Environmental Policy Tools: A User's Guide

September 1995

OTA-ENV-634

GPO stock #052-003-01441-6
ii

Recommended Citation: U.S. Congress, Office of Technology Assessment, Environmental

Policy Tools: A User’s Guide, OTA-ENV-634 (Washington, DC: U.S. Government

Printing Office, September 1995).
iii

oreword

oncerns over the costs of pollution control and the persistence of some

pollution problems have fueled criticism of how the nation is pursuing its

environmental protection goals. In particular, interest in policy instruments that utilize or improve market forces, while not new, has grown

considerably over the past decade. Yet this interest continues to be met with confusion—and sometimes unrealistic expectations—about what these approaches

can accomplish in some instances, and with suspicion over whether they can offer

meaningful protection. The Senate Committee on Environment and Public Works

asked the Office of Technology Assessment (OTA) to help Congress sort out the

often conflicting claims about the effectiveness of major policy instruments.

The assessment looks at a range of regulatory and nonregulatory instruments,

both the old standbys and less commonly used approaches. The “ideal” instrument would move the nation toward a cleaner environment, be as cost-effective

and fair as possible, and accommodate increasingly rapid changes in science and

technology. Finding an instrument to satisfy all of these objectives at once has seldom proved possible in the past—and may be even more difficult in the future.

But whether Congress prefers to specify the choice of policy tool itself or delegate

the choice to states, localities, or the Environmental Protection Agency (EPA),

someone is faced with the difficult problem of matching tools to problems.

This “user’s guide” presents a framework to help decisionmakers narrow down

the choice of instruments for addressing a particular problem. First, the report describes 12 policy tools, and how and where they are currently used. Based on state,

federal, and international experience as well as theoretical literature, OTA rates

the relative effectiveness of these tools in achieving each of seven criteria often

considered in environmental policymaking. Given a decisionmaker’s preferences

among the criteria and the characteristics of a particular problem, this framework

draws attention to those instruments that might be particularly effective—or used

with caution.

OTA appreciates the generous assistance of the project advisory panelists, reviewers, contractors, and other individuals who contributed ideas and information for this study. Their suggestions and advice were extremely valuable.

ROGER C. HERDMAN

Director
ERRATA --- ADVISORY PANEL

FOR

Environmental Policy Tools: A User’s Guide

In the printing of this report, OTA inadvertently omitted the page listing the Advisory Panel to the

study. OTA deeply regrets this error and apologizes to the individuals who gave such valuable

service during the course of the project. As with all OTA projects, the Advisory Panel does not

necessarily approve, disapprove, or endorse the report. OTA assumes full responsibility for the

content and accuracy of all its reports. We do, however, appreciate the thoughtful comments and

suggestions of the Panel.

Richard N.L. Andrews (Advisory Panel Chairman)

School of Public Health

University of North Carolina

Chapel Hill, NC

Donald A. Deieso

Metcalf & Eddy, Inc.

Somerville, NJ

Randy Johnson

Board of Hennepin County

Commissioners

Minneapolis, MN

E. Donald Elliott

Fried, Frank, Harris, Shriver & Jacobson

Washington, DC

Howard A. Latin

Rutgers University School of Law

Newark, NJ

Deeohn Ferris

Washington Office on Environmental

Justice

Washington, DC

Lester B. Lave

Carnegie Mellon University

Graduate School of Industrial

Administration

Pittsburgh, PA

Caren Glotfelty

Pennsylvania Department of

 Environmental Resources

Harrisburg, PA

Pat Leyden

South Coast Air Quality Management

District

Diamond Bar, CA

Joseph Goffman

Environmental Defense Fund

Washington, DC

Steven B. Lovejoy

Purdue University

West Lafayette, IN

Daniel S. Greenbaum

Health Effects Institute

Cambridge, MA

Warren R. Muir

Hampshire Research Associates, Inc.

Alexandria, VA

Linda E. Greer

Natural Resources Defense Council

Washington, DC

Helen O. Petrauskas

Ford Motor Company

Dearborn, MI

F. Henry Habicht II

Safety-Kleen Corp.

Elgin, IL

Ernest S. Rosenberg

Occidental Petroleum Corp.

Washington, DC
iv

roject Staff

Clyde Behney

Assistant Director

Robert Niblock

Program Director

Environment Program

ADMINISTRATIVE STAFF

Kathleen Beil

Office Administrator

Nellie Hammond

Administrative Secretary

Kimberly Homlund

Administrative Secretary

Babette Polzer

Contractor

PRINCIPAL STAFF

Robert M. Friedman

Project Director

Donna Downing

Senior Analyst

Elizabeth Gunn

Senior Analyst

Jan Linsenmeyer

Research Analyst

CONTRIBUTORS

Kirsten Oldenburg

Senior Analyst

Damaris Christensen

Contractor

Elisa Vitenza

Intern

CONTRACTORS

Gary C. Bryner

Brigham Young University

Environmental Law Institute

Don H. Garner

George R. Heaton

Worcester Polytechnic Institute

Donald T. Hornstein

University of North Carolina

Law School

Barnett M. Lawrence

Stephen Lipmann

Environmental Research

& Analysis

Thomas O. McGarity

University of Texas

Law School

Pat Parenteau

Environmental Law Center,

Vermont Law School

Barry G. Rabe

University of Wisconsin, Madison

Clifford S. Russell

Vanderbilt Institute for Public

Policy Studies

Sidney A. Shapiro

University of Kansas Law School

Daniel Tarlock

Chicago-Kent College of Law

Kathryn Wagner
v

eviewers

Ellen Brown

U.S. Environmental

Protection Agency

Washington, DC

Gary Bryner

Brigham Young University

Provo, UT

Elizabeth David

Wisconsin Department of

Natural Resources

Madison, WI

Clarence Davies

Resources for the Future

Washington, DC

Steven Harper

U.S. Environmental

Protection Agency

Washington, DC

George Heaton

Worcester Polytechnic Institute

Worcester, MA

Christopher T. Hill

George Mason University

Fairfax, VA

Adam B. Jaffe

Brandeis University

Waltham, MA

DeWitt John

National Academy of

Public Administration

Washington, DC

Nancy Kete

Organization for Economic

Cooperation and Development

Paris, France

Richard Lazarus

Washington University

School of Law

St. Louis, MO

Thomas McGarity

University of Texas

Austin, TX

Richard Minard

National Academy of

Public Administration

Washington, DC

Karen Neale

Chemical Manufacturers

Association

Washington, DC

Laurence J. O’Toole

The University of Georgia

Athens, GA

Barry Rabe

University of Michigan

Ann Arbor, MI

Larry Regens

Tulane University Medical Center

New Orleans, LA

Clifford Russell

Vanderbilt University

Nashville, TN

Sidney Shapiro

University of Kansas

Lawrence, KS

Daniel Tarlock

Chicago/Kent Law School

Chicago, IL

Mark Tumeo

University of Alaska, Fairbanks

Fairbanks, AK

Kathryn Wagner

Consultant

Philadelphia, PA

Note: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the reviewers. The reviewers

do not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the report and the accuracy of its contents.
vi

bbreviations

AQMP Air Quality Management Plan

BACT Best Available Control Technology

BADCT Best Available Demonstrated Control

Technology

BAT Best Available Technology (Economically Achievable)

BCT Best Conventional Technology

BDAT Best Demonstrated Available

Technology

BMPs Best Management Practices

BOD Biochemical Oxygen Demand

CAA Clean Air Act

CARB California Air Resources Board

CCAA California Clean Air Act

CEMS Continuous Emission Monitoring

Systems

CERCLA Comprehensive Environmental Response, Compensation and Liability

Act (also known as “Superfund”)

CFCs Chlorofluorocarbons

CWA Clean Water Act

DEP (Massachusetts) Department of Environmental Protection

DEPE (New Jersey) Department of Environmental Protection and Energy

DEQ (Oregon) Department of Environmental Quality

EG&S Environmental Goods and Services

(Industry)

EPA Environmental Protection Agency

EPCRA Emergency Planning and CommunityRight-To-Know Act

FIFRA Federal Insecticide, Fungicide, and Rodenticide Act

HAPs Hazardous Air Pollutants

LAER Lowest Achievable Emissions Rate

MACT Maximum Achievable Control

Technology

MassOTA Massachusetts Office of Technical

Assistance

NAAQS National Ambient Air Quality

Standards

NEPP Netherlands’ National Environmental

Policy Plan

NOEL No Observable Effect Level

NOx Nitrogen Oxides

NPDES National Pollutant Discharge Elimination System

NPO Nonproduct Output

NSPS New Source Performance Standards

OECD Organisation for Economic Cooperation and Development

OPA Oil Pollution Act

OPP (New Jersey) Office of Pollution

Prevention

POTWs Publicly Owned Treatment Works

PPIS Pollution Prevention Incentives for

States

R&D Research and Development

RACM Reasonably Available Control

Measures

RACT Reasonably Available Control

Technology

RCRA Resource Conservation and Recovery

Act

RECLAIM Regional Clean Air Incentives Market

RTCs Regional Trading Credits

RTUs Remote Terminal Units

SAB (EPA) Science Advisory Board

SCAQMD South Coast Air Quality Management

District

SIC Standard Industrial Code

SIP State Implementation Plan

SO2 Sulfur Dioxide

SRF State Revolving Loan Fund

TRI Toxics Release Inventory

TSCA Toxic Substances Control Act

TURA (Massachusetts) Toxics Use Reduction

Act

TURI (Massachusetts) Toxics Use Reduction

Institute

USGS U.S. Geological Survey

VOCs Volatile Organic Compounds
vii

Executive Summary 1

The Environmental Policy Toolbox 1

Choosing Tools 2

1 Summary 7

The Environmental Policy Toolbox 8

Criteria for Comparing Tools 22

Choosing Tools 29

2 Pollution Control Today 47

Today’s Problems 48

Matching Tools to Problems 56

3 Congress’ Environmental Policy Toolbox: 

 A Review 81

Tools With Fixed Pollution Reduction Targets 83

Tools Without Fixed Pollution Reduction Targets 119

4 Choosing Policy Tools: Seven

 Important Criteria 143

Introduction 143

Important Criteria For Environmental Policy 144

Environmental Results 144

Costs and Burdens 166

Change 182

Summary 198

References 201

Index 213

ontents
xecutive

Summary

he search for “smarter” ways to prevent or control pollution has generated heated debate on almost every conceivable topic related to setting goals, improving institutional

arrangements, and choosing the most effective means for

achieving those goals.

This last issue—choosing the means or policy instruments

to meet environmental goals—can be a surprisingly complex

task for decisionmakers, given the need to balance other competing concerns. The environmental policy toolbox contains many

and varied instruments but lacks a clear set of instructions for

their use. This OTA report fills that need. The “guide” is organized into three major sections:

 The Environmental Policy Toolbox: a discussion of 12 major

policy tools, their frequency of use, and key strengths and

weaknesses.

 The Criteria for Comparing Tools: our evaluation of how

effective these instruments are in achieving the values and

interests—or criteria—decisionmakers are likely to weigh.

 Choosing Tools: a series of questions for matching a tool or

tools to a specific problem. Choosing tools that satisfy several,

much less all, of these criteria for a specific problem is the challenge. Unfortunately, no perfect policy tool exists to meet

everyone’s expectations for every problem.

THE ENVIRONMENTAL POLICY TOOLBOX

Environmental goals related to pollution reduction can be

reached in many ways. Some ways are quite prescriptive, others

are not. If one imagines a factory having one or more pollution

sources, it is easier to think of the many options available to Congress, the Environmental Protection Agency (EPA), and the | 1
2 | Environmental Policy Tools: A User’s Guide

states. Raw materials and products go into the factory, products are made, and quite often pollution

is generated and released to the air or water, or

shipped offsite for disposal, treatment, or storage.

To lower the pollution reaching the environment, government has many options. It can, for

example: specify the end result—the amount of

pollution that each source in the facility is allowed

to discharge; specify what each source is to do to

achieve the end result; charge a fee on pollutant

emissions to discourage releases to the environment; or require nothing in particular but hold the

facility liable for any resulting damages.

These are a few examples of how government

encourages or forces potential pollution sources to

achieve society’s environmental goal and are

among the 12 policy “instruments” or tools considered in this OTA report. Table 1 organizes the

12 tools according to whether or not they set specific pollution reduction targets.

The tools that set specific pollution reduction

targets vary in the extent to which they specify

how regulated entities must comply. Singlesource tools require the sources themselves to

comply with an emissions limitation or face

associated civil or criminal penalties. These tools

are often called “traditional” approaches because

historically they are the most heavily used category of tools, or “command-and-control” because

they can be less flexible than multisource tools.

Single-source tools include harm-based standards, design standards, technology specifications, and product bans or limitations.

Multisource tools allow a regulated entity additional flexibility in how it complies with specific

pollution reduction targets. A facility can change

its own behavior to fit within the emissions limits,

or can make an arrangement with another entity

for it to comply with the limitation on the facility’s

behalf. Multisource tools include tradeable emissions, challenge regulation, and integrated permitting.

A second major category of tools encourages

pollution prevention and control without setting

specific pollution reduction targets. Technical assistance and subsidies make it easier or less expensive to do the environmental “right thing” by

providing knowledge or financial assistance. Other tools, such as pollution charges, liability, and

information programs, raise the financial stakes of

continuing to behave in environmentally harmful

ways.

Over the past 25 years, Congress has relied

most heavily on single-source tools with fixed

pollution reduction targets. Of the 30 major pollution control programs established under the Clean

Air Act, Clean Water Act, and the Resource Conservation and Recovery Act, about four out of five

use design standards and half use harm-based

standards, typically in combination with design

standards. However, many of the other tools in the

policy toolbox have also been used, with increasing frequency as Congress has considered important competing objectives. (See figure 1.)

Technical assistance, information reporting, liability, and tradeable emissions are each used in

five to 10 of these major programs. Tradeable

emissions, for example, evolved from an academic concept two decades ago to become a significant component of the Clean Air Act.

CHOOSING TOOLS

Whether Congress prefers to specify the choice of

policy tools itself or delegate the choice to EPA,

states or localities, or even the private sector,

someone is faced with the difficult problem of

matching tools to problems. An ideal environmental policy instrument would:

 be cost-effective and fair,

 place the least demands on government,

 provide assurance to the public that environmental goals will be met,

 use pollution prevention when possible,

 consider environmental equity and justice

issues,

 be adaptable to change, and

 encourage technology innovation and diffusion.

However, satisfying all seven of these criteria

has seldom been possible in the past—and may be

even more difficult in the future.
rsTools That Directly Limit Pollution

Single-Source Tools

Tools That Do Not Directly Limit Pollution

Harm-Based

Standards

Design

Standards

Technology

Specifications

Product Bans

and

Limitations

Describe required end results,

leaving regulated entities free

to choose compliance methods.

Describe required emissions

limits based on what a model

technology might achieve;

sources use the model

technology or demonstrate

that another approach

achieves equivalent results.

Specify the technology or

technique a source must use

to control its pollution.

Ban or restrict manufacture,

distribution, use or disposal of

products that present unreasonable risks.

Integrated

Permitting

Trackable

Emissions

Challenge

Regulations

Incorporates multiple requirements into a single permit,

rather than having a permit for

each individual emissions

source at a facility.

Allow regulated entities to

trade emission control responsibilities among themselves, provided the aggregate regulatory cap on emissions is met.

Give target group of sources

responsibility for designing

and implementing a program

to achieve a target goal, with

a government-imposed program or sanction if goal is

unmet by the deadline.

Pollution

Charges

Liability

Information

Reporting

Subsidies

Technical

Assistance

Require regulated entity to

pay fixed dollar amount for

each unit of pollution emitted

or disposed; no ceiling on

emissions.

Requires entities causing

pollution that adversely affects others to compensate

those harmed to the extent of

the damage.

Requires entities to report

publicly emissions or product

information.

Provide financial assistance to

entities, either from government or private organizations.

Provides additional knowledge to entities regarding

consequences of their actions, and what techniques or

tools reduce those consequences.

Multisource TooIs

SOURCE: Office of Technology Assessment, 1995.
4 IEnvironmental Policy Tools: A User’s Guide

Extent of use in CAA, CWA, and RCRA

(Frequency of use in 32 major programs)

Tools without fixed targets

Technical assistance

Subsidies

Information reporting

Liability

Pollution charges

Tools with fixed targets

■ Multisource

Challenge regulations

Tradeable emissions

Integrated permitting

■ Single-source

Harm-based standards

Design standards

Technology specifications

Product bans

o to 5 to 15 to 35 to 75% more than

5% 15% 35% 75%

SOURCE: Office of Technology Assessment, 1995.

We present a two-part framework that helps policymakers first narrow down the choice of instruments based on how they perform on each of the

seven criteria presented previously and then, if

needed, helps them buttress weaknesses of any

single tool by using more than one instrument.

Table 2 summarizes OTA’s judgments about

how well each instrument addresses each of the

seven criteria. The purpose of making these judgments is to draw the decisionmaker’s attention to

those instruments which might be particularly effective or warrant a degree of caution in some

instances. Strengths and weaknesses of a particular policy tool, however, can be determined with

confidence only in the context of a particular environmental problem.

A series of key questions about the particular

problem can provide answers which may point—

in combination with the important criteria—to

one set of instruments rather than another. First

one must ask, Is there a reason to specify a fixed

environmental target for this pollutant? DO the

quantities and location of a pollutant, or the characteristics of its sources, provide a reason to prefer

a fixed control target? To answer this, one needs to

know how harmful or risky the pollutant is in the

quantities that are being released. The more serious the problem, the more heavily one weights

“assurance of meeting goals.” The first column to

the left on table 2 displays OTA’s judgments of the

assurance provided by each of the instruments.

Not at all surprising, those tools without fixed

targets, are marked with a caution. One cannot say

that goals will not be met—there are certainly

instances when these instruments have been quite

effective in the past. However, there is increased

uncertainty that environmental goals will be met if

tools without fixed targets are used alone.

If one prefers a fixed environmental target, the

next question to ask is, Does this target need to be

source-specific? Some environmental problems

are regional in nature—for example, urban ozone
Executive Summary 5

Environmental Results

Costs and

Burdens Change

Information reporting

Liability ● o *

Challenge regulations ● ●

Tradeable emissions

Harm-based standards ● ●

Design standards ● o .

Technology specifications ●

Product bans ● 0*

● ✎

● ☛

●

0 0

● o

● ●

●

● = Effective O = It depends V = Use with caution . = Average

NOTE: These ratings are OTA’s judgments, based on theoretical literature and reports of instrument use. The evaluation of each instrument on a particular criterion is relative to all other instruments. Thus, by definition most instruments are “average. “ “Effective” means that the instrument IS typically

a reliable choice for achieving the criterion. “It depends” means that it maybe effective or about average, depending on the particular situation, but

it is not likely to be a poor choice. And “use with caution” means that the instrument should be used carefully if the criterion is of particular concern

SOURCE: Office of Technology Assessment, 1995.

and acid rain-and thus can be successfully ad- monitor sources, the harder it is to use multisource

dressed by regulatory programs that incorporate tools.

marketable emissions or another multisource The desire to allow sources to retain as much

tool. For those problems that are local in nature, autonomy as possible leads one to instruments

such as exposures to some toxic air pollutants, with no fixed target-those higher up in table 2.

many will judge multisource instruments to be in- The desire for greater assurance pushes one furappropriate. Similarly, the more difficult it is to ther down toward instruments placing direct lim4
6 | Environmental Policy Tools: A User’s Guide

its on pollution. However, many other concerns

complicate the decision. Foremost among these

is: Will costs and burdens to industry and government be acceptable?

Increased autonomy to sources often can improve the cost-effectiveness and fairness of pollution prevention or control. However, government

burdens might increase along with source flexibility if increased oversight appears necessary to

keep the same level of assurance that goals will be

met. We highlight several questions that help assess the overall costs and burdens in the context of

a specific pollution problem. Some questions focus on the nature of targeted sources, including:

are there large differences in control costs among

sources? Are there either very many sources or

very few? Other questions consider our knowledge basis, asking: Do we know how to set environmental targets, how to control the problem, or

what it would cost to control?

Government burdens are affected greatly by

available knowledge and the complexity of required analytical tasks. For example, a potentially

risky pollutant that one might otherwise wish to

control with a harm-based standard may be so

poorly understood that a different choice might be

necessary. Identifying available methods of control under a design standard poses fewer analytical

difficulties than determining acceptable pollutant

concentrations under a harm-based standard,

though a design standard might require a lessthan-ideal level of pollution control. Such tradeoffs are not theoretical; Congress changed the

harm-based approach to air toxics to a design standard in the 1990 Clean Air Act Amendments, because the harm-based approach had proven

virtually impossible to implement.

There is one more related concern that may

alter one’s choice of instrument. Given the pollutant and its sources, do we anticipate or hope

that tomorrow’s understanding of this problem

or its solution will be significantly different than

today’s?

If the uncertainty about the nature of the risk is

relatively high or if technology is changing rapidly, one might be drawn to those instruments that

are most adaptable to change. Technical assistance programs, information reporting, and liability usually allow sources to make changes without

government approval, and can be relatively easily

modified by government when the need arises.

If, for a particular problem, Congress’ environmental goals just cannot be achieved with today’s

technology at an acceptable cost, one might

choose those instruments that spur technology innovation. Pollution charges can be effective because of the continuing pressure they exert.

Product bans also spur innovation, but are typically avoided unless the risks from the pollutant are

quite high. .Multisource instruments, such as

tradeable emissions or challenge regulations, offer sources additional flexibility for using new

technologies and thus may also help.

Throughout the research on this report, we

identified a series of stumbling blocks that limit

the use of potentially desirable tools. These stumbling blocks are at least part of the reason why, to

date, the nation has primarily relied on a small

subset of the available tools. Though many in

Congress would prefer a more risk-based approach to environmental regulation, the poor understanding of risk makes this difficult at this

time. Similarly, both government and industry

recognize the advantages of performance-based

approaches, but the lack of monitoring technology

often stands in the way. Finally, the limited experience with some policy tools at times becomes the

reason for staying with well-tried, though

imperfect, methods. This report includes a series

of possible actions to help remove each of these

three stumbling blocks.
Summary

ver the past 25 years, environmental protection has been a

major issue on the nation’s policy agenda, resulting in

significant increases in the scope and number of environmental regulations. While these regulations have undoubtedly resulted in broad societal benefits, they have also

provoked contentious debates. These controversies have recently

intensified, and the list of perceived problems has expanded to

cover everything from the environmental goals themselves to the

strategies and costs of achieving them.

The search for “smarter” ways to pursue environmental protection policies has typically focused on one or more of the following

three issues:

Goals: What are the most serious risks to public health and the

environment, based on sound scientific evidence and public

values, so that goals can be set accordingly?

Institutions: What improvements can be made in institutional arrangements and working relationships among stakeholders in

the environmental policy community (including federal, state,

and local governments, businesses and industries, and the public) to provide more effective policies for environmental

protection?

Tools: Once specific goals have been established, which policy

instruments will be the most effective in achieving them?

This last issue—choosing effective policy instruments to

meet goals—can be a surprisingly complex one, given the need to

balance competing concerns. Some stakeholders advocate greater

use of “market incentives,” arguing that they can provide the

same level of environmental protection at fewer cost. Others believe that giving consumers more information for judging risks

can help further environmental goals with fewer burdens on gov- | 7
8 | Environmental Policy Tools: A User’s Guide

ernmental agencies. Integrating the now-separate

laws for protecting air, water, and land by issuing

multimedia permits is championed by some as the

best way to promote pollution prevention and

technology innovation. And many communities

support strict source-by-source controls to protect

vulnerable individuals and populations from various pollutants.

Making sense of these arguments is difficult

without a framework to help decisionmakers sort

out these often conflicting recommendations in

light of their own principal concerns. This OTA

report fills that need.

The following user’s guide is organized into

three major sections:

 The Environmental Policy Toolbox: a discussion of 12 major policy tools, including their

strengths, weaknesses, and frequency of use.

 Criteria for Comparing Tools: our evaluation

of how effective these instruments are in

achieving the values and interests—or

criteria—decisionmakers are likely to weigh.

 Choosing Tools: a series of questions for

matching a tool or tools to a specific problem.

Choosing tools that satisfy several, much less

all, of the criteria for a specific problem is the

challenge. Unfortunately, no “magic bullet”

exists to meet everyone’s expectations for every

problem.

To illustrate how decisionmakers might weigh

these tradeoffs in choosing policy instruments, the

report focuses on some of the major problems covered by the Clean Water Act, the Clean Air Act,

and the Resource Conservation and Recovery Act.

Why these statutes? Of the approximately $100

billion per year the United States spends on environmental protection, over 85 percent is for

achieving the goals set forth in these acts. Under

any of the environmental priority setting exercises

we reviewed, the problems covered by these three

laws were still ranked among the most serious

problems to be addressed in the future. Thus, even

with changing priorities and legal-institutional arrangements for environmental protection, tomorrow’s environmental agenda will still contain

many of the air, water, and land problems that remain from yesterday.

After discussing the tools, the criteria, and the

framework for considering the choice of instruments, we briefly identify three major stumbling

blocks that impede our ability to use otherwise desirable instruments. The first stumbling block is

the often poor ability to quantitatively link emissions with harm, which often prevents us from relying on instruments that are explicitly risk based.

The second is the lack of ability to adequately

monitor emissions, which can restrict our ability

to rely on performance-based approaches, even

when we know the level of performance we wish

to specify. And the third is the lack of sufficient

empirical evidence about the strengths and weaknesses of many of these instruments.

THE ENVIRONMENTAL POLICY TOOLBOX

Environmental goals can be reached in many

ways. Some ways are quite prescriptive, others are

not. If one imagines a typical factory as having

one or more pollution sources, it is easier to think

of the many options available to Congress, the Environmental Protection Agency (EPA), and the

states. Raw materials and products go into the factory, manufacturing processes within the factory

are used to produce new products, and often,

pollution is generated and released to the air or

water or shipped off site for disposal, treatment, or

storage. Sometimes the product itself results in

pollution, while or after it is used.

To lower the pollution reaching the environment from such a factory, government can do any

of several things:

 specify the end result—the amount of pollution

that each source in the facility is allowed to discharge;

 specify what each source is to do to achieve the

end result, such as install certain kinds of pollution control technology;

 help the source through a technical assistance

program or a subsidy for cleaning up;
Chapter 1 Summary | 9

 specify the end result for each source, but allow

facilities to trade these requirements within or

among facilities;

 charge a fee on pollutant emissions to discourage releases to the environment;

 require only that the source publicly report

emissions or risks to human health and the environment;

 require nothing in particular but hold sources liable for any resulting damages; or

 as is often the case, some combination of the

approaches above.

Each of these approaches is a policy “instrument” or “tool,” the topic of this OTA report. They

are the means through which government encourages or forces sources to achieve society’s environmental goals. Each policy instrument or tool

has inherent strengths and weaknesses. Some

tools address particular types of pollution problems better than others. Yet picking a tool involves

more than identifying instruments that reduce

emissions. It also involves making tradeoffs between values and interests commonly held by

Congress and the public. For example, instruments most likely to provide significant assurance

that an environmental goal will be met are quite

likely to be more expensive than some other

instruments. A full toolbox allows the decisionmaker to select tools that most effectively address

values and interests of particular concern at the

moment. And combinations of complementary

instruments may allow decisionmakers to address

multiple concerns, or to “shore up” weaknesses in

a particular instrument.

❚ A Catalog of Tools

Environmental policy tools could be categorized

in any number of ways, depending on which attributes one wishes to emphasize. This assessment

groups 12 policy instruments into two major categories depending on whether or not they impose

fixed pollution reduction targets. These two categories help focus attention on a common concern

in environmental policy—namely, the extent to

which particular behavior is mandated by regulation. Table 1-1 provides a brief description of each

of the 12 policy tools. Chapter 3 discusses each of

the tools in greater detail.

Tools with Fixed Pollution Reduction Targets

Policy instruments that impose regulatory limits

on environmentally harmful behavior vary in the

extent to which they specify how a target entity

should comply with emission limitations. For example, technology specifications might require

the use of a specific pollution control device,

while a harm-based standard describes a compliance target and leaves regulated entities free to

choose their own method for complying with the

limitation. An additional significant source of

flexibility is whether the tool focuses on single

sources or sets limits on cumulative emissions

from multiple sources.

Tools that focus on single sources of pollution

require regulated entities themselves to comply

with emission limitations or face associated civil

or criminal penalties. These tools are often called

“traditional” or “command-and-control” approaches, because they historically are the most

heavily used category of tools and often allow less

flexibility than multisource tools.

Tools that focus on single sources of pollution

include harm-based standards, design standards,

technology specifications, and product bans and

limitations. Harm-based standards prescribe

the end results of regulatory compliance, not the

means. Desired end results are based on health and

environmental effects of different pollution levels

and patterns. In contrast, the end results required

by design standards are based on what a model

technology might achieve. Sources are free to use

the model technology or demonstrate that another

technology or technique achieves equivalent results. Technology specifications designate the

technology or technique a source must use to control its pollution. In its “pure” form, the specification is explicit. However, a design standard in

some circumstances might be considered a de facto technology specification, when an entity has no

practical opportunity to demonstrate equivalency

of alternative approaches. Product bans and limitations ban or restrict manufacture, distribution,
10 I Environmental Policy Tools: A User’s Guide

Tools With Fixed Pollution Reduction Targets

Focus on single sources or products

Harm-based

standards

Design

standards

Technology

specifications

Product bans

and

limitations

A harm-based standard prescribes the end results, not the means, of regulatory compliance.

Regulated entities are responsible for meeting some regulatory target but are largely free to

choose or invent the easiest or cheapest methods to comply. Sometimes referred to as healthbased standards or performance standards, harm-based standards are widely used, primarily in

combination with design standards,

A design standard is a requirement expressed in terms of the state of the art of pollution abatement at some point in time, for example, “best available” or “reasonably available” technology, In

a permit, design standard requirements are typically, but not always, stated as the level of

emissions control the model approach is capable of achieving. Design standards written as

emission limits allow individual sources the freedom to achieve the required emissions control by

using the model approach or equivalent means. Design standards are very widely used, most

often as part of a technology-based strategy.

A technology specification is a requirement expressed in terms of specific equipment or techniques. The standard is to be met by all entities; facilities are not free to choose their means of

pollution abatement or prevention, Explicit technology specifications in statutes or regulations

are very rare. However, some designs standards can be considered de facto technology specifications when it is extremely difficult to prove to the regulatory agency that an alternative to the

model technology is equivalent.

This regulatory approach bans or restricts production, processing, distribution, use, or disposal

of substances that present unacceptable risks to health or the environment. It focuses on the

commodity itself rather than polluting by-products. As a result, the instrument is used most heavily under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) and other statutes

where the hazard is the commodity.

Focus on multiple sources or products

Tradeable

emissions

Integrated

permitting

Challenge

regulations

Emissions trading is achieved through government-issued permits that allow the owner to emit a

specific quantity of pollutants over a specified period, and which can be bought from and sold to

others. The government typically caps aggregate emissions from sources within a geographic

region by issuing only the number of permits consistent with environmental goals. A relatively

new approach to tradeable emissions is an “open market, ” in which unregulated sources may

opt into the program voluntarily. Emissions trading has been used most widely under the Clean

Air Act and to a more limited degree to address water quality issues.

Integrated permits contain facility-wide emission limits, either for a single pollutant across multiple individual sources or media, or for several pollutants emitted to a single medium. An integrated permit might use one or several other environmental policy instruments, ‘(Bubble” permits

are used under the Clean Air Act, and to a very limited extent under the Clean Water Act. Other

types of integrated permits are uncommon but are under study as part of several state pilot

projects.

Challenge regulations ask target groups to change their behavior and work toward a specific

environmental goal, with mandatory requirements imposed if the goal is not reached. The government identifies a goal and gives the groups time to select and implement an effective means of

achieving it, Challenge regulations have the potential to be a less-intrusive way to achieve environmental goals. The concept of challenge regulation is attracting interest but is still uncommon

as a stand-alone regulatory tool,
Chapter l Summary 11

Pollution

charges

Liability

Information

reporting

Subsidies

Technical

assistance

Tools Without Fixed Pollution Reduction Targets

Pollution charges require a regulated entity to pay a fixed dollar amount for each unit of pollution

emitted or disposed. Pollution charges do not set a limit on emissions or production. Instead,

the government must calculate what level of charge will change the behavior of regulated entities

enough to achieve environmental objectives. Sources are free to choose whether to emit pollution

and pay the charge or pay for the installation of controls to reduce emissions, This report considers only those charges set high enough to significantly alter environmentally harmful behavior,

not charges used primarily for raising revenues. In the United States, pollution charges have

been used for solid waste control but rarely for control of other types of pollution.

Liability requires entities that cause environmental harm to pay those who are harmed to the extent of the damage. Liability can provide a significant motivation for behavioral change because

the dollar amounts involved can be quite large, This report focuses on statutory Iiability, not

common law theories of liability or enforcement penalties. Several environmental statutes impose

statutory liability, including CERCLA and the Oil Pollution Act.

Information reporting requires targeted entities to provide specified types of information to a government agency or to the public directly. Required information typically involves activities affecting environmental quality, such as emissions, product characteristics, or whether risk to the public exceeds a threshold. Information programs are widely used,

Subsidies are financial assistance given to entities as an incentive to change their behavior, or to

help defray costs of mandatory standards, Subsidies might be provided by the government or

by other parties, who thus bear part of the cost of environmentally beneficial controls or

behavior. Government subsidies have historically been widely used, particularly in wastewater

treatment. Subsidies from other parties are becoming more common as government budgets

shrink,

The government offers technical assistance to help targeted entities prevent or reduce pollution.

These programs educate sources that might not be fully aware of the environmental consequences of their actions or of techniques or equipment to reduce those consequences. Technical assistance may take many forms, including manuals and guidance, training programs,

and information clearinghouses. Some types of technical assistance, such as facility evaluations,

are conditioned on facilities agreeing to respond with environmentally beneficial behavior, Technical assistance is very common, particularly in combination with other tools.

SOURCE: Office of Technology Assessment, 1995.

use, or disposal of substances that present unreasonable risks to health or the environment. Product bans and limitations focus on the commodity

itself rather than polluting by-products from its

manufacturing.

Single-source tools seem an effective choice

when environmental results are of primary concern, with less focus on costs. Although the tools

provide varying levels of flexibility when telling

sources “what to do,” all establish explicit emission targets for each source and, therefore, a relatively straightforward basis for verifying

compliance. As a result, single-source tools are

the most effective of the dozen tools that we consider in this report for providing assurance that environmental goals will be met. They address

concerns about compliance costs less well than

other instruments, because they are relatively less

flexible and so reduce opportunities for achieving

goals in a cost-effective manner. Also, they can

impose substantial administrative burdens on regulatory agencies and regulated entities.

Some policy instruments that impose regulatory limits on pollution focus on multiple sources

rather than single sources. Multisource tools allow a regulated entity additional flexibility in how

it complies with emission limitations. A source

can change its own behavior to fit within the limi4
12 | Environmental Policy Tools: A User’s Guide

tations, or the source can make an arrangement

with another entity for it to comply with the limitation on the source’s behalf. This ability to transfer or negotiate responsibility among entities for

changing behavior distinguishes multisource

from single-source tools.

Multisource tools include tradeable emissions,

challenge regulation, and integrated permitting. A

tradeable emissions program often consists of

government-issued permits that are transferable.

The government agency sets a level of aggregate

emissions consistent with environmental goals by

issuing only the number of permits corresponding

to that level. Entities are allowed to transfer their

permits; they might choose to do so if the relative

costs of emissions control make it more profitable

or less expensive to transfer the permit to another

entity. A relatively new use of tradeable emissions

is for “open markets,” in which government does

not issue permits up front, and regulated or unregulated sources may opt into the program voluntarily.

With challenge regulation, the government

establishes a clear, measurable target with a timetable for implementation, but the multiple sources

in a target category are given responsibility for designing and implementing a program to achieve

that target. Challenge regulation differs from

purely voluntary programs in that the government

specifies a credible alternative program or sanction that it will impose should progress toward targets be unsatisfactory.

Integrated permitting incorporates multiple

requirements into a single permit, rather than having a permit for each emissions source at a facility.

A facility-wide integrated permit might list emission limits for each source within the facility, or

the permit might list a single limit per pollutant for

the entire facility, allowing the facility to meet an

overall emissions cap through any combination of

controls. A multimedia integrated permit also

may combine limitations on emissions to air, water, and land in a single permit, taking into account

the potential for pollution to move between media.

Multisource tools are an effective choice when

resource demands are of particular concern and

environmental results a close second. The tools allow facilities to seek out the most cost-effective

approach to achieving a particular level of aggregate emissions, whether through negotiating

emissions control responsibilities with other facilities or through use of an integrated permit with

flexible source emission limits at a particular facility. Multisource tools still require a particular

level of pollution abatement and so provide a significant degree of assurance that environmental

goals will be met, although perhaps less assurance

than with the straightforward single-source tools.

The actual degree of assurance depends on our capability to monitor regulated pollutants.

Tools Without Fixed Pollution

Reduction Targets

The second major category of tools shown in table

1-1 comprises tools that encourage pollution prevention and control without setting specific emission targets. Some of these instruments are

nonregulatory in nature, while others require a

particular action, such as payment per unit of

emissions or an emissions report. Note that even

the regulatory tools in this category require something other than a specific level of pollution prevention or control. Tools that move behavior in

the right direction fall into two subgroups: 1) tools

that make it easier or less expensive to lower

pollution by providing knowledge or financial assistance; and 2) tools that raise the financial stakes

of continuing to behave in environmentally harmful ways.

Tools that encourage facilities to prevent or

control pollution include technical assistance and

subsidies. Both approaches assume that sources

will be willing to change once they know of the

benefits of alternative types of behavior and are

more likely to change if the expense is at least partially offset by others. Technical assistance helps

entities to make better environmental choices by

clarifying the consequences of their actions and

what techniques or equipment reduce those consequences. Technical assistance also may be focused on educating the general public about the

environmental implications of existing and pro-
Chapter 1 Summary | 13

posed programs and policies. Subsidies provide

various forms of financial assistance, which can

act as an incentive for entities to change their behavior or help entities having difficulty complying with imposed standards. Subsidies might be

provided by the government or by other parties.

Subsidies can come in many forms: grants, lowor no-interest loans, preferential tax treatment,

and deposit-refund systems.

Tools that increase the cost to sources of environmentally harmful behavior include pollution

charges, information reporting, and liability.

These tools are based on the assumption that

sources will emit less if their pollution costs them

something, either as direct payments to an agency

or harmed parties or indirectly in terms of reputation. Pollution charges require a regulated entity

to pay a fixed dollar amount for each unit of pollution emitted or disposed. Pollution charges do not

set a limit on emissions or production; instead, the

government must calculate what level of charge

will change the behavior of regulated entities

enough to achieve environmental objectives.

Sources are free to choose whether to emit pollution and pay the charge or to pay for the installation of controls to reduce emissions subject to the

charge. In this assessment, OTA is focusing on

pollution charges that create a behavioral incentive and do not merely raise revenue.

Information reporting affects target entity behavior somewhat less directly than pollution

charges by helping to increase public awareness of

entities’ pollution. The hope is that the public’s

heightened awareness will encourage entities to

be “good neighbors” and reduce their pollution,

and that public support for pollution control programs will increase.

Liability provisions require those entities undertaking activities that impose pollution or other

environmental harms on others to pay those who

are harmed to the extent of the damage. Liability

can provide entities with a significant motivation

for environmentally sound behavior because the

dollar amounts involved can be huge. Liability is

imposed two ways: 1) by common-law theories

like negligence or nuisance, or 2) by statute, such

as in the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

Note that in this assessment, we are considering

only statutory liability. We are not considering enforcement and compliance penalties as part of liability. Obviously, these also can greatly increase

the cost of environmentally harmful activities, but

they are beyond the scope of this assessment.

Enforcement and compliance penalties are a necessary component of any of the regulatory instruments this assessment addresses.

Tools that move behavior in the right direction,

without setting fixed pollution control targets, are

particularly appropriate if the decisionmaker desires an environmental program that can readily

adapt to changing science and control capabilities.

Because these tools do not mandate any particular

behavior, they should be used with caution where

assurance of meeting environmental goals is a primary criterion.

❚ How We Use Tools

The environmental policy toolbox contains many

tools. Table 1-2 displays the primary policy

instruments used to control air pollution, water

pollution, and hazardous waste under three major

U.S. statutes. For each of the approximately 30

pollution control programs addressed by the

Clean Air Act (CAA), the Clean Water Act

(CWA), and the Resource Conservation and Recovery Act (RCRA), the table displays the primary policy instruments (marked with dark gray) as

well as several auxiliary policy instruments (light

gray) used under current law. Combinations of

tools are common. The United States traditionally

has relied most heavily on two regulatory tools

that place direct pollution limits on single sources:

design standards and harm-based standards. However, the other tools in the regulatory toolbox—

while less frequently used—certainly should not

be considered unused and theoretical. Table 1-2

shows that we have turned to tradeable emissions,

information programs, and other tools for numerous programs.

The country’s occasional reliance on “nontraditional” tools is hardly new. Many “new ap-
14 Environmental Policy Tools: A User’s Guide
Chapter 1 Summary 15
16 | Environmental Policy Tools: A User’s Guide

proaches” to environmental regulation have been

used for years, including tradeable emissions, integrated permitting, liability provisions, information reporting, subsidies, and technical assistance.

Box 1-1 highlights several programs over the last

two decades that have used these approaches.

