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Energy & Environment
Second Generation Policy

PPI | Briefing | May 1, 1999
Second Generation of Environmental Stewardship
Improve Environmental Results and Broaden Civic Engagement
By Debra Knopman and Emily Fleschner

It would be sheer coincidence if the first generation of national environmental laws and regulations conceived 30 years ago would fit all of our needs at the start of the 21st century. Back then, most Americans lived in cities. The economy was dominated by heavy industry. Smokestack factories and big city sewers were Public Enemy No. 1 when it came to the environment. The Clean Air Act, the Clean Water Act, the Superfund abandoned waste site law, and other laws passed between 1970 and 1986 were focused mostly on controlling large sources of pollution.

Thirty years later, the post-World War II heavy industrial economy has grown into a new service economy marked by rapid technological change, globalization, and high-speed communications.1 A predominantly urban and rural America in the 1970s is now a suburban America in the 1990s, consuming more land and commuting greater distances.2 Environmental concerns have shifted from a single-minded focus on big sources of air and water pollution to more diffuse issues of region-wide smog, watershed degradation, habitat loss, and global warming.3 Instead of just reacting to pollution control mandates, some leading businesses are now redesigning their production and products to create less pollution and use fewer natural resources in the first place.4

Environmental policy must be modernized to keep pace with the dramatic transformations in the environment, economy, and population. The first generation of rules simply cannot get the job done:

  • Two-fifths of smog-causing nitrogen oxides come from factories and power plants. The rest comes from cars, trucks, railroads, airplanes, and other miscellaneous non-industrial sources whose actual emissions are difficult to control under Clean Air Act rules.5


  • Agricultural run-off--not included in the Clean Water Act permitting program--is now the most extensive source of water pollution, affecting 70 percent of rivers and streams failing to meet water quality standards.6


  • More than two-thirds of greenhouse gas emissions--totally unregulated under the Clean Air Act--come from electricity consumed to heat, cool, and light homes and buildings, and from fossil fuels for transportation; industry energy use accounts for the remaining third.7


  • More than two-thirds of threatened and endangered species reside on private lands where the Endangered Species Act is least effective.8


  • Of the approximately 3000 high-production chemicals in commercial use as feedstock, pesticides, or consumer products, the most basic information about their effects on human health is unavailable for about 75 percent of them, a striking sign of dysfunction in the 23- year old Toxic Substances Control Act.9

With varying degrees of conviction and success, the Clinton Administration has worked the edges of existing rules to cope with these problems. Their "reinvention" initiatives--modest by design and constrained by their own rules and bureaucratic cultures --are neither broad nor deep enough to make a big difference in environmental quality or the cost of compliance with the old rules.

Three Central Ideas Motivate A Second Generation Strategy

Congress should bring environmental policy into line with the new economy and changed environmental conditions. A second generation of policies should build on past success, capitalize on advances in information and monitoring technologies, and thrive on progressive governance. Here are the three core ideas of a second generation strategy:

  • Better information will drive innovation and improve accountability. When first generation policies were initiated, public information about air and water quality was sparse and anecdotal. Public disclosure of the pollution arising from municipalities and companies was virtually nonexistent and technologically impractical. Access to the sparse information that did exist about chemical and other environmental risks was highly centralized in filing cabinets and mainframe computers buried in government offices. When the federal government increased its role in environmental protection in the early 1970s, Congress chose to mandate technologies for pollution control, in part because the information needs of a more customized approach were beyond technical and financial capacities.10

    Capitalizing on new monitoring and information technologies, "trust but verify" is within reach in a second generation strategy. Companies, states, and communities can be granted flexibility to meet air, water, and other standards in their own way, but they need to back their commitments with timely, accurate, publicly available data from air, water, and other environmental monitoring. For example, company websites could post daily, weekly, and monthly monitoring reports and relate the incoming information to the pollutant levels allowed by the state and the Environmental Protection Agencey (EPA). 11 This information also could prove valuable to investors, insurers, and bankers who are in the business of assessing company management. The financial sector could make it similarly advantageous for states and communities to provide comparable information.12

  • Civic engagement is vital for solving place-based environmental problems. In first generation policies, federal and state regulatory actions--often taken piecemeal, one agency and law at a time--have tended to trump citizen-led environmental problemsolving. Designing solutions for specific places has traditionally been viewed as impractical with such a weak base of environmental information and too few technical experts to go around.

