to advance the understanding of emerging global and domestic
                         issues—launched the E4E initiative in Nov. 1995. The objective of this initiative is to engage key
                         stakeholders (environmentalists, business, labor), experts, and Democratic and Republican political
                         leaders in a policy dialogue aimed at rebuilding a consensus on the strategic direction of U.S.
                         environmental policy.



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Many in the Regulated    EPA’s view that reinvention can produce substantial results without
Community Doubt That     statutory changes is at odds with the view held by many in
Much Progress Can Be     industry—whose participation, as key members of the regulated
                         community, is crucial for reinvention to succeed. Both individual
Made Without Statutory   companies and other industrial organizations, including some discussed
Changes                  earlier that have participated in reinvention experiments, have expressed
                         strong reservations about the potential for reinvention within the present
                         statutory framework. For example, the report to the Global Environmental
                         Management Initiative, discussed earlier in this chapter, noted that the
                         agreements under Project XL do not provide firms with any protection
                         from lawsuits by citizens or environmental groups that may object to the
                         terms of these agreements. As a result, according to the report, “industry
                         participants in reinvention programs generally steer the programs to
                         peripheral matters because their general counsels caution them against
                         taking any action that might result in litigation.” 23

                         Similarly, reflecting on its experience as the petroleum industry’s
                         representative on the Common Sense Initiative Council, a representative
                         of the American Petroleum Institute told us that the Institute favors
                         statutory change to explicitly authorize reinvention-type activities.
                         Echoing the Global Environmental Management Initiative’s concern over
                         the consequences to companies of being perceived as violating the law, he
                         noted that even frivolous lawsuits pose a real threat. He added that
                         companies “going out on a limb” need to be afforded statutory protection.

                         Some industry representatives have specifically questioned whether EPA’s
                         strategy of using site-specific rulemakings will provide industry with the
                         assurance it desires that actions taken under a reinvention project will not
                         extend the approval process for reinvention projects for months or years,
                         because it may take years to implement a rule and additional years to
                         litigate it. In fact, these concerns may be well founded because some
                         environmental organizations have raised concerns that site-specific
                         rulemakings may allow EPA regions to essentially rewrite federal policies,
                         may raise questions about whether EPA’s rules are applied consistently
                         across the nation, and may preclude national environmental groups and
                         other parties from participating adequately in the process. Among the



                         23
                           Industry Incentives for Environmental Improvement: Evaluation of U.S. Federal Initiatives,
                         Resources for the Future (Sept. 1996). This report was published before EPA introduced the use of
                         site-specific rulemaking, which is intended to help protect companies from third-party lawsuits.
                         However, as discussed later in this section, even with the use of site-specific rulemakings, some
                         industry representatives remain concerned that litigation against EPA may still delay reinvention
                         projects.



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                         other reservations voiced by industry representatives are concerns that
                         EPA may not have the statutory authority to modify a rule in some cases.24


                         The state officials interviewed expressed some disagreement over the
                         need for statutory change. Georgia environmental officials acknowledged
                         that current law poses constraints on innovation but said that legislative
                         changes may be premature until EPA and the states have gained more
                         experience with reinvention. In contrast, officials from Massachusetts and
                         Minnesota both agreed that environmental statutes need to be changed
                         before real progress can be made in implementing reinvention.


Existing Statutory       Our own work substantiates the claims of many state officials and industry
Framework Imposes Some   representatives that ambiguities about the legality of at least some
Limits on Reinvention    proposed reinvention proposals may be enough to discourage their use.
                         For example, in June 1992, we concluded that the use of water pollutant
                         trading had been limited, in part, by the absence of a clear and
                         unambiguous authorization of this practice in the Clean Water Act.25 We
                         cited an EPA analysis of participating states that found states’ concerns
                         over the absence of such authorization inhibited trading because of
                         perceived legal risks that programs would be overturned or disallowed by
                         regulators or the courts. We concluded that there would be benefits in
                         amending the act to more clearly signal that trading is permissible. A
                         recent study by Argonne National Laboratory reached similar conclusions,
                         noting that “to some extent, companies that elect to trade do so at their
                         own risk. . . . Conservative corporate and municipal government managers
                         would be more willing to undertake trades if they felt their risk of future
                         litigation and liability were reduced.”