Generally, familiarity and “comfort level” with

such tools seem to be growing.

The balance of this section will discuss where

and how the various environmental policy tools

are used.

Use of Tools with Fixed Pollution

Reduction Targets

Single-source tools currently are very widely

used. As shown in table 1-2, design standards are

the foundation for many pollution control programs under the Clean Air Act, Clean Water Act,

and RCRA. Design standards are used for the

CWA’s national discharge limitations requirements, the CAA’s New Source Performance Standards, and RCRA’s requirements for treatment of

hazardous waste destined for land disposal.

Harm-based standards are often combined with

design standards to provide a “safety net” in case

goals are not achieved under design standards. For

example, the Clean Water Act calls for harmbased site-specific discharge limits if the national

limits based on design standards are not enough to

meet water quality standards.

Similarly, the Clean Air Act requires EPA to set

harm-based standards to reduce residual risks that

remain after implementing “maximum achievable

control technology” (MACT). This kind of safety

net has often seemed necessary because design

standards are technology based, calling for levels

of control provided by technologies such as the

“best available” or “reasonably available.” These

technology levels may not always reduce potential environmental harm to acceptable levels.

Harm-based standards establish emissions control

requirements based on the potential harm from

different levels of contaminants in the environment. We use design standards heavily because

they provide a high level of assurance and are relatively easy to implement, but often combine them

with harm-based standards to make sure goals are

met.

Note, though, that harm-based standards are

not always combined with design standards to

make requirements stricter; they can also be used

as a reality check on a design standard when its

reference technology otherwise would call for

overcontrol. Some pollutants may have a known

threshold, below which human exposure is presumably safe. This threshold might be higher than

the emissions limit established by a design standard’s reference technology. For toxic air pollutants with known thresholds, Congress allows EPA

to set an emissions limit based on this health

threshold, with an ample margin of safety, instead

of requiring MACT.

Product bans and limitations are used, albeit

infrequently, under the Clean Air Act. For example, the Clean Air Act places a phased-in ban on

stratospheric ozone-depleting chemicals. Product

bans are heavily used under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)

and the Toxic Substances Control Act (TSCA),

two statutes with a product orientation. Explicit

technology specifications are used rarely, if ever,

because of their inflexibility and potential cost.

De facto technology specifications probably are

more common, resulting when a design standard

offers no practical way of demonstrating equivalency of an alternative to the model technology or

approach. The prevalence of de facto technology

specifications is unknown.

Multisource tools have received increasing

attention in recent years, because they are believed

to achieve environmental quality goals more cost

effectively than single-source approaches. During

the 1980s, EPA relied on tradeable emissions in

several CAA regulatory programs and policies,

including the phasedown of lead in gasoline and

the Air Emissions Trading Policy for criteria pollutants. The first statutory trading program was

established under the Clean Air Act Amendments

of 1990, which set up a national program using

tradeable emissions to control acid rain.

The 1990 Amendments also encouraged EPA

and states to consider using trading in numerous
Chapter 1 Summary 117

Year

1970

1972

972

976

979

980

1982, 1985

1986

1986

1986

1989

1990

1990

1990

1991

1994

Instrument

Harm-based standards

Design standards

Subsidies

Tradeable emissions

Integrated permitting

Liability

Product ban, tradeable

emissions

Information reporting

Information reporting

Tradeable emissions,

integrated permitting

Subsidies

Tradeable emissions

Design standards

Product ban, tradeable

emissions, pollution charges

Integrated permitting

Tradeable emissions

Program or Project

National ambient air quality standards (NAAQS), to be

set at a level designed to protect public health with an

adequate margin of safety.

Best available control technology (BACT) and other

effluent limitations, a national baseline level of control

under the Clean Water Act that is applicable regardless of the quality of the waters receiving effluent.

Construction grant program, providing federal financial assistance to municipalities constructing the

wastewater treatment facilities necessary to comply

with Clean Water Act effluent limits.

Offset policy, allowing facilities to locate in areas not

meeting air quality standards, provided they offset

their emissions with reductions from existing facilities.

“Bubble” Policy, allowing firms to devise their own mix

of plant controls to meet an overall emission limit for a

particular air pollutant.

Superfund joint and several liability for hazardous

waste cleanup, creating incentives for firms to reduce

current waste generation by establishing their liability

for future sites.

Phased-in ban on lead in gasoline, using tradable

credits for lead reduction to soften economic effects.

Toxics Release Inventory, requiring self-reporting of

emissions to air, water, and land by manufacturers.

California’s Proposition 65, requiring public warning of

the potential cancer or reproductive effects of 542

listed chemicals either emitted or present in products.

Air Emissions Trading Policy Statement, integrating

offset and bubble policies, and endorsing use of ‘(generic bubbles. ”

Pollution Prevention Incentives for States (PPIS) grant

program, promoting use of pollution prevention.

Acid rain provisions in Clean Air Act Amendments,

establishing a marketable permit system for S02

.

Maximum achievable control technology (MACT), required for control of toxic air emissions.

Chlorofluorocarbon (CFC) phaseout program with

baseline production allowances, allowing transfer of

allowances between firms, and levying charges based

on amount emitted and its ozone-depleting factor.

Multimedia permit pilot program, implemented as part

of New Jersey’s pollution prevention program.

RECLAIM program, which establishes a trading program for sources of S02 and NOX in the South Coast

Air Quality Management District of Southern California.

SOURCE: Office of Technology Assessment, 1995

4
18 | Environmental Policy Tools: A User’s Guide

other programs as well. States and localities have

been receptive to the tradeable emissions idea.

The best-known nonfederal trading program is the

Regional Clean Air Incentives Market (RECLAIM) in Southern California, which includes

a market in nitrogen oxides (NOx) and sulfur dioxide (SO2) and reduction credits for auto scrapping.

Pennsylvania and Texas have created emissions

trading programs for volatile organic compounds

(VOCs) and NOx. Emissions trading has also been

used to control water pollution, particularly diffuse, “nonpoint” sources of pollutants. A few local programs in Colorado and North Carolina

allow trades between facilities and nonpoint

sources; Wisconsin adopted a trading program for

facilities in the early 1980s.

Challenge regulation and integrated permitting

are multisource tools not yet as widely accepted as

trading. Nonetheless, the concept of challenge

regulation is receiving increasing attention in the

United States, in part because of interest in efforts

under way in other countries. Germany’s “Green

Dot” program challenges industry to reduce its

solid waste, with a program for government intervention if goals are not met. In the Netherlands,

the government has been setting broad goals and

entering into “covenants” outlining industry’s

plan for meeting those goals, typically over a period of about 10 years. The 33/50 program in the

United States is very similar in concept to challenge regulation, encouraging the chemical industry to reduce a percentage of its chemical

emissions by 1995. However, the 33/50 program,

unlike the concept of challenge regulation, does

not promise government intervention if goals are

not met.

Integrated permits have been more widely

used in the United States than has challenge regulation, but nonetheless on a limited scale. Several

states, including New Jersey and Minnesota, are

currently experimenting with integrated permits

that use a plantwide emissions cap with limits that

float among sources at the facility. The “bubble”

form of integrated permitting, in which individual

emission limits for sources within a facility are

fixed, was often used during the mid-1980s but is

less commonly used today.

Use of Tools Without Fixed

Pollution Reduction Targets

Tools that encourage pollution control without

setting specific emission targets have been less extensively used than tools that impose fixed limits.

Pollution charges generally have not been used

in the United States at a level calculated to change

behavior, but have been used more to provide revenue for offsetting administrative costs. A notable

exception is the use of pollution charges for solid

waste disposal. Approximately 100 localities

have used volume-based fees as an incentive in

residential waste programs to encourage recycling

and make explicit the cost of waste disposal.

These programs typically charge per waste container, with increasing rates for higher volumes of

service.

Pollution charges are used more frequently in

Europe than in the United States, though even in

Europe they are more often used to generate revenue than set high enough to lower emissions significantly. The Organisation for Economic

Cooperation and Development (OECD) reports

that member countries are using emission fees to

address a variety of air pollutants, primarily SO2

and NOx, as well as household or industrial waste

and hazardous waste. For example, Sweden has

placed charges on NOx emissions in order to speed

up compliance with new emission guidelines to be

imposed in 1995. Charges are levied on the actual

emissions of heat and power producers with a capacity of over 10 MW and production exceeding

50 GWh. The fees are then rebated to the facilities

subject to the charge, but on the basis of their energy production. Thus, funds are redistributed between high- and low-emitting facilities. In 1992,

the actual emissions reduction was between 30

and 40 percent, exceeding the predicted 20 to 25

percent reduction. Several OECD member countries are also levying a pollution charge on landfilled and incinerated wastes, as well as

experimenting with pay-per-bag systems.

Information reporting is becoming increasingly prevalent with the advent of the federal

Emergency Planning and Community Right-toKnow Act and similar state public disclosure
Chapter 1 Summary | 19

laws. For example, the California Air Toxics “Hot

Spots” Information and Assessment Act established an emissions reporting program to inventory statewide emissions of toxic substances,

identify and assess the localized risks of air contaminants, and provide information to the pubic

about the impact of those emissions on public

health. New Jersey requires disclosure of potential

hazardous substance cleanup prior to closure or

transfer of land ownership.

Liability is not used under the Clean Air Act or

RCRA, although the Clean Water Act has established liability for oil and hazardous substance

spills. The tool is more heavily used under other

environmental laws, such as the Comprehensive

Environmental Response, Compensation, and Liability Act (CERCLA) and the Oil Pollution Act.

Technical assistance and subsidies are two

more approaches that encourage pollution prevention or control. These two tools are widely used,

both alone and in conjunction with other tools, under the CWA, the CAA, and RCRA.

One of the largest environmental programs to

date is a subsidy under the Clean Water Act that

has provided over $60 billion in wastewater treatment grants and loans to help offset the cost of

building the public wastewater treatment works

called for under the statute. Note, however, that

these subsidies are not used alone; they are used to

defray costs associated with a requirement to

achieve a specified treatment level. Generally,

technical assistance and government subsidies

have been most heavily used where sources are

small and less technically sophisticated or are

publicly owned.

Subsidies from nongovernmental entities are

more broadly available, particularly in the form of

deposit-refund programs. Such programs seem

likely to become increasingly important as government funds available for subsidies continue to

shrink. Under deposit-refund programs, purchasers of a commodity pay an additional charge,

which is rebated to whoever returns the commodity or container for proper disposal. This rebate,

when the person returning the commodity is

someone other than the purchaser, is effectively a

subsidy from one person to another. Ten states

have enacted deposit-refund programs in the form

of “bottle bills” to reduce littering and costs for

disposal. States report that 72 to 97 percent of

deposit containers are returned for recycling. Deposit-refund programs are spreading beyond beverage containers. For example, Maine has a

deposit-refund system for lead acid batteries and

pesticide containers.

OECD countries also make heavy use of subsidies, including grants, subsidized-interest loans,

income tax allowances, and deposit-refund programs. Subsidies are offered to promote research

on pollution control technologies, lowering the effective cost of certain control options and compensating firms or sectors that would otherwise be

seriously affected by pollution control regulations. Germany has the highest number of subsidies, relying primarily on subsidized-interest

loans to speed compliance and to assist small

firms.

Technical assistance is sometimes the primary

tool used to further program goals. For example,

the Clean Air Act established the Small Business

Stationary Source Technical and Environmental

Compliance Assistance Programs, targeted at

small businesses that are newly subject to regulation. Diffuse nonpoint sources of water pollution

are addressed primarily through voluntary implementation of “best management practices”

(BMPs) developed by federal and state agencies.

More often, technical assistance is used as an auxiliary tool to assist targeted entities in complying

with requirements. For example, federal and state

agencies provide training for operators of publicly

owned wastewater treatment plants built with subsidized dollars to comply with Clean Water Act requirements.

❚ Today’s Problems

Before we consider the values and interests policymakers bring to problem solving, we need to

briefly review the kinds of problems the nation is

working on today and may face tomorrow. As we

shall see in later sections, our choice of policy

tools is heavily influenced by the characteristics

of the problem being addressed.
20 Environmental Policy Tools: A User’s Guide

RCR

U.S. total approximately $100 billion/year

Drinking

water Other

Superfund 3% 4%

CAA

21%

CWA

32%

SOURCE: Office of Technology Assessment, modified from Don

Garner, “Pollution Abatement Costs,” Contractor Report to OTA, 1994.

Today, U.S. businesses, individuals, and governments at all levels spend about $100 billion per

year controlling and preventing pollution. While

controlling pollution more wisely may allow us to

lower these costs, the demands from a growing

economy can be expected to offset some of, or

even overshadow, these gains. Understanding

which problems require the largest expenditures,

and who pays the bills, can help identify those targets that may yield the largest cost savings. There

are certainly many inefficiencies in the way the

nation protects the environment. It makes sense to

look first at those areas that cost the most.

About 85 percent of the approximately $100

billion spent annually on pollution abatement is

tied to the requirements of the CAA, the CWA,

and RCRA—the three statutes covered in this report----or similar state and local programs. Figure

1-1 displays current environmental expenditures

under these and other environmental statutes.

About one-third of the total is spent controlling

water pollution; somewhat over 20 percent controlling air pollution; another 20 percent disposing solid waste; 15 percent preventing, treating,

and storing hazardous waste; 5 percent cleaning

up old hazardous waste sites; and about 1 to 3 percent each on drinking water, pesticides, and other

toxic chemical programs. As can be seen in table

1-3, about 45 percent of the total is spent by government (with local government spending the

largest share), 40 percent by business, and 15 percent directly by households.

As mentioned above, about one-third of today’s

abatement costs are spent to maintain and improve

the quality of the nation’s surface water. The vast

majority of this expenditure is to clean up wastewater from identifiable municipal and industrial

sources. While many of these sources have significantly reduced their discharges over the last 25

years, many lakes, streams, and estuaries are still

impaired. Another source of water pollution—

nonpoint source pollution from agricultural and

urban runoff-is ranked among the very top of remaining risks to ecosystems. Some urban areas

have already made considerable investments, but

much is left to do. Relatively little has been spent

on controlling agricultural nonpoint source pollution. The costs of controlling many of these

sources in the future might be quite high.

Of the total water pollution control costs, close

to 65 percent is spent by federal, state, and, primarily, local governments (see table 1-3). Business spends about 30 percent and the remainder is

spent directly by households.

Information on water quality trends—that is,

the progress we’ve made over the last two decades—is almost completely lacking. Much anecdotal information and data collected by the U.S.

Geological Survey (USGS) on a limited number

of sites nationwide indicate some improvement

for some contaminants (e.g., bacteria and phosphorus). However, for other contaminants (e.g.,

dissolved oxygen and nitrates), the USGS data

show no discernible trend (91).

Although data are sketchy even about today’s

water quality, currently about 40 percent of the nation’s river miles that have been assessed either do

not support or only partially support, the beneficial use designated by the state (e.g., swimming,
Chapter 1 Summary 21

Clean Clean RCRA RCRA Safe

Water Air Solid Hazardous Drinking

Sector Total Act Act Waste Waste Superfund Water Act

Government:

Federal

State

Local

Total Government

Private:

Households

Business

Total Private

Total:

Total Government

and Private

13%

3%

28%

44%

15%

40%

56%

100%

13%

7%

43%

63%

61%

30%

37%

100%

7% 3% 15% 67%

— — — 6%

3% 45% 5% —

10% 48% 20% 73%

35% 27% — —

55% 24% 80% 27%

90% 52% 80% 27%

100% 100% 100% 100%

3%

1%

79%

83%

—

—

17%

100’%0

SOURCE: Office of Technology Assessment, modified from Don Garner, “Pollution Abatement Costs, ” contractor report to OTA, 1994

fishing, drinking, or support of aquatic life).

About 45 percent of assessed lake area and 35 percent of estuaries do not support, or only partially

support, designated use (204). Agriculture is

thought to be the single largest source of remaining river and lake water quality problems. Sewage

treatment plants and urban runoff are the largest

contributors to remaining estuarine water quality

problems.

Somewhat over 20 percent of today’s abatement expenditures are for air pollution control.

These expenditures have contributed to a 25 percent drop in emissions of carbon monoxide, sulfur

dioxide, and volatile organic compounds since

1970. Particulate matter has dropped about 50 percent and lead emissions have dropped by 98 percent since 1970. Nitrogen oxide is the only criteria

air pollutant to have increased since 1970, by

about 10 percent (205).

Still, much remains to be done. Many areas still

do not meet air quality standards for criteria air

pollutants such as urban ozone. About 60 million

people live in counties with air quality levels that

do not meet the national standards for one or more

pollutants. About 50 million people live in counties that exceed air quality standards for urban

ozone. About 12 million people live in counties

that exceed air quality standards for carbon monoxide, and about 9 million people live in counties

that exceed standards for particulate matter (21 1).

The recently amended program to control emissions of hazardous air pollutants is still in its early

stages.

In contrast to water pollution control costs,

most air pollution control costs are borne by the

private sector. About 55 percent is spent by business and 35 percent by households (primarily for

auto pollution control devices).

Just under 20 percent of total costs are spent on

solid waste. As we shall see in the next section,

municipal solid waste is often judged to be among

the lower risks to both human health and natural

ecosystems. However, siting landfills is becoming increasingly difficult, which results in higher

disposal costs. Per capita net discards of solid

waste have been declining over the past decade

due in part to increased rates of recycling, but not

fast enough to offset population growth (48). Solid waste disposal costs are shared about equally

between government and the private sector.

Another 20 percent of the total is spent on hazardous waste. About three-quarters is spent dealing with hazardous waste under RCRA and the

remainder to clean up existing hazardous waste
22 | Environmental Policy Tools: A User’s Guide

sites under CERCLA (Superfund). Most of the

costs of dealing with hazardous waste are borne by

business.

The remaining 10 percent of the total is spent

on regulations under the Safe Drinking Water Act,

regulating pesticides under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA),

regulating new chemicals under the Toxic Substances Control Act (TSCA), and a few other statutes implemented by EPA. Most of the drinking

water costs are spent by government, and the bulk

of the costs under the other statutes is spent by the

private sector. As we shall see in the next section,

the risks from drinking water and pesticides rank

quite high on comparative assessments of risk.

CRITERIA FOR COMPARING TOOLS

Although the nation’s near-term commitment to

solving environmental problems is evident in the

strong goals Congress has established, considerable controversy exists about how best to achieve

these and future goals. Ideally, decisionmakers

would like to choose policy instruments that

would move the country toward a cleaner environment at the lowest possible cost while accommodating the increasingly rapid changes in U.S.

scientific and technological capabilities. However, satisfying all of these criteria has seldom

been possible in the past—and may be even more

difficult in the future.

One potential strategy for minimizing tradeoffs

among strongly held, yet at times competing, criteria is to choose policy instruments according to

their strengths on the most important one or two

criteria and then rely on additional instruments to

shore up overall performance on the others. In the

past, for example, U.S. policymakers have relied

heavily on harm-based standards and design standards because they could tell on a source-bysource basis the progress being made in cleaning

up the environment. However, by emphasizing assurance of meeting goals, in many instances policymakers chose—implicitly or explicitly—to

give up some of the potential for cost savings and

technology innovation.

Rather than discard harm-based standards or

design standards, policymakers have experimented with combining them with other approaches

such as tradeable emissions or integrated permitting. These combinations offer firms more

flexibility to choose the means or timing of compliance, enabling the implementation of more

cost-effective solutions for individual firms with

relatively little loss of the assurance the public

wants. However, the use of these more flexible approaches may raise concerns that the proportionate burden of adverse environmental effects will

be shifted from one group to another, even though

everyone is ultimately better off. Careful monitoring and required information reporting can help

with some of those concerns.

This part of the report explores how knowledge

about differences in instrument performance on a

set of environmental criteria might guide a policymaker’s choices. For each criterion, we present

OTA’s overall judgments about the comparative

effectiveness of policy instruments, indicating

which might be used confidently or which more

cautiously. The details of these evaluations—necessarily subjective but based on experience and

expert judgment—are explained in more detail in

chapter 4.

❚ The Criteria and

Instrument Performance

Most environmental policy debates reflect three

broad, but at times conflicting, themes. The first

theme, costs and burdens for society and for the

sources, addresses the public’s concern that we

pursue our environmental goals at the lowest possible cost and with the fairest allocation of burden

among companies and between government and

industry. The second theme, environmental results, addresses the public’s demand that we not

only meet our goals but that we pursue these goals

in appropriate ways. The last theme, change, reflects the recognition that adaptable programs that

facilitate continual improvements in policies may

be essential for encouraging new scientific and

technological solutions. Ideally, we would want to
Chapter 1 Summary 123

CRITERIA FACTORS

COSTS AND BURDENS

Cost-Effectiveness and Fairness ●

Are we protecting human health and the environment ■

at the lowest possible cost and with the fairest alloca- ■

tion of burdens for sources? ■

Demands on Government ●

Are we protecting human health and the environment “

at the lowest possible cost and with the best use of

resources for government?

Cost-effectiveness for society

Cost-effectiveness for sources

Fairness to sources

Administrative burden for sources

costs

Ease of analysis

ENVIRONMENTAL RESULTS

Assurance of Meeting Goals

Do stakeholders have confidence that environmental

goals will be or have been met?

Pollution Prevention

Can the approach promote use of strategies for preventing rather than controlling pollution?

Environmental Equity and Justice

Does the approach seek equality of outcomes, full

participation by affected communities in

decision-making, and freedom from bias in policy

implementation?

●

■

■

●

■

■

■

●

Action forcing

Monitoring capability

Familiarity with use

Gives prevention an advantage

Focuses on learning

Distributional outcomes

Effective participation

Remediation

CHANGE

Adaptability ■

How easily can the approach be adapted to new

scientific information or abatement capability?

Technology Innovation and Diffusion ■

Are we encouraging new ways to achieve our envi- ■

ronmental goals that lead to improved performance ■

in quality and costs?

Ease of program modification

Ease of change for sources

Innovation in the regulated industries

Innovation in the EG&S industry

Diffusion of known technologies

SOURCE: Office of Technology Assessment, 1995.

choose policy tools to achieve all three, and we

have, at times, sought all three. But our experiences to date indicate that such an ideal has been

difficult, if not impossible, to accomplish with the

tools we have.

Sharpening our focus to the details underlying

these broad themes, OTA identified seven strongly held public values and interests—referred to as

criteria in this report-that policymakers are

likely to consider when adopting environmental

policies (see table 1-4). Although lack of sufficient experience with many of the instruments

made us less certain in some instances about how

they might perform, we found that assessing

instrument choice from the perspective of this set

of criteria revealed distinctive and useful guidelines for policymakers.

The remainder of this section describes the

comparative ratings of the instruments on each of

the criteria. To summarize our judgments, we use

the same set of ratings and symbols that appear in

the more detailed explanations of comparative
24 I Environmental Policy Tools: A User’s Guide

instrument performance found in chapter 4 of this

report. Since most of the instruments tend to be

about average in achieving a particular criterion

(represented by a single dot), the following discussion focuses on those that are likely to be particularly effective (represented by a filled-in

circle) and thus can be used with confidence; those

for which it depends (represented by a partially

filled-in circle) on the specifics of implementation

or the characteristics of a problem; and those Congress might want to use with caution (represented

by a triangular “caution” sign) because they may

create problems with respect to the particular criterion. Although we expect that those rated “it depends” would usually be quite effective, we also

anticipate that they may turn out to be only about

average, depending on the specific situation.

■ Costs and Burdens

Congress has seldom set goals without including a

concession to the costs and burdens imposed.

However, at times the desire to provide sufficient

protection of human health or the environment has

resulted in strict source controls and additional requirements, such as continuous monitoring, that

can add significant costs and burdens.

One of the most consistent criticisms of environmental protection programs in the United

States has been that they force very inefficient activities on companies, reducing productivity and

placing U.S. firms at a competitive disadvantage.

And, in fact, establishing policies that are effective at improving both cost-effectiveness and fairness has not been an easy task.

Concern about the administrative demands on

government has also intensified. Especially pertinent to this study have been claims that some alternatives for protecting human health and the

environment offer the advantage of placing a significantly lighter burden on government, either by

shifting the burdens toward other groups—industry or consumers-or by loosening the level of

control altogether.

Cost-Effectiveness and Fairness

• Effective: Tradeable emissions

O It depends: Integrated permitting, challenge

regulations, information reporting, technical assistance

V Use with caution: Product bans, technology

specifications

If policymakers want to emphasize more costeffective responses to environmental problems,

the key may be to choose those instruments that

shift responsibility for determining the means and

timing of compliance to individual firms or

groups of firms. Although such a shift does not

guarantee a cost-effective result, firms with some

flexibility to determine the means and timing of

their responses are more likely to be able to identify and implement least-cost solutions.

The most cost-effective tools are multisource

instruments such as integrated permitting,

tradeable emissions, and challenge regulations,

which allow firms the flexibility to reallocate their

resources and efforts at pollution reduction either

internally or through cooperation or competition

with other firms. Tradeable emissions offer the

best opportunities for lowering costs through purchasing credits to offset the need for source controls or by the sale or banking of emission credits.

Challenge regulations are likely to be very cost

effective and fair inmost cases, yet lack of participation by firms or the need to make tradeoffs when

designing programs may reduce their effectiveness in some cases. Similarly, since integrated

permitting restricts firm flexibility to the facility

level, it offers fewer opportunities to seek a solution for a particular problem.

All three of these multisource instruments also

have the potential to increase the administrative

burden for participating firms. For most large

firms, this added burden may be considered more

welcome than the rigidity of point-by-point approaches such as design standards. In contrast,

for small firms without the capacity for R&D or

strategic planning, a uniform approach, especially
Chapter 1 Summary 125

when accompanied by technical assistance programs, may be more appropriate. Such technical

assistance programs may be very cost effective for

delivering information and expertise to sources

that are unregulated yet discharge pollutants.

Information reporting is another relatively

cost-effective tool for sources because of the flexibility they have to do whatever they wish to reduce

pollution. Of course, if firms decide to do nothing

to reduce discharges, then reporting would be

costly for society. For example, asking firms toreport emissions by weight may not be the most

cost-effective way to achieve reductions since

such measures do not accurately reflect risks to society. However, asking firms to estimate possible

harm using risk analysis would add considerable

administrative burden.

Technology specifications and product bans

and limitations, which force a uniform solution

on all firms regardless of their control costs, severely constrain opportunities for a cost-effective

or fair solution and thus are used very sparingly.

De facto technology specifications, described

above in the section on tools, also reduce the ability of sources or facilities to seek cost-effective

solutions.

Demands on Government

• Effective: Information reporting

O It depends: Challenge regulations

V Use with caution: Harm-based standards,

subsidies

If information reporting programs are well

designed, they place comparatively little burden

on government to administer and shift most of the

implementation demands to the firms instead. Requiring firms to gather and report information

about their environmental activities could improve the way they consider and make choices

about pollution reduction, with little cost to governmental agencies other than reviewing data submissions, validating a sample of the reports for

accuracy, and assisting in many instances with

making data accessible to the public.

Challenge regulations also shift responsibility toward firms, lessening the costs and analytical

burden on government in most instances. However, the reduced role of government may depend

both on how well government designs the challenge and how well industry meets the challenge.

Experiences in Germany and the Netherlands, for

example, have demonstrated that government

may have to become involved in program design

and implementation if industry encounters problems.

Other instruments that require the government

to establish and enforce standards on a source-bysource basis place a very heavy resource burden

on governmental agencies. Of the two most heavily used instruments-harm-based standards

and design standards—harm-based standards

are probably the more difficult for government to

establish. In fact, EPA’s early experiences with

trying to establish these in the 1970s were responsible for some of the shift toward greater use of design standards.

The administrative demands on government

may also be high when developing complicated

programs based on trading or long-range challenges—at least in the short term. Agencies may

be facing uncertain financial and administrative

ventures in pioneering programs like RECLAIM,

an air pollution emissions trading program in Los

Angeles. Similarly, integrated permitting,

which could introduce some flexibility and reduce

the hassle of source-by-source permitting, has so

far been a very resource-intensive undertaking.

More experience with integrated permits may improve the capacity of both industry and government to complete them with less effort.

Subsidies, on the other hand, may place substantial financial demands on government. However, direct subsidies currently represent

relatively small expenditures except for federal

subsidies for municipal sewage treatment plants.

■ Environmental Results

For many people, achieving the desired environmental results remains the “bottom line.” Reducing costs and burdens may be desirable, as long as

we do not compromise too much in the way of

goals. Somewhat perversely, however, those
26 I Environmental Policy Tools: A User’s Guide

instruments that are the most effective at ensuring

environmental progress are among the most widely criticized for restricting industry responses and

placing heavy demands on governmental agencies

while failing to accommodate change.

In addition, our definition of what constitutes

satisfactory environmental results has recently

broadened beyond the basic demand for assurance of meeting goals at a specific place and time.

Also, Congress has previously stated that it prefers that goals be met through pollution prevention strategies rather than those that simply reduce

or control discharges. Similarly, the concept of environmental equity and justice has reframed our

measures of satisfactory progress to include the

distribution effects of environmental policies on

minority and low-income individuals and communities and their level of involvement in policymaking.

Assurance of Meeting Goals

● Effective: Product bans, technology specifications, design standards, harm-based standards, integrated permitting

It depends: Tradeable emissions

Use with caution: Information reporting,

subsidies, technical assistance

Primarily out of concern for ensuring progress,

policymakers have relied heavily on instruments—harm-based and design standards—

that require specific levels of pollution reduction

on a point--by-point or source-by-source basis.

The direct tie between a source and allowable discharge in emission levels provided the basis for

verifying compliance. Specific bans and limitations can accomplish the same level of assurance

for products, although they are not widely used

under the CAA, CWA, and RCRA.

Among those instruments that broaden pollution reduction targets to cover multiple rather than

single sources, we rank integrated permitting as

providing similar levels of assurance as harmbased and design standards. The fact that an integrated permit still links the required pollution

reduction to the facility level (although source

levels within the facility may be allowed to control with more flexibility) provides the public with

the means to hold the facility responsible for

meeting the goals. For those pollutants for which

monitoring capabilities are reasonably advanced,

other multisource approaches, such as tradeable

emissions, can provide a high degree of assurance. However, if monitoring will be difficult, decisionmakers might want to choose another tool.

Instruments that do not require pollution reduction, although they may push industry in that

direction, must be used with caution if policymakers are dealing with an issue for which the public

wants to be confident of results. Although information reporting may be required, the participating firms are not usually required to reduce

their pollution. For example, neither the TRI nor

33/50 programs required firms to reduce or even

change their pollution discharges in any way.

Firms may voluntarily cooperate for a range of

reasons, including the hope that they will benefit

from an improved public image or by avoiding

otherwise mandatory regulations. Yet without the

requirement that firms reduce pollution, the public can not be confident that environmental progress will result.

Similarly, most subsidy programs are offered

on a voluntary basis, although they could be

conditioned on the recipient’s making pollution

reductions. Technical assistance programs also

do not typically require firms to participate and,

even when they do participate, do not require them

to accept the recommendations or changes proposed.

Pollution Prevention

• Effective: Product bans, technical assistance

O It depends: Technology specifications, design standards, liability

V Use with caution: —

If pollution prevention is a priority. technical

assistance is one of the few tools that can be relied

on to tip the scales in a firm or industry toward

pollution prevention strategies. Usually targeted

at small firms, technical assistance programs

have been very effective in other policy areas, notably agriculture, in promoting and securing
Chapter 1 Summary | 27

changes in technical practices. To date, however,

the level of resources allocated to a delivery system for pollution prevention assistance has been

very small in comparison to the overall environmental protection effort in the United States and to

the investments in the agricultural extension services delivery system since the late 1800s.

A product ban can, of course, be quite effective in eliminating the product as a source of

pollution in the future, although that action would

not address damages from past uses. However,

such initiatives are used very sparingly, at least

under the three major statutes addressed in this report.

Design standards or technology specifications have been criticized as perpetuating a preference for end-of-pipe technologies rather than for

prevention approaches. Yet there is no reason why

they could not describe a pollution prevention approach for meeting the standard, thus creating a

highly effective tool for encouraging industry to

adopt such practices.

Environmental Equity and Justice

• Effective: Information reporting, subsidies,

technical assistance

O It depends: —

V Use with caution: Traceable emissions, challenge regulations, pollution charges

Many of the issues associated with environmental equity and justice are related to institutional reforms rather than instrument choice. Thus,

although these issues are of central importance to

environmental policy, with few exceptions the

policy instruments seem unlikely to be particularly helpful or particularly harmful in promoting

them. Information reporting, subsidies, or

technical assistance, however, are able to improve the level and quality of information and provide financial support for a range of activities,

such as education, research, or funding for health

diagnostic clinics and site cleanups to assist minority and low-income communities.

Instruments such as tradeable emissions and

challenge regulations, which do not tie a specific

level of pollution reduction requirements to a particular facility or source, and pollution charges,

which allow facilities to pay rather than control

emissions, have the potential to exacerbate concerns over adverse or unequal effects of exposures

for specific types of individuals or communities

near the facilities.

■ Change

Over the past 25 years, we have continually

adopted environmental policies as if they were the

final solutions to temporary problems. Yet we are

still struggling with much the same set of environmental problems—and more. By establishing policies that lack adaptability to change, the United

States has created barriers to responsive policies

and innovative solutions. In addition, although

costs are a limiting factor for many industries, for

others the speed with which they are able to act on

opportunities for technology innovation or diffusion can be critically important for their competitiveness.

Adaptability

● Effective: Liability, information reporting,

technical assistance

O It depends: Challenge regulations

V Use with caution: Product bans, technology

specifications, design standards

Almost none of the instruments, once implemented as a formal program, is easy to modify.

Criticism of the rigidity of regulatory instruments

usually reflects the administrative requirements

and associated agency norms for rulemaking and

case-by-case review of facility changes. This rigidity is by no means unique to environmental

regulations; rather, it stems largely from a body of

legal requirements known as administrative law,

which governs all federal executive agencies.

Developed to provide due process to parties affected by agency actions with the effect of law,

these procedural requirements can create enough

delays to make all parties-the agencies, the public, and the regulated sources—frustrated and

somewhat reluctant to modify programs. Efforts

to reform these types of requirements have varied

widely, depending on the origin of the initia-
28 I Environmental Policy Tools: A User’s Guide

tives—some reformers want to lessen the regulatory red tape and others want to increase the red

tape. For example, targeted groups often prefer

clear, stable program requirements that allow

them to develop a compliance approach that does

not need frequent modification. Yet they may also

want to be able to modify their choice rather

quickly when opportunities or competition make

such changes imperative.

One approach Congress could consider is to

match the strategy to the instrument in a way that

lessens the likelihood of needing modification.

For example, harm-based standards easily accommodate rapidly changing technologies that

may improve performance or reduce costs of compliance. Firms are free to adopt or not adopt them

without securing agency approval. However, if

new information suggests that a pollutant is more

of a threat than previously believed, changing the

harm-based standard itself can be slow and

cumbersome.

Similarly, if Congress establishes a design

standard and new technologies appear on the

market rather rapidly, use of the new technologies

might be slowed by the time and effort required to

revise the rule describing the model technology,

unless facilities can easily demonstrate “equivalency.” If the model technology has been written

into the facility’s permit, then a permit revision

might be required if the facility would like to

install the new technology.

Only a few instruments seem resilient. Liability provisions, for example, once written into statutes would usually not require modification. The

courts have the task of adapting the provisions to

specific cases. Information reporting and technical assistance programs can usually be modified by the agency to accommodate changing

needs, although statutes may restrict use of funds

or targeted industries.

Technology Innovation and Diffusion

●

o

v

Effective: Product bans, pollution charges

It depends: Tradeable emissions, challenge

regulations

Use with caution: —

Theory and evidence about the link between

technology innovation and environmental regulation suggests instruments themselves are not as

important as other factors such as the stringency of

the goal, the reasonableness of milestones for

compliance, and the certainty that everyone must

comply. Most of these issues cannot be addressed

directly by policy instruments; however, several

of the instruments offer some possibility of changing the odds to favor innovative responses by

firms.

Product bans or limitations, for example, can

be very effective at forcing innovation, even

though they are the most restrictive tool, because

they have the potential to disrupt markets. If substitute products are not readily available, firms are

likely to innovate to fill the void. Of course, as we

discussed earlier, this strategy could be very costly and thus is seldom used under the statutes included in this report, although it is used more

frequently to implement FIFRA and TSCA. A

quite different approach, pollution charges leave

firms completely free to innovate if they wish to

do so. Charges are effective because, even when it

firm emits at what might be considered an acceptable level, it still must pay a fee. Thus pressure to

innovate to lower emissions remains until emissions drop to zero.

In addition, any of the instruments that fix targets for multiple sources rather than individual

sources allow firms or facilities an opportunity to

decide for themselves whether they want to innovate or use an off-the-shelf solution. Challenge

regulations and tradeable emissions--especially if designed with longer, more flexible

implementation schedules and permitting protocols---could improve the likelihood of investments in innovative technologies.

We actually know much more about how these

instruments might affect diffusion of existing, but

not widely used, technologies. For example, those

instruments that require or create a preference for

a technology--some design standards and

technology specifications–-and product limitations and bans can be very effective at diffusing a

technology. Subsidies and technical assistance
Chapter 1 Summary | 29

can also be useful in promoting adoption of

known technologies.

However, technical assistance presents a potential tradeoff for policymakers. While it can be

an excellent way to diffuse known technologies,

especially within small firms, technical assistance

programs supported by the government may at

times compete with the environmental goods and

services industry efforts to innovate and sell innovative products and services to industries.

CHOOSING TOOLS

Finding the best tool for managing or resolving a

specific environmental problem is a complex undertaking. So far, we have provided a primer describing each of the 12 policy instruments and

each of seven criteria, with examples to illustrate

our points.

Box 1-2 provides four examples of how these

criteria can help policymakers assess the potential

effectiveness of instruments for implementing

current programs. In each case, we use several key

criteria to highlight issues raised by the particular

tool or set of tools chosen for implementation.

Chapter 2 discusses these examples in greater detail.

However, a policymaker who must actually

choose an instrument to deal with a pressing environmental problem is likely to need more than

definitions and case studies. In this section, we get

down to the business of offering a more systematic

framework for considering how to match these

instruments to a particular problem, given the values and interests at stake. We follow this with a

discussion of several stumbling blocks preventing

us from making full use of the complete set of

tools considered in this report.

We begin with the threshold question: Who

chooses? Does Congress prefer to make the

choice of instrument itself or delegate the choice

to the states or localities? Over the past 25 years,

Congress has typically specified the approach itself, but not always. Nor can we assume that this

pattern will prevail.

Once this choice is made, the hard part begins.

Whether it is Congress or state decisionmakers,

someone is faced with the difficult task of matching tools to problems. We present a two-part

framework that begins by first narrowing down

the choice of instruments based on how they perform on each of the seven criteria. Because there is

often no perfect match of instrument to problem,

we also discuss bolstering the weaknesses of any

single tool by using more than one instrument.

Although but one option appears to be presented in this part of the report—that is, the framework for matching tools to problems—working

through the framework when choosing tools

creates hundreds of possible options or combinations of several instruments at a time. This framework can help Congress narrow down the choice

from the many possible to an acceptable few. In

addition to serving its primary purpose of helping

Congress to match tools to specific environmental

problems, the framework also allows Congress to

evaluate the implications of specific policy proposals. Once again, the seven criteria form the basis for this evaluation.

Throughout our research, we identified a series

of stumbling blocks that limit the use of potentially desirable tools, that is, instruments that offered advantages, for example, for cost savings for

industry, government, or both. These stumbling

blocks are at least part of the reason why, to date,

we have primarily relied on a small subset of the

available tools. Though many in Congress would

prefer a more risk-based approach to environmental regulation, our poor understanding of risk

makes this difficult at this time. Similarly, both

government and industry recognize the advantages of performance-based regulations, but the

lack of monitoring technology often stands in the

way. Finally, our limited experience with some

policy tools itself becomes the reason for staying

with well-tried, though imperfect, methods. We

close this section with a set of actions to help remove each of these three stumbling blocks.

❚ Who Chooses?

Although OTA has prepared this primer for Congress, pollution abatement is clearly an intergovernmental issue. States and localities play a
30 Environmental Policy Tools: A User’s Guide

Tradeable Emissions

RECLAIM, Los Angeles area:

Cost-effectiveness and fairness: As reductions to meet air quality standards became increasingly expensive under the previous control plan, both industry and government began searching for ways to lower

emissions more cost-effectively, The perception of what is a “fair” initial allocation of permits and a fair

rate of reductions differed among stakeholders.

Assurance of meeting goals: State-of-the-art monitoring was a crucial component for ensuring that individual sources were accountable for reductions and that the program could be enforced. This ultimately

limited the types of sources that could participate.

Environmental equity and justice: Public interest groups were concerned that trading might lead to higher

ozone levels in predominantly Black and Hispanic areas, compared with levels under the source-specific program it replaced.

Integrated Permitting

New Jersey;

Pollution prevention: The program requires formal facility-wide pollution prevention planning as a condition

for integrated permitting,

Adaptability: The integrated permit incorporates a range of acceptable changes, allowing a facility to

quickly make process changes in response to market opportunities without needing additional agency

approvals.