    In a second generation strategy, problem-solving at the community and regional level--known as "civic environmentalism"13 --is a must for dealing with endangered species, urban redevelopment, and sprawl-related land-use issues. For civic environmentalism to work, citizens, communities, and businesses must be willing to take responsibility for the environmental consequences of their actions. In return, government has an obligation to create effective regulatory tools, support research, and provide resources to ensure that civic responsibilities are understood, fair, and fulfilled.

  • Market-based incentives and regulatory flexibility will improve performance and spur innovation. First generation regulations may begin as environmental performance standards, but they tend to morph into de facto mandates to use a specific technology to control pollution-- usually at the end of the pipe when the pollution enters the air or water. In the old, more stable, and less diverse economy, uniform "command and control" rules were not the barrier to innovation and adaptation that they are in today's fast-paced and growing economy. It is an anachronism that government regulators are still trying to pick technological winners in pollution control.

    Instead of measuring success by compliance with prescribed technologies, second generation approaches focus on environmental results and make responsible behavior pay off. To reduce pollution--and better yet, prevent it--federal and state regulators should routinely offer economic incentives such as caps on emissions that apply not just to a single smoke stack but across an entire facility; emission and discharge trading; and expedited permitting. New approaches should provide incentives for pollution prevention, product redesign, and environmental performance agreements between manufacturers and suppliers. The right kind of incentives will improve the environment, stimulate technological innovation, and reduce transaction and compliance costs. For example, trading in sulfur dioxide emissions has reduced emissions more than 35 percent below allowable levels, encouraged the switch to low sulfur fuels, and reduced costs of regulation by about $2 billion.14

    Partisan Politics Works Against Modernization

    The sharply partisan political climate in Washington has stifled constructive national debate on modernizing environmental policy, despite a plethora of think tank and academic consensus building and policy prescriptions for modernization.15 In 1995 and 1996, the 104th Congress demonstrated how not to change environmental regulation: agency-bashing, undermined enforcement, and budget cuts for environmental science. The 105th Congress remained mostly in gridlock. Now, the 106th Congress has gotten off to a discouraging start in the House by passing two bills, one aimed at blocking the full debate of environmental, health, and safety measures, and another intended to undermine enforcement of reporting requirements.16

    In reaction to retrograde challenges to the status quo, some in the environmental community and the Administration continue to play defense, suggesting that second generation legislation is unnecessary and even dangerous in this sharply partisan climate. In fact, EPA is busy with dozens of reinvention initiatives.17 The states are proceeding with many creative innovations of their own.18 Federal environmental law is loaded with flexibility that only now is being fully explored.19 Beyond these reasons, the road between Capitol Hill and the White House is littered with failed attempts to amend existing environmental laws. Congress has revamped and updated only two major environmental laws in the last eight years.20

    All these reasons to just say "no" to legislation have some short-term political merit, but none meets the need for a legal framework to guide modernization.

    Second Generation Legislation Would Fuse Better Information with Regulatory Innovation

    Second generation legislation would overcome persistent barriers to innovation and ratify the good efforts now underway in the states and the EPA. Here is what the legislation should do:

  • Legalize Reinvention. Murky legality has hamstrung the Clinton Administration's reinvention efforts from the start. Take the flagship Project XL as an example: Project XL (standing for excellence and leadership) was intended to point the way to "cleaner, cheaper, faster" regulatory approaches by focusing on environmental results, not process. Since its inception, EPA has relied on time-consuming, Houdini-like legal contortions to give XL agreements with industry a firm legal basis. While most of the other reinvention projects underway at EPA are commonsense fixes to ossified agency practices (like writing new regulations in "plain English"), bolder initiatives have been inhibited by existing rules. Further, EPA employees have yet to hear Congress speak in law (outside of appropriations report language) about the importance of reinvention. Without a congressional stamp of approval, business as usual rules the day and the agency's commitment to change remains uneven--from top political appointees down to regional office managers. Leading state innovators are often caught in the web of EPA's ambivalence to change.