                         Similarly, we testified in February 1996 that concerns over existing
                         statutory requirements have hampered states’ efforts to experiment with
                         integrated environmental management, a concept under which a state
                         focuses on a whole facility and all of its sources of pollution, rather than
                         on a medium-specific source of pollution.26 We noted, for example, that

                         24
                          A proposal for a site-specific rulemaking was published on March 31, 1997, for an XL project proposal
                         made by Merck and Company, Inc. This is the first XL project to use site-specific rulemaking. As of
                         May 1997, the rulemaking proposal was going through final negotiations.
                         25
                          Water Pollution: Pollutant Trading Could Reduce Compliance Costs If Uncertainties Are Resolved
                         (GAO/RCED-92-153, June 15, 1992).
                         26
                           Environmental Protection: Status of EPA’s Initiatives to Create a New Partnership With States
                         (GAO/T-RCED-96-87, Feb. 29, 1996), p.6. For example, rather than performing multiple inspections for
                         various environmental media, a state could use an integrated approach that incorporates inspections
                         for all media into a single, facilitywide inspection that focuses on production processes.



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              while these efforts had indeed met with some success, they were
              hampered by EPA funding and reporting requirements linked to individual
              federal environmental statutes. Referring to states’ efforts to pursue
              innovative regulatory programs, such as integrated environmental
              management, we concluded that “as long as environmental laws are
              medium-specific and prescriptive and EPA personnel are held accountable
              for meeting the requirements of the laws, it will be difficult for the agency
              to fundamentally change its relationships with the states to reduce
              day-to-day control over program activities.”

              These examples do not suggest that all meaningful improvements
              necessarily require legislative authorization. In fact, EPA can point to
              specific instances when constructive, cost-effective changes have been
              made under current law. They do, however, substantiate the claims of
              many state and industry officials that EPA will be limited in its ability to
              truly “reinvent” environmental regulation under the legislative framework
              as presently constructed.


              In many respects, EPA’s experience with reinvention is similar to that of
Conclusions   other public and private organizations that have attempted to change their
              operations and cultures. To date, the agency has taken some important
              steps toward devising a system that will protect the nation’s environment
              more efficiently and cost-effectively. For example, the agency has learned
              that it needs a system for elevating problems requiring senior
              management’s attention. It also has begun to develop criteria for
              systematically evaluating its reinvention efforts. Nonetheless, EPA faces
              significant hurdles that must be addressed effectively if reinvention is to
              succeed.

              First, we found that managing a large number of often-complex and
              demanding initiatives has caused difficulties for EPA staff as well as other
              stakeholders. The problem has been compounded by (1) the fact that
              some of the agency’s key initiatives have proved to be more demanding
              than originally conceived and (2) key stakeholders are confused about the
              primary objectives of these initiatives. EPA officials, including the Deputy
              Administrator, have pointed out that the agency should respond to this
              issue over time as evaluations of these initiatives provide management
              with the information it needs to determine which programs should be
              continued and what can be done to improve them. However, a systematic
              and comprehensive review may be useful at this time—particularly in light
              of (1) the problems, identified by EPA and other participants in reinvention



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activities, with the number and clarity of the initiatives; (2) the fact that
the agency has had several years of experience with many of the
initiatives; and (3) the fact that the agency has a long way to go in
developing evaluation components for many of the initiatives. Such a
review could lead EPA to discontinue initiatives that no longer support the
agency’s overall reinvention goals; set priorities among the initiatives that
will continue; and ensure that the specific objectives and expectations for
these initiatives are clear to stakeholders inside and outside the agency.

Second, while EPA has made enormous—perhaps unprecedented—efforts
to involve stakeholders with different interests and perspectives in the
reinvention process, achieving and maintaining consensus has proved to
be an enormous challenge. That challenge has been most difficult when
EPA has sought to achieve—or was perceived as seeking to
achieve—100 percent agreement. As the agency proceeds to evaluate its
involvement of stakeholders in the reinvention process, we believe that it
could usefully clarify its definition of consensus and the circumstances
under which unanimous agreement must be achieved.

Third, a long-term, institutional process for quickly resolving reinvention
problems could help EPA avert the kind of miscommunication,
disagreements, and other issues that undermined some of its earlier
reinvention projects. While EPA’s use of “reinvention ombudsmen” has
helped in specific cases, participants within and outside EPA have
maintained that senior managers will not be able to intervene each time a
problem arises. They maintain that a more sustainable process is
needed—one that distinguishes between problems that can be resolved at
lower levels within the agency and those that need to be elevated for
senior management’s attention. EPA management expressed its agreement
to us with the concept of such a process, and is currently negotiating
arrangements for this type of process with the states.

Fourth, EPA has made progress toward measuring the effectiveness of
some of its reinvention initiatives, developing strategies for evaluation and
establishing criteria to assess its reinvention efforts as a whole. At the
same time, EPA reinvention officials acknowledged that many initiatives do
not have an evaluation component and that such a component is not
formally required. We believe the agency should build on its initial steps
toward evaluating the success of reinvention by setting the expectation
that each of its reinvention initiatives should include some kind of
evaluation component. Such an evaluation component is all the more
important in light of the acknowledgement by EPA management that it



Page 55                           GAO/RCED-97-155 Reinventing Environmental Regulation
                      Chapter 3
                      Issues to Address If Reinvention Efforts Are
                      to Succeed




                      needs such information to make informed decisions about which
                      initiatives to continue and how to improve them.