Information programs

Proposition 65 and “Hot Spots’’ program, California:

Assurance of meeting goals: Although both programs establish incentives for lowering exposures to toxics, neither provides much assurance to the public that goals will be met. The “Hot Spots” program was

amended several years later to require reductions,

Pollution prevention: Proposition 65 assumes that consumers will reject products using toxics, thus pressuring companies to prevent pollution by finding substitutes,

Environmental equity and justice: Giving communities or individuals information about risks or about emissions can improve their ability to identify potential dangers. Both programs report risk—as opposed to

emissions asunder the federal Toxics Release Inventory—an easier measure for the public to interpret,

Technical Assistance

Toxics Use Reduction Act, Massachusetts:

Adaptability to change: A service unit oriented toward client needs can incorporate changes in these

needs and modify its practices in response to information about new technologies or changed understanding of risk rather easily in comparison to other types of instruments.

Technology innovation and diffusion: A focus on small firms without R&D capability and efforts to link experts can facilitate diffusion and might improve chances for innovation. Institutional and geographic

separation of a state’s R&D group from its outreach group may diminish opportunities for learning and

cross-fertilization of ideas.

SOURCE: Office of Technology Assessment, 1995.
Chapter 1 Summary | 31

central role in protecting human health and the environment, implementing both federal laws and

their own statutes and programs. In the three federal statutes considered in this report, cities and

counties, special districts, states, and the federal

government all participate in delivering programs

to achieve goals.

Thus, one question Congress may want to consider as it tries to match tools to problems is: Who

should choose? Should Congress make the choice

itself, delegate the choice to EPA or to the states

and localities, or shift the responsibility to the private sector? Such a choice will of course be both

political as well as administrative in nature. A

preference for federal rather than state or private

responsibility for choosing might be based on

opinions about the states’ willingness or administrative capacity to provide the level of protection

Congress wants. Or the desire to let someone else

choose might be restrained by considerations of

cost-effectiveness—for example, an industrywide information program might be more

efficiently run at the national level with information-sharing to all levels of government as well as

the public.

Over the past 25 years, Congress has usually

chosen the policy tools for implementing environmental programs, although sometimes it has deliberately given the responsibility for choosing

the means to others, including the EPA, the states,

and localities. Congress has not yet tried giving

responsibility for choosing policy tools to the private sector, but earlier in this report OTA described a policy tool—challenge regulation—that

would allow federal or states agencies to do exactly that.

When delegating responsibility for choosing

policy tools to states, Congress has typically retained at the federal level the authority to disapprove state choices. The State Implementation

Plan (SIP) process, for example, established by

the Clean Air Act, delegates responsibility to

states to develop the approaches they wish to use

to attain environmental goals. Although Congress

sets some parameters, such as “reasonably available control technology” (RACT) and other design standards as a minimum level of control,

states are free to select any tool they wish to accomplish additional air quality gains. For example, the RECLAIM program in Southern

California uses tradeable emissions as one of the

primary tools for improving regional air quality.

The Clean Water Act gives states similar opportunities to make tool choices. Although states

must use the national minimum levels of pollution

control set by design standards, where more control is needed to meet goals, states are free to select

any means they wish. These choices may vary

greatly among states. Although most states have

adopted harm-based standards, Wisconsin, for example, chose to take a multisource approach by

building a trading option into its requirements.

The nonpoint source provisions of the Clean

Water Act establish no preference for policy tool,

giving states the responsibility for developing a

program. Most states have chosen a combination

of voluntary technical assistance and subsidy programs.

❚ Matching Tools to Problems

In this section, we present a two-part framework

that helps policymakers first narrow down the

choice of instruments based on how they perform

on each of the seven criteria and then, if needed,

helps them buttress weaknesses of any single tool

by using more than one instrument.

We begin by summarizing OTA’s judgments

about how each of the instruments performs on the

criteria presented in the previous section. The purpose of making these judgments is to draw the decisionmaker’s attention to instruments that might

be particularly effective or might warrant caution

in some instances. Of course, these judgments are

obviously generalizations of how each policy tool

is likely to perform on a “typical” environmental

problem. Only when considering the specifics of a

problem can the strengths and weaknesses of a

particular approach be determined with confidence.

We pose a series of questions about the particular problem, the answers to which—in combination with the important criteria—may point to one

set of instruments rather than another. These ques-
32 | Environmental Policy Tools: A User’s Guide

tions include the following: Given a pollutant, the

quantities and location of its releases, and the

characteristics of its sources, is there a reason to

specify a fixed environmental target? If so, do

these targets need to be source specific? Are we

likely to be particularly concerned about costs and

burdens to industry or government? Do we anticipate or hope that tomorrow’s understanding of this

problem or its solution will be significantly different than today’s?

After working through these questions, a decisionmaker might find the perfect instrument for

dealing with the problem. However, he or she is

just as likely to be faced with a tradeoff between

wanting to use one instrument that provides assurance to the public and another that might spur innovation. In these situations, the common

approach is to choose a combination of instruments that compensates for the weaknesses inherent in any single approach.

In fact, much of current environmental policy is

based on using multiple instruments, as we saw in

an earlier section. For example, a rather simple

instrument may be preferred in the beginning to

make fast progress, followed by the implementation of a more complex but also more precise approach resulting in greater cost-effectiveness. In

other situations, a single-source instrument like

harm-based standards might be needed to handle a

problem of local scale, with associated regional or

national problems mitigated through a multisource instrument.

Narrowing Down the Choice of Instrument

Table 1-5 summarizes how each of the instruments stacks up against the seven criteria. Again,

since the evaluations shown in the table are obviously generalizations of how each policy tool is

likely to perform on a “typical” environmental

problem, exceptions are plentiful. Yet, by highlighting those instruments which, as a general

rule, could be effective in achieving a criterion, or

those which are best used with some caution, the

table can help decisionmakers effectively match

an instrument to an environmental problem.

Our evaluations of each instrument are relative—for each criterion, we compare each instrument relative to all the other instruments

addressed in the report. Thus, by definition, most

instruments will be about average in performance

for a particular criterion—and identified with a

small dot on the table. We indicate when a tool is

likely to be particularly effective with respect to

one of the criteria (shown with a filled-in circle)

and when Congress should be cautious about

whether the approach will achieve the criterion

(shown with a caution triangle). Note that “caution” does not always mean “inappropriate,” but

that extra care must be taken when designing and

implementing a program using this tool, if the criterion is of particular importance.

The table also includes some judgments of “it

depends” (shown with a partially filled-in circle),

when the performance of the instrument is particularly dependent on the specifics of implementation or the characteristics of a problem. The

instrument might either be effective or about average with respect to that criterion, depending on the

specific situation, but is not likely to be a poor

choice.

The three categories of instruments and the

instruments themselves are roughly ordered in

table 1-5 according to the relative decision-making responsibility given to government versus left

with sources being directed or in some way encouraged to change behavior. At the top of the

table are the tools that move behavior in the right

direction but do not specify fixed targets. The bottom two categories include the policy tools that directly limit pollution, the first by specifying

environmental targets for groups of sources and

the second by specifying targets for single

sources.

Just how much responsibility for decisionmaking remains with sources versus how much is given to EPA or the states is one of the most important

questions for choosing a policy instrument. We assume that Congress will prefer to leave as much

flexibility and autonomy as possible in the hands

of those whose behavior it wishes to change. If
Chapter 1 Summary 33

Environmental Results

Costs and

Burdens Change

● ✎

● = Effective O = It depends

NOTE These ratings are OTA’s judgments, based on theoretical literature and reports of instrument use. The evaluation of each instrument on a particular criterion is relative to all other instruments. Thus, by definition most instruments are “average. ““Effectwe” means that the instrument IS typically

a reliable choice for achieving the criterion. “It depends” means that it may be effective or about average, depending on the particular situation, but

it is not likely to be a poor choice And “use with caution” means that the instrument should be used carefully if the criterion is of particular concern.

SOURCE: Office of Technology Assessment, 1995.

there are no societal gains to be had by removing

flexibility and autonomy, there is no reason for

Congress to do so.

There are, however, many good reasons why

Congress has limited, and will continue to choose

to limit, the discretion of sources in some way.

Again, this report does not address the question of

setting goals—that is, what pollutants to regulate

and how stringently. But once an environmental

problem has been identified as worthy of governmental intervention, Congress must also decide

how government should intervene-that is, what

policy instrument or instruments seem best suited

given the characteristics of the problem and the

values and beliefs of the decisionmaker.

By asking key questions about a problem outlined in box 1-3, Congress can at least narrow the

choice from a dozen to a few appropriate choices

of policy instrument. These key questions follow:

Given a pollutant, the quantities and location of

release, and the characteristics of the sources,
34 Environmental Policy Tools: A User’s Guide

❑ Given the pollutant and the quantities and location of release, is there a reason to specify a fixed

environmental target? If so, do these targets need to be source specific?

1) How harmful or risky is the pollutant in the quantities that are being released?

2) Is this problem typically quite localized or regional in nature?

3) Does the technology exist to monitor the pollutant at a reasonable cost?

■ Given the pollutant and its sources, are we likely to be particularly concerned about costs and

burdens to industry, individuals, or government?

1 ) Are the sources of the pollutant reasonably similar or do they vary considerably from source to source

even within industrial categories?

2) Are there large differences in control costs among sources?

3) Are there either very many sources or very few?

4) Do we just not know very much about how to control the problem, the costs of control, or how to set environmental targets?

■ Given the pollutant and its sources, do we anticipate or hope that tomorrow’s understanding of

this problem or its solution will be significantly different than today’s?

1) Is our uncertainty about the nature of the risk relatively high? Are the environmental goals very much in

flux or are they likely to remain fixed for a reasonable period of time?

2) Is technology changing rapidly, either the technology to prevent or control pollution or technologywithin

the industry or sector itself?

3) Can we achieve congressional environmental goals with today’s technology at an acceptable cost?

SOURCE: Off Ice of Technology Assessment, 1995.

■

■

■

●

Is there a reason to specify a fixed environmental target?

If so, do these targets need to be source specific?

Are we likely to be particularly concerned

about costs and burdens to industry, individuals, or government?

Do we anticipate or hope that tomorrow’s understanding of this problem or its solution will

be significantly different than today’s?

How do these questions, along with the judgments presented in table 1-5, help one choose an

appropriate policy instrument? First, we must be

clear in saying that there is no indisputable procedure that will clearly lead to one choice or another.

Each decisionmaker will weigh the importance of

each of the criteria in the table differently. And the

choices one makes when answering each of these

questions may have to be rethought and revised

when subsequent questions are asked.

The place to begin is at the top of the table, with

the instruments that leave the greatest decisionmaking responsibility in the hands of sources.

Again, we are assuming that, unless there are good

reasons to do otherwise, Congress will prefer to

leave as much flexibility and autonomy as possible with those whose behavior it wishes to

change.

The tools at the top of the table are those that

move behavior in the right direction, but do not

specify fixed targets. Thus, within this category,

the sources themselves choose the level to which

they control or prevent pollution. Technical assistance programs and subsidies are typically completely voluntary; sources are offered “carrots” to

participate, but participation remains voluntary.

Under the next three instruments-information

reporting, liability, and pollution charges———

sources are subject to government regulation or
Chapter 1 Summary | 35

requirements, but the degree to which they respond with actual abatement results is up to them.

The first question in this framework asks, Is

there a reason to specify a fixed environmental

target for this pollutant? To answer this, one

needs to know how harmful or risky the pollutant

is in the quantities that are being released. If there

is a reason to limit releases—for example, because

of potential harm—then a criterion that may be

very important is “assurance of meeting goals.”

The first column to the left on table 1-5 displays

our judgments of the “assurance” provided by

each of the instruments. Not at all surprising,

those in the first category, that is, those without

fixed targets, are marked with a caution. One cannot say that goals will not be met—there are

instances in which these instruments have been

quite effective in the past—only that there is increased uncertainty. Thus the first question to answer is whether, given the magnitude of the

problem, the increased assurance of meeting environmental goals is a fair trade for “jumping the

line” to the next categories of instruments. Obviously other factors—such as costs of control and

difficulty of setting targets—enter into the decision, which we will come back to later. But first,

we will consider those cases where Congress does

wish to set fixed targets.

If one prefers a fixed environmental target, the

next question to ask is, Does this target need to be

source specific? The bottom two categories include the policy tools that directly limit pollution,

first by specifying environmental targets for aggregates of sources, and finally by specifying

sources for single sources. Again, when targets are

specified for groups of sources—entire facilities

rather than individual emission stacks or discharge pipes—or by capping emissions over an

entire region, more responsibility for decisionmaking remains in the hands of those being regulated than with government. Individual sources

can either be controlled to their share of the total or

arrange for another source to fulfill their responsibility.

But only some environmental problems are regional in nature. Urban ozone and acid rain are

two that are regional and thus are logical choices

for regulatory programs that allow marketable

emissions. Both are pollution problems that result

from the cumulative emissions of sources over at

least a city, a multistate region in the case of smog

in the Northeast, to even larger multistate areas in

the case of acid rain.

For problems that are local in nature—e.g., exposure to some toxic air pollutants—many will

judge multisource instruments to be inappropriate. If one of the environmental goals is to reduce

exposures to the most exposed individuals, in contrast to lowering regional average exposure, then

regional multisource instruments may not be effective. To achieve this type of goal, the singlesource instruments in the last category may be

more appropriate, though integrated permitting—

a multisource approach confined to one facility—

may be adequate.

Another question that may lead one to prefer a

single-source approach is, Does technology exist

to directly monitor the pollutant? Existing air

pollution trading programs for acid rain and urban

ozone rely on either continuous emissions monitoring or a sophisticated tracking system, so that

the program is enforceable in court. But even here,

at least in one case, the program has been

constrained by difficulties in monitoring. In a proposed trading system in the Los Angeles region

for volatile organic compounds—one of the pollutants that leads to the formation of ozone—several source categories (for example, petroleum

refineries) have been excluded and will be regulated source by source. Once again, multisource

instruments can certainly still be used in situations

in which monitoring capabilities are not well developed, but the increased flexibility to sources

will come at the price of some loss of assurance

that environmental goals are being met.

In the last category—single-source tools with

fixed targets—the government’s role is greatest

although, even within this category, variation exists in the relative decisionmaking responsibilities

of government and sources. Harm-based standards specify end results, typically in terms of the

quantity of pollution being emitted. Sources are

free to choose the method they use to achieve the

end result. Technology specifications, though
36 | Environmental Policy Tools: A User’s Guide

rarely used, in some way specify the means, or at

least limit the ways the results can be achieved.

Design standards fall somewhere in between.

They are based on a reference technology, which

sometimes is perceived as a technology specification by either sources or government permit writers but most often is expressed in the same way as

a harm-based standard—that is, the desired performance or end results.

The desire to allow sources to retain as much

autonomy as possible leads one to instruments

higher up in table 1-5; the desire for greater assurance pushes one farther down. If these were the

only concerns, the choice of instrument would be

reasonably straightforward, though the results of

this tradeoff would vary from decisionmaker to

decisionmaker. However, as we saw in an earlier

section, many other concerns complicate the decision. Foremost among these are concerns for costs

and burdens to industry and government.

While it is generally true that increased autonomy to sources can improve the cost-effectiveness

and fairness of pollution prevention or control,

this is not always the case. Leaving decisionmaking in the hands of sources sometimes decreases

the costs and burdens to government, but in other

instances can increase government burden. Multisource instruments such as integrated permitting

and tradeable emissions can be more expensive

for government than design standards because the

increased flexibility for sources may have to be

matched with greater government effort to keep

the same level of assurance that goals will be met.

But again, the judgments presented in table 1-5

are of necessity generalizations that can provide

but rough guidance. By understanding the specifics of the pollutant and its sources one can gain

further insight into the performance of a particular

policy approach. Questions worth asking include

Are the sources reasonably similar? In particular,

are there large differences in control costs among

sources? Are there either very many sources or

very few?

The vast majority of programs established under the Clean Air Act, the Clean Water Act, and

the Resource Conservation and Recovery Act

have been based on single-source instruments. By

and large they have been quite successful, but

there have been pockets of failure. When costs are

quite variable from source to source, singlesource instruments can result in higher control

costs than necessary. A move to multisource

instruments can result in lower assurance that

goals will be met and greater difficulty for government, but it still may be worth it.

Another judgment one needs to make is Do we

know much about how to control the problem, the

costs of control, and how to set environmental targets? For example, a potentially risky pollutant

that one might otherwise wish to control with a

harm-based standard may be so poorly understood

that a different choice might be in order. One could

move down the table to the simpler design standard, recognizing that the analytical difficulty of

determining the level of environmental quality

needed to set harm-based standards can be much

greater than identifying available methods of control. If the burdens to government are too great, the

program may never get off the ground. This is the

reason that the harm-based toxic air pollution program established by the original Clean Air Act

was changed to one based on design standards in

the 1990 Clean Air Act Amendments.

Similarly, the number of sources can affect the

feasibility of using some instruments. Too many

sources can doom a program based on harm-based

standards. Too few sources may limit the cost advantages from emissions trading.

If we just do not know very much about how to

control the problem or how to set environmental

targets, the choice might be to move well up the

table to a directionally sound instrument such as

information reporting or technical assistance. In

the Toxics Release Inventory, established by the

Superfund Amendments and Reauthorization Act

of 1986, Congress followed the latter approach

(four years earlier for many of the same toxic air

pollutants addressed by the Clean Air Act Amendments of 1990). Since the reporting began in 1988,

air emissions have dropped by about one-third.

There is one more related concern that may alter one’s choice of instrument. Given the pollutant and its sources, do we anticipate or hope that

tomorrow’s understanding of this problem or its
Chapter 1 Summary | 37

solution will be significantly different than

today’s?

If the uncertainty about the nature of the risk is

relatively high or if technology is changing rapidly, one might be drawn to instruments that are

most adaptable to change. A few of these allow

sources to make changes without government approval and can be easily modified by government

when the need arises. Technical assistance programs, information reporting, and liability—all

directionally sound instruments that avoid rulemaking—are most effective on this concern.

If for a particular problem, environmental goals

cannot be achieved with today’s technology at an

acceptable cost, one might choose instruments

that spur technology innovation. Pollution

charges are among the best choices because of the

continuing pressure they exert. Product bans are

also effective at spurring innovation, but in situations in which alternatives are not available, Congress may wish to use such an approach only when

the risks from the pollutant are thought to be high.

Multisource instruments such as tradeable emissions or challenge regulations offer additional opportunities for using new technologies and thus

may also be quite effective in encouraging innovation. One might be faced with a tradeoff between

wanting to use a single-source instrument such as

a design standard for assurance and simplicity and

the desire to spur innovation so that tomorrow’s

technology will be better than today’s.

Using More Than One Instrument

It is rare when one instrument alone satisfies all of

the desires that policymakers may have in attempting to solve an environmental problem.

Thus we find historically a reliance on the use of

multiple instruments when addressing a problem.

Table 1-2 presented the primary policy instruments under each of the approximately 30 pollution control programs addressed by the CAA,

CWA, and RCRA. The categories of programs

listed in the table are by and large based on the

type of distinctions discussed in the previous section:

 the types of pollutants, for example, whether

the program addresses ubiquitous pollutants,

such as “conventional” water pollutants and

“criteria” air pollutants, or toxic or hazardous

pollutants addressed by all three statutes;

 the severity of the problem, that is, whether the

source is located in an area that already meets

or does not meet minimum environmental

quality goals; and

 the sources of pollutants, whether the discharge

is from the industrial or some other sector,

whether the sources are existing or new, and so

on.

The single most common combination is the

use of design standards in conjunction with harmbased standards. About half of the categories that

we have defined follow this approach to control.

Control of conventional water pollutants, such as

biochemical oxygen demand (BOD) materials

and suspended solids, is typical of this combination. For water bodies that meet the desired level

of water quality set by each state, sources that discharge directly into lakes and streams are required

to control to a level defined by a design standard

specific to each source category and pollutant.

Municipal sewage treatment plants are required to

control to a level equivalent to “secondary treatment,” and industrial dischargers must control

equivalent to “best available technology economically achievable.”

However, if the water body does not meet the

desired level of water quality, sources are subject

to a harm-based standard, that is, sources are required to clean up their effluent to a level that allows the lake or stream to maintain the specified

water quality. The simpler design standard becomes a “floor” or minimum level of control;

however, if the desired water quality is not

achieved, the more analytically complex harmbased standard then applies. As will be discussed

below, this mix of instruments is a compromise allowing the relative speed, simplicity, and lower

administrative burden of design standards in

cleaner areas and the potential for more efficient

controls using a harm-based approach in areas
38 | Environmental Policy Tools: A User’s Guide

where more stringent and expensive controls are

needed.

As is also shown in table 1-2, design standards

used to control toxic pollutants have been frequently regulated by pairing them with two other

instruments, liability and information reporting

requirements. The CWA uses liability in combination with either paired design standards and harmbased standards or design standards alone to

control toxic water pollutants. Information reporting such as requirements under the Toxics Release

Inventory (TRI) is part of the control strategy for

toxic pollutants under all three statutes; however,

TRI is limited to the manufacturing sector alone.

Several problems addressed by the CAA combine tradeable emissions with more traditional

single source approaches. To date, these have primarily been limited to emissions of pollutants

such as sulfur dioxide and nitrogen oxides—pollutants whose effects are regional as opposed to

the more localized impacts of toxic air pollutants.

For example, trading has been extensively used to

allow new sources to locate in nonattainment

areas, that is, areas that do not meet ambient air

quality standards. New sources can locate in nonattainment areas if they “offset” their emissions

with reductions from existing sources. Another

area in which trading has been used is for complying with exhaust emission standards for heavyduty diesel engines. Rather than requiring all

engines to meet identical emission standards,

manufacturers are allowed to design some models

to emit more and some less, so long as emissions

from all heavy-duty diesel engines in each model

year remain the same.

Table 1-6 returns to consideration of the seven

criteria that this study uses to examine the

strengths and weaknesses of alternative policy

instruments. The table repeats the “overall” evaluation for each criterion as it applies to each instrument, presented in table 1-5. Each of the criteria

are further divided into several components that

can help us understand how multiple instruments

can be used to satisfy multiple goals.

Again, the most frequently chosen regulatory

approach is a design standard in combination

with a harm-based standard. We rate both instruments about the same for cost-effectiveness and

fairness of control, but design standards have an

edge when it comes to demands on government.

The key difference is the ease of analysis. For example, the difficulty of setting harm-based standards was probably the primary reason for the

slow pace of regulating air toxics emissions since

the 1970s, which led Congress to change strategy

in the 1990 Clean Air Act Amendments. As discussed earlier, Congress abandoned a strategy

based primarily on the use of harm-based standards and adopted an approach that directs EPA to

first issue a design standard (emissions equivalent

to those achieved by using “maximum achievable

control technology”) and then analyze whether

“residual-risk” goals are exceeded and, if so, to require additional controls. Thus, by using a multisource approach, Congress attempted to buttress

the weaknesses of harm-based standards with the

simpler approach of design standards.

Both the single-source design and harm-based

standards are merely average with respect to efficiency and fairness of control, although harmbased standards are probably the better of the two.

Hence the great attention given to multisource

instruments, which have the potential for improved cost-effectiveness. As can be seen in table

1-6, we rate multisource instruments such as

tradeable emissions and integrated permitting

(which in our definition includes facility-wide

“bubbles” or emission caps) as potentially more

cost-effective. It is for this reason that EPA is encouraging states to adopt “open market” trading

programs to augment current air pollution control

programs in nonattainment areas. The programs

in most nonattainment areas are currently based

on a combination of design and harm-based standards. Open market trading programs allow

sources with the ability to control emissions to a

greater extent than required to do so and sell these

reductions to other sources.

Multisource instruments also offer additional

incentives for technology innovation, as shown in

the last few rows of table 1-6. Note, however, that

tradeable emissions and integrated permitting are

marked with a “caution” for costs to government.

While such programs are still quite new and thus
I I Fixed Target I No Fixed Target

I ● = Effective I Single-source

O = It Depends

v = Use with caution

● = Average

Fairness to sources

Administrative burden to sources ● ● ● ●

Ease of analysis V.. v

Assurance of meeting goals *** *

Action forcing ● 0 ● 0

Monitoring capability ● 0 0 .

Distributional outcomes . ● ● ●

Effective participation ● ● . ●

Remediation . ● . .

Ease of program modification

Ease of change for sources

Technology Innovation and diffusion ● *

Innovation in regulated industries ●

Innovation in EG&S industry ●

Diffusion of technologies ● ● ● .

Multisource

0 0 0 0 0 0

● ● ●

0 0 ● . . v

● ●

NOTE: These ratings are OTA’s judgments, based on theoretical literature and reports of instrument use. The evaluation of each Instrument on a particular criterion IS relative to all other instruments

Thus, by definition most instruments are “average. “ “Effective” means that the instrument IS typically a reliable choice for achieving the criterion "It depends” means that it maybe effective or about

average, depending on the particular situation, but it is not likely to be a poor choice. And “use with caution” means that the Instrument should be used carefully if the criterion is of particular concern

—

SOURCE: Office of Technology Assessment, 1995.
40 | Environmental Policy Tools: A User’s Guide

current demands on government may not be representative, the costs to implement these multisource instruments have been greater than

expected.

Ideally one would like to choose a mix of

instruments that achieved high marks on all seven

of the criteria considered in this study. Because the

instruments that are directionally sound but without fixed targets provide little assurance of meeting environmental goals, they have been used

alone infrequently. However, they are extremely

helpful when combined with other instruments.

For example, technical assistance programs are

one of the most effective approaches for encouraging pollution prevention. Programs that give technical assistance to help the community understand

the impacts of existing or proposed sources can

also help to achieve environmental justice goals.

Environmental justice goals can also be advanced through information reporting programs. As mentioned above, the TRI augmented

existing regulatory programs for toxic pollutants

under the CAA, CWA, and RCRA. Such information allows the community, regulators, and even

corporate decisionmakers to better understand the

risks posed by each manufacturing facility. If

firms choose to lower emissions as a result of the

information disclosure program, they are of

course free to choose the most cost-effective

method. The costs to government for the additional reductions are also typically quite low.

❚ Stumbling Blocks That Limit

the Use of Desirable Tools

Unfortunately, in many instances policymakers

may find they are unable to use the instrument

they want to choose, or at least to use it as effectively as possible in a particular situation, because

of stumbling blocks. Some of these stumbling

blocks are institutional, for example, poorly written facility permits. These kinds of problems

might be addressed in a variety of ways, including

providing professional education and in-service

training and increasing information sharing by the

federal, state, and local governments (126,127,

207). Others will require improvements in scientific and technological capabilities. In this section,

we consider three stumbling blocks that we judge

to be particularly important:

 inadequate scientific foundation on which to

make quantitative estimates of the relationship

between pollutant emissions and human health

and ecological impacts,

 an absence of accurate, reasonably simple, and

affordable monitoring technologies to measure

pollutant output, and

 a lack of experiences using many of the tools

and, consequently, our poor base of information about their performance.

The rather poor state of scientific understanding of the transport, fate, and effect of many pollutants often deters congressional efforts to

increase our use of risk-based strategies for environmental protection. Risk-based strategies are

particularly desirable because the instruments

associated with them—harm-based standards for

single sources or multisource instruments such as

emissions trading—allow us to specify allowable

emissions based on the level of protection we desire, while allowing sources the flexibility to decide the most cost-effective way to achieve the

goal.

The second major stumbling block—the absence of adequate monitoring technologies—interferes with our ability to make greater use of

performance-based approaches for environmental

protection. The same instruments that are

associated with risk-based strategies are also inherently performance-based. Others, such as design standards, may be less so but can sometimes

be expressed in terms of desired emissions levels

rather than specific activities or technologies.

Moving toward performance-based approaches

has the potential to improve cost-effectiveness in

meeting goals, to allow at least some and at times

considerable flexibility to sources, and to reduce

the demands on government. However, OTA

found that limitations on monitoring capabilities

often get in the way of relying on such an approach, unless of course assurance of meeting

goals can be completely disregarded.
Chapter 1 Summary | 41

Ignorance about many of these tools—hence

the speculative nature of many of the evaluations

in this report—is the third stumbling block we

have identified. The United States has the most

experience implementing single-source, fixedtarget tools such as harm-based standards, design

standards, and product bans or limitations. For

others—tradeable emissions, pollution charges,

integrated permitting, and challenge regulation—

there are far fewer experiences or evaluations of

these experiences on which to base decisions

about appropriate uses.

If Congress would like to improve its ability to

make effective choices from the full range of

instruments, improvements are needed in scientific understanding of risks from pollutants, in the

capability for monitoring emissions, and in understanding the strengths and weaknesses of the lessused tools. This section discusses several actions

that Congress may want to consider for removing

these major stumbling blocks.

Moving to a More Risk-Based Approach

Over the last 25 years, Congress has followed two

broad types of strategies for environmental regulation: 1) risk-based strategies and 2) technologybased strategies. In a risk-based strategy, the

target that individual or groups of sources must

meet is based on modeled or measured environmental quality. For example, stationary sources of

air pollutants such as sulfur dioxide may not emit

that pollutant in quantities that would violate air

quality standards in the vicinity of the facility. Under a technology-based strategy, the targets that

sources must meet are based on technological capability or potential to lower pollution, rather than

a directly specified level of environmental quality.

Under this type of strategy, the level of environmental protection is indirectly specified by the

stringency of the abatement requirement. For example, sewage treatment plants are required to remove a percentage of the pollutants entering the

facility.

Congress has sometimes preferred one, and at

other times the other, but has most often attempted

to solve environmental problems through a combination of these two approaches to environmental protection. At first, under the Clean Air Act of

1970, Congress preferred a risk-based approach

(with the notable exception of technology-based

regulations for new pollution sources). The difficulties of actually implementing risk-based parts

of the Act seemed to push Congress toward the

other approach by the time of the Clean Water Act

of 1972. Both strategies have advantages and disadvantages and, although certain types of problems might be better suited to one approach, the

choice of approach depends to a great extent on the

values of the decisionmaker.

Both types of strategies, of course, have environmental protection as their goal. The two differ

most sharply in the means to achieve their goals

and in the way the goals are translated into specific

targets. To implement risk-based strategies, regulators need a fairly well-developed understanding

of the science of pollutant transport, fate, and effect. Under technology-based strategies, regulators must have good knowledge of pollution

prevention and control.

Those who favor a risk-based approach may regard technology-based strategies as the equivalent

of “ready, fire, aim.” Those who favor technology-based approaches often consider the other as

the equivalent of “ready, aim, aim, aim. . .” There

are elements of truth to both views.

Typically, the uncertainty surrounding the risks

posed by pollutants is far greater than the uncertainty surrounding the potential for abatement. A

high degree of uncertainty can lead to EPA’s inability to implement congressional goals; at best,

it will certainly slow the agency down (96). EPA’s

slow pace in issuing standards for hazardous air

pollutants under the 1970 Clean Air Act is a prime

example. Before the 1990 Amendments, when the

Act was significantly changed, EPA had listed

eight substances as hazardous air pollutants and

promulgated emission standards for seven of

these. Section 112 followed a harm-based strategy, requiring EPA to establish emission standards

at a level that provides “an ample margin of safety

to protect the public health.” In the 1990 Amendments, Congress added a technology-based strate-
42 Environmental Policy Tools: A User’s Guide

Tools with fixed targetssingle-source:

Product bans and limitations

Technology specifications

Design standards

Harm-based standards

TooIs with fixed targetsmultisource:

Integrated permitting

Tradeable emissions

Challenge regulations

Tools without fixed targets:

Pollution charges

Liability

Instrument

Instrument often follows strategy

❏ Instrument occasionally follows-strategy

❏ Instrument rarely follows strategy

—

SOURCE Off Ice of Technology Assessment, 1995,

gy to the harm-based approach of this section,

requiring EPA to issue emission standards for 189

pollutants. These emission standards, to be set by

EPA, are to achieve the maximum degree of emissions reduction deemed possible by EPA.

As shown in table 1-7, some of the policy

instruments covered in this study follow a riskbased approach, some are primarily technologybased, while others can be based on either

approach. For those instruments with fixed targets

that apply to single sources or products—the most

common tools in use today—the choice of strategy guides one to particular instruments. If the analytical capability to support a risk-based approach

exists, either harm-based emission standards or

product bans and limitations are possible. A

technology-based strategy can be implemented

through either design standards or technology

specifications.

Table 1-7 also includes multisource instruments and two of the instruments that do not have

fixed targets. Note that most of these instruments

can be used following either a risk-based or

technology-based approach. For example, for

both integrated permitting and tradeable emissions, all that is required is a fixed emissions target. The target can be set based on the level of risk

posed by the emissions or simply on the technical

potential for, and often the cost of, control. In the

case of emissions trading to control acid rain, the

congressional specification of allowable nationwide emissions seems to be based on a combination of the two strategies.

Pollution charges high enough to alter behavior

have most often been discussed by economists in

the context of a harm-based approach, that is, set

at a level appropriate to damages that result from

remaining emissions, but the charge can easily be

technology based as well. For example, Sweden

has set emission fees on nitrogen oxide emissions

from electric utilities based on the expected cost of

a particular technology (selective catalytic reduction) considered to be the best available technology at the time the fee was set.

For many problems, regardless of whether

Congress prefers a risk-based strategy or a

technology-based strategy, if ignorance of the

risks posed by pollutants is too great, the option to

use risk-based approaches is pragmatically foreclosed. Increasing research offers no guarantee of

providing answers with the degree of rigor that

Congress might desire. But reducing ignorance

about the health and ecological risks posed by pollutants may at least create the opportunity to pursue harm-based regulatory strategies.

Thus Congress might consider several actions

for improving the ability to use harm-based strategies. First, Congress could increase funding for

research on risk assessment methods development. The estimated $75 million per year spent on

methods development ($65 million for health

risks (198) and $10 million for ecological risks
Chapter 1 Summary | 43

(50)) clearly has not provided a firm foundation

for EPA decisionmaking. For example, a user fee

of one cent per pound on the pollutants reported

released or disposed of to the environment by facilities required to report emissions under the TRI,

could be used to support research to help understand the environmental implications of the emissions reported. This would increase by 50 percent

the funds available for risk-related methods research.

Second, when either establishing or amending

an environmental protection program that follows

a risk-based strategy, Congress could provide

funds to be used specifically for the research needs

to support that program. New risk-based regulations are likely to require considerable investments in research to improve capabilities for

exposure assessment, for effects assessment, or

both, in order for new initiatives to succeed.

Finally, Congress could direct EPA to use its

existing authority under the Toxic Substances

Control Act (TSCA) to require the sources of

pollution to finance the chemical-specific data

needed for use in risk assessments. EPA is currently planning to use this authority to request new information from sources of hazardous air

pollutants (HAPs). EPA may soon issue a Federal

Register proposal announcing its intent to require

test data for about 20 of the 189 HAPs listed in the

CAA, saving the agency an estimated $30 million

to $40 million in testing costs (190).

Becoming More Results Oriented

Regardless of which policy instrument or combination of instruments is chosen, when Congress,

EPA, or state regulatory agencies specify end results rather than the means for achieving the results, sources will have greater flexibility to

achieve the targets in ways that are most cost effective or otherwise beneficial to them. Several of

the policy instruments are inherently results oriented or performance based. Harm-based standards and tradeable emissions, which are

expressed in terms of allowable emissions, are examples.

Other instruments can be expressed as either

end results or as the means of achieving those results. Design standards are probably the best example of these. Under the Clean Water Act,

Congress requires EPA to issue design standards

as effluent limits or concentrations, that is, has

mandated that they be performance based. This is

not always the case, however, and some design

standards end up looking more like technology

specifications to sources. Sometimes this happens

at the federal level; more often, it occurs as the permit is issued, typically at the state level.

The absence of accurate, reasonably simple,

and affordable monitoring technology is one of

the primary reasons that performance-based regulations are sometimes rejected. Moreover, this is

often a reason that multisource instruments are

avoided in favor of single-source approaches.

From the opposite perspective, improved monitoring capabilities have been used to promote

flexibility and increase assurance.

The more advanced the monitoring technology—relatively inexpensive, automated, reliable,

and capable of frequent sampling—the easier it is

to use policy tools that depend heavily on end

results. When monitoring capabilities are poor,

regulators are often hesitant to move from sourceby-source instruments such as design standards to

multisource approaches such as tradeable emissions and integrated permitting. Design standards

at least offer some options for using surrogate

measures for assuring compliance without the

necessity of directly monitoring pollutants. For

example, concern over the adequacy of methods

to quantify volatile organic compound (VOC)

emissions has been a stumbling block to establishing marketable emission programs for controlling

urban ozone.

When monitoring technology is well developed, the likelihood of public and regulatory

acceptance of alternative approaches, such as trading or fees, increases. An innovative program in

Minnesota allows a tape manufacturer, 3M, more

regulatory flexibility in exchange for substantial

overall reductions in VOC emissions and the de-
44 | Environmental Policy Tools: A User’s Guide

velopment of a continuous emissions monitoring

system for VOCs.

To encourage the development and use of better

monitoring technology, Congress could take several actions. First, it could increase funding to

EPA for research on new emissions monitoring

technologies. Research and development funding

by EPA for new emissions monitoring methods is

currently quite modest. Funding has averaged

about $90 million per year over the last three fiscal

years (217). About half of the research is for

methods applicable for multiple media; of the

single-media research, most is for air pollution

monitoring.

Alternatively, Congress could encourage the

use of preferred technologies by establishing economic incentives based on the characteristics of

the methods chosen. For example, Congress could

instruct EPA to develop discount factors similar to

an approach adopted by Massachusetts, which rewards facilities for the use of better emission

quantification techniques but still allows current

methods. Massachusetts has designed an air

pollution emissions trading program that uses a

multiplier to adjust the emission reduction credits

available for trading. Massachusetts leaves the

type of monitoring up to each source but discounts

emission reductions quantified through less accurate methods. Sources receive full credit for reductions that come from irreversible process changes,

between 80 and 95 percent credit for reductions

monitored using continuous emissions monitors,

and so on to as low as 50 percent for reductions

that are estimated rather than monitored. Thus

there is a considerable economic incentive to use

the more accurate methods.

Learning More About the Strengths and

Weaknesses of Less-Often Used Tools

Even when decisionmakers decide on the criteria

they wish to emphasize, knowing which instruments will be most effective is often difficult.

Lack of experience using many of the tools and,

consequently, the poor base of information about

their performance are major stumbling blocks.

As discussed earlier, we have the most extensive experience with implementing single-source,

fixed-target tools such as harm-based standards,

design standards, and product bans or limitations.

Information reporting, subsidies, and technical

assistance are being used more frequently now in

environmental protection programs than in the

past, and we have some experience using these

tools in related policy areas, such as agriculture

and energy. For others—tradeable emissions,

pollution charges, integrated permitting, and challenge regulation—we have even fewer experiences or evaluations of experiences on which to

base decisions about appropriate uses.

In the United States, for example, use of pollution charges has been limited almost exclusively

to volume-based fees for residential solid waste

disposal. Other OECD countries have used pollution charges more widely to reduce emissions and,

somewhat less often, for landfilled and incinerated wastes. However, these countries have only

recently begun to experiment with setting the

charges at a level high enough to ratchet emissions

downward. In addition, OECD was able to find

little systematic evaluation of these programs.

Thus, as in the United States, little evidence exists

for drawing conclusions about the problems for

which pollution charges might be most effectively

used and the type of institutional problems to be

expected during implementation.

Yet interest in learning more about how these

instruments actually work in practice, rather than

in theory, is clearly growing. State and local governments, as well as EPA, have been incorporating

less familiar policy tools to construct innovative

approaches to meeting environmental goals. Industry trade associations, individual companies,

and some environmental groups have joined in

these efforts to find new approaches that are effective in achieving many of the criteria while making progress toward goals. To date, however,

many more of these new approaches have been

proposed than implemented, and many more implemented than evaluated.
Chapter 1 Summary | 45

Most evaluations of these instruments are done

analytically or ex ante—that is, before the instruments are selected and implemented—to try to anticipate or predict likely outcomes. Post facto

evaluations, based on sound methodological approaches, are almost never completed. Even when

an evaluation is completed for a new approach,

drawing clear lessons from the experiences of one

or two facilities that could then be transferred with

confidence to other facilities, companies, industries, regions, or problems is difficult.

If Congress wants information about instruments that have seldom been used in environmental programs, better information about

instruments that are used widely, or better diffusion of the little information already available,

two approaches might be considered.

First, Congress could encourage experimentation with some of the less well-known tools to

learn more about their effectiveness in specific situations before advocating their widespread use.

For example, Congress could establish a limited

number of state or regional experiments using

instruments or combinations of instruments with

which the United States has little experience (e.g.,

challenge regulation, integrated permitting, and

pollution charges). These experiments might involve many facilities (e.g., associated by an industry or a watershed) to increase the likelihood of

identifying lessons about opportunities and problems across multiple facilities. This limited experimentation could improve the confidence

policymakers have in using tools selectively to respond to state and local differences or particular

problem characteristics.

Note that EPA is beginning to experiment with

alternative regulatory strategies as part of the larger Clinton Administration effort to “reinvent government” (32). In Project XL, EPA is trying to

determine how to allow firms that are environmentally “good actors” to replace existing

regulatory requirements with more flexible alternatives—assuming they achieve better results

than expected under existing law. In the Common

Sense Initiative, EPA is experimenting with sector-wide industry agreements as a “complement

to, or as a replacement for” traditional singlesource regulations. These and other regulatory experiments are still in their early stages and

Congress may wish to follow them closely.