    Second generation legislation would clear the ambiguity over reinvention efforts that are now stretching the legal limits of existing law and regulation. The ground rules would be laid for how innovative strategies would be enforced, and the public could begin to see working examples of a more transparent and more effective regulatory approach. Under an umbrella of environmental priorities, states, companies, trade groups, communities, and others could advance their ideas to achieve better environmental outcomes than are possible under current regulation without the cloud of legal uncertainty. The legislation, while retaining congressional authority to change the underlying laws, should clarify that the EPA administrator has the authority to waive regulations if necessary. Congressional actions should be guided by recommendations from the EPA Administrator about which changes would result in more environmental benefits achieved with greater efficiency.

  • Target Environmental Priorities. At last count, the EPA had no fewer than 40 reinvention initiatives underway--from paperwork reduction to the more profound paradigm-shifting ideas of Project XL and the Common Sense Initiative (CSI). CSI is designed to solve regulatory problems affecting whole industrial sectors like metal finishers and iron and steel companies.21 States have even more pilot programs on the burner.22 Notwithstanding the strategic planning process now required under the Government Performance and Results Act, EPA has yet to make clear how its choice of initiatives, pilot programs, and other experiments fit into a larger picture of environmental priorities.

    Second generation legislation would require EPA to set environmental priorities for innovative strategies. The focus should be on new strategies to solve problems still lingering under conventional regulation, like run-off from large animal feeding operations and regional smog, as well as emerging problems now outside of current law and regulation like habitat conservation and climate change. EPA needs to choose the reinvention activities that are likely to have the biggest environmental payoffs. EPA is currently reviewing its reinvention activities, but it needs to broaden its view beyond the fence of existing law, and set priorities that are publicly transparent and politically durable.

  • Turn Good Ideas Into Systemwide Change. Pilot programs are fine if the good ones are ramped up to nationwide use. With some important exceptions,23 there are too few signs that EPA's major reinvention efforts will ever make it to the big time. State innovations tied to their implementation of federal programs are similarly constrained.

    Second generation legislation would push EPA and the states to think early and often about how to move a successful pilot program into national use. It would also push EPA to continually assess its own performance, learn from its mistakes, and build on its successes. Program evaluation is another place that better environmental and economic information could make a big difference. EPA would need to restore its economic and policy analysis capacities to rise to this challenge.24

  • Equip citizens, regulators, and investors with better environmental information. Modernizing regulation depends on modernizing collection, management, and access to timely and accurate environmental information. Clear and simple statements about how we're doing on air, water, and other indicators of environmental quality--"performance measures" in the parlance of management gurus--are only now coming into use, led by states like Florida, New Jersey, and Oregon. In spite of the size and breadth of the EPA and state data holdings, much of the available information, like the number of permits and enforcement actions, is ill-suited to judging whether regulations are working and the environment is getting cleaner.25 EPA is presently making a big push to improve their management of information, but they have miles to go.26 Even with the Internet, public access to comprehensible information about environmental performance can still be extraordinarily difficult.27

    Congress should provide EPA and other federal agencies with the authority--and additional funding, if necessary--to invest in timely, accurate, and reliable environmental information for the public. This effort should include a major overhaul of environmental reporting requirements to sharpen the focus of data collection and make better use of public resources. Public reporting should hone in on key performance measures. That means that some redundant or marginal reporting now required by law should be dropped and replaced with more useful measures for the public and regulators. States are a critical piece of the action. They should be provided with funds to make their systems compatible with federal systems, and penalized down the road if they fail to avail themselves of aid to modernize their systems in the next few years.

    Environmental groups and others already have taken government information and packaged it in useful ways for the public.28 Still, the imprimatur of objective and trusted data is necessary to render value to these private sources. Better information will both drive and be driven by innovative environmental strategies. For example, the sulfur dioxide trading program was made possible by continuous emissions monitors on smoke stacks.

  • Increase incentives to innovate. Most of our economic growth is now fueled by technological innovation and human capital.29 Regulation needs to take advantage of this major economic force, not inhibit it.

    Congress should send a clear signal to EPA and the states to use market incentives to spur higher environmental performance. Incentives could include ways to reduce regulatory transaction costs through quick permit reviews, longer permit periods, third-party certification of performance, as well as facility-wide caps on emissions and discharges, emissions trading, and changes in monitoring requirements. To be credible and effective, these incentives must be accompanied by strong and consistent enforcement, not just the old legal sticks but innovative approaches that similarly leverage market forces like bonding and insurance.