                      Finally, much discussion has focused on the potential need for statutory
                      changes as a precondition for reinventing environmental regulation. We
                      believe that constructive modifications can indeed be made under the
                      current environmental statutory framework. However, EPA will be limited
                      in its ability to truly “reinvent” environmental regulation without
                      legislative changes. EPA says it will need to consider the results of a key
                      advisory group, expected this summer, before concluding whether and
                      what kind of statutory changes it believes are needed.


                      GAO   recommends that the Administrator, EPA,
Recommendations
                  •   direct the Associate Administrator, Office of Reinvention, to review the
                      agency’s reinvention initiatives to (1) determine whether there are any that
                      no longer support the agency’s overall reinvention goals and should
                      therefore be discontinued, (2) set priorities among those that will be
                      continued, and (3) issue clarifying guidance, as needed, to help ensure that
                      the specific objectives and expectations of continuing initiatives are clear
                      among stakeholders inside and outside the agency;
                  •   improve the prospects for achieving consensus among concerned parties
                      in EPA’s reinvention efforts by clarifying the circumstances under which
                      unanimous agreement is required;
                  •   develop a systematic process that would help to address problems in a
                      timely fashion by identifying which kinds of problems can be resolved at
                      lower levels within the agency and which should be elevated for senior
                      management’s attention; and
                  •   direct that each of the agency’s initiatives include an evaluation
                      component that measures the extent to which the initiative has had its
                      intended effect.


                      Officials with EPA’s Regulatory Reinvention Team expressed general
Agency Comments       agreement with the report’s recommendations, offering observations or
                      suggesting modifications in some cases. The Team’s Director noted,
                      however, that the timely resolution of complex problems involving
                      numerous regional and program office staff may not always be possible.
                      We acknowledge the difficulty of resolving such problems expeditiously.
                      However, we believe that the type of “triage” suggested in our
                      recommendation, which would elevate complex problems for senior



                      Page 56                           GAO/RCED-97-155 Reinventing Environmental Regulation
Chapter 3
Issues to Address If Reinvention Efforts Are
to Succeed




management’s attention when disagreements could not (or should not) be
resolved at lower levels, would help to address this difficulty.

The Regulatory Reinvention Team’s Director also indicated that our
recommendation to include outcome-based evaluation components for
each initiative may be impractical because measuring environmental
outcomes may not be possible in all cases. We agree and modified this
recommendation to avoid calling for outcome-based measures in all cases.
However, we continue to believe that, when possible, outcome-based
performance measures should be used, as the Results Act directs.

The Director of the Regulatory Reinvention Team expressed some concern
that although the report did not specifically recommend statutory changes
to facilitate reinvention, some readers may infer that GAO is advocating
change in the medium-specific structure of the federal environmental
statutes. He added that the report did not assess how changes in
environmental law can improve environmental protection. We
acknowledge that assessing how specific changes could improve the
environmental statutory framework was outside the scope of this review,
although our draft report did reflect the views of EPA officials, industrial
and environmental groups, and other participants in the environmental
regulatory process on this issue. We also acknowledge that EPA, in
consultation with key advisers and stakeholders, is ultimately responsible
for assessing whether changes to environmental statutes should be
recommended to the Congress. At the same time, we believe that any
discussion of the issues affecting reinvention’s success would be
incomplete without citing the inherent limitations to fundamental change
posed by the statutes’ current medium-by-medium focus. Such limitations
have been acknowledged by EPA in past years; documented consistently in
analyses by GAO and other organizations; and cited as a key issue by the
large majority of officials interviewed for this report.

Finally, the officials suggested that the report focuses on the most visible
of EPA’s initiatives, such as Project XL and the Common Sense Initiative,
and does not sufficiently acknowledge (1) the agency’s smaller, less visible
initiatives and (2) the extent to which reinvention principles are being
applied throughout EPA’s day-to-day activities. Although we did not analyze
all of EPA’s reinvention initiatives in detail, focusing instead on the efforts
emphasized by the EPA and state officials contacted during our review, the
draft report acknowledged that EPA has undertaken numerous other
initiatives and listed many of them in appendix I. The draft report
cautioned against measuring the success of reinvention by the large



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Issues to Address If Reinvention Efforts Are
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number of initiatives under way, noting that EPA may need to reduce the
number of initiatives to improve the prospects of success for its
highest-priority efforts. In regard to the extent that reinvention principles
are being applied throughout EPA’s day-to-day activities, chapter 3 of the
draft report had, in fact, discussed many of the agency’s efforts to instill
reinvention principles into the staffs’ day-to-day activities, emphasizing
that EPA management considers cultural change to be a major goal of its
reinvention efforts. Here, too, however, the draft report discussed the
agency’s difficulties in achieving this goal, noting in chapter 3, for
example, “widespread agreement among EPA officials, state officials, and
others that the agency has a long way to go before reinvention becomes an
integral part of its staff’s everyday activities.”