Congress may also want to consider actions to

establish or strengthen evaluations of implementation experiences with both unfamiliar and

commonly used policy tools and to disseminate

the results. To ensure that these evaluations build

our knowledge base about the effectiveness of

tools, they could be required to track the implementation and results of both experimental and

existing programs. This knowledge could then be

shared with the public and others in government

and industry to improve the choices that are made

in the future. Good ideas don’t speak for themselves. Thus, Congress might want to consider

asking EPA to strengthen its role in facilitating the

transfer of information about how these instruments actually work in various settings.
Pollution

 Control

 Today

n the 25 years since the issue of environmental protection

first exploded onto the American political agenda, Congress

has enacted and revised dozens of relevant statutes. Most of

these laws are regulatory in nature; they are designed to

change private conduct in ways that will help preserve and protect

the human environment. In this chapter, we characterize which

pollution problems are regulated today or are likely to be in the

near future.

In the first section, we look at pollution control from two perspectives. First we outline where our pollution control dollars are

being spent today and briefly review the progress cleaning up the

environment over the last two decades. After that, we present one

view of the pollution problems that still remain.

In the second section, we present four case studies that illustrate the issues raised when “real world” environmental programs

are designed and implemented. Specific instruments are chosen

to achieve environmental goals, but they obviously must satisfy

other criteria as well. Each program offers a glimpse of the various ways each of the seven criteria (briefly presented in chapter 1

and discussed more fully in chapter 4) have been or could have

been taken into account to choose effective policy tools.

The case studies illustrate the use of instruments that directly

limit pollution and those that lower pollution but do not set fixed

targets. In the first group we describe the use of tradeable emissions in an air pollution control program in the Los Angeles area

and the use of integrated permitting in New Jersey. These two

policy tools are among the less used, but quite promising, approaches in the environmental policy toolbox.

Many of the instruments considered in this study do not have

fixed pollution targets. The third case study illustrates one of | 47
48 | Environmental Policy Tools: A User’s Guide

these, information reporting, by discussing two

California programs: Proposition 65 and the Air

Toxics “Hot Spots” program. Our fourth case

study focuses on technical assistance, as used under the Massachusetts Toxics Use Reduction Act.

TODAY’S PROBLEMS

Before we move on to consider the values and interests policymakers bring to problem solving, we

need to take a quick look at the kinds of problems

we are working on today and may face tomorrow.

After all, our choice of policy tools is likely to be

in large part influenced by the characteristics of

the problem being addressed.

Today the United States is spending about $100

billion per year controlling and preventing pollution. While controlling pollution more wisely

may lower these costs, the demands from a growing economy can be expected to offset some of, or

even overshadow, these gains. Understanding

which problems require the largest expenditures

and who pays the bills can help identify those targets that may yield the largest cost savings. There

are certainly many inefficiencies in the way the

nation protects the environment. It makes sense to

look first at those areas that cost the most.

But knowing the problems most of the money

is spent on today illuminates only part of the picture. Even with today’s substantial investment of

money and effort, many environmental problems

remain and new ones may emerge. Later in this

section we review the results of an EPA exercise to

rank remaining environmental priorities in each of

the 10 EPA regions. The wide variety of types of

remaining problems and sources identified in this

exercise underscores the need for a diverse set of

policy tools.

❚ The Cost of Pollution Abatement

About 85 percent of the approximately $100 billion spent annually on pollution abatement is tied

to the requirements of the Clean Air Act (CAA),

the Clean Water Act (CWA), and the Resource

Conservation and Recovery Act (RCRA)—the

three statutes covered in this report—or similar

state and local programs. Figure 2-1 displays current environmental expenditures under these and

other environmental statutes. About one-third of

the total is spent controlling water pollution;

somewhat over 20 percent controlling air pollution; another 20 percent disposing solid waste; 15

percent preventing, treating, and storing hazardous waste; 5 percent cleaning up old hazardous

waste sites; and about 1 to 3 percent each on drinking water, pesticides, and other toxic chemical

programs.

As can be seen in figure 2-2, about 45 percent of

the total is spent by government (with local government spending the largest share), 40 percent by

business, and 15 percent directly by households.

Again, about one-third of today’s abatement

costs are spent to maintain and improve the quality of the nation’s surface water. The vast majority

of this expenditure is to clean up wastewater from

identifiable municipal and industrial sources.

While many of these sources have significantly reduced their discharges over the last 25 years, many

lakes, streams, and estuaries are still impaired.

Another source of water pollution—nonpoint

source pollution from agricultural and urban runoff—is ranked among the very top of remaining

risks to ecosystems. Relatively little is spent on

controlling nonpoint source pollution today;

moreover, the costs of controlling many of these

sources in the future might also be quite high.

Of the total water pollution control costs, close

to 65 percent is spent by federal, state, and, primarily, local governments. Business spends about

30 percent and the remainder is spent directly by

households.

Information on water quality trends—that is,

the progress made over the last two decades—is

almost completely lacking. Much anecdotal information and data collected by the U.S. Geological Survey (USGS) on a limited number of sites

nationwide indicate some improvement for some

contaminants (e.g., bacteria and phosphorus).

However, for other contaminants (e.g., dissolved

oxygen and nitrates), the USGS data show no discernible trend (91).

Although data are sketchy even about today’s

water quality, currently about 40 percent of the nation’s river miles that have been assessed either do
Chapter 2 Pollution Control Today 49

U.S. total approximately $100 biIlion/year

Drinking

water Other

Superfund 3% 4%

5%

CWA

32%

CAA

21%

SOURCE: Office of Technology Assessment, modified from Don

Garner, “Pollution Abatement Costs,” Contractor Report to OTA, 1994.

not support, or only partially support, the beneficial use designated by the state (e.g., swimming,

fishing, drinking, or support of aquatic life).

About 45 percent of assessed lake area and 35 percent of estuaries do not support, or only partially

support, designated use (212). Agriculture is

thought to be the single largest source of remaining river and lake water quality problems. Sewage

treatment plants and urban runoff are the largest

contributors to remaining estuarine water quality

problems.

Somewhat over 20 percent of today’s abatement expenditures are for air pollution control.

These expenditures have contributed to a 25 percent drop in emissions of carbon monoxide, sulfur

dioxide, and volatile organic compounds since

1970. Particulate matter has dropped about 50 percent and lead emissions have dropped by 98 percent since 1970. Nitrogen oxide is the only criteria

air pollutant to have increased since 1970, by

about 10 percent (205).

However, much remains to be done. Many

areas still do not meet air quality standards for criteria air pollutants such as urban ozone. About 60

million people live in counties with air quality

levels that do not meet the national standards for

one or more pollutants. About 50 million people

live in counties that exceed air quality standards

for urban ozone. About 12 million people live in

counties that exceed air quality standards for carbon monoxide, and about nine million people live

in counties that exceed standards for particulate

matter (21 1). The recently amended program to

control emissions of hazardous air pollutants is

still in its early stages.

In contrast to water pollution control, most air

pollution control costs are borne by the private

sector. About 55 percent is spent by business and

35 percent by households (primarily for auto

pollution control devices).

Just under 20 percent of total costs are spent on

solid waste. As we shall see in the next section,

municipal solid waste is often judged to be among

the lower risks to both human health and natural

U.S. total approximately $100 billion/year

busines s

22%0

EPA

9%

Non-EPA

federal

4%

State

Local

240/o

3%

SOURCE: Office of Technology Assessment, modified from Don

Garner, “Pollution Abatement Costs,” Contractor Report to OTA, 1994
50 | Environmental Policy Tools: A User’s Guide

ecosystems. However, siting landfills is becoming increasingly difficult, which results in higher

disposal costs. Per capita net discards of solid

waste have been declining over the past decade

due in part to increased rates of recycling, but not

fast enough to offset population growth (48). Solid waste disposal costs are shared about equally

between government and the private sector.

Another 20 percent of the total is spent on hazardous waste. About three-quarters is spent dealing with hazardous waste under RCRA and the

remainder to clean up existing hazardous waste

sites under the Comprehensive Environmental

Response, Compensation and Liability Act

(CERCLA, also called Superfund). Most of the

costs of dealing with hazardous waste are borne by

business.

The remaining 10 percent of the total is spent

on regulations under the Safe Drinking Water Act,

regulating pesticides under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA),

regulating new chemicals under the Toxic Substances Control Act (TSCA), and a few other statutes implemented by EPA. Most of the drinking

water costs are spent by government and the bulk

of the costs under the other statutes is spent by the

private sector. As we shall see in the next section,

the risks from drinking water and pesticides rank

quite high on comparative assessments of risk.

Figure 2-3 breaks down pollution abatement

expenditures by both statute and sector. Again, of

the $100 billion per year spent on capital and operating costs, government and businesses each

spend between 40 and 45 percent of the total.

Households pay the remainder, about 15 percent.

Among businesses, expenditures are about

equally divided between manufacturing and other

businesses, for example, electric utilities and mining. Of the government expenditures, local government by far spends the most, about one-quarter

of the nation’s total.

The bulk of the expenditures by business is for

air pollution control, water pollution control, and

dealing with hazardous wastes under RCRA and

CERCLA. Businesses spend between 10 and 12

percent of the total abatement expenditures from

all sectors in each of these three areas. Households

spend about 7 percent of the total for cleaner cars

and gasoline and an additional 5 percent for solid

waste disposal.

The largest government expenditures are for

water pollution control. About 16 percent of total

pollution control costs are spent by state and local

government on publicly owned treatment works

(POTWs) and other sewerage. The federal government spends an additional 4 percent through

the State Revolving Fund. Government costs for

solid waste disposal are also significant. About 9

percent of total pollution abatement costs is spent

by local governments dealing with trash. In addition to funds appropriated to states and local governments to help build POTWs, the federal

government spends a significant amount on hazardous waste. Some of this, over 3 percent of nationwide costs, is spent on Superfund. A similar

and rapidly increasing amount is spent dealing

with hazardous waste at government facilities.

Pollution abatement expenditures are a small

but noticeable percentage of expenditures within

each of these sectors. Total expenditures are equal

to about 2 percent of the gross national product.

Government expenditures, on a percentage basis, are somewhat higher than private sector expenditures. Close to 4 percent of local government

expenditures are devoted to environmental

protection, again with most of this going to sewage treatment and solid waste disposal. Close to

1.5 percent of federal expenditures (not counting

Social Security or Medicare) are for pollution

abatement.

Less than 0.5 percent of household expenditures go to pollution abatement. By businesses,

this percentage is just under 1 percent of the value

of shipments. However, as shown in figure 2-4,

this percentage varies considerably. Figure 2-4

displays pollution abatement costs as a percentage

of value of shipments for manufacturing and several major nonmanufacturing industries. These

costs are disaggregated to the finest resolution

available—the four-digit standard industrial code

(SIC).

Control costs are as high as 9 percent of value of

shipments, but for very few industries. For the 11

four-digit SIC industries where control costs ex-
Chapter 2 Pollution Control Today 51

CWA

CAA

RCRA-nonhazardous

RCRA-hazardous .

Superfund

Drinking water

Other

1 r

1

0 4 8 12 16 20

Percent of U.S. total, by sector and law

SOURCE: Office of Technology Assessment, modified from Don Garner, “Pollution Abatement Costs,” Contractor Report to OTA, 1994.

ceed 4 percent of value of shipments, their total

value of shipments is about 1 percent of the industrial total. Those industries whose control costs

exceed 2 percent of value of shipments spend

close to two-thirds of industrial control costs but

are responsible for about 20 percent of the value of

shipments. Those industries where control costs

are less than 1 percent of value of shipments are

responsible for about 75 percent of the total value

of shipments.

If media attention were the only guide, one

might assume that the bulk of the nation’s pollution abatement expenditures was devoted to dealing with hazardous materials, with very little of it

spent on pollution prevention. This is not the case.

Using the above estimates as a rough guide, about

one-third of abatement costs are spent on hazardous pollutants. The rest is for controlling criteria

air pollutants such as ozone and particulate, conventional water pollutants such as suspended solids and oxygen-demanding materials, and solid

waste.

Pollution prevention is more prevalent than is

usually recognized. The only reliable data on

pollution prevention versus end-of-line control

methods are for capital expenditures within

manufacturing. The last decade has seen a marked

increase in the use of pollution prevention. During
52 Environmental Policy Tools: A User’s Guide

8%

6% -60% 

c

4% - -40% 

0

2% --20% 

o

o% I I I I —-o% 

0% 20% 40% 60% 80% 1OO%

Cumulative value of shipments by industry

SOURCE: Office of Technology Assessment, modifled from Don

Garner, ‘(Pollution Abatement Costs,” Contractor Report to OTA, 1994

the early 1980s, manufacturers reported about 15

percent of their abatement expenditures for pollution prevention. Over the last 10 years, this has

doubled. A U.S. Census Bureau survey estimates

that about 35 percent of capital expenditures in

1992 were for pollution prevention. This varies

somewhat by medium, ranging from about 25 percent for water pollution control, to 35 percent for

waste, to about 43 percent for air pollution control.

❚ Remaining Environmental Problems

Tomorrow’s environmental agenda will contain

many new priorities, but much of it will be filled

with problems that remain from yesterday. This is

the conclusion of several reports that have attempted to assign qualitative rankings for today’s

major environmental risks as part of an effort for

setting tomorrow’s environmental priorities.

These include two national studies and comparative risk exercises by all 10 EPA regions and by six

states.

As might be expected, there are both similarities and significant differences among the results.

Some of these differences are due to the fact that

environmental problems vary from region to region. Other differences stem from the regrettably

crude state of the art of comparative risk assessment. While such attempts do help identify significant environmental problems, they also make

clear that: 1) much of the information needed to

compare risks is not available; and 2) priority setting depends as much on values as estimates of

harm.

Some of the problems identified have been addressed by the major environmental laws for two

decades but have been resistant to solution. Others

have received little attention to date. They are

found in all media—air, water, and land-and

they include both risks to human health and risks

to natural ecosystems.

The first of these reports, Unfinished Business,

was prepared by EPA in 1987. EPA first identified

31 environmental problem areas and then qualitatively identified and ranked the remaining risks to

human health, ecological, and social welfare.

The key risks to human health identified by the

report included the following:

indoor air pollutants, including radon;

worker exposure to chemicals;

pesticides;

criteria air pollutants, such as fine particulate

and urban ozone;

consumer product exposure;

hazardous air pollutants;

drinking water; and

accidental releases of toxics.

Note that the health risks within this highest

category are not ranked, due to both data limitations and the difficulty of comparing cancer and

noncancer health risks.

Unfinished Business judged the following ecological risks as greatest:

global warming;

stratospheric ozone depletion;

physical alteration of aquatic and terrestrial

habitats; and

mining and gas and oil extraction.

The report ranked several ecological risks

somewhat lower, but still high:

■ criteria air pollutants;

■ point source discharges of water pollutants;
Chapter 2 Pollution Control Today | 53

 nonpoint sources of water pollutants; and

 pesticides.

Several years later, EPA’s Science Advisory

Board (SAB), in response to a request by the EPA

Administrator to review Unfinished Business, issued its own list of the most significant environmental risks. The SAB Human Health Committee

felt that four of the high-risk human health problems identified by Unfinished Business were firmly supported by available data:

 ambient air pollutants, including both criteria

air pollutants and hazardous air pollutants;

 indoor air pollution;

 worker exposure to chemicals in both industry

and agriculture; and

 pollutants in drinking water.

The committee stated that many of the other

areas identified by Unfinished Business involved

“potentially significant exposure of large populations,” but that the “data bases to support these

concerns are not as robust” as for the four problems listed above.

The Ecology and Welfare Committee identified four high risks:

 global warming;

 stratospheric ozone depletion;

 habitat alteration and destruction; and

 species extinction and overall loss of biological

diversity.

Two of the ecological risks ranked relatively

high by Unfinished Business were ranked as medium-risk problems by the SAB committee:

 water pollution, such as toxics, nutrients,

biochemical oxygen demand, and turbidity;

and

 pesticides.

Recognizing that such nationwide rankings

could not adequately reflect the regional variation

among environmental problems, EPA asked each

of the 10 EPA regions to undertake comparative

risk-ranking exercises and sponsored similar exercises by the states. Results of the regional exercises, displayed as figures 2-5 and 2-6, illustrate

regional variation and, once again, differences of

opinion among different groups doing the evaluations.

Figure 2-5 displays the number of EPA regions

rating each of approximately 20 problem areas as

high, medium-high, medium, etc., with regard to

risks to human health. The categories are similar

but not identical to those used in Unfinished

Business and the SAB report. For example, the

category of “criteria air pollutants” is further disaggregated to ozone and carbon monoxide, particulate matter, airborne lead, and sulfur and nitrogen

oxides. Several of the earlier categories are missing (including worker exposure to chemicals,

rated as one of the highest risks, but not within

EPA’s jurisdiction). The order in the figure displays a rough nationwide ranking,1 by ordering

those risks rated highest by the most EPA regions

first. Note, however, the widely scattered results:

three-quarters of the risks were rated as high or

medium-high by at least one EPA region.

The rough nationwide ordering that results

from combining each of the 10 independent regional comparative risk exercises tracks fairly

closely to the nationwide studies discussed above.

The highest ranked human health risks include

some risks that we have been grappling with for

many years (e.g., ozone and carbon monoxide,

pesticides, and drinking water), risks that only recently have been recognized as major and not well

addressed by our current system (e.g., indoor air

pollution, including radon), and at least one (hazardous air pollutants) that has recently been addressed by a significantly expanded regulatory

program.

Figure 2-6 displays the rankings of ecological

risks by the 10 EPA regions. Physical alteration of

natural habitats are ranked high by all of the riskranking exercises—all 10 EPA regions and the

two nationwide exercises. The nationwide exer1 Risks were ordered from highest to lowest by assigning 5 points for each region that rated a risk as high, 4 points for a medium-high rating,

3 points for a medium rating, etc. Other weighting schemes would, of course, result in somewhat different rankings.
54 Environmental Policy Tools: A User’s Guide

Number of regions rating each risk high to low High Med-high Medium Meal-Low Low

Indoor radon

Indoor air other than radon

Ozone and carbon monoxide

Pesticides

Hazardous air pollutants

Aggregated drinking water

Airborne lead

Particulate matter

SOX, NOX, and acid rain

Aggregated groundwater

Nonpoint sources

Stratospheric ozone depletion

Radiation other than radon

Industrial wastewater

Superfund hazardous waste

Accidental chemical releases

RCRA hazardous waste

Municipal wastewater

Storage tanks

Municipal solid waste

Industrial solid waste

C02 and global warming

I I I I

I

I I I I

SOURCE: Data on regional rankings provided by R. Curry, Strategic Planning and Management Division, U.S. Environmental Protection Agency.

cise ranked two global issues—global warming to a difference of opinion or values, or merely that

and stratospheric ozone depletion—higher than the regions felt that their job was to identify risks

the regional efforts. The regional efforts ranked for regional attention.

more localized problems, such as nonpoint source Some of the problems mentioned above pose

water pollution, pesticides, and ozone, higher than risks to both human health and ecosystems, for exthe nationwide exercises. This may have been due ample, pesticides, stratospheric ozone depletion,
Chapter 2 Pollution Control Today 55

Number of regions rating each risk high to low

Physical degradation of water and wetland habitats

Physical degradation of terrestrial ecosystems

Nonpoint sources

Pesticides

Ozone and carbon monoxide

Municipal wastewater

Industrial wastewater

SOX, NOX, and acid rain

Stratospheric ozone depletion

Superfund hazardous waste

Particulate matter

Hazardous air pollutants

RCRA hazardous waste

Accidental chemical releases

C02 and global warming

Municipal solid waste

Storage tanks

Industrial solid waste

Airborne lead

Aggregated groundwater

Radiation

High Meal-high Medium Med-Low Low

I

SOURCE: Data on regional rankings provided by R. Curry, Strategic Planning and Management Division, U.S. Environmental Protection Agency

and criteria air pollutants such as ground level “combined risk ranking” of the combined conozone and sulfur and nitrogen oxides. Others pose cerns of the 10 EPA regions. The ranking assumes

risks primarily to one or the other, for example, that equal concern is given to human health risks

physical alteration of natural habitats, nonpoint and ecological risks. Weighting one more than the

source water pollution, and indoor air pollution, other would, of course, result in different rankincluding radon. Figure 2-7 displays a rough ings.
56 Environmental Policy Tools: A User’s Guide

Pesticides

Nonpoint source water pollution

Indoor radon

Physical degradation of terrestrial ecosystems

Physical degradation of water and wetlands

Stratospheric ozone depletion

Ozone and carbon monoxide

Indoor air other than radon

Hazardous air pollutants

SOX, NOX, and acid rain

Particulate matter

CO2 and global warming

Aggregated drinking water

Airborne lead

Aggregated groundwater

Accidental chemical releases

Industrial wastewater

Municipal wastewater

Radiation other than radon

Superfund hazardous waste

RCRA hazardous waste

Industrial solid waste

Municipal solid waste

Storage tanks

1

■ Human health

I I 1

0 20 40 60 80

Percent of potential maximum score

SOURCE: Office of Technology Assessment, based on data on regional rankings provided by R. Curry, Strategic Planning and Management Division, U.S. Environmental Protection Agency,

EPA has sponsored risk-ranking exercises by

states as well. Figure 2-8 displays the results of

these exercises by six states: California, Colorado, Louisiana, Michigan, Vermont, and Washington. All but California provided integrated risk

rankings, that is, evaluated each of the problems

by considering all of the risks—both to human

health and to ecosystems—that they pose. Note

the somewhat similar ranking of the most serious

problems by the EPA regions and the states, with a

few notable exceptions: indoor air pollution, pesticides, and stratospheric ozone depletion are considerably further down the states’ lists.

Complicating the comparison, however, is that

not all the states followed the same procedure.

Some of the states (e.g., Washington and Louisiana) ranked priorities for state action while others

(e.g., Vermont and Colorado) ranked risks to the

state, regardless of whether they felt state action

was appropriate.

MATCHING TOOLS TO PROBLEMS

The case studies examined in this chapter illustrate the issues raised when real-world environmental programs are designed and implemented.

Specific instruments are chosen to achieve environmental goals. These choices offer at least some

glimpses of the various ways each of the seven criteria briefly presented in chapter 1 and discussed
Chapter 2 Pollution Control Today 57

Physical degradation of water and wetlands

Criteria air pollutants

Indoor air other than radon

Nonpoint source water pollution

Physical degradation of terrestrial ecosystems

Hazardous air pollutants

C02 and global warming

Aggregated drinking water

Pesticides

Point sources of wastewater

Aggregated groundwater

Indoor radon

Radiation other than radon

Stratospheric ozone depletion

Airborne lead

Superfund hazardous waste

Accidental chemical releases

Nonhazardous solid waste

RCRA hazardous waste

Storage tanks

o .20 40 60 80

Percent of potential maximum score

SOURCE: Office of Technology Assessment, based on data on state rankings provided by D. Martin, Strategic Planning

and Management Division, U.S. Environmental Protection Agency.

more fully in chapter 4 have been taken into account.

The first two case studies illustrate several of

the less commonly used—but especially promising—instruments with fixed emissions targets:

tradeable emissions and integrated permitting.

The latter two case studies illustrate two of the

available approaches without fixed targets: information programs and technical assistance. The

specific examples and criteria discussed in each

case study are shown in box 2-1.

❚ RECLAIM Tradeable Emissions

Program

The Regional Clean Air Incentives Market (RECLAIM) is one of the biggest experiments in environmental regulation in the United States. Many

stakeholders took part in the lengthy negotiation

necessary to formulate and adopt a controversial

pollution control program. Emissions trading,

long discussed in economic literature and adopted

in the 1990 Amendments to the Clean Air Act

(CAA) for controlling acid rain, is the focus and

hope for more cost-effective air pollution emissions reduction in the South Coast Air Quality

Management District (District).

RECLAIM, first implemented in January

1994, took three years to develop because of an

unusually open and public process. Growing federal interest in alternative regulatory approaches

and serious concern with the cost of air pollution

control in California’s troubled economy spurred
58 Environmental Policy Tools: A User’s Guide

Tradeable Emissions

RECLAIM, Los Angeles area:

Cost-effectiveness and fairness: As reductions to meet air quality standards became increasingly expensive under the previous control plan, both industry and government began searching for ways to lower

emissions more cost-effectively. The perception of what is a “fair” initial allocation of permits and a fair

rate of reductions differed among stakeholders.

Assurance of meeting goals: State-of-the-art monitoring was a crucial component for ensuring that individual sources were accountable for reductions and that the program could be enforced. This ultimately

limited the types of sources that could participate.

Environmental equity and justice: Public interest groups were concerned that trading might lead to higher

ozone levels in predominantly Black and Hispanic areas, compared with levels under the source-specific program it replaced.

Integrated Permitting

New Jersey:

Pollution Prevention: The program requires formal facility-wide pollution prevention planning as a condition

for integrated permitting.

Adaptability: The integrated permit incorporates a range of acceptable changes, allowing a facility to

quickly make process changes in response to market opportunities without needing additional agency

approvals.

Information programs

Proposition 65 and “Hot Spots’’ program, California:

Assurance of meeting goals: Although both programs establish incentives for lowering exposures to toxics, neither provides much assurance to the public that goals will be met. The “Hot Spots” program

was amended several years later to require reductions.

Pollution prevention: Proposition 65 assumes that consumers will reject products using toxics, thus pressuring companies to prevent pollution by finding substitutes.

Environmental equity and justice: Giving communities or individuals information about risks or about emissions can improve their ability to identify potential dangers. Both programs report risk—as opposed to

emissions asunder the federal Toxics Release Inventory—an easier measure for the public to interpret.

Technical Assistance

Toxics Use Reduction Act, Massachusetts:

Adaptability to change: A service unit oriented toward client needs can incorporate changes in these

needs and modify its practices in response to information about new technologies or changed understanding of risk rather easily in comparison to other types of instruments.

Technology innovation and diffusion: A focus on small firms without R&D capability and efforts to link experts can facilitate diffusion and might improve chances for innovation. Institutional and geographic

separation of a state’s R&D group from its outreach group may diminish opportunities for learning and

cross-fertilization of ideas.

SOURCE: Office of Technology Assessment, 1995,
Chapter 2 Pollution Control Today | 59

the District to attempt a major experiment in regulation.2

District regulators were faced with many challenges before program development even began—for example, the need to fit into an already

elaborate regulatory structure at the state and federal level. The RECLAIM program, which is part

of the District’s Air Quality Management Plan

(AQMP), must be approved by the California Air

Resources Board (CARB) to be incorporated as

part of the State Implementation Plan (SIP) to

demonstrate compliance with both the federal

CAA and the California Clean Air Act (CCAA)

(180).

In addition, the District accepted five criteria

that were used to further guide RECLAIM development (179):

 enforcement of emission reductions must provide confidence equal to or greater than the existing air quality control program;

 emission reductions must be equal to or greater

than the 1991 Air Quality Management Plan

(AQMP) and future control plans;

 implementation costs must be less than the

1991 AQMP;

 job impacts must be less than the 1991 AQMP;

and

 adverse public health impacts should not result

from implementation of the program.

The development process began in 1990 and included numerous meetings, hearings, and workshops over a several-year period. Although

RECLAIM has been in place for less than two

years, the story of its selection and design as a regulatory approach is of particular interest as an example of regulatory decisionmaking and the

tradeoffs that are made in the process.

How RECLAIM Works

At the most basic level, RECLAIM establishes an

emissions trading market for stationary sources in

the District that emit four tons or more of nitrogen

oxides (NOx) or sulfur dioxide (SO2) per year.3 At

the time of implementation, total RECLAIM

sources included 41 SO2 facilities (representing

approximately 85 percent of the reported SO2

emissions from stationary sources in the District)

and 390 NOx facilities (representing about 65 percent of permitted NOx stationary source emissions

in the District) (180). Each facility receives a facility permit, which includes a list of all emission

sources, annual reduction targets, quarterly emission limits, and compliance requirements in accordance with requirements of the CCAA and the

federal CAA. This permit establishes the facilitywide emission level for each year from 1994 to

2003 and the corresponding annual allocation of

Regional Trading Credits (RTCs) as determined

by the District (based on past peak production and

requirements of existing rules and regulations).

An RTC represents one pound of either NOx or

SO2 emissions and is a tradable commodity meant

to be bought or sold for use within the year of its

creation. Facilities must hold enough RTCs to

cover their actual emissions.

The program is designed to require facilities to

reduce emissions in the District by 8.3 percent per

year for NOx and 6.8 percent per year for SO2 from

1994 through 2003 (102). It is expected that the

presence of the emissions trading market will help

lower the costs of meeting air pollution goals in

the District as outlined by the 1991 AQMP. RECLAIM is a more flexible—and thus it is hoped

more cost-effective—regulatory approach because it allows firms to control their emissions un2 For example, see recent EPA rule on economic incentive programs: U.S. Environmental Protection Agency, “Economic Incentive Program Rules,” final rule and guidance, Federal Register 59(67), Apr. 7, 1994.

3 Separate trading markets exist for NOx and SO2. A volatile organic compound (VOC) market is in development and scheduled for adoption by fall 1995.
60 | Environmental Policy Tools: A User’s Guide

der a facility-wide emissions cap rather than

requiring individual permits and controls for each

emissions source in a facility. In addition, the RTC

has value as one pound of NOx or SO2 emissions,

and firms best able to make emission reductions

may sell the credits to firms less able to make reductions for technical or economic reasons. In effect, RECLAIM allows firms to better “manage”

their emissions by allowing more choice in how

reductions are made and by placing a value on

emission credits that creates an incentive to make

reductions in order to sell those credits.

RECLAIM and the OTA Criteria

The selection and development process for RECLAIM involved detailed analysis of most of the

decision criteria discussed in the previous chapter.

Through the iterative nature of the program’s design, stakeholders explicitly addressed assurance

of meeting environmental goals, costs, equity and

fairness, and technology innovation, among many

other concerns. While all of these issues would be

worth exploring, this case study will focus primarily on three of the OTA criteria: 1) fair and cost-effective use of resources; 2) environmental justice;

and 3) assurance of meeting environmental goals.

Cost-effectiveness and fairness to sources

Cost-effectiveness—Lowering the high cost of

control was one of the primary motivating factors

for choosing emissions trading as a regulatory approach in the District. The economics literature

and the early feasibility studies conducted for RECLAIM development provided theoretical support that emissions trading could help lower the

costs and impacts on society while achieving the

necessary pollution reductions (128,178). The

conditions seemed right for a trading program

with the large number of identifiable stationary

sources, all of whom faced inherent variations in

control costs.4 Emissions trading offered flexibility to the regulated entities while maintaining a

firm target of pollution control.

Just how significant cost savings will be under

the RECLAIM regulatory approach is difficult to

determine. While extensive analysis was conducted on the costs to the regulated industry

groups (181), disaggregating down to a firm level

was not possible, primarily because of a lack of facility-specific information. Various assumptions

were made—including information on air pollution control technology currently in place, past

production levels, and projected growth—in order

to begin to model likely sellers and buyers and

other impacts of a trading market (103). In addition, very little analysis is available on the relevant government costs. With these limitations in

mind, the District’s analysis did show that the

costs of emission reductions with RECLAIM

would be on the order of one-quarter to one-third

less than the approach previously outlined in the

1991 AQMP in the years 1996-1999 (181). These

cost estimates for RECLAIM were obtained

through use of two forecasting models and include

compliance, opportunity, and increased monitoring costs associated with the program.

It is assumed that under this type of market system, firms will choose the least expensive means

of pollution control. Since RECLAIM establishes

a facility emissions cap, eliminating most sourcespecific pollution control measures, firms are able

to utilize many different options to make emission

reductions including process changes, installation

of control equipment, purchases of emission credits, and changes in operating or other methods

(181). The RECLAIM cost-savings projection assumes that facilities will better “manage” their

emissions by shifting from relatively high-cost

controls to relatively lower-cost sources, both

making the needed reductions and potentially

freeing up RTCs for sale on the market. In addition, firms that are not able to make cost-effective

reductions can potentially purchase RTCs on the

4 The earliest program proposal included markets in VOC and NOx, which potentially would have included approximately 2,700 facilities.

South Coast Air Quality Management District, “RECLAIM: Feasibility Study,” Diamond Bar, CA, March 1992.
Chapter 2 Pollution Control Today | 61

market at a lower cost. Whether firms actually do

maximize profits will vary, though the connection

between emission reductions and the bottom line

should motivate firms to take advantage of savings wherever possible in the system.

Compliance costs for both RECLAIM and the

approach outlined in the 1991 AQMP include capital, operating, and maintenance expenditures on

control equipment. Although overall costs are estimated to be lower under RECLAIM, some industry groups are winners and some are losers.

Those expected to gain the most include public

utilities, petroleum, stone and clay, and the

construction industries. Industries expected to

pay more under RECLAIM include primary metals, paper, and mining (181). These cost savings

for firms are expected to be bolstered by new

technologies available with the expanded incentive for innovation due to the presence of the market. The positive finding for cost savings to

industry also implies lower future job impacts due

to regulation. RECLAIM analysis shows an expected 1,100 fewer jobs lost annually on average

between 1994-1999 under RECLAIM than the

earlier plan (181).

Determining cost-effectiveness for firms in an

emissions market also requires consideration of

costs associated with monitoring, recordkeeping,

and transactions. District analysis estimates that

total control costs for NOx and SO2 RECLAIM

firms will be about $75 million per year in 1996

and $165 million by 1999. The District estimates

that average cost of monitoring and recordkeeping

(as part of control costs) will be about $13 million

per year between 1994 and 1999. That estimate reflects approximately $10 million for use of Continuous Emission Monitoring Systems (CEMS),

and about $2 million for Continuous Process

Monitoring Systems (CPMS). The remaining

$0.3 million is assigned to operating costs for Remote Terminal Units (RTUs) in some facilities

(181).

Of course, whether these estimated cost savings come about depends on how closely the modeled assumptions match what actually happens.

Looking more closely at what is forecast to happen in a typical year, 1997, is instructive. In this

year, RECLAIM is expected to cost $94 million in

comparison to $127 under the old AQMP, a savings of about $34 million or 25 percent. Some of

this savings is assumed to come from more rapid

innovation that might occur under a trading

scheme. As discussed in chapter 4, this is plausible, but neither economic theory or empirical evidence leads one conclusively to this assumption.

Omitting the assumed effects of innovation might

lower the savings by $5 to $10 million. Some of

this savings come from the lower NOx emission

reductions required in 1997 under RECLAIM

than under the old AQMP. Thus about $7 million

to $13 million of the lower cost comes from requiring lower emission reductions.

The District’s estimate of savings assumes that

all cost-effective trades that might occur will occur. The District’s analysis indicates that about

one-quarter of the NOx reductions below 1994

levels in 1997 will be traded (i.e., about 9 of the 35

tons per day). To the extent that some of these

trades do not occur, due to mistrust of the market

or because the additional effort may just not seem

to be worth the bother, some of the remaining forecasted savings also will not occur. However, the

District’s model is not able to account for cost savings that might occur within facilities. These are

the types of “trades” that are most likely to occur

in the early years at the largest sources. Thus it is

unclear whether, on balance, the estimates of trading are high or low.

Most of the cost savings appear to come from

“time shifting,” that is, sources scheduling the

cheapest emission reductions first, rather than according to the somewhat arbitrary schedule originally imposed by the District. These cost savings

are quite likely to actually occur, but again, this is

but one of several components that comprise the

District’s total cost savings estimate of 25 percent.

Administrative burden—The administrative burden

for firms complying with the RECLAIM program

will also vary. There was some concern early in

the program development that monitoring and recordkeeping demands could prove too onerous for

some, especially small businesses. (This might be

especially problematic in a market for VOCs,
62 | Environmental Policy Tools: A User’s Guide

which would include a larger number of small

businesses.) Larger facilities, with numerous

pollution sources to consider for control, typically

have a greater resource base from which to operate

and determine the best approach for operating in

the market. Little information is available on

whether RECLAIM places additional administrative demands on firms beyond those that already

exist in the previous regulatory approach.

RECLAIM development and implementation

proved a formidable task for District regulators.

While no cost estimates were made (or available)

prior to the undertaking, it quickly became one of

the largest demands on District staff and other resources. The District Finance Division provided

some cost data that showed that RECLAIM program development cost $0.9 million in FY

1991-92, $4.7 million in FY 1992-93, and $4.5

million in FY 1993-94. In addition, overtime

hours paid for RECLAIM staff were some of the

highest in the agency (147). This intensive effort

and the associated burden on the District can probably be explained by the uncertainties involved in

this program as a first-time major effort of this

kind. They were breaking new regulatory ground

with nearly every decision that had to be made.

RECLAIM permitting was split into two sixmonth cycles. Although there are 59 more Cycle 2

facilities than Cycle 1, District staff were able to

cut the permitting time down by nearly one month

through lessons learned and products created from

the first round of permitting—which required 50

staff over a three-month period (147). With additional implementation experience the program

costs for the District should decline as more of the

resources are moved away from program development and applied to implementation and enforcement.

Fairness—Concerns for fairness in the design of

the program are probably best revealed by decisions that were made regarding program participants, initial allocation of emission credits, and

emissions reduction requirements. For example,

initial plans for RECLAIM included a market for

trading of VOCs. This market would have incorporated the largest number of facilities when

compared to the much smaller number of sources

considered for the NOx and SO2 programs. A high

percentage of VOC emitters are small businesses,

especially paint and finishing businesses. The

District planned early to exempt some small VOC

emitters—for example, dry cleaning facilities,

restaurants, and gas stations—and some large

sources, such as fugitive emissions at refineries

and sewage treatment plants. This narrowed the

list of possible sources from about 13,000 to

approximately 2,000 (179). There was some concern that smaller businesses might be at a disadvantage in a market system, but good information

on this subject is scarce. Members of the Small

Business Coalition participated actively in RECLAIM development, and while concerns about

program impacts never fully subsided, it is unclear whether there was a consensus opinion as to

whether RECLAIM should be adopted or not.

It is no secret that the biggest firms (including

oil companies, some aerospace firms, etc.) supported the RECLAIM concept from the start.

Larger firms, typically owning facilities with

many emission sources, had the most to gain from

the added flexibility that a trading system would

allow. The majority of the necessary NOx and SO2

reductions required by RECLAIM were already

accounted for in previously adopted rules. Committing to additional reductions was an easy trade

for gaining the flexibility allowed in the program.

In effect, RECLAIM was a rule of relaxation for

oil companies and utilities (174). Bringing other

firms fully on board and working out the program

details to make it fair for all involved was the real

task.

One of the most controversial aspects of adopting RECLAIM was deciding the initial allocation

of emission credits. The starting RTC allocation

was significant for most businesses in that none

would want to be penalized by their new emissions cap. One of the primary tenets of the Regula-
Chapter 2 Pollution Control Today | 63

tory Flexibility Group (RFG)5—a business

coalition—was that no business should start off

“in the hole,” especially since all future reductions

would drop from this allocation. There was significant concern that the initial allocation should not

only allow for growth beyond recessionary levels

of the recent past but should also account for previous application of pollution control equipment.

The District worked for an allocation methodology that was equivalent to adopted rules and the

AQMP, and that was fair and equitable to firms.

Their view of this meant that attention to fairness

required allocation levels necessary to accommodate operating levels. The District finally selected

an allocation approach based on “historic use” of

each piece of NOx and SO2 equipment at a facility

and subtracting the emission reductions necessary

to comply with adopted rules.

While this method proved favorable to most of

the participating firms, environmentalists contend

that the initial allocation was too large and that it

overcompensated for recessionary emission levels. They believe that the allocation is so high that

the District will actually lose some progress made

in the late 1980s and that it delays further progress

to much later in the program. They believe that the

initial allocation allows more pollution than

would have been emitted in 1994-95 under the

1991 AQMP, and because of this, RECLAIM

does not achieve reductions equivalent to the original plan. In effect, although RECLAIM is designed with an emissions endpoint equal to the

AQMP, it does not account (or compensate) for

the excess emissions in the early years of the program. Overall, environmentalists claim that RECLAIM is responsible for approximately 40,000

tons of additional emissions in the District

(82,117). There is currently a lawsuit pending on

this point.

Another fairness issue for the program developers was the rate of emissions reduction that

would be required for each firm. Guided by future

air quality standards that must be attained, the

District had to limit participating facility emissions each year, including a specific reduction rate

that would ensure that goals would be met. Initially, every facility was to make reductions at the

same rate. It soon became clear that many firms

felt this would be unfair, especially those that had

already incorporated the best pollution control

equipment. After a year of negotiation and remodeling with different proposed reduction rates, it

was finally decided that there would have to be

different final targets for each facility taking into

account each facility’s current level of emissions

and future control potential. Therefore, some

firms have a fairly flat reduction schedule while

emission limits for others drop off significantly

(228).

VOC RECLAIM was deferred, in part, because

the major oil companies realized in the end that

they would be forced to make reductions that were

not based on any known technologies (174). There

was real concern that the reduction would have to

be made in cuts to production levels, though the

District did not feel that this would be necessary.

Also, under the traditional regulatory approach,

firms demonstrating best efforts to make reductions could often receive extensions to technology-forcing regulations if they could prove that it

was impossible to comply. The loss of this option

was considered unfair by the largest firms and

they chose to oppose VOC RECLAIM (228). The

CARB also continued to have concerns with the

program because quantification of VOC emissions was not exact enough for trading.

Environmental equity and justice

Environmental justice concerns were an explicit

part of the District’s environmental assessment of

the RECLAIM program and possible alternatives,

including the 1991 AQMP. Localized effects of

VOC, NOx, and SO2 emissions and their addition5 The Regulatory Flexibility Group is a coalition of businesses involved in RECLAIM development including firms such as Allied Signal

Aerospace Co., ARCO, Chevron, Hughes, Mobil Oil, and the Walt Disney Company, among others.
64 | Environmental Policy Tools: A User’s Guide

al role as precursors to ozone and particulate matter were modeled and discussed extensively.