  • Support the growth of civic environmentalism. Throughout the nation, citizens and communities are engaged in collaborative efforts to solve environmental problems particular to their own place.30 Leaders in many of these efforts are frustrated by the fragmentation of federal and state authorities and resources available to help them solve their own problems. Existing laws and regulations may not necessarily mount serious barriers, but their application varies widely from place to place, preventing them from working effectively.

    Second generation legislation would signal federal agencies that supporting civic efforts to solve environmental problems is part of their job. To its credit, the Clinton Administration has far surpassed its predecessors in tackling high profile regional environmental conflicts. Still, communities, regions, and states need new tools--not just flexibility in outdated regulatory schemes-- to solve these place-based problems, including one-stop shopping for regulatory advice, and technical support to succeed. In the Bay-Delta project in California, four federal agencies wrestled among themselves and the state for over a decade until they finally found their way to a comprehensive and coordinated approach to solving the region's serious water supply, water quality, and endangered species problems.31

  • Encourage risk-taking. Experimentation in environmental regulation can be risky. Companies and communities with innovative ideas have to weigh the prospects of success against the costs of regulatory uncertainty and the possibility of failure. Working outside the box of conventional regulation can be a big headache and cost a fair penny: 3M spent over $1 million in an unsuccessful effort to obtain a Project XL permit from EPA.32 The project had merit and its failure clearly discouraged others in the business community from entering the program.

    Legislation would give EPA and the states the license to be bold in experimenting with new and potentially better means to solve environmental problems. Employees and agencies would be rewarded for efforts to advance innovative strategies. Technological leaders in the private sector should know that they, too, will be rewarded for finding better ways to reduce air and water pollution and leave a smaller footprint on natural resources. To cope with occasional failure, Congress should provide a safety net of contingencies.

  • Invest in change. Constructive change costs money up front, if current law is to be enforced as new approaches are developed, tested, and pushed into wider use. Now, most EPA employees view reinvention as desirable, but not necessarily part of their job description.

    Welfare reform was accomplished when Congress agreed to spend more money per recipient for child care, transportation, and other services to move people from welfare to work. Congress should authorize such sums as necessary to give innovation a chance to succeed without undermining the foundation of existing environmental law and siphoning resources needed for permitting, compliance assistance, and enforcement. The payoffs will begin to flow after the investments in modernization begin.

    Let the Debate Begin

    Second generation legislation engenders ambivalence among battle-scarred veterans of the 1990s green wars. Some still hope for old-style benefit-cost analysis to control the costs of regulation. These critics say that the second generation agenda doesn't go far enough to fix the inefficiencies of the current system. Others say that until improvements are made in the quality of information and critical gaps are filled, measures to inject more flexibility are at best premature and at worst subversive.

    Stalemate is an effective political tactic, but ultimately makes for bad politics when the public sees through the game. The public has spoken at the ballot box for strong environmental protection. Yet, defense of the status quo cannot become a permanent campaign. Ultimately, the public will measure success by deeds and a judgement that the environment is better off than before.

    With challenging public expectations for progress but the absence of near-term crisis, Congress and state leaders on both sides of the aisle should seize the opportunity to give EPA and the states the green light to conduct controlled experiments in environmental problem solving. If the experiments succeed, they should be moved into widespread practice. If they fail, innovators must learn from the mistakes and try a better way.

    Rewarding results, encouraging civic engagement, stimulating innovation, and providing public accountability are the ways to achieve more environmental benefits in the New Economy. These are also the ways to build public trust and confidence that as regulation is modernized, public health will be well protected and our natural heritage conserved.

    Endnotes

    1.For an excellent overview of what's new in the New Economy, see Robert D. Atkinson and Randolph H. Court, The New Economy Index: Understanding America's Economic Transformation, Progressive Policy Institute, Washington, DC, November 1998.

    2. Council on Environmental Quality, Environmental Quality, Washington, DC., 1996, Part III, Table 1.4, p. 241. http://www.ceq.eh.doe.gov/reports/1996/tables.pdf

    3. Ibid.

    4. This phenomenon goes by the name of "industrial ecology." For more information, see T.E. Graedel and B.R. Allenby, Industrial Ecology, Prentice Hall, New York, 1995.