Page 58                           GAO/RCED-97-155 Reinventing Environmental Regulation
Page 59   GAO/RCED-97-155 Reinventing Environmental Regulation
Appendix I

EPA’s Major Regulatory Reinvention
Initiatives

                                In March 1995, the administration announced a comprehensive effort to
                                reinvent environmental regulation1 and identified 25 “high-priority actions”
                                and 14 “other significant actions” that the agency would use to launch this
                                effort. More recently, EPA identified 10 efforts for us as its larger and more
                                cross-cutting initiatives. These initiatives are denoted below in bold type.
                                Four of the 10 initiatives, which were not included in the original
                                announcement, are listed below under “Other Larger Cross-Cutting
                                Efforts.”



25 High-Priority
Actions

Improvements to the         •   Issue a rule allowing open-market air emissions trading
Current System              •   Promote effluent trading in watersheds
                            •   Refocus hazardous waste regulation on high-risk wastes
                            •   Refocus drinking water treatment requirements on the highest risks
                            •   Expand the use of risk assessment in local communities
                            •   Provide flexible funding for states and tribes
                            •   Provide sustainable development challenge grants
                            •   Encourage regulatory negotiation and consensus-based rulemaking
                            •   Reduce existing reporting and recordkeeping requirements by
                                25 percent
                            •   Create one-stop emission reports
                            •   Consolidate federal air rules
                            •   Move to risk-based enforcement
                            •   Establish compliance incentives for small businesses and communities
                            •   Establish small business compliance assistance centers
                            •   Create incentives for auditing, disclosure, and correction
                            •   Develop a self-certification (compliance) program for environmental
                                requirements not associated with emissions or risk data
                            •   Expand the public’s electronic access to information on all EPA
                                programs
                            •   Establish an EPA center for environmental information and statistics


Building Blocks for a New   •   Project XL (Excellence and Leadership) for facilities
System:                     •   Alternative strategies for sectors (Common Sense Initiative)


                                1
                                  President Bill Clinton and Vice President Al Gore, Reinventing Environmental Regulation, National
                                Performance Review (Mar. 16, 1995).



                                Page 60                               GAO/RCED-97-155 Reinventing Environmental Regulation
                                  Appendix I
                                  EPA’s Major Regulatory Reinvention
                                  Initiatives




                              •   Alternative strategies for communities
                              •   Alternative strategies for agencies
                              •   Pilot third-party audits for industry compliance
                              •   Multimedia permitting
                              •   Design for the Environment—“Green Chemistry Challenge”



Other Significant
Actions

Performance and Market        •   Conduct several demonstrations of facilitywide limits for air emissions
Based Regulations             •   Propose targeted Clean Water Act revisions to provide flexibility in
                                  meeting effluent discharge deadlines


Setting Priorities Based on   •   Eliminate millions of storm water permit applications
Sound Science                 •   Exempt low-risk pesticides and toxic chemicals from regulation
                              •   Establish a program to forecast future environmental problems


Building Partnerships         •   Encourage states and tribes to implement a flexible, performance-based
                                  approach for permitting municipal landfills


Cutting Red Tape              •   Save billions on the costs of disposing of polychlorinated bi-phenyls (PCB)
                              •   Simplify air permit revision requirements
                              •   Simplify the review of new air pollution sources
                              •   Simplify water permit paperwork
                              •   Streamline corrective action procedures under the Resource,
                                  Conservation, and Recovery Act


Better Accountability,        •   Develop flexible compliance agreements for specific industries
Compliance, and
Enforcement
The Power of Information      •   Commission an independent study on collecting and using information
                                  more effectively
                              •   Establish a data transfer system that will allow facilities to report
                                  monitoring results electronically



                                  Page 61                         GAO/RCED-97-155 Reinventing Environmental Regulation
                                 Appendix I
                                 EPA’s Major Regulatory Reinvention
                                 Initiatives




Other Larger Cross-Cutting   •   Brownfields Initiative
Initiatives                  •   Environmental Leadership Program
                             •   National Environmental Performance Partnership System
                             •   Voluntary Partnerships (applies to a broad range of activities)




                                 Page 62                         GAO/RCED-97-155 Reinventing Environmental Regulation
Appendix II

Major Contributors to This Report


                        Steve Elstein, Assistant Director
Resources,              Lisa T. Pittelkau, Evaluator-in-Charge
Community, and          Beverly Norwood Dulaney, Senior Evaluator
Economic
Development
Division, Washington,
D.C.
                        Karen Keegan, Senior Attorney
Office of the General
Counsel




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