Possible health impacts were especially contentious in VOC program development because of

the potential for toxic emissions in this category

and the possibility of contributing to toxic hot

spots. The District will likely opt to exclude the

most toxic substances (such as benzene, styrene,

methylene chloride, and perchloroethylene).

Moreover, air toxics will continue to be regulated

under other programs that target them specifically.6 The current delay in the VOC program has

allayed, though maybe just temporarily, many

fears about localized toxic impacts of trading.

One segment of the opposition to trading on the

grounds of uncertain or negative health impacts

due to RECLAIM was that of the environmental

justice community. Although it was not a well-organized opposition, serious concerns were raised

that some neighborhoods, especially low-income

neighborhoods, would have worse air pollution

than others. While this problem may not necessarily be aggravated by RECLAIM, opting for a trading system was in principle giving consent for

some facilities to pollute more than others and

forego greater emission reductions than could

have been achieved. Although data are still limited in this area, many concerned with environmental justice contend that most polluting

facilities are in or near poor and minority neighborhoods. For these groups, the risks associated

with uncontrolled emissions are unacceptable.

Further, under RECLAIM, facilities do not

need prior approval for trades; thus the opportunity for public participation is diminished. However, any action to install new equipment or

increase emissions over the 1994 emissions cap is

subject to review, and if the changes are significant, public notice is required. Beginning in 1996,

the permitting requirements adopted under the

1990 CAA Amendments will require each whole

facility permit to undergo public review and comment prior to being reissued. (This will occur every five years.)

To determine whether the fears of the environmental justice community were founded, the District analyzed whether areas with higher

percentages of a given race (white, black, Hispanic, and Asian) experience higher levels of ozone

exposure than areas with lower percentages. The

District modeled both the correlation today and

projections for the future under RECLAIM and

the more traditional AQMP that RECLAIM was

developed to replace. The study found that in

2000, RECLAIM would be somewhat better than

the AQMP alternative, with regard to the distribution of exposures, for blacks, Hispanics, and

Asians. RECLAIM would be slightly worse for

whites than the AQMP alternative in 2000.

For this study, the measure of ozone exposure

was the number of hours per year that people are

exposed to ozone concentrations above the standard. In 1994, this was somewhat over 30 hours

per year, on average, for all residents of the basin.

By 2000, exposure under either plan is forecast to

drop to below 20 hours per year. Figure 2-9 displays the relative distribution of exposure today

and the forecasts under the two plans in 2000. The

black bars show the distribution today. A bar

greater than zero, that is, a bar above the line,

means that an area with a higher percentage of that

race is more likely to have higher ozone exposures

than an area with a lower percentage of that race.

Thus, in 1994, areas with the higher percentage of

blacks were more likely to have higher exposures

to ozone than those with lower percentages for

blacks. The same goes for areas with higher percentages of Hispanics, but not as pronounced as

for blacks. An area with a higher percentage of

Asians was more likely to have a lower exposure

to ozone than an area with a lower percentage of

Asians (i.e., the bar is below the line).

6 Including title III of the 1990 Clean Air Act Amendments and California’s Air Toxics “Hot Spots” Act.
Chapter 2 Pollution Control Today 65

Two aspects of the two plans in the year 2000

are of interest. First, compared with each other, the

distribution of ozone exposure is slightly more

even under RECLAIM than under the more traditional AQMP alternative. Thus, if the modeling of

the patterns of trades of emission credits is accurate, the feared aggravation of exposure to ozone

in black and Hispanic areas is not likely, or at least

not likely to be large. It is still true that there is less

certainty about the distribution of ozone under the

RECLAIM trading program, but the pattern of

trades in this case may slightly favor black and

Hispanic areas.

Another result is also striking, however. The

changes between years is greater than the change

between programs in 2000. Areas with higher percentages of Hispanics are more likely to be living

in higher ozone areas in 2000 than they were in

1994. This does not mean that Hispanic areas will

be exposed to more ozone in 2000 than 1994. As

mentioned above, exposure to ozone drops dramatically throughout the basin. But in 2000, high

Hispanic areas are more likely to be among the

high ozone areas. RECLAIM improves the situation somewhat, but neither program-the more

traditional AQMP regulatory program or RECLAIM—addresses the uneven distribution of

exposure for Hispanics.

Assurance of meeting goals

To balance the increased flexibility of the trading

program, RECLAIM has required sources to improve emissions monitoring, measuring, and reporting. For larger sources of NOX and S02

, this

means continuous emissions monitors. For smaller sources, this means continuous process monitors or fuel meters.

While industry expressed some concerns about

the expense of continuous emissions monitoring

for NOX and S02

, they were still generally willing

to compromise in this area---especially since

many of the larger sources already were or would

be required to use CEMS under the current or proposed District rules subsumed by RECLAIM. A

more contentious issue was the frequency of reporting this emissions information.

I r

-0.5 ‘

White Black Hispanic Asian

■ 1994 AQMP ❏ 2000 AQM P

❏ 2000 RECLAIM

SOURCE: South Coast Air Quality Management District, RECLAIM: Socioeconomic and Environmental Assessment, Final Report (Ill) (Diamond Bar, CA, October 1993).

During the course of the compliance year, facilities are required to periodically report their emissions to the District. At the close of the first three

quarters, facilities have a one-month period to certify their emissions for the quarter. At the end of

the compliance year, facilities will be required to

report their emissions and will be given a twomonth reconciliation period to secure or sell any

RTCs needed to “balance their emissions books”

for the last quarter of the year.

A facility that exceeds its annual emissions allocation will be required to accomplish the reduction the following year and may be subject to

monetary penalties. Facility permits may be revised (to include conditions to ensure future compliance) or possibly revoked.

Program-specific provisions to prevent “backsliding’’—i.e., emission increases—may be proposed to the District Governing Board based on

the findings of the annual or three-year audits to

address specific program problems. Such provisions might include restricting trading, pre-ap-
66 | Environmental Policy Tools: A User’s Guide

proval of trades, enhanced monitoring, faster

reduction rates, implementation of technologyspecific emission controls, and increased penalties. In response to concerns that such “potential”

backstops were not enough to ensure that RECLAIM would meet environmental goals, the

District added provisions requiring reinstatement

of rule limits in existing rules within six months of

a report to the Board that either emissions or exposure to ozone increased by more than 20 percent

above targeted values.

Another facet of assurance in meeting environmental goals under RECLAIM is how the program compares to the 1991 AQMP. Several

environmental groups have argued that because

the reduction rates for SO2 and NOx emissions are

slower under RECLAIM, total emissions will actually be higher under RECLAIM. The District

disagreed, primarily because RECLAIM sets

mass emission limits on facilities, while the

AQMP relied on setting emission rates—thus not

preventing possible increases in emissions due to

expanded work hours or facility expansion.

Many of the most strenuous objections to RECLAIM focused on the VOC trading program.

The VOC trading market originally included all

sources releasing more than four tons of organic

compounds each year. This would have included

about 2,000 facilities and about 85 percent of permitted emissions. Essential public services, restaurants, dry cleaners, and gas stations were

exempted.

These facilities faced a 5-6 percent reduction

cap each year. Fugitive emissions would be included in the facility baseline but the credit for reduction would only be given once standard,

replicable methods to estimate emission reductions were developed.

In NOx and SO2 RECLAIM, the flexibility of

the trading program was balanced by a more stringent monitoring system calling for CEMs for all

major sources and continuous process monitors

for all other sources. However, because it is so difficult to capture all VOC emissions, District staff

felt that the available—and quite expensive—

continuous monitors would not accurately reflect

the total VOC emissions at a facility.

Instead, VOC monitoring would rely on tracking and reporting programs. VOC emissions

would be calculated using flow characteristics of

each facilities process, including the effectiveness

of control equipment. VOC-containing products

would be certified and labeled for VOC content

and labeled for tracking. (A variety of tracking

systems were proposed, such as bar codes and

scanners, scannable forms, “credit cards,” and

telephone reports.)

Mass balance calculations would also be used

(monitoring the amount of VOC product used),

and the control equipment would also be monitored to determine effectiveness. District officials

could use third-party records such as supplier invoices to check the permittees’ reports. Finally,

field inspections (checking that VOC content and

label agreed and that control equipment was being

used) would provide additional verification.

Environmental groups were hesitant from the

start of the original VOC RECLAIM program.

Monitoring was much more difficult than for NOx

or SO2, and VOC emissions came from many

more sources. Environmental groups were also

worried that companies could easily falsify records and that enforcement would be difficult.

They suggested phasing in VOC RECLAIM after

the effectiveness of the first two trading programs

was demonstrated. The District agreed that compliance issues were more complex for VOC trading but argued that it is possible to design

transaction management systems—for example,

barcoding drums of solvent—to improve emissions tracking and monitoring. In February 1993,

however, the District agreed to postpone the VOC

trading system.

Under the current plans, monitoring and reporting requirements would be streamlined and rely

on monthly reporting of products used. The universe of facilities has been narrowed (to about

1,000) to include only VOC emissions from solvent, coating, and degreasing operations.

Emissions from solvent and coating operations

are somewhat easier to quantify than, for example,

fugitive emissions from refineries. In addition,

better historical records are available for VOC

usage, enabling the District to set somewhat less
Chapter 2 Pollution Control Today | 67

controversial allocations. The overall VOC reduction rate will be similar to that originally proposed—probably between 5 and 6 percent—but

will vary by facility. For example, if a particular

facility meets all “command and control” rules

and the AQMP doesn’t delineate further control

code reduction requirements for the industry, a facility’s reduction rate may be set at zero.

❚ Facility-Wide Permitting in New Jersey7

Few other American states have had to deal with

the combination of population density, industrial

diversity and concentration, and a legacy of environmental degradation as has New Jersey. One of

the state’s most innovative initiatives for dealing

with these problems has been an ambitious pilot

program that links permitting with pollution prevention planning, primarily by moving from

source-based permits to a single, facility-wide

permit. As of April 1995, New Jersey has issued

one final facility-wide permit, has at least two

more close to completion, and has selected an

additional 15 facility volunteers.

The initiative has two major components: planning and permit integration. Planning—central to

achieving the goal of a 50 percent reduction in use,

discharge, and generation of hazardous substances—is to be done in two parts. Part I requires

each facility to generate essential planning data by

identifying all facility processes involving hazardous substances governed by the statute and

analyzing how those substances flow through the

facility. For Part II, the facility develops a plan

that targets processes and sources for prevention

efforts by listing available prevention options,

analyzes feasibility of the options, indicates those

to be implemented, and establishes a set of numeric pollution prevention goals and measures for the

next five years. More than 850 facilities are expected to participate in the planning component.

The second component creates a pilot program

to link a facility’s planning process to the integration of its environmental permits into a single permit. This would be a significant change from

current approaches. At present, water permits are

typically focused on facility-level releases, air

permits on source-level releases, and hazardous

waste permits at the process level for waste classification only. An integrated permit focuses on process-by-process information. Required for all

three media, process information is drawn directly

from the analyses conducted for facilities’ pollution prevention plans. A process focus allows both

the facility and state officials to examine issues for

all media within each process and then integrate

those views to create a facility-wide picture of releases and prevention options.

New Jersey’s integrated permitting pilot project is best understood in its broader historical and

programmatic context. The state for several years

has responded to its environmental challenges

with ambitious regulatory programs, many of

which have served as models emulated by other

states or the federal government (148,173). In response to delay and confusion over permit proliferation and fragmentation, the state over the past

decade has developed several initiatives to improve permit coordination.

The state created an Office of Permit Information and Assistance in the New Jersey Department

of Environmental Protection and Energy (DEPE),

which convenes preapplication conferences and

provides information. The Office of Business

Advocacy in the Department of Commerce and

Economic Development set up a one-stop construction permit identification program. Under

this program, prospective applicants are asked to

complete a form detailing their construction

plans. The prospective applicants receive within

15 working days notification from the Office of all

state construction permits that they will require,

copies of all forms that must be completed, and the

offer of a “permit expediter” who, if accepted, is to

work on behalf of the proponent. Finally, legisla7 Parts of this section are based on B.G. Rabe, “Integrated Permitting: Experience and Innovation at the State Level,” unpublished contractor

report prepared for the Office of Technology Assessment, U.S. Congress, Washington, DC, June 1994.
68 | Environmental Policy Tools: A User’s Guide

tively mandated deadlines for permit issuance,

discussed above, prod the DEPE and related agencies to churn out permit decisions within 90 days

of application (8,83).

As is true with the use of such coordination

mechanisms nationwide, these efforts are thought

to have achieved some acceleration of permit decisions but have demonstrated little if any integrative capacity. In contrast, New Jersey has

launched a series of integrative initiatives in recent years, including an ambitious program to link

permitting with pollution prevention planning

and move from segregated permits to a single, facility-wide permit. Such a step was initially proposed in the New Jersey legislature in 1989 and

was approved and signed into law in somewhat

modified form in August 1991. The New Jersey

Pollution Prevention Act created an Office of

Pollution Prevention within the DEPE and gave it

authority to oversee both the pollution prevention

planning and facility-wide permit processes

(272).

How the Program Works

The planning process

Under this legislation, preparation of pollution

prevention plans became mandatory for a large

number of New Jersey firms. All facilities required to report under the federal community

right-to-know program must, in turn, complete

pollution prevention plans for the New Jersey Office of Pollution Prevention. More than 850 New

Jersey facilities are thus expected to participate,

developing plans that examine prevention options

for all of the chemicals covered in the federal legislation. Facility-wide permitting was to be conducted on a pilot basis among individual

industrial firms which had completed their plans.

The planning process is intended to provide “a

source-by-source investigation of pollution prevention opportunities” conducted by each facility

(8). The process is divided into two parts, with the

first focused on generation of data essential to systematic exploration of prevention options. Firms

are expected to identify all processes within a facility that involve hazardous substances specified

in the legislation and analyze the way in which

those substances flow through the facility. This is

followed by identification of each process within

the facility that involves hazardous substances

and generation of inventory data for each process

level. These data are essential to identification of

sources that have been targeted for pollution prevention efforts (135).

The second part involves the formal construction of a plan to target processes and sources for

pollution prevention. Each targeted process or

source must be described and the quantity of nonproduct output (NPO) must be established for

each source. NPO is defined as any hazardous substance that does not leave the facility in the form of

a product of immediate commercial value or value

when further refined elsewhere. NPO per unit of

product provides a consistent annual measure of

pollution prevention progress.

Once these assessments are completed, all participating facilities must list available pollution

prevention options, including possible changes in

procedures, technologies, and equipment, for

each targeted production process and source. After completion of a feasibility analysis for each

available option, the plan is to describe those

pollution prevention options deemed technically

and economically feasible.

Each facility must identify a series of five-year

numeric pollution prevention goals. These include facility-level goals to reduce use and the

generation of NPO for each designated hazardous

substance as well as process-level goals to reduce

the generation of NPO per unit of product for each

hazardous substance within each targeted process.

Facilities must also provide an implementation

schedule. These schedules are to include an anticipated construction start and completion date for

each pollution prevention option (135).

The permit integration process

The legislation also called for creation of a pilot

program to link pollution prevention activities

with an integrated, facility-wide permit process.

The Office of Pollution Prevention (OPP) was

given authority to select from 10 to 15 firms and
Chapter 2 Pollution Control Today | 69

integrate each firm’s many environmental permits

and approvals into a single permit covering dozens, or in some cases hundreds, of traditional air,

water, hazardous waste, and other permits. The ultimate product is a single facility document containing a summary of central aspects of the permit

followed by separate sections, each of which examines the relevant permitting concerns for each

production process.

Linking the process-by-process examination of

hazardous substance flow completed for the

pollution prevention plan to the permitting process allows both the facility and state officials to

examine issues for all media within each process

and integrate those views to create a facility-wide

picture of releases and prevention options. However, the water permit program is currently focused on releases at facility level, the air permit

program on releases at source level, and hazardous

waste at a process level for waste classification

only (136).

The New Jersey approach also allows greater

flexibility for firms that want to make operational

changes to accommodate new product lines and

related adjustments. Under air quality preconstruction regulations, for example, holders of a facility-wide permit have an easier time than

traditional permit holders having proposed

changes deemed “amendments” rather than “alterations.” Consequently, any proposed changes do

not need DEPE preapproval as long as they do not

increase the permitted concentration or rate of

emission of any air contaminant for the production process or entire facility, NPO generation per

unit of product, or the concentration or effluent

limitations of any pollutant to surface waters

(274). Observers of the New Jersey process contend that this flexibility is one of the main benefits

to participating firms, in addition to increased

ability to address major regulatory problems at a

facility and public image enhancement through

participation. However, these benefits differ considerably from case to case.

The permit application requires information in

a very different form than for a medium-specific

permit. Applicants are expected to provide both

administrative and technical information on a process-by-process basis, including NPO per unit of

product; air releases; discharges to surface water,

ground water, and publicly owned treatment

works; hazardous waste generation activities; and

pollution prevention issues, such as cross-media

transfer from operations and viable pollution prevention options developed in the pollution prevention plan. Much of this information can be

drawn directly from the completed facility plan.

Once the application is received, the OPP coordinates activities of a Facility-Wide Permit Management Team. This team is to consist of

representatives of all New Jersey program areas

covered by the proposed permit and a representative of EPA Region II who will serve as a key contact for other federal officials whose input may be

needed.

Public involvement procedures will follow the

practices called for by the strictest individual permit, allowing for the longest required public comment period and earliest required public hearing.

After this public involvement period, a final facility-wide permit is drafted by the permit team in

consultation with individual program offices. A

final period for internal agency review leads to

permit issuance.

Early implementation experience

The DEPE launched its pilot program by deciding

to seek only facilities willing to volunteer. Three

such facilities were selected in early 1992 and formal agreements between the agency and the firms

to work cooperatively on facility-wide permitting

were signed in March. Two months later, similar

agreements were signed with EPA Region II and

agency headquarters. As these three facilities

moved through the process, additional volunteers

were sought. Twenty-six firms offered to participate and 15 were selected in December 1993.

One final facility-wide permit has been issued,

with significant progress on at least two other permits. This experience to date suggests that the facility-wide permit concept is viable.

The issued permit is a for pharmaceutical

manufacturing and research firm in Madison operated by Schering-Plough Corporation. This facil-
70 | Environmental Policy Tools: A User’s Guide

ity manufactures pharmaceutical products,

including capsules, pills, asthma inhalers, ointments, creams, and their packaging, and has

approximately 2,000 employees. Under traditional permitting approaches, the facility was required

to obtain 897 permits just for air quality alone.

Under the integrated permitting approach, the

entire Schering-Plough operation was broken into

31 separate production processes, each with its

own section in the integrated permit. The OPP

sent a preliminary permit draft to the company for

its review in June 1994, and a final facility-wide

permit was issued in late 1994. Overall, the process has proven to be more time consuming than

anticipated but is generally perceived as both

identifying numerous areas for pollution prevention advances and demonstrating the administrative workability of integrated permitting.

The two other initial pilot project selections

continue to move through the various stages of the

process. In Birmingham, Sybron Chemicals, Inc.,

provides a somewhat different test, since it is a

more moderately sized facility. Nonetheless, the

facility has previously been required to obtain

more than 60 different permits for air, surface water, and ground water discharges and has encountered serious delays in some permit approvals. In

the past, for example, Sybron has had to wait a full

year in order to add or change just one air permit.

Moreover, it had never before systematically explored the prospects for pollution prevention on a

facility-wide basis, making it a good candidate for

the pilot program (183). The final pilot case is

Fisher Scientific, Inc., located in Fair Lawn,

which is a specialty chemical manufacturing facility. After some delays due to changes in company

leadership, Fisher completed its plan and submitted it to OPP in June 1994. One permit team

has been assembled to work on all three cases,

with members from OPP, EPA Region II, and all

relevant DEPE programs.

The experience with these three cases was sufficiently encouraging for OPP to pursue the upper

boundary of its legislative mandate by selecting

15 additional volunteer facilities. The planning

and permitting processes are beginning with all of

these facilities, which were selected on the basis

of criteria set forth in the legislation. These criteria

included facility size, number and types of permits, number of hazardous substances, permit expiration dates, existence of cross-media issues,

and types of enforcement issues. The OPP also

sought applicants with a strong track record of

regulatory cooperation, although this was not part

of the formal criteria.

The legislation calls upon the DEPE to issue

permits for each of these facilities by August

1995. In March of the following year, the DEPE is

required to prepare a report for the governor and

legislature that analyzes the facility-wide permit

program.

New Jersey’s Integrated Permitting

and the OTA Criteria

New Jersey’s integrated permitting experiment

sought to improve a facility’s use of pollution prevention approaches and to increase the facility’s

ability to adapt quickly to new product or process

opportunities. The following sections briefly review how the program intends to further these two

criteria.

Pollution prevention

The New Jersey program illustrates the potential

for linkage of facility-wide pollution prevention

planning with integrated permitting. Unlike most

states, in which pollution prevention planning operates largely independently of permit decisions,

New Jersey blends the two together in an effort to

maximize opportunities for pollution prevention.

By combining permitting with other aspects of the

state’s pollution prevention program, such as

technical assistance, the state may be offering a

package that is appealing to industry and will lead

to significant pollution prevention gains.

The state’s early experience in combining

pollution prevention planning with a facility-wide

permit in a small number of cases illustrates some

of the potential changes that can ensue. For example, this process led to the discovery by officials of

the Schering-Plough pharmaceutical plant of significant amounts of a hazardous substance, 1, 1, 1

Trichloroethane, that were being released into the

air.
Chapter 2 Pollution Control Today | 71

Review of a process for cleaning equipment

used to manufacture asthma inhalers found that it

generated fugitive emissions five times greater

than levels allowed for the entire facility. The integrated planning and permitting processes found

the leaks and devised a delivery system that has

virtually eliminated them.

By concentrating at both the facility level and

within individual processes, the New Jersey approach generates a more coherent picture of what

is transpiring within facility walls and what opportunities for prevention exist. The 897 air quality permits that were formerly required of the

pharmaceutical facility were compressed into a

single permit that divides the entire facility into 31

separate processes. The overall emissions reduction goals of the pollution prevention plan requirements make clear that the state is serious about

achieving major gains. In turn, the integrated

process creates an opportunity to make that transformation as easy as possible for the regulated

party.

New Jersey officials noted that the experience

has also elevated awareness of pollution prevention opportunities among their DEPE colleagues.

By participating in an integrated site visit and

jointly reviewing draft plans and permits, officials

from fairly narrow regulatory backgrounds get

what may be their first opportunity to take a broader look at a facility. This allows them to examine

the facility’s particular environmental problems

and target areas where significant gains can be

achieved.

Adaptability to change

New Jersey’s initial experiences indicate some potential for integrated permits as an adaptable alternative to traditional permitting. The permits

incorporate a range of allowable changes that the

state agency and facility could anticipate during

permit development. Facilities believe that the

process-based integrated permit will allow them

far greater flexibility to accommodate new product lines and other changes in a speedy enough

manner to take advantage of changes in market

conditions.

However, the substantial time and resources

expended to issue an integrated permit that incorporates individual permits—sometimes

hundreds—highlight the potential difficulty of reopening and amending an existing integrated permit. The first integrated permit New Jersey issued

took approximately three years to develop and

finalize. The state anticipates significantly shorter

development periods for future integrated permits. Nonetheless, the potential delay could be a

barrier to adaptability, if the state and facility wish

to modify a permit because circumstances or

technologies have arisen that were not anticipated.

❚ Proposition 65 and the California

Air Toxics “Hot Spots” Program

Two information reporting programs in California

illustrate the strengths and weaknesses of this

instrument with regard to our three “environmental results” criteria: 1) assurance of meeting environmental goals, 2) pollution prevention, and 3)

environmental equity and justice.

The Safe Drinking Water and Toxic Enforcement Act, otherwise known as Proposition 65,

was adopted in California as an initiative on the

ballot in the November 1986 elections (270). The

law’s primary goal is to lower the risk to human

health and the environment associated with exposure to toxic chemicals. It attempts to achieve this

goal through the increased availability of information on toxic chemical use and releases as an incentive for industry to remove nonessential

carcinogens and reproductive toxins from its

products and processes. The law covers both consumer products and facility discharges. It focuses

on estimates of risk to human health, rather than

the more common, but harder to interpret, reporting of emissions.

Another information-based program in

California combines information reporting, risk

assessment, and public notification in a law that

also works to identify and control public exposure

to air toxics. The Air Toxics “Hot Spots” Information and Assessment Act of 1987 established an

emissions reporting program to inventory statewide emissions of more than 700 toxic substances
72 | Environmental Policy Tools: A User’s Guide

(272). The law further requires identification and

assessment of localized risks of air contaminants

and provides information to the public about the

impact of those emissions on human health.

How the Programs Work

Proposition 65

On the books, Proposition 65 is a fairly simple

law, spelled out in two basic steps. First, it requires the governor of California, in consultation

with scientific experts, to compile a list of chemicals known to the state to cause cancer or reproductive toxicity. Second, it places two restrictions

on these chemicals: 1) businesses should not

knowingly and intentionally expose an individual

to any one of the listed chemicals without first

providing a clear and reasonable warning, and 2)

businesses should not discharge any one of those

same chemicals into any current or potential

source of drinking water.

The law recognizes that at some level the risk

posed by these chemicals will be de minimus.

Thus, no warning is required if the amount of the

listed chemical present in ambient environmental

exposures, exposures from consumer product use,

and discharges into current or future sources of

drinking water fall below a level which would

pose “no significant risk” for carcinogens (i.e.,

one excess cancer in 100,000 humans exposed

over a 70-year lifetime at that level) and below a

1,000-fold safety factor of the “no observable effect level” (NOEL) for reproductive toxicants.8

Currently, the list of chemicals for the purposes

of Proposition 65 includes 542 chemicals (392

carcinogens and 150 reproductive toxicants). Of

the listed chemicals, 274 have “no significant

risk” levels assigned and eight reproductive toxins

have the 1,000-fold safety factor of the “no observable effect” level (NOEL) assigned.

Enforcement of Proposition 65 is carried out by

the state attorney general, district attorneys, some

city attorneys, and private citizens. Proposition 65

requires the plaintiff to demonstrate that a regulated business caused a “knowing and intentional

exposure.” It is then the responsibility of the business (the defendant) to prove that the extent of the

exposure did not exceed the levels allowed by the

law.

“Hot Spots”

Each air pollution control district in California

implements the “Hot Spots” Act through a fourstep process. In the first stage, all permitted facilities were required to prepare and submit an air

toxics emissions inventory to the District office.

Facility reporting requirements were phased in

based on the quantities of other air pollutants they

emitted.

The second stage requires District offices to use

the emissions inventory data to rank facilities in

high, intermediate, and low priority categories to

determine the need for risk assessment.9 Priority

is based on a number of factors including the

amount of contaminants emitted, relative potency

and toxicity of the contaminants, and the proximity of facilities to nearby communities. Once classified, only high priority facilities trigger further

program requirements. Designation as a high

priority facility, does not necessarily mean that

nearby populations are at increased risk from air

emissions. Instead, it is an indication that further

assessment of the facilities emissions is needed.

In the third step, all high priority facilities are

required to prepare health risk assessments to

measure the adverse health effects that may result

from exposure to a facility’s emissions. The

California Office of Environmental Hazard Assessment provides risk assessment guidelines that

assist facilities in the process. Additional notifica8 Note that: 1) Proposition 65 does not apply to businesses employing fewer than 10 employees; 2) the law does not apply to government

agencies; and 3) the law does not apply to drinking water utilities.

9 As defined by the Air Toxics “Hot Spots” Act, a risk assessment includes a “comprehensive analysis of hazardous substances into the

environment, the potential for human exposure, and a quantitative assessment of both individual and population-wide health risks associated

with those levels of exposure.”
Chapter 2 Pollution Control Today | 73

tion and risk reduction requirements vary with the

level of risk assigned to each facility. In the final

stage, facilities presenting a significant health risk

are responsible for notifying exposed individuals

of the results of the health risk assessments

through direct mail or a public hearing.

The law further requires public access to all

emissions data and health risk assessments that

are currently available through the state-managed

Air Toxics Emission Data system. In addition,

each of the air pollution control districts prepare

annual reports summarizing the health risk assessment program, ranks facilities according to cancer

risk posed, identifies facilities posing noncancer

health risks, and describes the status of control

measures.

Proposition 65 and “Hot Spots”

and the OTA Criteria

A key question about information reporting programs is whether or not they can be as effective as

more traditional approaches in achieving environmental results. Thus, in this case study, we focus

on the following OTA criteria: 1) assurance of

meeting environmental goals; 2) pollution prevention; and 3) environmental equity and justice.

Assurance of meeting goals

The primary goal of Proposition 65, as stated in

the legislation, is to lower the risk associated with

human and environmental exposure to toxic

chemicals. To accomplish this, the state defines a

level of “acceptable risk” for the potential of cancer or reproductive disorders for state-listed substances. By requiring a warning when “acceptable

risk” thresholds are surpassed, the law creates an

incentive to avoid the need to warn by lowering or

eliminating the risk of exposure.

Setting levels of “acceptable risk” assumes that

risk can be reasonably accurately estimated—a

particularly difficult and contentious activity for

government agencies and regulated entities. In the

case of Proposition 65, the absence of risk levels

does not halt the implementation process. Instead,

a listed chemical in any quantity is considered unacceptable at any level (requiring clear and reasonable warning) unless proven otherwise. This

aspect is referred to as a shift in the “burden of

proof” from the regulator to the regulated and is

often credited with the fact that many more de

minimus risk levels have been established for specific chemicals than were accomplished in 12

years of TSCA (157). Therefore, although Proposition 65 includes risk-based goals, assessments

of actual risks by government officials are not

needed in order to protect against harm due to

listed chemicals.

Proposition 65 is likely to meet its environmental health goals in at least some instances. Again,

the law requires a warning if risks exceed what is

considered an unacceptable level. The potential

for negative public perception of the offending

firm or consumer product may inspire changes

that reduce pollution associated with production

or product reformulation, thereby reducing risks

from exposure. Thus, though the public cannot be

assured that the law’s environmental health goal

will be met in all cases, it is likely to be reached in

some cases.

Proposition 65, however, may be less successful at assuring the public that environmental goals

“have been met.” This is because there is no

centralized reporting of actions taken. The state

does not collect basic information, such as the

number of or reasons for posting or removing

warnings or labels; nor does it monitor for violations to the law. Most evidence of pollution prevention activities under Proposition 65 is gathered

indirectly through letters from manufacturers to

distributors concerning reformulations of products or chemical substitutions, or from enforcement actions (often involving reformulations of

products), indicating that some level of toxics use

reduction does occur. However, since businesses

are not required to provide any information about

their activities (125), the extent of risk reduction

due to the law cannot be adequately estimated.

Monitoring and enforcement are critical for assuring the public that environmental goals have

been met. In the case of Proposition 65, violations

can only be identified through its overlap with

other environmental laws that require some reporting of toxic emissions (e.g., California’s Air
74 | Environmental Policy Tools: A User’s Guide

Toxics “Hot Spots” program and the national Toxics Release Inventory). For consumer products,

contents not regulated by the Consumer Product

Safety Commission or the Food and Drug Administration must be traced to the production process.

Since this information is not widely known outside the facility, enforcement opportunities are

limited.

One attempt to improve enforcement of the law

is the citizen suit provision, including the “bounty

hunter” allowance that awards citizens bringing

successful enforcement actions 25 percent of the

total fines collected. Violations of Proposition 65

carry civil penalties that allow for fines at a maximum of $2,500 per day for each violation. In

theory, by allowing citizens to keep part of the

fines assessed through enforcement actions, more

help from the general public will be enlisted.

The “Hot Spots” program is particularly

instructive from the perspective of “assurance of

meeting environmental goals.” Similar to Proposition 65 in some ways, “Hot Spots” focuses on

risk associated with toxic emissions and, in cases

of unacceptable risk levels, provides for public

notification. However, the law goes further by requiring facilities to report toxic air emissions both

to the state and to exposed individuals through direct mail or a public hearing. Equipped with emissions data records, the state is able to analyze

changes over time in order to better evaluate the

impact of the law. And with emissions data, others

can check whether the law’s risk threshold is exceeded. As with Proposition 65, there is little

assurance of knowing in advance that environmental goals will be met. However, compared to

Proposition 65, the “Hot Spots” emissions inventory provides a significant advantage in determining if environmental goals have been met.”

Thus, the “Hot Spots” program, as a pure information program, did not provide the desired

level of assurance that the environmental goals

will be met. Concern over the lack of “teeth” in the

program resulted in statutory amendments to the

act in 1992 requiring all significant risk facilities

to reduce the identified risk below the level of significance. Within six months of designation, facilities must submit a risk management plan that

reduces the associated risk within five years.

Pollution prevention

Clearly, one approach to meeting the Proposition

65 goal of reducing risks associated with toxic

chemical exposure is to eliminate or reduce the

need for the chemicals from the start. In analyzing

the link between policy instruments and the

promotion of pollution prevention behavior, it is

important to consider two important aspects: 1)

whether the tool in some way gives an advantage

to prevention, and 2) whether the tool encourages

organizational learning about prevention. The

second aspect attempts to encourage pollution

prevention indirectly by changing a firm’s culture

so that decisionmakers and employees will routinely incorporate pollution prevention practices.

The effectiveness of Proposition 65 for pollution

prevention is best understood by considering the

different impacts on ambient environmental exposures (including facility discharges and workplace

exposures) and consumer products.

In the event that exposures surpass allowable

risk levels, firms have the option to provide a

“clear and reasonable warning,”10 or reduce or

eliminate the toxic chemical from the production

process or the facility emission. Proposition 65

works to encourage firms to lower the risk

associated with the listed chemical so as to not

have to comply with the warning provision.

However, a firm does not have to use pollution

prevention activities to reduce or eliminate a toxic

chemical. In the case of ambient environmental

exposures, Proposition 65’s ability to promote

pollution prevention is probably neutral—neither

encouraging or discouraging pollution prevention. A firm may choose additional pollution control, rather than source reduction, and still avoid a

10 This does not apply to toxic discharges to water which are strictly prohibited at levels greater than the “no significant risk” or 1/1000

NOEL.
Chapter 2 Pollution Control Today | 75

warning. Changes made to the listed chemicals

through pollution prevention is the hope, but not

necessarily the reality.

Proposition 65 may indirectly promote pollution prevention through the educational role it

plays, but this too is unclear. One impact on the

regulated community has been an increase in environmental auditing efforts in order to determine

compliance with the law. A survey conducted by

the California Environmental Protection Agency

in 1992 shows that 31 of the 55 respondents did

perform audits targeted for Proposition 65 listed

chemicals (27). Businesses are concerned with

identifying where in their production processes

listed chemicals are used and in doing so may

make decisions to incorporate pollution prevention practices in order to lower the risks from exposures. Proposition 65 does provide incentives

for increased awareness of toxic chemical use, but

how much this actually translates into pollution

prevention activities is unknown.

However, Proposition 65 does provide a direct

incentive for using pollution prevention to reduce

risks associated with toxic chemical exposure

from consumer products. The primary method to

reduce these risks is to eliminate listed chemicals

from consumer products whenever possible.

Otherwise, the manufacturer must place a warning

on the product label if risks associated with its use

surpass those allowed by the law. Presumably,

some consumers will be discouraged from buying

a product carrying a warning label if alternatives

are available. Once listed chemicals are removed

from the product formulation, reducing the risk to

legal levels, the manufacturer may remove the

warning label.

A related aspect concerning pollution prevention under Proposition 65 is the use of enforcement actions to force changes in polluting

behavior. Though enforcement actions have been

relatively few to date, many settlements negotiated thus far have required pollution prevention

efforts by the violator. Some settlements have required reformulation of consumer products, for

example, one that led to reformulation of liquid

correction fluids (28).

Arriving at a clear picture of pollution prevention under Proposition 65 is complicated due to:

1) the lack of baseline information about toxic

chemical use; 2) the absence of mandatory reporting of compliance activities; and 3) the overlap

with other environmental laws that also affect polluting behavior. Ultimately, while both direct and

indirect incentives for pollution prevention exist

in theory, the actual level of prevention is unknown.

Environmental equity and justice

Although Proposition 65 was enacted in 1986 primarily as a result of general concerns about public

access to information about toxic chemicals in the

environment, it has some unique qualities that

make it interesting from the perspective of environmental equity and justice. One important feature of any information reporting program is the

nature of the available information. Depending on

the purpose, information may exist in many different forms, including raw data about polluting activities such as that found in the Toxics Release

Inventory. Through its warning provision, Proposition 65 brings a different type of information to

the public.

Rather than focus on quantities of pollutants,

Proposition 65 makes available information about

the risk associated with products and activities of

regulated entities. The warning sign or label stating the presence of toxic chemicals known to the

state to cause cancer or reproductive disorders

needs little further interpretation. The hard part of

determining whether exposures to the product or

emission are hazardous to human health or the environment has been previously determined by

another party—those responsible for the exposure.

It is, of course, helpful to interested individuals

to have immediate access to information about a

potential problem associated with the presence of

a toxic chemical. However, even with this new

level of risk-based information, individuals typically have little ability to make sense of the risks

associated with multiple or synergistic impacts of
76 | Environmental Policy Tools: A User’s Guide

toxic chemical exposure. In addition, there is no

way to determine whether the level of risk is only

slightly above the warning threshold, or very

much above it. This limitation, while not unique

to Proposition 65, diminishes the value of the information for certain communities that may be

more heavily affected by ambient environmental

exposures to toxics.

Although the risk-based warning provision

does not provide a complete picture of the hazards

from toxic exposures, the information is immediately accessible, thus removing at least some of

the hurdles facing people who would like to become more involved. In theory, increased information about risks from nearby facilities or

from consumer products might motivate action on

the part of some—including regulators—to work

for change, such as pursuing new legislation or

additional regulations (e.g., toxics use reduction

laws and special air toxics programs) (70). In the

marketplace, the additional information about

toxic chemicals may change consumer purchases,

favoring products without warning labels over

those that carry the state-required warning. The

advantage of increased awareness of the presence

of toxics provides an added opportunity for all

communities to work toward greater protection

from environmental and human health risks.

While Proposition 65 does provide a mechanism for increasing public awareness of risk, it

does little to insure that all communities will receive the same level of protection from toxic

chemical exposures. The built-in incentives to reduce potential toxic exposures rather than manage

negative public opinion due to warnings may

prove beneficial, but without data on actual reductions assessing the gains made in specific communities will be difficult. In addition, it is unclear

whether the additional information gained

through Proposition 65 is enough to engage effective public participation, especially in the absence

of institutional support for citizen lawsuits. Thus,

information reporting about environmental risks

may be inadequate for addressing risk concerns in

some communities.

Proposition 65 shifts the burden of proof of risk

due to toxic exposures from the regulators and the

public back to the businesses. To avoid having to

post warnings, businesses must re-examine their

processes or products for risks associated with the

use of toxic substances. Businesses must also

quantify the risks associated with listed chemicals

and show that they fall below the de minimus level

or warn instead. Proving that an exposure or emission poses a significant risk is not the responsibility of the citizen. In addition, the bounty hunter

provision supports citizens’ efforts to protect their

communities by making available compensation

for pursuing enforcement actions when violations

are suspected. Such compensation may be particularly important in low-income communities.

❚ Massachusetts Office of Technical

Assistance (MassOTA)

The Massachusetts Office of Technical Assistance

(MassOTA) is one of the nation’s largest technical

assistance programs for promoting pollution prevention, although there are other well-known programs—in North Carolina and Minnesota—that

have been operating longer. MassOTA was

created in 1989 by the state’s Toxics Use Reduction Act (TURA), one of the foremost pollution

prevention statutes in the country (172). TURA

has the following goals:

 to reduce statewide generation of toxic wastes

by 50 percent by 1997;

 to establish toxics use reduction as the preferred

means for achieving compliance with any federal or state law or regulation;11

 to enhance and strengthen the enforcement of

existing environmental laws and regulations;

and

11 Toxics use reduction is defined in the Act as “in-plant changes in production processes or raw materials that reduce, avoid, or eliminate the

use of toxic or hazardous substances or generation of hazardous byproducts per unit of product . . . without shifting risks to the health of workers, consumers, or the environment.”
Chapter 2 Pollution Control Today | 77

 to “sustain, safeguard and promote” the competitive advantage of Massachusetts business,

while advancing innovation.

The Act established a Council on Toxics Use

Reduction and an external Advisory Board on

Toxics Use Reduction in the state’s Executive Office of Environmental Affairs (EOEA) to advise

and coordinate the toxics use reduction activities

of three agencies created:

 the Bureau of Waste Prevention (BWP), within

the Department of Environmental Protection

(DEP) to monitor and enforce compliance;

 the Toxics Use Reduction Institute (TURI), located at the University of Massachusetts-Lowell to support industry efforts through research

and development of alternatives and to educate

and train students, especially Toxics Use Reduction Planners who certify facility plans; and

 the Office of Technical Assistance (MassOTA),

incorporating the former Office of Safe Waste

Management in DEP and its technical assistance functions.

The Massachusetts TURA is considered to be

the most comprehensive and stringent compared

to those in similar states (185). It requires qualifying facilities or “large-quantity users”12 to report

annually on toxics use, both total amounts and a

“byproduct reduction index” based on changes in

use per unit of production. Users also must prepare two- and five-year facility-wide reduction

plans, submit summaries of these plans to DEP,

and update the plans every two years.

After reviewing the data submitted, DEP must

provide the legislature with an estimate of whether the state will meet the reduction targets. If necessary to meet the targets, DEP has the authority to

set performance standards by user segments.

These plans can also be used by the Council to select “priority user segments” for special attention,

including referral to MassOTA for technical assistance.