    5. U.S. Environmental Protection Agency, National Air Pollutant Emissions Trends, 1900- 1996, Office of Air Quality, Planning, and Standards, EPA-454/R-97-011, December 1997.

    6. U.S. Environmental Protection Agency, The Quality of Our Nation's Waters, http://www.epa.gov/OW/resources/9698/chap2.html

    7. Energy Information Administration, Emissions of Greenhouse Gases in the United States 1997, DOE/EIA-0573(97) (Washington, DC, October 1998), p. 16.

    8. David S. Wilcove, Michael J. Bean, Robert Bonnie, and Margaret McMillan, Rebuilding the Ark: Toward a More Effective Endangered Species Act for Private Land, Environmental Defense Fund report, December 5, 1996. www.edf.org/pubs/Reports/help-esa/index.html#4. U.S. General Accounting Office, Endangered Species Act: Information on Species Protection on Nonfederal Lands. GAO/RCED-95-16. U.S. General Accounting Office, Washington, DC, 1994.

    9. David Roe, William Pease, Karen Florini, and Ellen Silbergeld, Toxic Ignorance: The Continuing Absence of Basic Health Testing for Top-Selling Chemicals in the United States, Environmental Defense Fund, Washington, DC, 1998. Www.edf.org/pubs/Reports/ToxicIgnorance.

    10. Norman J. Vig and Michael E. Kraft, "Environmental Policy from the 1970s to the 1990s: An Overview," Chapter 1 in Vig and Kraft (eds.), Environmental Policy in the 1990s, Third Edition, CQ Press, Washington, DC, 1997; National Academy of Public Administration, Setting Priorities, Getting Results: A New Direction for EPA, NAPA, Washington, DC, April 1995, pp. 13-16; J. Clarence Davies and Jan Mazurek, Pollution Control in the United States, Resources For the Future, Washington, DC, 1998.

    11. For an example of what such a site could look like, see Investor Responsibility Research Center, Environmental Information Services, Corporate Environmental Profiles Survey at http://www.irrc.org/eisweb/samplep.htm. Intel also posts a quarterly report on environmental performance at its newest facility in Chandler, Az., www.intel.com/intel/other/ehs/projectxl/Q498www/Q498rpt.htm

    12. Investor Responsibility Research Center, op. cit.

    13. All credit for the term "civic environmentalism" should go to DeWitt John of the National Academy of Public Administration. DeWitt John, Civic Environmentalism, Congressional Quarterly Press, Washington, DC, 1994.

    14. U.S. General Accounting Office, GAO/RCED-95-30, Air Pollution Trading Offers An Opportunity to Reduce Emissions At Less Cost, December 1994.

    15. National Academy of Public Administration, Setting Priorities, Getting Results: A New Direction for EPA, NAPA, Washington, DC, April 1995; NAPA, Resolving the Paradox of Enviornmental Protection: A New Direction for EPA, Washington, DC, 1997; Aspen Institute, The Alternative Path: A Cleaner, Cheaper Way to Protect and Enhance the Environment, Aspen, Colorado, 1996; Center for Strategic and International Studies, Enterprise for the Environment, The Environmental Protection System in Transition: Toward a More Desirable Future, Washington, DC, 1998; Marian Chertow and Daniel Esty (eds.), Thinking Ecologically: The Next Generation of Environmental Policy, Yale University, New Haven, 1997; President's Council for Sustainable Development, Sustainable America, Washington, DC, 1996; Debra S. Knopman, "Easier to be Green: A Second Generation Strategy to Improve the Environment," Chapter 11 of the Progressive Policy Institute's book Building the Bridge: Ten Big Ideas to Transform America, January 1997; Debra S. Knopman, Second Generation: A New Strategy for Environmental Protection, Progressive Policy Institute, April 1996.

    16. U.S. Congress, 106th Congress, Mandates Information Act of 1999 (H.R. 350) and Small Business Paperwork Reduction Act Amendments of 1999 (H.R. 391). Both bills passed the House on February 11, 1999.

    17. U.S. Environmental Protection Agency, Reinventing Environmental Protection: 1998 Annual Report, Office of the Administrator, EPA 100-R-99-002, March 1999. www.epa.gov/reinvent.