What MassOTA Does

Under TURA, MassOTA is responsible for providing technical assistance to toxics users in the

state. It offers confidential onsite assessments,

conferences and workshops, financial analyses,

and written information on toxics use reduction

techniques and technologies. Funded out of fees

from facilities subject to TURA, MassOTA now

has over 30 staff members and an annual budget of

over $4.1 million (139). The average size nationally for technical assistance programs engaged in

pollution prevention efforts is about four or five

staff members (197).

TURA requires MassOTA to assist all toxics

users in Massachusetts, including small quantity

users not subject to TURA reporting and planning

requirements. Thus, MassOTA’s client base includes all types and sizes of manufacturing firms,

as well as nonbusiness organizations and others

such as schools, government agencies, hospitals,

and residents.

TURA does require MassOTA to give priority

to some types of users, especially those referred

by DEP for compliance problems. However,

TURA prohibits MassOTA from disclosing to the

DEP firm information it obtains while providing

technical assistance, in part to encourage trust between MassOTA and firms needing assistance.

MassOTA was also required to set up an outreach program to increase compliance with

TURA. The agency, with TURI and DEP, sponsored a series of workshops on technical assistance, including three for selected industry sectors,

between 1990 and 1994, reaching 133 facilities

(or 21 percent of TURA filers). Overall, MassOTA estimates that it has reached about half of the

630 facilities required to report under TURA.

MassOTA has also made onsite visits to about

400 companies out of the 10,020 hazardous waste

generators operating in Massachusetts. Five

teams of three engineers respond to requests for

12 Large quantity users exceed the facility threshold (25,000 lbs/yr) for use, manufacture, or processing of a toxic substance. Toxic substances are those defined by CERCLA.
78 | Environmental Policy Tools: A User’s Guide

technical and compliance assistance. Based on a

site visit by one or two team members to assess a

firm’s manufacturing processes and identify

existing or potential environmental problems,

MassOTA staff prepare a report suggesting opportunities for reducing toxics use and additional

solutions, including estimates of costs. This type

of service, requiring about nine weeks to complete, is normally provided on a “first come, first

served” basis, although the agency can give priorities to others if necessary. For example, firms that

are TURA filers or DEP referrals may get preference.

MassOTA has not completed a systematic evaluation of its services. However, the agency did

fund an independent evaluation of the Central

Massachusetts Pollution Prevention Project

(1989 to 1992), a technical assistance program focused on metal-intensive industries and jointly

funded by EPA’s Office of Pollution Prevention,

MassOTA, and DEP. The objectives of the project

were to:

1. expand the existing technical assistance program;

2. coordinate activities with DEP and local sewage treatment plants;

3. develop a financial feasibility model to enable

company managers to determine the cost-effectiveness of pollution prevention options; and

4. share information and coordinate with other

technical assistance programs in New England.

MassOTA contracted for an evaluation at the

end of the project that compared the performance

of the project’s target group of 62 firms to the control group of 48 firms not included in the project.

The evaluation reported three major conclusions:

 Firms who got technical assistance services

were more likely to reduce use of toxics. Of the

110 firms included in the evaluation, about half

(51 percent) reported reducing their use of toxics. Twenty-seven (87 percent) of the 31 firms

using MassOTA services reduced toxics use,

while only 26 (or 33 percent) of the remaining

79 firms that did not receive technical assistance services reported doing so. This outcome

may reflect the fact that firms contacting and

using these services are somewhat predisposed

to making changes.

 The amount of reductions was significant and

affected all media. Twenty firms in the project

with sufficient data to evaluate had overall reductions of about 75 percent of all TURA listed

substances.

 Cost savings to the firms were also significant

and considerably more than the state’s costs of

operating the project. Although MassOTA

could document data from only seven firms,

their average cost savings from toxics use reduction was about $35,000 per company per

year.13 Savings from these seven firms

alone—$250,000 per year—were greater than

the cost of the Central Mass Project of

$174,000 per year. Additional savings from the

other 13 firms in the project that documented

toxics use reduction would likely increase this

benefit/cost ratio considerably.

MassOTA and the OTA Criteria

Of the seven criteria used in this OTA study on

policy instruments, two are highlighted in this

case study on technical assistance: 1) adaptability

and 2) technology innovation. One other, pollution prevention, is relevant because MassOTA

was established to provide assistance with toxics

use reduction, a prevention strategy. But the reality is that, while TURA issues are given priority,

MassOTA services are not exclusively devoted to

them.14

An unknown percentage of time spent by MassOTA staff providing crisis assistance, helping a

13 While firms rely on estimated cost-savings information to approve a project, they apparently do not always document their actual savings

record after implementation is completed.

14 This is true of many pollution prevention technical assistance programs. U.S. Congress, General Accounting Office, Pollution Prevention: EPA Should Reexamine the Objectives and Sustainability of State Programs, GAO/PEMD-94-8 (Washington, DC: January 1994).
Chapter 2 Pollution Control Today | 79

regulated entity solve a particular enforcement or

compliance problem. The outcome may or may

not be toxics use reduction. Often, this assistance

is considered a way to “get a foot in the door” to

start the development of a relationship with a firm.

The hope is that at a later date the firm will become

more receptive to pollution prevention. There is

anecdotal evidence to suggest that this conversion

does happen, but how frequently or quickly is unknown.

Adaptability

One reason for choosing instruments with less direct control is that they can be relatively easily

adapted to incorporate new information and approaches for solving environmental problems.

MassOTA, as a service unit rather than a regulatory agency, can be oriented toward understanding

the changing needs of its clients and learning from

its interactions with a range of facility personnel

across the state. Another key reason for using this

instrument is that those firms needing assistance

can seek it, while those able to solve problems independently are free to do so.

Like most technical assistance programs,

MassOTA is a service organization that usually

works with its clients or firms on a one-on-one basis. Even without formal feedback and evaluation,

this continual contact gives MassOTA staff a

sense of the changing needs of its clients. And,

while MassOTA’s broad responsibilities are statutory, it has the authority to change its methods of

service delivery and improve the quality of information it provides on a continuing basis.

The lack of regulatory power and the prohibition on disclosing firm information to DEP could

help MassOTA gain the trust of the business community. The implied threat of future performance

standards under TURA, should targets not be met,

may also encourage some firms to use the services.

MassOTA explains the dynamics of technical

assistance in the following way: “Pollution prevention is a rapidly changing field and

[Mass]OTA must adjust its services as new

technology evolves, the business climate changes,

and regulations at all levels of government affect

the production choices of industry (139).”

Though changing environmental regulations

can be problems for regulated entities, they are opportunities for MassOTA. The Oregon Department of Environmental Quality concluded that by

targeting “windows of opportunity” within the

regulatory system—that is, when firms are required to make changes—firms may be more open

to new ideas, especially when economic savings

can be projected (141). Such an opportunity was

exploited by MassOTA recently by sending a letter to all facilities on DEP’s air regulatory database informing them that hexane was about to be

added to the TRI list and offering technical assistance services.

MassOTA’s efforts to make its services more

effective for clients can be seen in its revisions in

staffing and its site-visit consultation process following early experiences through the Central

Mass Project. For example, MassOTA ended its

experiments using student interns and volunteer

consultants in favor of using permanent, professional staff. It also abandoned the use of lengthy,

written site-visit reports in favor of short, threepage written follow-up reports outlining specific

solutions. Other changes included the addition of

a financial analysis process for client firms and a

software system for tracking internal progress.

Technology innovation and diffusion

The primary purpose of MassOTA is to diffuse

known technologies among industries in the state

and to help firms make needed innovations to existing technologies to fit their particular needs. By

focusing its efforts on small firms with less capability to innovate or adopt technologies on their

own, MassOTA is following the recommendations of many experts regarding the most effective

use of technical assistance programs. In addition,

by creating direct links among experts in various

industries and in government or research institutions through onsite visits, seminars, and workshops, MassOTA has attempted to keep both

formal and tacit knowledge at state-of-the-art levels.
80 | Environmental Policy Tools: A User’s Guide

Staff members keep up to date on new techniques and technologies and, as experts in particular sectors, serve as “in-house” consultants to one

another. The organization offers periodic

“technology transfer days” during which technical staff more formally exchange technical information among themselves. During these

sessions vendors often present their products, offering staff an opportunity to learn, critique, and

evaluate.

At the same time that they are delivering services, MassOTA staff often learn from the firm as

well, collecting and eventually diffusing technical

information across the firms that they serve. This

diffusion can be somewhat constrained by confidentiality rules. The information in onsite reports

written by MassOTA is available only to the firm

involved. However, general ideas resulting from

its work with a firm can be transferred to others.

Case studies, based on onsite work and written in

cooperation with the subject firm, are published

by MassOTA and disseminated as a way to promote reduction of toxics use.

Most of MassOTA’s work involves diffusion of

known technology among Massachusetts’ industry. Since the state’s industry base is generally mature, MassOTA’s director classifies its needs as

“adaptations of existing technology,” labeling

these innovative in the sense that they often require incremental changes in the technology to fit

a use not previously identified. MassOTA does

not seek a major role as a stimulator of new

technology development by either regulated entities or the environment industry.

The technological expertise of MassOTA is

embodied in its staff, who come primarily from industry and are knowledgeable about manufacturing processes. Diffusion occurs from staff to

Massachusetts’ industry through its on-site and

other work directly with clients, written products

such as case study fact sheets, and workshops. The

staff are organized in teams on the basis of geography rather than by industry sector.

The Toxics Use Reduction Institute (TURI) at

the University of Massachusetts-Lowell is responsible for supporting MassOTA efforts

through technology research and development

(R&D). This institutional and geographic separation of R&D capacity from outreach capacity

stands in contrast to the model experts agree is

most effective—physically linking the R&D and

outreach staff to improve interaction and problem

solving. The directors of TURI and MassOTA

have made staff coordination and information

sharing a priority in order to overcome this potential barrier to effectiveness.

Although not all states fund the R&D function,

some that do have linked it more closely to the

technical assistance service unit. For instance, the

Illinois Hazardous Waste Research and Information Center (a division of the Department of Energy and Natural Resources) offers onsite pollution

prevention technical assistance and has an R&D

budget (about $800,000 of an annual $2 million

budget). Some other states have small grant programs for technology development.
Congress’

 Environmental

 Policy Toolbox:

 A Review

nvironmental goals can be reached in many ways. Some

ways are quite prescriptive, others are not. If one imagines

a typical factory as having one or more pollution sources,

it is easier to think of the many options available to Congress, EPA, and the states. Raw materials and products go into the

factory, manufacturing processes within the factory are used to

produce new products, and often some “nonproduct” residual—

pollution—is generated and released to the air or water, or

shipped offsite for disposal, treatment, or storage. Sometimes the

product itself results in pollution, while or after it is used.

To lower the pollution reaching the environment, government

can—

 specify the end result—the amount of pollution that each

source in the facility is allowed to discharge;

 specify what the source is to do to achieve the end result, such

as install certain kinds of pollution control technology;

 help the source through a technical assistance program or a

subsidy for cleaning up;

 specify the end result for each source, but allow facilities to

trade these requirements within or among facilities;

 charge a fee on pollutant emissions1 to discourage releases to

the environment;

 require only that the source publicly report emissions or risks

to the human health and the environment;

1 “Emissions” is a term typically used for pollutants released to the atmosphere, while

“discharge” is the term used for pollutants released to water bodies. To avoid repetition of

both words, this assessment uses the word “emissions” to denote releases of any type of

pollutant to air, water, or land.

| 81
82 | Environmental Policy Tools: A User’s Guide

 require nothing in particular but hold sources liable for any resulting damages;

 or, as is often the case, some combination of

two or three of the above.

All of these approaches are policy instruments,

the topic of this OTA report. They are the means

through which government encourages or forces

sources to achieve society’s environmental goals.

Each of these policy instruments or tools has inherent strengths and weaknesses. Some address

particular types of pollution problems better than

others. Yet picking a tool does not merely involve

identifying those that reduce emissions. Instrument selection also involves tradeoffs between

values and interests commonly held by Congress

and the public. For example, instruments most

likely to provide significant assurance that an environmental goal will be met are equally likely to

achieve that goal in a manner more expensive than

some other instruments. A full toolbox allows the

decisionmaker to select tools that most effectively

address values and interests of particular concern

at the moment. And combinations of complementary instruments may allow decisionmakers to address multiple concerns or to shore up weaknesses

in a particular instrument.

Environmental policy tools could be categorized in any number of ways, depending on which

attributes one wishes to emphasize. This assessment groups 12 tools according to whether or not

they have fixed pollution reduction targets. Such a

focus helps the decisionmaker address a common

concern in environmental policy, namely, the extent to which particular behavior is mandated by

regulation. Table 3-1 provides brief definitions of

each of the tools discussed in this assessment, including:

 Tools with fixed pollution reduction targets:

1. harm-based standards

2. design standards

3. technology specifications

4. product bans and limitations

5. tradeable emissions

6. integrated permitting

7. challenge regulation

 Tools without fixed targets:

8. pollution charges

9. liability provisions

10. information reporting

11. subsidies

12. technical assistance

Policymakers in the United States have not relied equally upon these 12 policy instruments;

some tools have been used frequently, while others remain largely experimental. Table 3-2 displays the primary policy instruments used to

control air pollution, water pollution, and hazardous waste. For each of the approximately 30 pollution control programs addressed by the Clean Air

Act (CAA), the Clean Water Act (CWA), and the

Resource Conservation and Recovery Act

(RCRA), the table displays primary instruments

(marked with dark gray) as well as several auxiliary instruments (light gray) used under current law.

Combinations of tools are common. Policymakers traditionally have relied most heavily on two

regulatory tools that place direct pollution limits

on single sources: design standards and harmbased standards. And yet, the other tools in the

regulatory toolbox—while less frequently used—

should not be considered unused and theoretical.

Table 3-2 shows that we have turned to tradeable

emissions, information reporting, and other tools

for numerous programs.

Box 1-1 in chapter 1 highlights several programs over the last two decades that rely on some

of the lesser used approaches, including tradeable

emissions, integrated permitting, liability provisions, information reporting, subsidies, and technical assistance. Generally, familiarity and

comfort level with such tools seem to be growing.

For example, academics had been discussing

tradeable emissions for several years before trading was incorporated into regulations in 1976.

Trading became increasingly common in regulations after the 1976 offset policy, but not until the

Clean Air Act Amendments of 1990 was trading

incorporated into a statute. Tradeable emissions is

now suggested often during the legislative debate.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 83

A significant consideration when discussing

environmental policy instruments is that the regulatory instrument Congress selects through legislation may look very different at the point its

requirements are imposed on an individual

source. Although statutes begin the process and

influence what the source sees, they often leave a

great deal of discretion to EPA, states, or localities

actually implementing the requirement. For example, the Clean Water Act uses a design standard, best available technology (BAT), to describe

the level of control that sources of toxic emissions

must meet. EPA translates BAT into a more specific emissions limit that looks like a harm-based

standard, typically specifying a numerical rate or

concentration. States might incorporate the numerical limit directly into an individual permit, or

negotiate with the source a compliance technology capable of meeting the numerical limit and

specify that technology in the permit. Thus, in a

permit, the Clean Water Act’s design standard

might look like a harm-based standard or technology specification.

However, the distinctions between regulatory

instruments remain important. Consider the BAT

example. Because BAT is a design standard, its requirements remain linked to the state of abatement

technology at a particular time, and so may provide different incentives for cost-effective control

or technology innovation than do other instruments. BAT might also be more dynamic, becoming more stringent as technology development

makes “best” even better.

This report focuses primarily on the perspective from Congress. Nonetheless, the viewpoint

from the source is also quite relevant because

policy instruments are designed to affect source

behavior. The report’s discussion of each policy

instrument seeks to reflect the fact that an instrument’s ability to achieve many of society’s objectives depends on both Congress’ original tool

selection and how the requirement is implemented.

The balance of this chapter will discuss each of

these environmental policy instruments, describing each individual tool and how it is used. The

chapter also highlights those criteria that may

strongly affect a policymaker’s choice—either because the tool is particularly effective at addressing a criterion, or raises issues that show it should

be used with some caution if the criterion is important.

TOOLS WITH FIXED POLLUTION

REDUCTION TARGETS

The government often uses regulation to place

limitations on environmentally harmful behavior.

Regulatory instruments vary in the extent to

which they specify how a regulated entity should

comply with these limitations. Technology specifications allow the regulated entity the least

opportunity to select a compliance method—

compliance is defined as installing a particular

technology or using particular techniques. In contrast, harm-based standards describe a compliance

target and regulated entities are free to choose

their own method for complying with the limitation.

Policy instruments with fixed pollution reduction targets can be further divided into two groups.

The first group of tools requires regulated entities2

themselves to comply with the limitation or face

associated civil and criminal penalties. Such tools

are often called “traditional” or “command-andcontrol” approaches, because historically they are

the most heavily used and are less flexible than

other tools. Included in this group of single-source

tools are harm-based standards, design standards,

technology specifications, and product bans and

limitations.

A second group of tools that also directly limit

pollution focuses on multiple sources rather than

single sources. Multisource tools allow a regulated entity additional flexibility in how it com2 The rather awkward “regulated entity” is used interchangeably with “industry” or “firm,” because this assessment is considering not only

environmental regulation of the business sector but also instances in which the government itself must comply with regulatory requirements.

“Facility” is used rarely because many regulatory requirements are imposed at points other than at the facility level.
84 Environmental Policy Tools: A User’s Guide

Tools with fixed pollution reduction targets

Design standards

Focus on single sources or products

Harm-based standards A harm-based standard prescribes the end results, not the means, of regulatory compliance. Regulated entities are responsible for meeting some regulatory target but are

largely free to choose or invent the easiest or cheapest methods to comply, Sometimes

referred to as health-based standards or performance standards, harm-based standards are widely used, primarily in combination with design standards.

A design standard is a requirement expressed in terms of the state of the art of pollution abatement at some point in time, for example, “best available” or “reasonably

available” technology. in a permit, design standard requirements are typically, but not

always, stated as the level of emissions control the model approach is capable of

achieving. Design standards written as emission limits allow individual sources the

freedom to achieve the required emissions control by using the model approach or

equivalent means. Design standards are very widely used, most often as part of a

technology-based strategy,

Technology specifications A technology specification is a requirement expressed in terms of specific equipment

or techniques, The standard is to be met by all entities; facilities are not free to choose

their means of pollution abatement or prevention. Explicit technology specifications in

statutes or regulations are very rare. However, some designs standards can be considered de facto technology specifications when it is extremely difficult to prove to the

regulatory agency that an alternative to the model technology is equivalent.

Product bans and

limitations

This regulatory approach bans or restricts production, processing, distribution, use, or

disposal of substances that present unacceptable risks to health or the environment, It

focuses on the commodity itself rather than polluting by-products. As a result, the

instrument is used most heavily under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) and other statutes where the hazard is the commodity.

Focus on multiple sources or products

Tradeable emissions Emissions trading is achieved through government-issued permits that allow the owner

to emit a specific quantity of pollutants over a specified period, and which can be

bought from and sold to others. The government typically caps aggregate emissions

from sources within a geographic region by issuing only the number of permits consistent with environmental goals. A relatively new approach to tradeable emissions IS an

“open market, ” in which unregulated sources may opt into the program voluntarily,

Emissions trading has been used most widely under the Clean Air Act and to a more

limited degree to address water quality issues.

Integrated permitting Integrated permits contain facility-wide emission limits, either for a single pollutant

across multiple individual sources or media, or for several pollutants emitted to a single

medium. An integrated permit might use one or several other environmental policy

instruments. “Bubble” permits are used under the Clean Air Act, and to a very limited

extent under the Clean Water Act. Other types of integrated permits are uncommon but

are under study as part of several state pilot projects,

Challenge regulation Challenge regulations ask target groups to change their behavior and work toward a

specific environmental goal, with mandatory requirements imposed if the goal is not

reached. The government identifies a goal and gives the groups time to select and implement an effective means of achieving it. Challenge regulations have the potential to

be a less-intrusive way to achieve environmental goals. The concept of challenge regulation is attracting interest but is still uncommon as a stand-alone regulatory tool.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review 85

Tools without fixed pollution reduction targets

Liability

Information reporting

Subsidies

Technical assistance

Pollution charges With pollution charges, a regulated entity must pay a fixed dollar amount for each unit

of pollution emitted or disposed. Pollution charges do not set a limit on emissions or

production. Instead, the government must calculate what level of charge will change

the behavior of regulated entities enough to achieve environmental objectives. Sources

are free to choose whether to emit pollution and pay the charge or pay for the installation of controls to reduce emissions. This report considers only those charges set high

enough to significantly alter environmentally harmful behavior, not charges used primarily for raising revenues, In the United States, pollution charges have been used for

solid waste control but rarely for control of other types of pollution.

Liability provisions require entities that cause environmental harm to pay those who are

harmed to the extent of the damage. Liability can provide a significant motivation for

behavioral change because the dollar amounts involved can be huge. This report focuses on statutory liability, not common law theories of liability or enforcement penalties, Several environmental statutes impose statutory liability, including CERCIA and

the Oil Pollution Act.

Information reporting requires targeted entities to provide specified types of information

to a government agency or to the public directly. Required information typically involves

activities affecting environmental quality, such as emissions, product characteristics, or

whether risk to the public exceeds a threshold. Information programs are widely used,

Subsidies are financial assistance given to entities as an incentive to change their

behavior, or to help defray costs of mandatory standards. Subsidies might be provided

by the government or by other parties, who thus bear part of the cost of environmentally beneficial controls or behavior. Government subsidies have historically been widely used, particularly in wastewater treatment. Subsidies from other parties are becoming more common as government budgets shrink.

The government offers technical assistance to help targeted entities prevent or reduce

pollution. These programs educate sources that might not be fully aware of the environmental consequences of their actions or of techniques or equipment to reduce those

consequences. Technical assistance may take many forms, including manuals and

guidance, training programs, and information clearinghouses. Some types of technical

assistance, such as facility evaluations, are conditioned on facilities agreeing to respond with environmentally beneficial behavior. Technical assistance is very common,

particularly in combination with other tools.

SOURCE: Office of Technology Assessment, 1995.

plies with emission limitations. A source can

change its own behavior to fit within the limitations, or the source can make an arrangement with

another entity for it to comply with the limitation

on the source’s behalf. This ability to transfer or

negotiate responsibility among entities for changing behavior distinguishes multisource from

single-source tools. Multisource tools include

tradeable emissions, challenge regulation, and integrated permitting.

❚ Harm-Based Standards

Harm-based standards prescribe the end results,

not the means, of regulatory compliance. The desired end results are based on health and environmental effects of different pollution levels and

patterns. With harm-based standards, regulated

entities are responsible for meeting this regulatory

target but are largely free to choose or invent the

easiest or cheapest methods to comply.
86 Environmental Policy Tools: A User’s Guide TABLE 3-2: Primary Policy Instruments Used to Control Air Pollution, Water Pollution, and Hazardous Waste
Chapter 3 Congress’ Environmental Policy Toolbox: A Review 87
88 | Environmental Policy Tools: A User’s Guide

A harm-based standard is the most direct policy

tool for implementing a risk-based strategy for

achieving environmental goals. A regulatory

agency typically establishes a harm-based standard by determining the amount of the pollutant in

the ambient environment that will meet the health

and environmental goal set by Congress. This determination involves making scientific judgments

about the extent to which different concentrations

of the pollutant harm human health or plants and

animals the goal is intended to protect. After the

agency establishes an acceptable concentration, it

then uses a model to calculate an overall allowable

pollution load for the region that results in this acceptable concentration. The model also must incorporate distribution and movement of the

pollutant in the ambient environment, so as to

avoid undesirable “hot spots.”

Harm-based standards impose emission limitations on individual sources. Thus an agency apportions among individual sources what it has

calculated as an acceptable pollutant concentration or loading. Some standards explicitly reserve

part of the total acceptable loading for future

sources, while others allocate only among existing sources. Harm-based standards might be expressed as an emission rate for the source (mass

per unit time period), as a concentration of pollutant in a source’s discharge, or as a percentage reduction in emissions from a source. Each of these

types of harm-based standard might have short- or

long-term averaging. An example of a source-specific harm-based standard is the Clean Water Act

requirement that dischargers control their effluent

at a level sufficient to maintain water quality standards, with emission rates expressed in a permit as

tons per day and a maximum concentration.

In individual permits, emission limitations that

describe a target without reference to specific

technologies might in fact have originated from a

harm-based standard, or might have begun as a design standard (discussed in detail in the next section).

The origin of the permit limitation is important.

In contrast to harm-based standards, design standards typically start as a broad statutory term describing the level of control technology Congress

expects pollution sources to implement, such as

“reasonably available control technology.” Such

broad terms do not provide enough detail about

what regulated entities must do to comply with the

law. As a result, when implementing a design

standard, a government agency will determine the

reference technology’s control capability and develop numeric emission limits based on this capability. Although they might look similar in a

permit, harm-based standards and design standards are nonetheless different. For example, unlike harm-based standards, design standards can

establish an implied regulatory preference for a

model technology and may become stricter as new

technologies are developed.

Extent of Use

Harm-based standards and design standards are

the most heavily used environmental policy tools

today. Typically, harm-based standards are used in

combination with design standards, though occasionally harm-based standards have been used

alone.

The Clean Water Act, for example, uses a combination of harm-based and design standards to attain water quality objectives. While design

standards describe the baseline level of treatment

to be met for all industrial discharges—a national

“floor” for pollution control—the Act uses harmbased standards to place additional pollution control requirements on sources located on streams

where design standards are insufficient to meet

water quality goals. On these “water quality limited” streams, industrial sources must comply

with a harm-based standard that calls for stricter

pollution control, based on the stream quality and

a level of risk identified as acceptable. Nationwide, the number of permits incorporating harmbased pollution limits is unclear; agency staff in

Wisconsin and Massachusetts say they issue such

permits very frequently.

The Clean Air Act also uses harm-based standards. For example, harm-based standards are

used in combination with design standards for air
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 89

toxics control. The Act’s toxics provisions call for

a design standard, maximum achievable control

technology (MACT), to be used to control toxics.

However, if the MACT standard is insufficient to

reduce lifetime risk to the most exposed individual to less than one in a million, EPA must develop

additional control requirements sufficient to meet

that harm-based standard. Harm-based strategies

are also used to avoid overcontrol that results in no

corresponding public health or environmental

benefit. Some toxics have a well-established

threshold, below which human exposure is presumably safe. This known threshold might be higher than the emissions limit established by MACT.

In these situations, EPA may set air toxics emission limits using the well-established threshold

with an ample margin of safety, instead of requiring MACT. To date, EPA has not set such limits.

RCRA also relies in part on harm-based standards to achieve its environmental and public

safety goals. For example, the statute requires that

methods of land disposal for hazardous wastes are

acceptable only if the proponent of the method

demonstrates “to a reasonable degree that there

will be no migration of hazardous constituents

from the disposal unit or injection zone for as long

as the wastes remain hazardous” (254).

Key Criteria Affecting Tool Selection

Assurance of meeting goals

Harm-based standards require that individual

sources achieve a specified level of pollution

abatement. As a result, they arguably are more

likely to provide a higher level of assurance than

instruments that do not specify a pollution control

target. In addition, EPA or the administering state

agency can verify compliance by reviewing monitoring data and other records, because allowable

emission levels are directly linked to a single

source.

However, no policy tool can ensure goals will

be met unless it is properly implemented in a timely manner. Harm-based standards can be difficult

and time-consuming to set because of analytical

uncertainties and gaps in available data. Development of a harm-based standard is laden with uncertainties inherent in predicting the effects of

different patterns and levels of environmental releases. Also, an agency needs extensive data on

ambient pollutant concentrations and health effects, which often is not available. An agency that

lacks necessary data has the option of setting a

standard based on speculative judgments, or delaying promulgation of the standard until data

gaps are filled. Both approaches would significantly impair a tool’s effectiveness.

EPA has tended to delay promulgating harmbased standards until necessary health effects data

become available. For example, promulgation of

harm-based standards for hazardous air pollutants

was extremely slow—seven in the 20 years following the enactment of the Clean Air Act of

1970. Congress shifted in 1990 to a design standard approach for controlling hazardous air pollutants. In the five years since Clean Air Act

reauthorization, EPA has promulgated 10 regulations affecting 55 industrial toxic source categories and has proposed an additional 14 regulations

for 16 industrial categories (5).

The harm-based standards set prior to 1990

were calculated to achieve the public health goal,

while the design standards after 1990 are based on

maximum achievable control technology, which

may or may not achieve the goal. Yet the relative

ease of implementing design standards means that

some level of control will be in place faster than is

likely under a harm-based standard. Thus, harmbased standards may have a practical disadvantage relative to design standards and other

single-source technology-based tools.

Demands on government

Harm-based standards can be an administrative

headache to establish, because an agency frequently lacks the necessary information about

pollutants. This problem occurs most often with

toxics. For example, a recent EPA report found

that for the 189 air toxics listed in the 1990 Clean

Air Act Amendments, 38 percent completely

lacked ambient concentration data, 67 percent had

little or no information on emissions sources, 31

percent lacked carcinogenicity data, and 79 per-
90 | Environmental Policy Tools: A User’s Guide

cent had no validated data on thresholds for noncancer effects (215). Collecting the data necessary

to set an appropriate harm-based standard can be

very resource-intensive for an agency. Congress

or an agency could reduce demands on government by encouraging or requiring the targeted

entities to provide necessary data. Some environmental statutes currently give EPA this authority,

but it is rarely used to its fullest extent.3

Even when necessary data are available, setting

a harm-based standard requires substantial analytical resources. Development of a harm-based

standard requires an agency to determine what

concentration or total loading of a pollutant will

meet the legislative goal. The agency also needs to

model the effects of different emission loadings,

identifying the load that results in an acceptable

pollution concentration throughout the target area

with no undesirable hotspots. An agency must

then translate the total allowable pollution load

into individual source requirements. Some attribute the substantial delays in achieving the National Ambient Air Quality Standards (NAAQS) on

the complexity of implementation faced by states.

❚ Design Standards

A design standard is a requirement expressed in

terms of the state of the art of pollution abatement

at some point in time. A design standard might incorporate a reference point other than state-of-theart, if the standard considers tradeoffs among

effectiveness, capability, stringency, and cost. Unlike technology specifications, design standards

allow individual sources the freedom to achieve

the same degree of pollution control by equivalent

means.

A statute prescribing design standards typically uses broad terms to describe the level of control

technology it expects pollution sources to implement, such as “reasonably available control technology” or “lowest achievable emissions rate.”

However, such broad expressions of effectiveness

do not provide enough detail about what regulated

entities must do to comply with the law.4 When

implementing a design standard, EPA or the applicable state agency will determine what stringency

of emission control is associated with the standard. If the design standard is, for example, reasonably available control technology, the agency

first will decide whether the extent of variation

within the target group justifies consideration of

subgroups.5 Then the agency identifies what entities are representative of the target group or

subgroups and determines what technology is reasonably available based on those representatives.

For each group or subgroup, the agency then calculates the level of emissions control that occurs

when a source uses this model control technology.

Design standards are typically imposed on individual sources through permits with specific

numeric or narrative emissions control requirements. These permit limits often look very similar

to harm-based standards but might provide different incentives to the target entities. The limits are

derived from an identified model technology or

technologies, selected by the agency because they

correspond to the general expression of effectiveness called for by the design standard. An entity

may view that technology as the preferred one and

not be as inclined to propose an alternative as it

would with a harm-based standard where there is

no model technology. Thus, design standards rep3 For example, section 8(d) of the Toxic Substances Control Act requires that upon request a person who manufactures, processes, or distributes a chemical must submit to EPA lists and copies of health and safety studies conducted by, known to, or ascertainable by that person. The data

from these studies are intended to be used in making regulatory decisions.

4 Due process provisions in the U.S. Constitution require that requirements be detailed enough to alert a reasonable person as to what is and

is not legally allowed. Requirements are unconstitutionally vague if they lack such detail.

5 For example, EPA divided pulp-and-paper manufacturers into 25 subgroups, depending on the processes they used, when establishing

design standard emission limits called for by the Clean Water Act. See 40 C.F.R. § 430.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review 91

Assurance of Meeting Goals

Promotes criterion: Pollution control requirements under harm-based standards are set at a level calculated to achieve a specified level of risk. Harm-based standards establish a less complex regulatory

system than multi-source tools, and so are more likely to work as desired.

Impairs criterion: Data gaps and limited administrative resources often make it difficult or impossible to set

harm-based standards at levels that will in fact achieve goals; in practice, standards are often set at

levels hoped to be adequate, without the precise match between requirements and goals that the tool

theoretically offers. Delays caused by difficulties in setting harm-based standards can mean control

requirements are put in place later than they might have been under other policy tools. Because harmbased standards focus on performance, assurance depends on availability of effective emissions

monitoring.

Pollution Prevention

Harm-based standards neither help nor hinder pollution prevention.

Environmental Equity and Justice

Promotes criterion: Harm-based standards respond to differences in exposure among communities. They

offer communities an opportunity for input into standard-setting.

Impairs criterion: The standard-setting process is often discussed at such a technical level that nonspecialists may have difficulty participating.

Cost-Effectiveness and Fairness to Sources

Promotes criterion: Harm-based standards allow a specific source to pick a cost-effective means of compliance. They can be applied uniformly, and therefore are fair.

Impairs criterion: Because harm-based standards typically focus on individual source control, they limit a

facility’s ability to adopt facility-wide cost-effective measures.

Demands on Government

Impairs criterion: Harm-based standards can be administratively expensive to set, because of their substantial analytical requirements.

Adaptability

Promotes criterion: Entities are free to adopt new technologies for complying with requirements.

Impairs criterion: New scientific knowledge regarding pollution might force an agency to reevaluate and

possibly adjust a harm-based standard, requiring time-consuming public notice-and-comment procedures required under the Administrative Procedures Act.

Technology Innovation and Diffusion

Promotes criterion: Harm-based standards allow sources to use innovative compliance approaches.

Impairs criterion: Harm-based standards may be relatively less effective at technology diffusion, since

they do not refer to particular technologies.

SOURCE Off Ice of Technology Assessment, 1995.

4
92 | Environmental Policy Tools: A User’s Guide

resent a middle ground between technology specifications and harm-based standards with respect

to the freedom a regulated entity has to expand the

list of acceptable equipment or techniques.

Design standards typically are more dynamic

than technology specifications. Technologies and

emission limits associated with each design standard can change as the state of technology advances. Limits to be met using a “best available

control technology” might become stricter as new,

more effective technologies become available.

Typically, an individual source receiving a new

permit would need to meet these new limits at the

time its emissions permit is renewed and updated.

Extent of Use

Design standards are very widely used in the

Clean Air Act and Clean Water Act, and to a more

limited extent in the Resource Conservation and

Recovery Act. The resulting “alphabet soup” of

requirements at times seems impenetrable. The

degree of abatement required of a source often

varies depending on whether it is 1) a new or existing source, 2) in an area that meets or fails to meet

ambient standards, and 3) emitting conventional

or toxic pollutants. Design standards also vary in

the extent to which an agency may take economics

into account when identifying the model technology and setting the corresponding emissions limitation.

The Clean Water Act uses design standards to

describe the baseline level of treatment to be met

for all discharges—in effect, a national floor for

pollution control.6 EPA sets a design standard for

each relevant industry category based on representative facilities within the category. These

standards are to be updated by EPA every five

years. Existing sources must use best conventional technology (BCT) to control conventional pollutants.7 Existing sources of nonconventional8

and toxic pollutants are required to use best available technology economically achievable (BAT).

EPA will determine when setting BCT whether

the relationship between control costs and water

quality benefits is “reasonable,”9 while the agency

need only determine that BAT is “economically

achievable.”

New sources of any type of water pollutant

must meet best available demonstrated control

technology (BADCT), also called new source performance standards (NSPS). NSPS pollution limits can be based on available demonstrated

technologies, but also upon alternative production

processes, operating methods, in-plant control

procedures, and other alternatives to an “end-ofthe-pipe” focus. EPA need only “consider cost”

when setting NSPS. No cost-reasonableness consideration is required. As a result, new sources

subject to NSPS almost always must meet a stricter level of emissions control than existing sources.

In exchange, the Clean Water Act provides that

such sources are exempt for 10 years from additional design standard requirements for nontoxic

pollution.10

Where BCT, BAT, or NSPS design standards

are not sufficient to meet water quality goals on a

particular stream, the Clean Water Act calls for a

stricter harm-based standard set at a level sufficient to meet water quality goals.

6 More stringent treatment may be required if necessary to achieve water quality standards, or if the state chooses to implement a more

stringent program than the national baseline requirements.

7 These include fecal coliform, pH, total suspended solids, biochemical oxygen demand (BOD), and oil and grease.

8 Nonconventional pollutants are also called “gray area” pollutants and include nitrogen, nitrates, phosphorus, chlorine, fluoride, some

metals, and some pesticides.

9 EPA adopted a two-part approach to this “cost-reasonableness” test. First, costs should be roughly similar to those imposed on publicly

owned treatment works (POTWs). Second, costs should be analyzed in light of resulting water quality benefit. EPA’s first effort at developing

BCT regulations was reversed because the Agency did not sufficiently consider cost-effectiveness.

10 The exemption is for 10 years, or until the facility is fully depreciated, whichever occurs first. Clean Water Act §306(d).
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 93

The Clean Air Act and implementing agencies

rely heavily on design standards to meet ambient

air quality goals. Existing major sources must

meet reasonably available control technology

(RACT) in areas that fail to meet ambient air quality standards. RACT acts as a national minimum

level of control in nonattainment areas and is usually defined as the lowest emissions limitation

that a source is capable of meeting by using a control technology that is reasonably available, considering technological and economic feasibility.

In contrast, new sources in these “nonattainment”

areas must adopt control technologies that achieve

the lowest achievable emissions rate (LAER).

LAER is often much stricter than RACT. LAER is

to be based on the most stringent emissions limitation contained in any state implementation plan or

achieved in practice by the same or similar source

category, whichever is more stringent.

Sources in areas that already meet ambient air

quality goals are subject to design standards under

the Clean Air Act. For example, new sources in

areas that meet ambient standards must install best

available control technology (BACT), often a

stricter level of control than required under RACT

but less than LAER.

Sources of air toxics must meet an emissions

limit comparable to that resulting from use of the

maximum achievable control technology. MACT

is based on the best technology currently available

for the source category in question and must be at

least as stringent as the level achieved in practice

by the best controlled source in the source category (for new sources), or for the best performing

group of sources (for existing sources).

RCRA also incorporates some design standards in its waste management requirements. For

example, EPA uses best demonstrated available

technology (BDAT) to describe the class of treatment technologies that must be used before a hazardous waste may be disposed on land. The

Agency developed a BDAT treatment requirement for each group of wastes with similar physical and chemical properties and sought to base the

requirements on technologies that furthered waste

minimization and recycling.11

Key Criteria Affecting Tool Selection

Assurance of meeting goals

Design standards require a specified level of

pollution control from each individual regulated

entity. As such, design standards help ensure that

pollution reduction goals are met, but cannot

guarantee that environmental quality goals will be

met. Design standards are less analytically complex and data intensive than harm-based standards

and typically have been implemented at a faster

rate. Their relative ease of implementation means

that some level of control will be in place faster

than is likely under harm-based standards. Similarly, some authors have argued that this form of

regulatory system is less complex and therefore

has a greater chance of success than market-based

approaches (95).

Critics of design standards point out, however,

that design standards very indirectly assure attainment of a risk-based goal. In places that do not

currently meet environmental goals, design standards move things in the right direction by ensuring that those polluters that have not yet installed

the required level of technology do so or adopt an

alternative strategy that meets required emission

limitations. This general movement will not necessarily ensure that a risk goal is achieved. First,

existing technologies may not be capable of reducing discharges from a single source to the level

necessary to achieve pollutant concentrations in

the receiving media that meet the risk goals.

Second, even if a single plant’s compliance

with a design standard is capable of meeting the

goal, the design standard approach does not prevent neighboring sources from discharging the

11 EPA may select a technology that furthers waste minimization and recycling over more conventional treatment if the disparity in performance of the technologies is not too pronounced, and the technology selected minimizes threats to human health and the environment by substantially diminishing waste toxicity and reducing mobility of toxic constituents. 55 FR 22520, 22535 (June 1, 1990)(Third-Third final rule).
94 | Environmental Policy Tools: A User’s Guide

same pollutant. The cumulative effect of discharges from two or more facilities, all of which

meet prescribed design standards, can be a concentration of pollutants that violates the riskbased goal. This characteristic weakness of a

design standard is often shored up by combining

it with a harm-based standard that takes effect if

the design standard fails to attain the goal.

Pollution prevention

The effect of design standards on pollution prevention is ambiguous. Design standards typically

are based on an end-of-the-pipe approach, and

sources have an incentive to adopt the model

technology that is familiar to the regulatory

agency. However, design standards do offer an opportunity for a regulated entity to propose an alternative to the model technology or approach. Thus,

if “moving up the pipe” and preventing pollution

appears to be the least expensive way of achieving

compliance, sources are free to do so.

A design standard can either promote or discourage the use of pollution prevention, depending on what approach was considered the model

for calculating emissions. If the standard is based

on an end-of-the-pipe technological solution, the

instrument could act as a disincentive for pollution prevention. However, a design standard could

base emission limits on particular pollution prevention measures, thereby encouraging pollution

prevention. In practice, even when EPA wishes to

establish a preference for pollution prevention, the

signals might be mixed. For example, EPA prefers

to base BDAT requirements for treating hazardous

wastes on technologies that further the statutory

goals of waste minimization and recycling.12

Some pollution prevention specialists suspect the

BDAT focus on technologies for minimizing

waste fails to create a preference for preventing

pollution in the first place.

Demands on government

Agency resources required to establish and revise

a design standard are likely to vary, depending on

how much is known regarding the targeted industry and its processes and pollutants. An agency

would need to delineate appropriate target groups

and subgroups, identify the appropriate model

technology or strategy—“best,” “conventional,”

“reasonable,” or whatever the statute called for—

and determine the emissions control levels

associated with that technology or strategy. As

with all regulatory approaches, an agency must be

prepared to justify its determinations, both in

court and to oversight agencies such as the Office

of Management and Budget.

These analytical and data requirements typically are less than for a harm-based standard. EPA

has found it easier to delineate appropriate target

groups and model technologies than to determine

the appropriate level of a harm-based standard.

Data on facility characteristics, wastestreams, and

plant processes are more readily available than

pollutant effects data. Also, identifying the relevant “best,” “reasonable,” or other legislatively

mandated model technology typically is easier

than determining a “safe” level for a pollutant.

Again, the air toxics program under the Clean

Air Act shows that design standards are easier for

an agency to implement than harm-based standards. In the five years since the air toxics program

has been based on a design standard, EPA has promulgated 10 regulations affecting 55 industrial

toxic source categories and has proposed an additional 14 regulations for 16 industrial categories

(5). During the previous 20 years, when a harmbased standard applied, EPA was able to issue

only seven standards.

It is important to note that design standards still

require significant agency resources to set and implement, even though they are more manageable

12 EPA may select this type of technology as BDAT over more conventional treatment if the disparity in performance of the technologies is

not too pronounced, and the technology selected minimizes threats to human health and the environment by substantially diminishing waste

toxicity and reducing mobility of toxic constituents. 55 FR 22520, 22536 (June 1, 1990).
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 95

than harm-based standards. EPA recently estimated that it “traditionally takes about four years

to develop national technology-based standards

such as [air toxics] standards” (216). EPA recently

proposed a streamlined approach to setting

MACT control levels for air toxics to help reduce

resources needed to set design standards.

Adaptability

A design standard accommodates technological

development, but on a limited scale. If an agency

decides to adopt a new technology as a replacement model technology, it must recalculate the

corresponding emissions limitation. Such reformulation might occur if a new control technology

becomes more effective or an existing one significantly less expensive. For example, under the

Clean Water Act, EPA is required to review its design standards at least every five years and revise

if appropriate (243). Revision would be subject to

public notice and comment procedures, as required under the Administrative Procedures Act.

❚ Technology Specifications

A technology specification is a requirement expressed in terms of specific equipment or techniques. The requirement is to be met individually

by all regulated entities. Facilities are not free to

choose their means of pollution abatement or prevention. Compliance focuses on whether or not

the specified approach is in place and operating

according to specifications—regardless of whether the approach is a particular control technology

or a series of actions or techniques. Compliance

does not depend on meeting a specified ambient

environmental quality.13

At the permit level, technology specifications

are expressed as a technology required in order to

be in compliance with a permit, while harm-based

standards and design standards would be represented by a numerical limit. Design standards provide greater freedom for a regulated entity to

expand the list of acceptable compliance equipment or techniques. Harm-based standards leave

regulated entities free to select their own compliance approach.

Differences between technology specifications

and design standards are sometimes confusing

and misunderstood. One source of confusion is

the important distinction between a technology

specification and “technology based.” A technology specification actually requires regulated

entities to use the stated technology, while “technology based” simply indicates the origin of the

emissions limitation without requiring the model

technology used to set the limitation. Many design standards are technology based.14

A second source of confusion is caused by de

facto technology specifications. De facto technology specifications might exist in at least three

circumstances. First, a de facto technology specification is created when the legislature or regulatory agency setting up a design standard fails to

describe what parameters of a proposed technology must be “equivalent” to the model technology.

This results in regulated entities’ having no practical way to demonstrate equivalency of any alternatives to the model technology. Defacto

technology specifications also might occur when

only one technology is available to meet the standard even though it is not specified, or when an entity decides the technology used to develop a

design standard is the safest and quickest compliance approach. Note, however, that in each of

these circumstances firms still have flexibility to

develop a new technology or to propose a technology different from that used to develop an emissions level.

13 As a result, discharge or ambient monitoring is not necessary under a “pure” technology specification, unless necessary to determine the

technology is being operated according to specifications.

14 “Technology based” essentially indicates use of an abatement-based strategy and does not specify an instrument per se. For example, the

emission limits imposed through tradeable permits or integrated permitting could be technology based.
96 Environmental Policy Tools: A User’s Guide

Assurance of Meeting Goals

Promotes criterion: Design standards establish a less complex regulatory system than multi-source tools,

and so are more likely to work as desired. They allow an agency to determine compliance by monitoring whether the model technology is used, rather than monitoring emissions directly.

Impairs criterion: Pollution control levels achievable by identified model technologies may not be stringent

enough to achieve environmental goals. Design standards do not address cumulative effects of discharges from multiple sources.

Pollution Prevention

Promotes criterion: Design standards can create a preference for pollution prevention, if desired.

Impairs criterion: Design standards can inhibit pollution prevention efforts, if the agency picks an end-ofthe-pipe technology as its model technology.

Environmental Equity and Justice

Promotes criterion; Design standards offer communities input into the standard-setting process.

Impairs criterion: Design standards do not address “hot spots, ” or differential impacts on communities.

Cost-Effectiveness and Fairness to Sources

Promotes criterion: Entities are free to propose an equivalent, more cost-effective pollution control approach. Design standards are fair because they impose similar requirements on similar facilities.

Impairs criterion: Design standards may not be cost effective because they do not consider differences in

cost across facilities. They can be unfair because they often differ across industries.

Demands on Government

Promotes criterion: Analytical requirements for setting design standards are less demanding than harmbased standards.

Impairs criterion: Design standards still require substantial analytical and data resources.

Adaptability

Promotes criterion: Entities are free to propose a new technology, if equivalent to the model technology.

Impairs criterion: If an agency adopts a new technology as the model technology, it must recalculate the

corresponding emission limitations. Design standards are subject to time-consuming public noticeand-comment procedures required under the Administrative Procedures Act.

Technology Innovation and Diffusion

Promotes criterion: Design standards encourage suppliers of pollution control equipment to innovate, because the new technology might become the “model” technology and have an immediate market. Design standards promote diffusion of the “model” technology.

Impairs criterion: Regulated entities may use the existing model technology instead of innovating, because of the expense of proving a new approach is “equivalent.” Regulated entities may feel disinclined to develop more effective control technology because it might cause tighter emission limits.

SOURCE. Off Ice of Technology Assessment, 1995.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 97

Extent of Use

Explicit technology specifications appear to be

rare. OTA was unable to identify any examples of

their use to solve environmental problems.

The rarity might be explained by a reluctance of

legislators and regulators to create a technological

straightjacket on entities, which in most situations

would not allow for technological improvements

now or in the future. Some commenters argue that

technology specifications might be desirable

where the need for environmental control is strong

and immediate, where a demonstrated compliance

technology is at hand, and where administrative

ease and enforceability are principal concerns.

The instrument might also be useful where a small

number of sources, or a single source, are responsible for an environmental problem.

De facto technology specifications exist, but

data is lacking on how often they occur. Industry

representatives assert they are far more common

than necessary. Many critics of the current environmental regulatory structure assert that

requirements are often de facto technology specifications, even if expressed using other instruments.

Key Criteria Affecting Tool Selection

Assurance of meeting goals

Defacto technology specifications offer a higher

level of assurance than many other regulatory

instruments because of their ease of enforcement.

An inspector would need only to determine that

the specified technology or technique is in place

and operated appropriately. However, like design

standards, technology specifications can only ensure that environmental quality goals are met if

the standard is set appropriately.

Establishing a technology specification as part

of a technology-based strategy would be analytically similar to design standards. Use of technology specifications for risk-based strategies offers a

greater opportunity for a mistake, because the

agency needs to identify the technology or techniques associated with a particular level of emissions.

Pollution prevention

A technology specification can either emphatically promote or discourage the use of pollution prevention, depending on what approach has been

specified. If the requirement calls for an end-ofthe-pipe technological solution, the instrument is

a strong disincentive for pollution prevention.

However, if the requirement specifies particular

pollution prevention measures that must be taken

in order to be in compliance, the instrument

strongly encourages pollution prevention.

Cost-effectiveness and fairness

Technology specifications, in theory, are unlikely

to achieve a cost-effective level of pollution control. They do not allow entities to substitute for the

specified technology or approach a cheaper or

more effective way to control emissions. Economic theory predicts that this lack of flexibility will

inhibit achievement of a cost-effective control

solution.

A technology specification might be viewed as

fair because it imposes a uniform requirement on

all entities. However, the application of such standards in an arena where entities have been previously regulated, or in other ways differ

considerably, might achieve unfair results.

Adaptability

Technology specifications define compliance as

using a specific technology. Rulemaking is required, therefore, if someone wants the standard

to adapt to changing circumstances. Because explicit technology specifications are rarely if ever

used, their adaptability to change is purely

theoretical. De facto technology specifications are

more commonly used, but data on their adaptability are limited and largely anecdotal.

Development of new control technologies does

not require a technology specification to be

changed, unless additional reasons for change exist. An agency could in theory continue to require

the preexisting technology. However, the agency

might conclude it must reformulate the technology specification if cost or control efficiencies of
98 | Environmental Policy Tools: A User’s Guide

the new technology make it unreasonable to continue to require the old technology.

Similar to design standards, new scientific information might encourage reformulation of a

technology specification if new information indicates underlying goals are unmet by the existing

standard, but would not require it.

❚ Product Bans and Limitations

This regulatory instrument bans or restricts

manufacture, distribution, use, or disposal of substances that present unreasonable risks to health or

the environment. Product bans and limitations focus on the commodity itself rather than on polluting byproducts from its manufacturing. As a

result, they are used primarily where the hazard is

the commodity.

Some products that provide societal benefits

also cause environmental harm. Asbestos is a nonflammable substance used as heat and sound insulation in buildings and many products. The

benefits of pesticides and other economic poisons

have done much to prevent crop infestations,

choking weeds, noxious animals, and disease. At

the same time, however, there has been a growing

awareness that these benefits are not without hazards, and that the products may be harmful to humans and the balance of nature. Product bans and

limitations typically seek to balance benefits and

costs of these products. A product ban may be appropriate where product use is intrinsically sufficiently damaging that zero use is a desirable

outcome.

Product bans and limitations may be imposed

prior to the product’s sale and use in commerce, or

after the product has been used and its harmful effects are observed. Premarket product approval

systems seek to prevent excessively risky products from reaching the marketplace at all. Under

product approval systems, a government regulatory agency reviews the effects of the new product

before it is marketed, ultimately approving it or

disapproving it for commercial introduction or

placing limitations on its use that are designed to

bring product risks to an acceptable level. The

burden of producing information and of persuading regulators of product safety usually rests with

the proponent of the new product.

Extent of Use

Because some products that provide societal

benefits also cause environmental harm, Congress

has enacted statutes empowering regulatory agencies to halt or otherwise restrict the manufacture,

distribution, and use of such products (165). The

policy approach has been used under the Clean Air

Act and more widely adopted in other statutes for

control of pesticides and chemicals.

The Clean Air Act Amendments of 1990 addressed the problem of stratospheric ozone depletion by establishing a program that gradually

introduced a ban on use of ozone- depleting substances (240). The statute established initial lists

of substances that were to be phased out, grouped

as Class I15 and Class II substances.16 EPA is directed to list additional substances as necessary.

The statute begins reducing allowable production

of these substances in 1991 and imposes outright

bans a number of years later. For example, production of Class I substances begins to phase out in

1991, and as of 2000 production of all Class I substances is prohibited.17 Class II substances are

prohibited after 2030.

The chlorofluorocarbons (CFC) phaseout and

ban is an illustration of how policy instruments

might be combined to limit undesirable effects.

During the phase-in period of the ban, the statute

establishes a pollution charge based on tonnage

produced and weighted by the harmfulness of

each chemical. In addition, the statute directs EPA

to establish transferable “allowances” for the production and use of the Class I and II substances.

15 Class I substances include chlorofluorocarbons, halons, carbon tetrachloride, and methyl chloroform.

16 Class II substances include hydrochlorofluorocarbons.

17 The ban on methyl chloroform takes effect in 2002.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review 99

Assurance of Meeting Goals

Promotes criterion: Technology specifications are relatively easy to administer and monitor, and so are

less likely to fail than other tools.

Impairs criterion: The specified technology may not be adequate to meet goals.

Pollution Prevention

Promotes criterion: A technology specification can promote pollution prevention if it specifies pollution

prevention measures.

Impairs criterion: A technology specification that specifies an end-of-the-pipe technology approach discourages pollution prevention,

Environmental Equity and Justice

Promotes criterion: Technology specifications are fair because they impose uniform requirements on all

entities.

Impairs criterion: The lack of flexibility available under a technology specification makes cost-effective

pollution abatement unlikely. Technology specifications can be unfair because they do not take into

account differences among entities’ prior control behavior or equipment.

Cost-Effectiveness and Fairness to Sources

Promotes criterion: Monitoring compliance with technology specifications is relatively easy.

Impairs criterion: Technology specifications limit choice and thus can be expensive,

Demands on Government

Promotes criterion: Monitoring compliance with technology specifications is relatively easy.

Impairs criterion: Technology specifications can be administratively difficult to establish because of the

need to identify a technology that can achieve goals.

Adaptability

Promotes criterion: Development of new technologies does not require the agency to change a technology

specification, unless the new technology clearly is superior.

Impairs criterion: A new or altered technology specification would be subject to time-consuming public

notice-and-comment procedures required under the Administrative Procedures Act.

Technology Innovation and Diffusion

Promotes criterion: Technology specifications cause wide dissemination of the specified environmentally

beneficial technology or approach.

Impairs criterion: Technology specifications discourage innovation in pollution control and prevention.

SOURCE: Office of Technology Assessment, 1995
100 | Environmental Policy Tools: A User’s Guide

Presumably the pollution charge is intended to encourage more rapid shift from use of CFCs, and

trading is provided to soften the economic impacts

of a ban. The phase-in of the ban has occurred

more rapidly than expected. For example, by the

end of 1992, CFC production was less than 50 percent of 1986 production levels, when those levels

were viewed as very difficult to achieve prior to

1999 (193).

A ban was used to address the adverse health effects from airborne lead emitted by gasoline-powered automobiles. The lead ban was implemented

gradually over several years. EPA began lowering

the allowable lead in gasoline as early as 1973, although the phaseout of leaded gasoline began in

earnest in 1985. EPA established a limit of 1.1

grams per gallon for the content of leaded gasoline

beginning in July 1985 and 0.1 grams per gallon

after January 1, 1986 (265,266). This aggressive

phase-down schedule was combined with an EPA

program allowing trading in lead credits among

refiners. The Clean Air Act Amendments of 1990

prohibit the use of any gasoline which contains

lead or lead additives after 1995 (238).

Key Criteria Affecting Tool Selection

Assurance of meeting goals

Product bans or limitations can be an effective

way of achieving risk-based goals for the immediate consumers of the product. If the product poses

unacceptable risks to consumers, the agency can

prohibit its sale, distribution, and use and thereby

eliminate those risks. Or, an agency can place limitations on the sale, distribution, and use of the

product sufficient to reduce those risks to acceptable levels.

The degree of assurance provided by a product

ban or limitation depends on availability—now or

in the near future—of safer alternative products.

An agency cannot be certain that substitute products will not have their own environmental problems. For example, the ban on lead paint has led to

use of alternative rust-inhibiting coatings for steel

that may involve other metals, such as chromium,

that can have deleterious effects on human health.

Product bans or limitations historically have

been used “when the cows are already out of the

barn”—after the products are well-distributed

through commerce and already causing environmental problems. Banning or limiting polychlorinated biphenyls (PCBs) in transformers does little

to reduce the risk posed by the PCBs that have already drained from discarded transformers. In

such cases, abatement programs are necessary to

address risks posed by past use of products. An example is the asbestos abatement program that

Congress established for schools (203).

Pollution prevention

Product bans and limitations can lead to pollution

prevention, by preventing products with adverse

environmental effects from being manufactured

and used.

Cost-effectiveness and fairness

No empirical data, and almost no technical economic literature, explores the cost-effectiveness

of product bans and limitations as a tool to reach

human health and environmental goals.

Theory would imply that, to be cost-effective,

the ban or limitation must be well-tailored to the

situation. A ban is best used where all uses of a

product pose unacceptable risks. A ban might be

overly broad if some product uses did not pose

those risks, suggesting that product limitations

might be more appropriate in those circumstances. For example, a complete ban on lead

paint as a means to protect children from ingesting

lead-laden paint chips might be overly broad if

there are uses extremely unlikely to give children

access to the lead paint, such as shipboard and other outdoor uses of red lead as a rust inhibitor. A selective ban or product use limitation might

achieve the objective of preventing children’s exposure to lead. An agency rarely has the analytical

resources to set up such a cost-effective ban or the

enforcement resources to prevent unauthorized

uses.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 101

Adaptability

Product bans or limitations require time-consuming proceedings if scientific developments or new

political priorities indicate that more or less regulation is appropriate. Rulemaking procedures

would be necessary if the constraint were imposed

by regulation. If the constraint were imposed by

legislation, such as the CFC ban in the Clean Air

Act, Congressional action would be required for

significant programmatic change.

Technology innovation and diffusion

In markets in which no substitutes are available,

the product ban or limitation has the potential to

induce technological innovation by stimulating

rapid research aimed at products that are capable

of filling the void left by the limited ban or product. This form of “radical technology forcing”

takes a leap of faith on the part of the regulatory

agency. For example, when EPA initiated cancellation proceedings against the pesticide mirex,

its manufacturer argued that the southeastern

United States would be left defenseless against

imported fire ants, because the only registered

substitute for mirex was a pesticide that was also

the subject of an EPA notice to cancel. In phasing

out mirex use, EPA assumed that other companies

would develop new alternative fire ant killers to

replace mirex. Four substitutes did in fact become

available before the end of the phaseout period

(117).

The fact that a product ban results in rapid development of alternatives in one context, however, does not necessarily guarantee that a similar

result will occur in all contexts. Banning a proposed product or technology at the pre-marketing

approval stage could result in deeper entrenchment of an old product or technology. Using bans

or limitations to induce innovation may not work

as well for environmental problems with complex

causes, and may be too risky to employ in contexts

in which the consequences of the failure to inspire

technological innovation are very high. The approach seems best suited for the converse situation in which the risks of doing nothing are high.

❚ Integrated Permitting

Environmental laws make extensive use of permits. Permits make individual sources18 subject

to general statutory requirements. In many

instances, entities may not legally emit pollutants

other than in compliance with a permit. Monitoring and reporting requirements often are imposed

through permits. Pollution control or other requirements might be expressed using a variety of

different policy instruments, including technology specifications, harm-based standards, tradeable emissions, and other instruments discussed

in this assessment.

Concern about multimedia effects and potential burdens of the permitting process has led EPA

and many state agencies to consider making

changes in the way permits are issued. Often

called “consolidated permitting,” these permitting approaches can be divided into two groups

based on their principal purposes: 1) streamlined

permitting, and 2) integrated permitting.

Streamlined permitting is used by many agencies to make the administrative process less

burdensome by providing permit coordinators,

“one-stop permit shopping,” and similar measures to lessen time delays and paperwork. With

integrated permitting—far less common of the

two—the government considers comprehensive

environmental impacts when making decisions

regarding emission limits for an individual permit.

Integrated permitting can take two approaches:

1) single medium, and 2) facility-wide crossmedia. Agencies have used integrated permits to

combine all sources of pollution to a particular

medium, rather than having a permit for each individual emissions point at a facility. A facilitywide permit might list emission limits for each

source within the facility. Or, a facility-wide permit might list a single limit per pollutant for the

18 The definition of “source” varies from regulation to regulation. It may connote an entire facility, or a single pipe or smokestack.
102 Environmental Policy Tools: A User’s Guide

Assurance of Meeting Goals

Promotes criterion: Product bans or limitations remove excessively risky products from the market, or

prohibit use of the product in risky situations. They can be implemented very quickly, in a perceived

emergency.

Impairs criterion: There is no guarantee that a less risky product will be developed as a substitute.

Pollution Prevention

Promotes criterion: Bans or limitations can in effect require pollution prevention, by preventing products

with adverse environmental effects from being manufactured and used.

Environmental Equity and Justice

Promotes criterion: Bans and limitations place constraints on the distribution and use of excessively risky

products, that apply uniformly among communities.

Impairs criterion: Product bans and limitations do little to remediate problems created by prior use of risky

products.

Cost-Effectiveness and Fairness to Sources

Promotes criterion: Product bans or limitations are fair, when applied uniformly.

Impairs criterion: Bans and limitations can be expensive if applied more broadly than the risk posed. Premanufacturing review is unfair, since it subjects new products to stricter standards than existing products (which are re-reviewed only sporadically).

Demands on Government

Impairs criterion: Administrative resources to analyze data in support of a product ban or limitation can be

very large, because of the draconian nature of the tool. This approach requires a credible enforcement

presence to be effective, which in the case of tailored bans or limitations will need significant administrative resources.

Adaptability

Impairs criterion: An altered product ban or limitation would be subject to time-consuming public noticeand-comment procedures required under the Administrative Procedures Act.

Technology Innovation and Diffusion

Promotes criterion: Product bans and limitations can spur rapid innovation, by highlighting a market in

need of substitutes for the affected product.

Impairs criterion: Banning or limiting a product at the pre-market stage can further entrench existing

products.

SOURCE. Office of Technology Assessment, 1995.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 103

entire facility, creating a bubble-like performance

standard that requires the facility to meet an overall emissions cap through any combination of controls. Unlike EPA’s current Bubble Policy, which

effectively freezes an initial reallocation of control responsibilities among sources (267), an integrated permit might allow flexibility to alter on an

ongoing basis the mix of control levels for sources

within a facility.

Another form of integrated permitting combines limitations on emissions to air, water, and

land in a single permit, taking into account the potential at a facility for pollution to move between

media. This multimedia type of integrated permitting may allow an agency to trade off reliance

among policy approaches, if emission limits in the

different media use different instruments.

Table 3-3 illustrates the wide variety of integrated and streamlined permitting approaches that

have been described as elements of “consolidated

permitting.” Many permit reforms focus on lowering administrative burden for the regulatory

agency and the permit applicant. Other permit reform efforts seek to improve both the administrative burden and adequacy and cost-effectiveness

of environmental protection. This OTA assessment is focusing primarily on programs that pursue both goals.

The strengths and weaknesses of integrated

permitting will depend in part on the specific design and implementation of the permit program,

and in part on the instruments used to express the

requirements the permits impose. As a result, integrated permits as a regulatory tool should always

be considered from the perspective of the other

instruments they incorporate.

Extent of Use

Integrated permitting has been used only on a limited scale, although it is not a new idea. In 1980,

EPA consolidated permit procedures for several

programs under the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery

Act, and the Safe Drinking Water Act. The rule focused on streamlining measures, such as use of a

single general permit application form, but also

sought a “more comprehensive management and

control” of pollution through “consolidation of

permit requirements and processing procedures. . .” (262). This more integrated approach to

permitting was fiercely resisted in some quarters,

and the Agency abandoned the effort in the mid

1980s as part of its regulatory relief activities. In

the Federal Register notice that repealed the consolidated permitting rule, EPA noted “[t]he fact

that the various permit programs regulate inherently different activities and thus must impose

generally different sorts of requirements has limited commonalties across permit programs”

(264). The Agency felt that consolidated processing of multiple permits had been very rare.

Integrated permitting once again is receiving

growing attention from states and EPA. Some

states recently have begun to experiment with integrated permitting. For example, the 1991 New

Jersey Pollution Prevention Act establishes requirements for pollution prevention plans, and

sets up a pilot program to integrate a wide array of

environmental permits and approvals into a single

permit. The legislation authorized up to 15 participants. As discussed in chapter 2, the state issued

its first cross-media integrated permit in late 1994,

to a pharmaceutical firm, and two other permits

are in the final development stage.

New York has attempted to integrate some of its

permitting activities for large industrial facilities,

by setting up a 12-person permit team to examine

cross-media transfers and explore pollution prevention opportunities. The Minnesota Pollution

Control Agency has established a voluntary flexible permit program, that offers firms the option of

obtaining a single, integrated facility-wide permit

for all of its sources for a particular emission or for

various emissions. The program is in early stages;

the only integrated permit issued thus far is for a

3M tape manufacturing plant that emits volatile

organic compounds (VOCs) into the air. The permit allows 3M to shift emission controls among

the sources within its facility, so long as the aggregate VOC control levels are satisfied.
104 Environmental Policy Tools: A User’s Guide

Permitting type Permitting approach Key element(s) Example jurisdictions

Integrated Multi-Media Permitting

Integrated Facility-wide “bubble”

Integrated

Streamlined

Streamlined

Streamlined

Streamlined

Streamlined

Facility-wide permit

specifying limits for

each source.

One-Stop Permitting

Permit Assistance

Offices

Permit Coordinator

Permit Deadlines

Permit Information

Single permit incorporates all

emissions from a facility to air,

water, and land.

Single permit sets an aggregate

emissions limit to one medium

for the entire facility, allowing

the facility to shift control responsibilities among individual

sources at the facility.

Single permit incorporates

emissions to one medium from

every source at the facility,

specifying a limit for each

source.

Single office or person has final

authority for all relevant permits.

Office or liaison available to provide information re: requirements, assist during permit

process,

Single office or person has formal duty to coordinate specific

project proposals. Have less

authority than under one-stop

system.

Fixed deadlines for permit issuance or denial, often 60-90

days. Frequently, automatic permit issuance if deadline missed

by agency.

Efforts to coordinate information

from various programs for prospective permit applicants,

usually as guidebooks or

brochures

New Jersey (pilot)

Minnesota (pilot)

Permits under EPA’s “Bubble

Policy”

Georgia, Kentucky, South

Dakota

Indiana, California, Michigan,

New York

Michigan, Tennessee, Michigan

Maine, Montana, North Carolina,

New Jersey (common, roughly

half the states have permit

deadlines)

California, New York (very

common; virtually every state)

SOURCE Off Ice of Technology Assessment, 1995

Key Criteria Affecting Tool Selection amounts of pollutants go unregulated. They note

Assurance of meeting goals that with today’s extensive environmental statutoProponents of integrated permits argue that multi- ry structure, it is much more difficult for emismedia permits are necessary because present regu- sions to slip through the regulatory cracks (169).

latory efforts to control pollutants in one Determining whether or not pollutants do indeed become unregulated by crossing environ- environmental medium can result in merely transferring the pollutant to other environmental media mental media is beyond the scope of this

(56,131). Others are skeptical that significant assessment. However, the extent of the cross-me-
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 105

dia problem has a strong effect on the degree to

which integrated permits would improve assurance that environmental goals are met.

One common criticism of multimedia integrated permitting is the analytical complexity of

modeling cross-media emissions and risks. The

fear is that integrated permitting may create an

elaborate shellgame that obscures pollution emissions that could have been more effectively regulated under traditional permitting. Ideally,

accurate and adequate data would be available to

weigh all facility inputs and outputs and consider

all possible cross-media transfers. A 1990 EPA report on data requirements for integrated permitting found such data were lacking (80,149).

Integrated permits addressing releases to a

single environmental medium are likely to require

less sophisticated analysis. For single-medium integrated permits that establish fixed limits for

each source, assurance is likely to be the same as

the instrument used to express the requirement.

For those single-medium permits that establish a

plant-wide bubble, monitoring must be sufficient

to track emissions of the pollutant from all

sources. Lack of monitoring capability can discourage use of flexible plant-wide bubbles. For

example, during early development of EPA’s

Bubble Policy, staff were concerned that monitoring capabilities were not sophisticated enough to

track movement of emissions between multiple

sources within a single facility (94). As a result,

permits under the Bubble Policy specify limits for

each source (267).

Minnesota has recently adopted an integrated

air permit program that requires facilities to propose a method to ensure continuous compliance

with each facility-wide emissions limit through

monitoring or an equivalent tracking system

(149). While an integrated permit need not be

conditioned on continuous monitoring, the Minnesota program illustrates an approach designed

to increase assurance environmental goals will be

met.

Cost-effectiveness and fairness

Limited data is available on control cost savings

from integrated permitting. Integrated permit programs with a single aggregate emissions limit for

an entire facility would allow significant process

and emissions flexibility which, in theory, a firm

could use to help find a more cost-effective means

to comply with requirements. Integrated permits

issued under EPA’s Bubble Policy include specific

limits for each individual source within a facility

and do not allow limits to “float” among sources.

As of 1986, $132 million in reported cost savings

were achieved by 20 firms through bubbles (72).

This flexibility can make integrated permits attractive to regulated entities. For example, one of

the principal reasons 3M sought an integrated permit in Minnesota was to have the flexibility to

change the mix of source controls used to meet requirements for VOC emissions control, without

time-consuming agency approvals (149). Some

forms of integrated permits include limits to all

sources in one permit, but do not allow the facility

to shift control responsibilities between sources.

With this form of permit, control cost savings are

strongly affected by the regulatory instruments incorporated into the permit and the terms of the permit itself.

Demands on government

A major issue with integrated permitting is the

government administrative resources required to

issue permits. Proponents say that integrated permitting can achieve administrative cost savings

for both the regulatory agency and the permit

holder, due to fewer permits and a less fragmented

process. Others note that administrative costs

might increase, because an integrated permit is

typically much more complicated than a conventional permit and takes longer to evaluate. Experience to date is very limited but shows signs that to

some degree each of these views might be correct,
106 | Environmental Policy Tools: A User’s Guide

depending on whether the short-run or long-run

timeframe is considered.

Some states have estimated that in its early

stages an integrated permitting program can require substantial resources and delay. For example, the schedule for completing the first pilot

multimedia permit in New Jersey allowed 12 to 24

months for input and review by both agency and

applicant (149). The time period for issuing a conventional permit varies from around five months

for a routine emissions permit under the Clean

Water Act, six to 12 months for air permits, to up

to three years for an interim RCRA permit and

much longer for a final RCRA permit.

Whether these administrative costs of processing the integrated permit are greater than the aggregate costs of the multiple permits it is replacing

is uncertain; the New Jersey permit was for a facility that previously had 897 permits just for air

quality.19 Minnesota similarly found that negotiating its first facility-wide permit was resource

intensive. “We had to devote multiples of our normal resources for such a project,” explained one

official. “It involved more people, more research,

more drafts, more visitation of site, and more everything” (149).

However, the long-term effect of integrated

permitting on administrative burden is unclear.

Both New Jersey and Minnesota state agencies attribute these extensive resource needs to the novelty of the integration process rather than a

fundamental characteristic of integrated permits

should they be used more widely. They felt that efficiencies are likely to increase (149). In addition,

existing integrated permit programs seem also to

incorporate elements of streamlined permitting,

such as one-stop permitting and a permit coordinator. If included in the permit program, such provisions have the potential to cut down on

duplicative effort and time delays.

❚ Tradeable Emissions

Under tradeable emissions, the government first

sets a level of aggregate emissions over a specified

time period, consistent with environmental goals

by issuing only the number of permits corresponding to that level. The total allowable emissions are

then allocated to individual sources through government-issued permits. Unlike under conventional permit systems, however, each regulated

entity can buy and sell permits from others. The

entity might choose to do so if the relative costs of

emissions control make it less expensive to buy

(or profitable to sell) the permit to another entity.

In theory, trading would continue until the cost of

controlling yet another pound of pollution is the

same for all entities and is equal to the cost of a

permit. In practice, other factors strongly affect

the amount and results of trading.

Not all trading systems are alike. For example,

the level of government involvement in trading

can be an important determinant of potential benefits and costs of a program. In some tradeable permit regimes, the government agency must

preapprove transfers and determine whether the

impact on the environment from the trade is

equivalent or acceptable. In other regimes, entities

are free to trade without government approval.

Greater government involvement might increase

the level of assurance that environmental goals

will be met, but also could increase transaction

costs and regulatory uncertainty and so discourage trading. Also, some programs allow only entities targeted by the regulation to trade emissions,

while other programs allow unregulated sources

to “opt into” the market voluntarily.

Trading systems may vary due to a variety of

factors, including the nature of the pollutant being

traded, and how and if the program incorporates

an existing regulatory structure. For example, the

19 New Jersey found the early stages more time- and resource-consuming than expected. The DEPE found it took three months to review the

first application for a facility-wide permit, rather than the estimated 30 days.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review 107

Assurance of Meeting Goals

Promotes criterion: Integrated permits can help highlight requirements from multiple statutes that might

conflict or otherwise hinder compliance. Multimedia integrated permits can reduce currently unregulated pollutants moving between media.

Impairs criterion: An integrated permit has such enormous data and analytical requirements that the tool

faces a higher likelihood of failing to meet goals than simpler approaches. This approach requires monitoring sophisticated enough to track emissions between multiple sources.

Pollution Prevention

Promotes criterion: Integrated permits encourage agencies and applicants to look closely closely at facility processes, which may give pollution prevention an advantage.

Environmental Equity and Justice

Promotes criterion: An integrated permit program enables citizens groups to have input into numerous

permitting decisions during a single comment period and hearing. The agency can consider multiple

exposures from different environmental media as it develops and implements an integrated permit.

Cost-Effectiveness and Fairness to Sources

Promotes criterion: Integrated permits can achieve cost-effective abatement at the facility level, if they

specify aggregate limits for entire facility.

Impairs criterion: The technical analysis required in support of a permit application can be burdensome,

and beyond the capabilities of some firms.

Demands on Government

Promotes criterion.’ Integrated permits may result in administrative cost savings in the long-run, The permits make it easier to evaluate a facility’s compliance record, and whether enforcement actions are

advisable, by combining all requirements in a single permit,

Impairs criterion: Integrated permits are likely to require additional administrative resources, at least in the

short-run, They require analytically complex technical analysis to develop.

Adaptability

Promotes criterion: Integrated permits readily accommodate change in technology or market conditions, if

the permit incorporates performance-based source limits,

Impairs criterion: Integrated permits can make changes to reflect new circumstances both difficult and

resource-intensive, because of the permits’ increased complexity.

Technology Innovation and Diffusion

Promotes criterion: Integrated permits might cause agencies and facilities to identity better-integrated

technological solutions to pollution control.

SOURCE Office of Technology Assessment, 1995.
108 | Environmental Policy Tools: A User’s Guide

size of the geographic area over which trades are

allowed will vary between trading programs because of the type of pollutant being traded. Widely

spreading pollutants such as CFCs, with adverse

effects at low concentrations found at distant

points, are likely to have larger markets than pollutants such as carbon monoxide, with adverse effects primarily on a small local area. The larger the

geographic scope, the more potential participants

there are and a greater likelihood of a flourishing

market. However, geographic scope inappropriate

to the type of pollutant could decrease the likelihood that environmental goals will be met.

Another key variant is the extent the trading

program’s design and implementation accommodates existing regulatory structures. Many economists propose and analyze a trading system with

few or no restrictions on trading. Yet, existing

trading systems often require all sources to meet a

minimum level of pollution control and allow

trading of emissions only above and beyond that

point. The effect of this limitation is that some of

the emissions control cost savings available in

theory are unavailable in practice.

Because emissions trading programs differ in

design and in results, purported advantages and

disadvantages of the regulatory tool should be

viewed in the context of underlying assumptions

about program design.

Note also that many evaluations of emissions

trading include bubbles and netting. These regulatory alternatives involve transfers of emissions

control responsibilities among sources in a single

facility and not between facilities. Bubbles and

netting are therefore outside the definitional scope

of trading as used in this assessment and are considered as a form of integrated permit. However,

discussions regarding cost-savings estimates and

other potential program effects of trading often include bubbles and netting.

Extent of Use

Emissions trading has been extensively discussed

in academic and applied literature, incorporated

into environmental programs occasionally but

with increasing frequency, and less often actually

used by target entities. Empirical data is limited

regarding the extent and effects of trading.

Emissions trading is most widely used under

the Clean Air Act. The 1990 Clean Air Act

Amendments broadly encourage the use of market-based approaches, including tradeable emissions. For example, states are authorized to use

economic incentives as part of their air quality

plans (232), the oxygenated fuels provisions allow trading of fuel characteristics, and chlorofluorocarbon provisions allow transfer of production

allowances.20 These programs are in their early

stages, and so it is difficult to say how frequent

trading is likely to be.

The 1990 Amendments also established the

largest-scale tradeable emissions program to date,

the acid rain program. The program seeks to

impose a national cap on SO2 emissions of 8.95

million tons. Utilities are issued tradeable allowances, with each allowance authorizing a source to

emit one ton of SO2 during or after a specified calendar year. To be in compliance, sources must

have at least as many allowances as tons of SO2

emitted. The first phase of reductions began in

January 1995 for the highest-emitting utility

units. The Chicago Board of Trade has held two

allowance auctions, and utilities and other sources

have announced a few dozen private trades (229).

Generally, however, the level of trading activity

has been lower than expected, though it is still too

early to judge.

While the acid rain program was the first statutory environmental trading program, emissions

trading actually first was proposed 14 years earlier

20 EPA issued a temporary final rule pursuant to these provisions that permits transfer of CFC allowances among firms. 56 FR 49548 (Sept.

30, 1991) and 56 FR. 67368 (Dec. 30, 1991).
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 109

as an instrument for achieving air quality goals.

EPA’s 1976 Emissions Offset Interpretive Ruling

allowed major new firms to locate in areas not

meeting air quality standards, provided they “offset” their emissions with emission reductions obtained from existing facilities in the area (267).

Modified and expanded in 1986, the air emissions

trading policy has been less widely used than expected. Firms purchased offsets from others

approximately 200 times between 1976 and 1986,

and found offsets within their own preexisting facilities an additional 1800 times (72). Data are

sketchy regarding trading since 1986.

Emissions trading has been used to address a

number of other air quality problems, as well. For

example, EPA used trading as part of its program

to phase lead out of gasoline by 1987, to help reduce compliance costs and balance burdens between small and larger refineries (263,265,266).

Telluride, Colorado, uses tradeable permits for

fireplaces and wood stoves as a way to reduce particulate matter (29). Spokane, Washington, is implementing a program of tradeable grass burning

permits to attain and maintain compliance with

particulate matter standards (182).

The Regional Clean Air Incentives Market

(RECLAIM) relies on trading to achieve cost-effective air emissions reduction in the South Coast

Air Quality Management District (SCAQMD) of

southern California. RECLAIM establishes an

emissions trading market for stationary sources

within the jurisdiction of SCAQMD that emit four

tons or more of nitrogen oxides (NOx) or sulfur

dioxides (SO2) per year.21 Participating sources

receive a permit that establishes regulatory obligations and includes an annual allocation of Regional Trading Credits (RTCs). An RTC

represents one pound of either SO2 or NOx emissions and is a tradeable commodity available for

sale or use within the year of its creation. Facilities

must hold enough RTCs to cover their actual

emissions. When initially implemented in January 1994, sources participating in RECLAIM

included 41 SO2 facilities representing approximately 85 percent of reported SO2 stationary

source emissions, and 390 NOx facilities representing about 65 percent of permitted sources of

NOx (180). The program is designed to require

emission reductions by 8.3 percent per year for

NOx and 8.6 percent for SO2 from 1994 through

2003. SCAQMD estimates that the cost of emission reductions with RECLAIM would be onequarter to one-third less than nontrading

alternatives (181). RECLAIM is discussed further

in chapter 2 of this assessment.

EPA and some states have considered emissions trading as a possible approach under the

Clean Water Act, although the statute does not explicitly address such market-based approaches.

Wisconsin established a program in 1981 that allowed trading of biochemical oxygen demand

(BOD) between pulp-and-paper mills (38,275).

The Wisconsin trading provisions have not been

used. EPA worked closely with Colorado to demonstrate trading between point and nonpoint

sources of phosphorus at Dillon Reservoir and

Cherry Creek, Colorado. North Carolina has

adopted a similar approach at Tar-Pamlico River

Basin to control nutrients. These programs have

not been widely used, but are expected to act as a

safety valve as control requirements become more

stringent (10).

Neither EPA nor the states appear to have used

trading as an instrument to achieve goals under the

Resource Conservation and Recovery Act. Most

academic discussions of market incentives and

waste management focus on pollution charges

rather than trading.

Although regulatory agencies are adopting an

increasing number of emissions trading programs, actual use of the programs by target entities has thus far been less than expected. Several

factors may have contributed to the limited number of trades. For example, the trading program it21 Separate trading markets exist for NOx and SO2. A volatile organic compound (VOC) market is in development and scheduled for adoption by fall, 1995.
110 | Environmental Policy Tools: A User’s Guide

self may limit trading. Limitations may arise from

the existing regulatory structure, such as requirements that all sources meet a minimum level of

control or that no permit control requirements be

relaxed. Limitations may also stem from the trading program’s design, which might geographically limit the market or specify that control cost

savings alone are insufficient justification for a

trade.22 Another factor that may have helped to

limit trading is the lack of clear property rights in

traded emissions. Regulated entities might be discouraged from investing in additional controls or

credits when the government may change the program at any time with no compensation for the lost

traded emissions.23 A third factor could be that the

difference in control costs between facilities is

less than originally estimated, thus reducing financial incentives to trade. Finally, transaction

costs may discourage trading, including costs incurred to identify a willing buyer or seller and obtain any necessary government approvals.