    18. Environmental Council of the States,1997 Annual Meeting State Innovations Report, ECOS, Washington, DC, September 21, 1997 http://www.sso.org/ecos/innovate.htm.

    19. U.S. Department of Interior Secretary Bruce Babbitt has found more flexibility in the Endangered Species Act than any of his predecessors or detractors in Congress were willing to acknowledge was available under the Act. For a summary of DOI's policies, see testimony of Jamie Rappaport Clark, Director of the U.S. Fish and Wildlife Service, before the Senate Environment and Public Works on S. 1180 (105th Congress), The Endangered Species Recovery Act of 1997, September 23, 1997. For an overview discussion of the strengths and weaknesses of the Endangered Species Act, see "The Endangered Species Act At 25: What Works?" in The Environmental Forum, Environmental Law Institute, September/October 1998, pp. 48-57.

    20. U.S. Congress, 104th Congress, Public Law 104-182, Safe Drinking Water Act Amendments of 1996 (110 Stat. 1613), and Public Law 104-170, the Food Quality Protection Act of 1996.

    21. The Common Sense Initiative (CSI) was designed to address sector-wide regulatory problems within a particular industry. U.S. Environmental Protection Agency, Reinventing Environmental Protection: 1998 Annual Report, Office of the Administrator, EPA 100-R-99-002, March 1999, pp. 44-48.

    22. Environmental Council of the States, op. cit.

    23. Stimulated in part by a Weyerhauser XL project, EPA recently issued a rule that encourages pollution prevention in the pulp and paper industry. This rule also increased flexibility in how mills reduce air emissions. Discussions from the Common Sense Initiative have led to proposed rule changes to make recycling of metals easier for metal finishers and reclycling of cathode ray tubes easier for electronics manufacturers. U.S. Environmental Protection Agency, Reinventing Environmental Protection: 1998 Annual Report, Office of the Administrator, EPA 100-R-99-002, pp. 46-47, March 1999. www.epa.gov/reinvent.

    24. Richard D. Morgenstern, "Introduction to Economic Analyses at EPA", Chapter 1 in Richard D. Morgenstern (ed.), Economic Analyses at EPA: Assessing Regulatory Impact, Resources for the Future, Washington, DC, 1997. EPA has reorganized out of existence most of its economic analysis functions previously in the Office of Policy, Program and Evaluation.

    25. Remarks by David Gardiner, Assistant Administrator for the Office of Policy, U.S. Environmental Protection Agency, to the Common Sense Initiative Council, Arlington, Virginia, December 17, 1998. As reported by The Reinvention Report, January 1, 1999, Gardiner said: "Nine out of 26 environmental problems, analyzed as part of an EPA effort to address 'gaps' in data availability, have 'significant unmet data needs'"

    26. U.S. Environmental Protection Agency, Memorandum from Administrator Carol M. Browner, Meeting the Information Challenge, October 14, 1998.

    27. John D. Howay, Warren R. Muir, and Barbara F. Bass, Existing Reporting vs. Needs for Public Environmental Performance Data about Toxic Chemicals at Industrial Facilities, Hampshire Research Institute, Alexandria, Virginia, September 1997, p.1. The authors note: "Practically none of the current reporting requirements are intended to serve environmental performance purposes, other than compliance with regulations."

    28. A virtual walk through Environmental Defense Fund (EDF) Chemical Scorecard clearly shows how broad and deep are the gaps in environmental information. www.edf. scorecard.org

    29. Robert D. Atkinson and Randolph H. Court, op. cit.

    30. Marc K. Landy, Megan M. Susman, and Debra S. Knopman, Civic Environmentalism in Action: A Field Guide to Regional and Local Initiatives,Progressive Policy Institute, Washington, DC, January 1999.

    31. Ibid., pp. 11-14 and 47-56.

    32. Personal communication, Theresa Hooper, 3M Corporation, Government Relations Representative, Washington, DC, April 29, 1999. Allen Blackman and Janice Mazurek, The Cost of Developing Site-Specific Environmental Regulations: Evidence from the EPA's Project XL, Discussion Paper 99-35, Resources for the Future, Washington, DC, April 1999.

    Debra Knopman is director of the Progressive Policy Institute's (PPI) Center for Innovation & the Environment. Emily Fleschner is a program associate with PPI.



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