Key Criteria Affecting Tool Selection

Assurance of meeting goals

One of the most hotly debated issues about emissions trading is whether the approach will achieve

environmental goals. In theory, an emissions trading program should achieve environmental goals

because the program places a cap on the total

amount of permitted emissions, with the cap consistent with the goal. In practice, the environmental effects of trading are more complicated.

Trading increases the complexity of emissions

monitoring, because of interfacility emission exchanges. To provide adequate assurance that environmental goals are being met, agencies must

have adequate monitoring capability to track compliance with a trading program’s multisource limits.

Trading programs may retain emissions that

would otherwise be eliminated. For example, under some emissions trading programs, firms that

are closing a facility may sell its emissions rather

than retiring the emission reduction and creating a

benefit to the environment. With trading, individual entities are not required to control pollution to

the best of their abilities. Finally, compliance responsibilities of individual facilities may be more

difficult to determine if a central register of emission permits and trading is not carefully designed.

Proponents of emissions trading note that, in

some circumstances, trading may be the only

method for achieving environmental goals.

Where the remaining contamination problems

stem largely from unregulated sources, trading offers an incentive for a regulated source to accept

responsibility for controlling these sources in exchange for emissions control credit at its own facility. Also, many trading programs require a

greater than 1:1 ratio between emission reductions

and emission increases. While such trading ratios

are typically adopted as a safety margin for environmental quality, potentially compensating for

imperfect models and other uncertainties and not

as a means to reduce emissions, such ratios could

potentially have that effect.

Experience with trading programs indicates

that trading may improve an agency’s ability to

determine compliance and environmental progress because requirements for increased monitoring have often been coupled with a trading

program. For example, the acid rain allowance

trading program requires continuous emission

monitors (CEMs) on most regulated sources.

However, it is important to note that the policy de22 For example, the Wisconsin water discharge trading program does not allow trades solely to reduce treatment costs. Instead, dischargers

are allowed to trade only if they are increasing production or are unable to meet current discharge limits using existing treatments. Wisconsin

Stat. §212 (1981). See R.W. Hahn, “Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor’s Orders,”

Journal of Economic Perspectives 3:95, spring 1989.

23 For example, the acid rain trading program clearly states an allowance is not a property right, and Congress or EPA can change the terms of

the program at any time. Clean Air Act, §403(f).
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 111

cision to require increased monitoring is independent of trading as a regulatory instrument.

Environmental equity and justice

The effect of emissions trading on environmental

justice is speculative, at best, because little analysis has been done regarding trading’s distributive

impacts. Several public interest groups are concerned that emissions trading may result in an inequitable distribution of health risks and

environmental contamination. These groups argue that the dirtiest companies, which tend to be

located in poor and minority communities, will

find it cheaper to purchase credits allowing them

to maintain emission levels rather than to make

the investment in emission reductions. At EPA

hearings, environmental justice advocates have

emphasized that “the money [from emissions

trading] would go to Wall Street, the clean air

would go to Westchester County and the pollution

would go to East Saint Louis” (45). Some commenters argue that the only way to make trading

programs environmentally just is to provide sufficient compensation to “victims of localized concentrations” (1), while others believe that

adequate compensation is not always possible.

However, trading might result in exactly the

opposite result: dirty sources in poor and minority

neighborhoods would find emissions control

cheaper than purchasing permits since their incremental control costs may be cheaper than cleaner

sources. No evaluative data are available to indicate whether this actually occurs.

Some emissions trading programs attempt to

address the problem of geographic inequities by

requiring agency preapproval of all trades and

conditioning approval on a finding that the trade

will not adversely impact local air quality. For example, the air emissions trading program requires

a greater than 1:1 emissions reduction, a showing

of environmental equivalence, and a demonstration that the trade helps progress towards environmental goals (267). Trading programs also

typically consider the nature of the pollutant being

traded when setting geographic scope of the market. For example, the acid rain trading program

places no geographic restrictions on trading,

based on a conclusion that acid rain is a long-range

transport problem rather than a local air quality issue.

Emissions trading may have a potentially adverse effect on a community’s ability to shape

environmental policy outcomes. Most environmental programs not incorporating trading provide an opportunity for public notice and

comment on proposed permits, allowing a community to voice its views and potentially affect the

terms of the permit. That voice could be lost if the

distribution of emissions is allowed to shift according to market forces and not as the result of

administrative processes. In theory, such communities are able to lower the magnitude of pollution

by entering the market and purchasing emissions

for retirement. The potential expense of such purchases may make this option to affect environmental outcomes unavailable.

Cost-effectiveness and fairness

One of the primary motivations for use of tradeable emissions is to achieve a given level of emissions control at the lowest cost. In theory,

regulated entities should continue trading emission permits until their incremental costs of controlling pollution are the same, resulting in the

lowest possible level of aggregate control costs.

The magnitude of predicted savings depends on

program design, treatment cost differentials

across sources, the number of sources, the cost-effectiveness of the base case to which trading is

compared, and other factors.

In practice, trading programs probably have not

resulted in the cost savings that theory would predict. Most estimates of cost savings presume active trading until the economically efficient

distribution of emissions control responsibilities

is achieved. However, it appears that no program

yet has had that level of trading, most have had

limited trading, and some have had no trades at all.

Thus savings estimates generally should be considered the likely upper bound of control cost savings from a particular trading program.
112 | Environmental Policy Tools: A User’s Guide

Even limited participation in a trading program

might achieve a significant percentage of estimated cost savings if the program allows extreme

results to be avoided. For example, trading might

allow firms with very high relative incremental

costs of control to meet emission requirements by

the less expensive means of trading, rather than

spending large sums to meet a uniform requirement with very little pollution reduced per dollar

expended. In effect, much of the cost savings from

trading might come from preventing very unwise

actions rather than promoting clever, economically efficient ones.

Estimates made prior to program implementation often are the only indicators available as to

cost savings from tradeable emissions programs.

Actual cost savings data is lacking, in part due to

an absence of program evaluation and because

trading prices and control costs are often confidential (76). Table 3-4 illustrates cost savings

from the most often-cited emissions trading programs. The table includes only actual programs

and legislative proposals, not simulations of

“ideal” trading programs. Note also that estimates

for emissions trading include anticipated cost savings from bubbles and netting, which do not involve exchanges between facilities and so fall

outside the definition of trading as discussed in

this assessment.24

The fairness of emissions trading programs has

received somewhat less discussion than its cost effects. Whether a trading program treats regulated

entities fairly depends on such issues as initial allocation of emission credits, relative control costs

imposed on different entities, and the rate of emissions reduction required for each entity.

The initial allocation of pollution control responsibilities will in large part determine whether

emissions trading programs result in an equitable

distribution among regulated entities. Trading

will reallocate emissions among buyers and sellers, but the means of initial distribution must be

decided by Congress or the regulating agency. The

difficulty arises from the fact that large amounts of

money potentially are at stake. The most commonly used initial allocation approach is a type of

“grandfathering,” in which tradeable emission

permits are distributed according to some aspect

of historical operations or emissions.

For example, Congress based the allocations of

acid rain allowances on historical fuel use and sulfur content (196). RECLAIM allocated its emission credits based on “historic use” of each piece

of NOx- and SO2-emitting equipment at a facility

and subtracted the emission reductions necessary

to comply with adopted rules. Grandfathering has

the advantage of causing the least disruption to the

status quo. Yet this approach might also be somewhat inequitable, as new entrants to the emissions

market will have to pay for permits while grandfathered firms obtain them free. Other approaches

to initially distribute emission allocations are possible, but have yet to be tried.

In theory, the method of initial allocation has no

effect on the ultimate efficiency of the emissions

trading program, so long as it does not create a monopoly by giving all emission permits to one firm.

Technology innovation and diffusion

One of the most often cited advantages of emissions trading is that it fosters technological innovation. Since emission reductions should be

considered the equivalent of valuable and marketable emission permits, the incentives created by

the trading program could stimulate innovation in

the strategies and technologies used to reduce

emissions. However, no actual data are available

about the effects of tradeable emissions on

technology innovation.

24 Bubbles and netting historically have been considered alongside emissions trading because they allow transfer of control requirements

within a single facility. The 1986 Emissions Trading Policy Statement also discussed bubbles and netting. 51 FR. 43814 (Dec. 4, 1986).
Chapter 3 Congress’ Environmental Policy Toolbox: A Review 113

Control cost saving

Project name Status of project Nature of “data” (compared to no trading)

Air emissions trading

Air acid rain trading

RECLAIM

Lead phase-down in

gasoline

Wisconsin water trading

program between point

sources

Dillon Reservoir pointnonpoint trading

Tar- Pamlico pointnonpoint trading

In place; less use than

expected

Early implementation;

less use than expected

Early implementation

Completed

In place; unused

In place; little used

In place; unused

Retrospective estimation

Prospective estimation

Prospective estimation

Prospective estimation

Prospective and retrospective

estimation

Prospective estimation

Prospective estimation

$5.5-$12.5 billion since

1976a

Between 40-45% ($.7-$1

billion) annually in S02

controlb

Between 25% and 33% lower in NOX and S02 controlsc

Over $9.9 billion during

5-year programd

$6.8 million per yeare;

revised to $0 due to nonuse

of programf

51%9

Between $188 and $444 per

kg nutrients controlled;

90%-75% in control costsh

a See A. Carlin, "The United States Experience With Economic lncentives to Control Environmental Pollution” (EPA Document No. EPA-230-R-92-0011

July 1992) at 5-14.

b 56 Fed, Reg. 63002, 63097 (Dec. 3, 1991).

C SCAQMD, "RECLAlM, Socioeconomic and Environmental Assessment,” Final, v. Ill, p. 6-10, October 1993.

d S. Kerr, "The Operation of Tradeable Rights Markets: Empirical Evidence from the United States Lead Phasedown”, paper presented at the AWMA

Meeting “New Partnerships: Economic Incentives for Environmental Management”, November 1993)

e O'Neill, David Moore and Joeres, “Transferable Discharge Permits and Economic Efficiency: The FOX River”, 10 Journal Of Environmental Econom--

ics and Management 346 (December 1983).

f lnterview with E, David, Economist, Wisconsin Dept. Natural Resources, June 21, 1994.

g Apogee Research, “lncentive Analysis for Clean Water Act Reauthorization: Point Source/Nonpoint Source Trading for Nutrient Discharge Reductions” (Prepared for EPA Off Ice of Policy, Planning and Evaluation, April 1992) at 20.

h Apogee Research, "Incentive Analysts for Clean Water Act Reauthorization: Point Source/NonPoint Source Trading for Nutrient Discharge Reductions” (Prepared for EPA Office of Policy, Planning and Evaluation, April 1992) at 29.

SOURCE: Office of Technology Assessment, 1995.

Economic models have been used to predict the

impact of tradeable emissions, and generally have

found weaker links between trading and innovation than often asserted. One model showed no

difference in incentive to innovate among tradeable emissions, pollution charges, and harmbased standards imposing similarly stringent

standards (109). Another found that the incentive

to innovate would vary from firm to firm, and that

many firms would have less incentive to innovate

under a tradeable emissions regime than under

harm-based standards because they could buy

their way around the need to reduce emissions

(111).

❚ Challenge Regulation

This policy instrument take its name from the fact

that government challenges a group of sources to

take the lead in designing and implementing a

program for meeting environmental goals. Challenge regulation is distinguishable from other ap-
114 Environmental Policy Tools: A User’s Guide

Assurance of Meeting Goals

Promotes Criterion: Trading can bring otherwise unregulated sources under control.

Impairs Criterion: Trading can result in “hot spots. ” Noncompliance is hard to detect because of interfirm

pollutant movement, unless monitoring is improved.

Pollution Prevention

Promotes Criterion: Trading can leave sources free to choose between

changes for emission reductions,

Impairs Criterion: Trading tends to focus on reductions in releases more

generated,

Environmental Equity and Justice

control equipment or process

than on reductions in pollution

Promotes Criterion; “Dirty” sources, which are often in poor/minority neighborhoods, are likely to find control cheaper than purchasing permits, since their incremental control costs may be lower than cleaner

sources.

Impairs Criterion: Trading distributes emissions according to market forces, not by an open administrative

process that allows community input, and might perpetuate an existing inequitable pollution distribution,

Cost-Effectiveness and Fairness to Sources

Promotes Criterion: Trading provides incentives for regulated entities to identify cheaper ways to control

emissions beyond their own “target.” Large cost savings might result from even limited use of trading,

if entities with the worst ratio of cost to environmental benefit participate.

Impairs Criterion: Estimated cost savings assume a heavy volume of trading, which has not occurred in

practice. “Grandfathering” as an initial permit allocation method can result in an inequitable distribution.

Demands on Government

Promotes Criterion: Trading reduces the need for government to identify control technologies.

Impairs Criterion: Agencies implementing trading have found increased workloads in the early stages of

implementation.

Adaptability

Promotes Criterion: Trading allows entities to adopt a new technology, so long as it meets emission requirements. Agencies can change aggregate emissions by not reissuing expired permits or by issuing

additional permits.

Impairs Criterion: Property rights raise questions about government’s ability to adapt the number of permits to changing circumstances.

Technology Innovation and Diffusion

Promotes Criterion: Trading fosters innovation, because a potential to reduce emissions below any individual source’s allocation has market value.

Impairs Criterion: Some economic models show trading is neutral or discourages innovation, because entities holding tradeable credits might not want their value diffused by new cheaper control technologies,

SOURCE: Office of Technology Assessment, 1995,
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 115

proaches by its configuration of the following key

elements:

 government establishes clear, measurable targets, either risk-based or technology-based,

with a timetable for implementation;

 the targets are defined for multiple sources,

usually at the industry sector or geographic level, rather than for individual facilities;

 these sources are given the collective responsibility for designing and implementing a program for meeting the targets; and

 government specifies a credible alternative

program or sanction, which will be imposed

should progress toward targets be unsatisfactory.

The shift in responsibility for program design

and implementation—toward the sources themselves and away from government—is the truly

distinguishing feature of challenge regulation.

With this responsibility, the group of sources also

accepts the costs and administrative burdens of

developing a program that will be effective in

meeting the targets. Challenge regulations are not

voluntary.

For the sources, a challenge regulation functions like a “meta-performance standard” (104)

for which a targeted group of sources has the flexibility to choose whatever means—not only technological, but institutional as well—they believe

would be best for meeting the target. Although the

sources may choose to adopt a familiar approach

such as design standards, they may also come up

with innovative or varied approaches, such as a

trading program or a fee system to meet the established targets. If allocation of responsibility for reductions in emissions or discharges is required,

the sources will have to determine how to make

those allocations themselves. The industry may

also decide to use the challenge to share information, technologies, or personnel to solve common

problems.

Under challenge regulation, a major governmental task is to set clear, measurable targets, either risk-based or technology-based, with a

timetable for implementation. These targets, combined with a reasonable compliance schedule and

specific monitoring protocols, may reduce some

of the uncertainty which sources have identified as

a barrier to investing in innovative solutions.

These targets would be defined for multiple

sources, typically for an industry sector, rather

than for individual facilities. However, multiple

sectors could also be challenged to meet goals.

Government also retains the responsibility and

authority to specify a credible alternative program

or sanction to be implemented should industry fail

to meet the targets within the specified timetable.

In addition, depending on the problem being addressed, the government might be involved in providing information, technical support, or other

assistance during the design and implementation

phases. Industry may seek clarification, for example, regarding the kinds of monitoring protocols

which will be acceptable to the government

agency for measuring progress toward the target.

Extent of Use

Challenge regulation has not yet been extensively

adopted by any country, although OTA has identified several programs with similar elements. In

the United States, the program most similar to a

challenge regulation is the 33/50 program

associated with the Toxics Release Inventory,

EPA’s annual measure of toxic chemicals, releases, transfers, and waste generated by manufacturing facilities. The major difference between

33/50 and OTA’s challenge regulation is the fact

that 33/50 is a voluntary program.

When announcing the 33/50 program, EPA

suggested that it was thinking about issuing regulations to control emissions but wanted to see how

far industry could go on its own. For 17 highpriority toxic chemicals, EPA backed the voluntary targets of 33 and 50 percent reductions in

emissions in 1992 and 1995 compared to a 1988

baseline, implying that the agency would issue

rules and regulations should industry fail. This is

similar to challenge, albeit a much softer “stick”

than the sanctions or alternative regulatory programs associated with a challenge regulation.

EPA’s Common Sense Initiative uses an industry-by-industry approach, similar to that used by
116 | Environmental Policy Tools: A User’s Guide

challenge regulation in some circumstances, and

relies on negotiations with industry and company

officials to determine feasible improvements for

environmental performance. This approach is

often used in European countries where the tradition of working closely with industry groups is

well established. In the United States, explicit

cooperation with industry has been more difficult

than in Western Europe, primarily because of conflict-of-interest concerns. EPA’s Common Sense

Initiative goes beyond its voluntary public-private

partnership approach by incorporating strong enforcement efforts into the agreement.

A number of other European nations, Canada,

and Japan, have also implemented programs with

some of the same elements of challenge regulation

for dealing with both process and product regulation. The most widespread use of challenge

approaches has been to establish producer responsibility for various forms of wastes to encourage

source reduction and recycling.

The most ambitious of these programs to date

has been Germany’s Green Dot program which incorporated all of the elements of challenge regulation. The federal government’s 1991 Packaging

Ordinance was enacted to reduce the volume of

packaging waste and improve the overall materials policy. The government established a regulatory approach outlining industries’ obligations to

take back packaging from customers. However,

the government then gave industries the opportunity to establish an alternative program of their

own for meeting the targeted rates. In addition to

shifting the responsibility for source reduction

and recycling of packaging materials to the industries producing the materials, the government required them to develop a system for handling the

materials entirely separately from the existing

public solid waste system. The industries cooperated to establish the Green Dot program based on

an industry-imposed fee system to support and

manage the recycling system. In addition, firms

began to work internally as well to reduce the

quantity of disposable packaging (53).

The German program has experienced a number of difficulties and been widely criticized (53).

For example, the very short timetable for industries to comply and the stringent recycling targets

may have contributed to an emphasis by industry

on recycling rather than source reduction. The industries also underestimated the costs of managing such a recycling effort, resulting in the threat

of bankruptcy of the Green Dot program. In addition, some companies printed the green dot label

on their products, indicating they were participating in the program and had paid their fee when, in

fact, they were free riders. According to Inform,

about 90 percent of the packaging carried green

dots but fees were only paid for about 50 to 60 percent of the packaging.

The Netherlands’ National Environmental

Policy Plan (NEPP), initiated in 1989 and revised

in 1993, is implemented in part using elements

similar to challenge regulation. The Dutch government adopts medium- and long-range measurable targets and timeframes (usually between five

and 15 years) and identifies the industry sectors or

firms responsible for changes. It then asks these

targeted sources—usually industry sectors—to

develop implementation strategies for solving

problems, and enforces the targets and timeframes.

The national government usually negotiates

with industry groups, and often with larger individual firms, to establish the implementation

plans for meeting targets. These plans are then formalized through covenants or formal, written

agreements between government and industry.

The purpose of these agreements is to allow some

flexibility for learning and experimentation.

However, even though the approach begins as a

“voluntary” agreement, the negotiated covenant is

typically enacted into law to increase the dependability of the agreements. In addition, industry

must comply with local authorities’ licensing and

permitting requirements until the covenant provisions can be incorporated into the local requirements.

The Netherlands’ use of target groups—such as

agriculture, traffic and transport, and refineries—

as the basis for implementing emission reductions

is similar in concept to the EPA’s Common Sense
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 117

Initiative described above. Within these larger target groups, the Dutch identify subgroups that they

characterize as heterogeneous or homogeneous

industries, according to industry characteristics.

The printing industry, for example, is considered

homogeneous in terms of process technologies;

thus a fixed target can be set for the entire industry

and a plan for reaching the goal worked out and

signed with the entire group of sources. In contrast, the chemicals industry, which is more heterogeneous, requires that the government negotiate

on a firm-by-firm basis to develop implementation plans for meeting a particular target and timetable.

Transferring the European experiences to the

United States would require some caution. For example, the small size of the Netherlands, the relatively few large companies, the substantial

membership in trade associations, and most important, the tradition of “corporatism” or acknowledged cooperation between government

and those with the expertise and a clear stake in

policy development, are quite different from the

United States. In addition, it is too early to be sure

that the Dutch NEPP approach has been completely successful (39). Like the United States, the

Dutch are struggling to find the best way to involve localities in defining an acceptable covenant with industry when programs are being

developed to meet national targets. Existing permits and licenses at the local level, for example,

continue to take priority over covenant agreements until they can be reconciled as they come up

for renewal or can be revised. In addition, the scale

of the Dutch experiment may make it less reliable

as a benchmark for the United States. Nonetheless, as with the German Green Dot experiment,

much can be learned from the experiences of other

countries in using challenges to sources as an

instrument for meeting environmental goals.

Key Criteria Affecting Tool Selection

Environmental equity and justice

Since industry is responsible for designing and

implementing the program, there is no guarantee

that distributional concerns about the effects of

pollution will be adequately considered. Thus,

challenge regulation must be used with care for reducing pollutants or solving other problems for

which exposures vary widely across locations.

The outcome, of course, depends on the approach

actually chosen by the affected industry. If the

chosen approach relies on emissions trading or

pollution charges, then the cautions identified for

each of these instruments would apply. If the affected industry opted for a program employing the

single-source tools described earlier, the outcome

with respect to environmental justice would be

about average.

However, use of a challenge regulation approach may have a potentially adverse effect on

economically disadvantaged and minority communities’ ability to shape environmental policy

outcomes. While the goal and deadlines set by the

government would be subject to notice and public

comment, what industry chooses as the means to

reach those goals and deadlines generally would

not be.

Cost-effectiveness and fairness

The major advantage of challenge regulation is

that it shifts the responsibility for designing and

implementing programs to a group of sources—

that is, to the individuals, firms, and networks—

with the expertise and experience to develop the

most cost-effective ways to meet environmental

goals. Challenge regulation creates flexibility

both in terms of scheduling and the means of

meeting ultimate targets. This flexibility allows

industry to change those sources and methods

with the least expensive abatement costs, and to

experiment with process changes that might have

a high payoff in performance and lower costs.

By emphasizing negotiation and bargaining

among firms within an industry rather than adversarial contacts between government and industry,

challenge regulation is likely to reduce overall

transaction costs as well. Although the costs for

industry are likely to increase for planning and

coordination of the program, presumably the costs

of implementation will be cheaper than had the

government imposed a program on firms—or at
118 | Environmental Policy Tools: A User’s Guide

the least, firms would have been given the opportunity to design a more cost-effective program, if

possible. In addition, the overall administrative

costs may actually be lower because there are fewer opportunities to participate in rulemaking procedures.

In any case, industry is likely to believe that it

can design a program that would be better than any

alternative regulatory program government

would develop. Limited experience with the challenge approach makes it difficult to know whether

or not this will always be true.

In terms of fairness, industry groups could be

expected to prefer having control over determining how to meet targets rather than allowing government to direct their activities. However,

competition among firms may sometimes make it

difficult to satisfy all of the firms who have responsibility for meeting the targets, no matter how

fairly the targeted group tries to be in allocating responsibilities.

Demands on government

The overall demands on government for implementing challenge regulations may be less than

for programs using approaches such as source-bysource standards, because the role for government

narrows to one of assistance, oversight, and enforcement. Also, government agencies generally

would not be required to submit the proposed

means of achieving goals to public notice and

comment, thereby making their administrative

costs lower.

However, the agency must design an alternative regulatory program or sanctions to be used

should industry fail to meet its targets. In addition,

developing capacity for implementing challenge

regulations may require reorientation of personnel

toward such skills as providing technical support

and assistance, and negotiation and bargaining.

The agency would continue its enforcement efforts and devote more resources to developing

monitoring and information reporting data systems, and inspection and compliance regimes.

Adaptability

Another potential advantage of challenge regulation is that if industry so chooses, it can make its

approach more adaptable to new information or

technologies. Rather than waiting for EPA or state

agencies to recognize new technologies or approve process changes, industry could choose to

design a program with some flexibility for experimenting and identifying new opportunities for improvements.

Given the lack of experience in implementing

challenge regulations, it is difficult to know what

kinds of programs industry would choose. It is

possible that an industry would develop a very

flexible program that could adapt easily to changing scientific and technological information. It is

also possible that industry would put in place a

program that guarantees a relatively high level of

certainty to firms regarding what they have to accomplish in order for industry to meet the targets

on schedule. Once a structured program is place—

whether it is a parallel waste system like that set up

under the Green Dot program, a technology-based

design standard, or an allocation of emission reductions for each firm—industries may find it just

as difficult to adapt to new information as they

would had government imposed the program.

Technology innovation and diffusion

Although challenge regulation will not force innovation or diffusion of technologies, it does offer

industry an opportunity to reduce some of the barriers to those activities. For many firms, the most

crucial barrier to incremental innovations, which

are so important for firm competitiveness and

profitability, is a delay in implementation caused

by external factors such as the need to obtain permit revisions or waivers.

Another advantage of challenge regulation is

that it can result in firms within an industry organizing in the manner they believe the most effective in reaching the goals. In the chemicals

industry, for example, firms may want to hold

process technologies closely rather than dissemi-
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 119

nate corporate information. However, through a

trade association like the Chemical Manufacturers’ Association, industries may be able to share

information about control technologies or best

practices.

TOOLS WITHOUT FIXED POLLUTION

REDUCTION TARGETS

A second major category of environmental policy

tools encourages pollution prevention and control

without setting specific emissions control requirements.

Some of these instruments are non-regulatory

in nature, while others require a particular action,

such as payment per unit of emissions or an emissions report. Note that even the regulatory tools in

this category require something other than a specific level of pollution prevention or control.

Tools that encourage environmentally sound behavior fall into two groups: 1) tools that make it

easier or less expensive to lower pollution by providing knowledge or financial assistance, and 2)

tools that raise the financial stakes of continuing

to behave in environmentally harmful ways.

Tools that increase the cost of environmentally

harmful behavior include pollution charges, information reporting, and liability. These tools are

based on the assumption that sources will emit

less if their pollution costs them something, either

as direct payments to an agency or harmed parties

or indirectly in terms of reputation.

Tools that encourage facilities to prevent or

control pollution include subsidies and technical

assistance. Both approaches assume that sources

will be willing to change once they know of the

benefits of alternative types of behavior, and are

more likely to change if the expense is at least partially offset by others.

❚ Pollution Charges

With pollution charges, a regulated entity is required to pay a fixed dollar amount for each unit of

pollution emitted or disposed; these charges may,

to some extent, be considered the “price” to be

paid for pollution. Pollution charges do not set a

limit on emissions or production. Instead, the government must calculate what level of charge will

change the behavior of regulated entities enough

to achieve environmental objectives. Sources are

free to choose whether to emit pollution and pay

the charge, or to pay for the installation of controls

to reduce emissions subject to the charge. When

used as a policy instrument, pollution charges are

set at a sufficiently high level to provide significant financial incentives to reduce or even eliminate environmentally harmful behavior.

Pollution charges raise revenue that can be used

to operate the program or go to general revenues.

Pollution charges are used widely as a revenueraising instrument, set at a level adequate to help

fund regulatory programs but too low to significantly change behavior. This OTA assessment is

not focusing on pollution charges designed only to

generate program revenue.

Much of the economic literature focuses on the

potential of pollution charges to send accurate signals to entities about the cost of using the environment’s capacity to assimilate waste and to force

entities to pay for the full societal costs of their

pollution—“internalizing the externalities,” in

economic jargon. However, setting a pollution

charge at a level that accurately reflects full societal costs—neither higher or lower—is probably

impractical because of the enormous analytical

and data requirements required.

In order to act as an incentive, pollution charges

must vary according to the amount of pollution

produced. Such variation can provide a direct incentive for sources to cut back on their emissions

and waste. Flat rate structures provide little incentive to reduce pollution. For example, a uniform

solid waste disposal fee per household that is unrelated to the amount generated does not provide

an incentive to reduce waste.

Extent of Use

Pollution charges set at a level sufficient to change

behavior are not often used in the United States,

except for solid waste management. They are

widely used to generate program revenue in Europe and, to an increasing extent, in the United

States.
120 Environmental Policy Tools: A User’s Guide

Assurance of Meeting Goals

Promotes criterion: The “credible threat” component provides a basis for mandatory compliance at a later

date if industries do not cooperate. Challenge regulation has the potential to promote a less adversarial

style among interested parties,

Impairs criterion: Allowing industry temporary discretion risks “lost time” toward achieving environmental

goals if they fail.

Pollution Prevention

Promotes criterion: Challenge regulation leaves sources free to choose between control equipment or

process changes for emission reductions.

Impairs criterion: Challenge regulation provides no particular incentive to prefer reductions in pollution

generated over abatement technologies.

Environmental Equity and Justice

Impairs criterion: Challenge regulation does not provide the kinds of explicit mechanisms for third-party

participation in decisionmaking that other regulatory tools do provide.

Cost-Effectiveness and Fairness to Sources

Promotes criterion: Challenge regulation provides opportunity for industries to find interfirm solutions and

lowest control cost. It allows interfirm negotiation on the means for accomplishing goals in a way the

firms believe is fair.

Impairs criterion: Industries may not pursue cost-effective approaches as diligently as individual firms

might. Some firms, especially small ones, may not believe they are treated fairly by dominant firms in

their industry.

Demands on Government

Promotes criterion: Personnel can be directed towards providing technical support and assistance, Resources and time previously required for rulemaking under the Administrative Procedures Act are reduced.

Impairs criterion: Initial efforts to implement challenge regulations maybe difficult, Government must invest resources in designing an alternative program as a backstop should industry fail to meet goals by

the deadline.

Adaptability

Promotes criterion: Industries can adjust their strategies more quickly to new information than can government agencies. Industry expertise and networks are attuned to anticipating changes or new opportunities.

Technology Innovation and Diffusion

Promotes criterion: AIlowing or encouraging industry collaboration may facilitate technology innovation or

diffusion.

Impairs criterion: Challenge regulation may require changes in antitrust rules to allow collaboration among

firms.

SOURCE Office of Technology Assessment, 1995.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 121

Pollution charges are most often used in the

United States for collection and disposal of commercial, industrial, and household waste. Commercial and industrial sources typically pay

charges that rise as waste volume rises, while most

households face flat fee schedules unrelated to the

amount of waste generated. Volume-based

charges are becoming more common for household waste. In approximately 100 jurisdictions,

charges for waste collection are based on volume,

rather than a fixed price per month. Charges are

typically levied by subscription for a specific

number of containers, or by stickers that must be

placed on any bag left for pickup. Lubricating oils,

lead-acid batteries, and car hulks have been proposed as possible candidates for user charges in

the United States.

Pollution charges are used less commonly under the Clean Water Act. Charges for National

Pollutant Discharge Elimination System

(NPDES) permits are typically set at a level intended to raise program revenue and not to provide a significant incentive to reduce emissions.

Publicly owned treatment works (POTWs) charge

fees for industrial facilities and households that

discharge into their systems. The charge for industrial sources may be based on the types and

amounts of pollutants present or on volume. Generally, only larger sources pay pollutant-based

charges, because of high monitoring costs (29).

In 1992, the New York legislature considered

Senate Bill 1081, which would have established a

pollution charge program for point sources of water pollution. The program was intended to

achieve defined goals for the reduction of pollutant loadings, and not to meet a budget-based revenue target. The bill proposed a charge schedule

with rates based on toxicity, quantity, and heat

content. The pollution charge would be adjusted

for inflation annually and would automatically increase by 25 percent if the environmental goals

were not achieved by a specified date (151). The

bill was not enacted; however, interest in pollution

charges appears to be growing.

Air emission charges most often are set at a level designed to recover administrative costs of state

air quality programs, rather than to provide a significant incentive for sources to reduce their emissions. The South Coast Air Quality Management

District in the Los Angeles area has what may be

the highest air emissions fees in the country.25

Annual permit fees for the largest sources can

amount to $2 million or more, an amount likely to

attract attention of source managers. However, a

source’s ability to respond to the pollution fee incentive is limited in the SCAQMD jurisdiction

because the incremental control costs for most

sources in the region are so high (29).

The Clean Air Act Amendments of 1990 provided for a variety of pollution charges. Most of

these, such as the permit charge of $25 per ton of

regulated pollutants, are designed to recover administrative costs. Another provision requires

sources in extreme ozone nonattainment areas—

currently only the SCAQMD area—not attaining

standards by 2010 to pay emission charges of

$5,000 per ton (adjusted for inflation) for each ton

of VOC emitted that exceeds 80 percent of a baseline quantity (236). Depending on the cost of incremental emission controls, such a charge might

provide a significant incentive to reduce emissions. Pollution charges are also specifically authorized under the Economic Incentive Program

Rules (234).

The charge on CFCs appears to be set at a level

sufficient to cause change in target entities’ behavior (193). During the CFC phaseout period beginning in 1990, users must pay a charge per pound of

CFCs, multiplied by an ozone depleting factor.26

25 Major sources (emitting over 75 tons per year) must pay $596 per ton for organic gases, $343 per ton for nitrogen oxides, $413 per ton for

sulfur oxides, and $456 per ton for particulate matter. A. Carlin, The United States Experience with Economic Incentives to Control Environmental Pollution, EPA-230-R-92-001(Washington, DC: July 1992).

26 The tax began in 1990 at $1.37 per pound, was increased to $3.35 per pound in 1993 and to $4.35 in 1994, and is scheduled to increase to

$5.35 in 1995.
122 | Environmental Policy Tools: A User’s Guide

By the end of 1991, CFC production was down to

60 percent of 1986 production levels. This decline

in CFC use is a much more rapid phasedown than

originally anticipated. The role of the CFC tax in

this decline in use is believed to be extensive, particularly in industrial sectors where the CFC cost

is itself the major cost factor (193).

Pollution charges are used more frequently in

Europe than in the United States. The Organisation for Economic Cooperation and Development

(OECD) reports that member countries are using

emission fees to address a variety of air pollutants,

primarily SO2 and NOx, as well as household or

industrial waste and hazardous waste. For example, Sweden has placed charges on NOx emissions, in order to speed up compliance with new

emission guidelines to be imposed in 1995.

Charges are levied on the actual emissions of heat

and power producers with a capacity of over 10

MW and production exceeding 50 GWh. The fees

are then rebated to the facilities subject to the

charge, but on the basis of their energy production.

Thus funds are redistributed between high- and

low-emitting facilities. In 1992 the actual emissions reduction was between 30 and 40 percent,

exceeding the predicted 20 to 25 percent reduction. Several OECD member countries are also levying a pollution charge on landfilled and

incinerated wastes, as well as experimenting with

pay-per-bag systems.

Key Criteria Affecting Tool Selection

Assurance of meeting goals

Pollution charges do not dictate with certainty

how much control will occur. Firms can choose to

pay the charge for emissions or to control emissions; their decision depends on the specifics of

their own situation.

The degree of assurance strongly depends on

how accurately an agency has set the fee. For a fee

to be set at a level to achieve a particular environmental goal, an agency would need detailed information about targeted entities’ internal

economics and control costs in order to predict

firms’ pollution control strategies, and must understand the relationship between emissions,

health effects, and the environmental goal. As a

result, agencies would probably set a charge level

believed to be roughly high enough to achieve

program objectives, with the expectation that the

fee would be adjusted as monitoring and other

data indicate is desirable. The more approximate

the fee level, the lower the degree of assurance.

The ability of pollution charges to achieve environmental goals also is influenced by many of

the same issues affecting other policy instruments. First, target entities do not always react to

economic incentives or potential noncompliance

penalties the way economists predict that rational

economic actors will behave (224).

Second, monitoring emissions of the relevant

pollutant must be easy to do and hard to circumvent. If emissions are hard to monitor, some emissions will go untaxed and the incentive to install

pollution control technologies will be reduced. If

emissions monitoring is easy to circumvent, some

sources might choose to control less and avoid

additional charges via inaccurately recorded emissions. Similarly, incentives for illegal dumping

might be created if the pollution fee was imposed

at the point of disposal rather than automatically at

an earlier point of the product manufacturing, use,

and disposal chain (40). It is important to remember that unpredictable responses and compliance

avoidance are hardly unique to pollution charges.

No empirical data are available on the effects of

pollution charges on air or water emissions or environmental quality. The pollution control literature does not discuss actual experience of

commercial and industrial waste generator responses to varying charges for hazardous waste

(29). Some data are available for the effects of

pollution charges on solid waste collection and

disposal. As illustrated by table 3-5, pollution

charges based on volume of waste collected and

disposed appear to create a significant incentive to

reduce waste.

Environmental equity and justice

Pollution charges may have a potentially adverse

effect on economically disadvantaged and minority communities’ ability to shape environmental
Chapter 3 Congress’ Environmental Policy Toolbox: A Review 123

Program Type of fee Type of pollutant Nature of “data” Environmental results

High Bridge, NJ Emissions (pay-per-bag) Solid waste Empirical 24% reduction in tonnagea

Perkasie, PA Emissions (pay-per-bag) Solid waste Empirical 50% reduction in tonnage;

30% increase in recycling

Seattle, WA Emissions (pay-per-bag) Solid waste Empirical 20% reduction in tonnagec

a L. Lave and H. Gruenspecht, “Increasing the Efficiency and Effectiveness of Environmental Decisions: Benefit-Cost Analysis and Effluent Fees”, 41

Journal of Air and Waste Management 680,690 (May 1991).

bA. Carlin, "The United States Experience With Economic Incentives to Control Environmental pollution” (EPA Doc. No. EPA-230-R-92-001 , July 1992)

at 3-3.

at 3-3

SOURCE: Off Ice of Technology Assessment, 1995.

policy outcomes. While the regulatory decision of

what the fee level is set at is likely to be subject to

public notice and comment, a facility’s decision

about its emission levels would not be. Thus,

pollution charges might lessen the opportunity for

communities to voice their views and potentially

affect emission levels.

Technology innovation and diffusion

Pollution charges, like emissions trading, allow

firms enormous flexibility in deciding the level

and means of emissions control. Pollution charges

can create a continuing internal incentive to develop cheaper and more effective ways of controlling

pollution so as to reduce the size of the charge payable. However, because pollution charges are not

widely used, little actual data exists regarding

their effects on technology innovation.

Pollution charges levied on polluting inputs

may provide an incentive to develop safer new

products or less harmful substitutes, as well as

raise product price, which reduces the amount demanded (193). Similarly, increased charges for

collection and disposal of household solid waste

might lead to new types of consumer products

packaging that create less waste.

❚ Liability Provisions

Liability provisions require those entities undertaking activities that impose pollution or other environmental harms on others to pay those who are

harmed to the extent of the damage. Liability can

provide entities with a significant motivation for

environmentally sound behavior because the dollar amounts involved can be huge. Liability is imposed two ways: 1) by common-law theories like

negligence or nuisance, or 2) by statute, such as in

the Comprehensive Environmental Response,

Compensation and Liability Act (CERCLA).

Liability provisions are different from enforcement. Liability compensates those who are

harmed, while enforcement penalties and incarceration discourage and punish noncompliance.

Liability as a policy tool may vary widely, depending on the specifics of a program. Some

forms of liability arise only if an entity is shown to

be "negligent,” that is, as not having exercised reasonable care in its activities. Alternatively, liability might be “strict,” where one who engages in an

activity that causes a harm is liable even if shown

to have used reasonable care. Federal environmental statutes most often contain strict liability

provisions. For either type of liability, a successful claim typically requires an established causal

link between the harm and the pollution, which

has been traced back to its source. Claimants

might be parties seeking reimbursement for remediating a pollution problem, or injured parties, or

any member of a group specified in the statute establishing a liability system. Forums where liabil-
124 Environmental Policy Tools: A User’s Guide

Assurance of Meeting Goals

Promotes criterion: Charges provide incentives to control emissions beyond their own “target.”

Impairs criterion: Charges do not dictate with certainty the level of pollution control.

Pollution Prevention

Promotes criterion: Charges leave sources free to choose between control equipment or process changes

for emission reductions.

Impairs criterion: Charges provide no particular incentive to prefer reductions in pollution generated over

abatement technologies.

Environmental Equity and Justice

Promotes criterion: Charges can provide revenues for offsetting disproportional negative environmental

impacts.

Impairs criterion: Charges set emissions levels and distribution according to market forces, not open administrative processes. Uniform charges do not address “hot spots. ”

Cost-Effectiveness and Fairness to Sources

Promotes criterion: Charges set a uniform upper bound on control costs. Economically rational entities will

achieve a target level of emissions at least cost.

Impairs criterion: Once an environmental goal is reached, entities still must pay for emissions.

Demands on Government

Promotes criterion: Once set, charges can be simple to administer, particularly if charges are uniform.

Charges can generate revenue for administration and other public purposes.

Impairs criterion: Setting charges at level calculated to achieve a particular emission reduction goal is

analytically burdensome and data-intensive. Charges may require ongoing “finetuning” to get desired

pollution abatement level.

Adaptability

Promotes criterion: Entities are free to adopt new technologies.

Impairs criterion: Pollution charges are subject to time-consuming public notice-and-comment procedures required under the Administrative Procedures Act.

Technology Innovation and Diffusion

Promotes criterion: Charges provide a continuing incentive to innovate, as a way of reducing the size of

the charge, and provide considerable flexibility as to control techniques.

SOURCE: Office of Technology Assessment, 1995.

ity claims might be asserted include government posal practices specified in a permit. Statutes can

administrative proceedings, private claims dis- authorize retroactive liability, as did CERCLA for

bursement processes, and courts. wastes disposed prior to its enactment. Also, comA facility is not insulated from future liability men-law claims might be successful even where

even if in full compliance with today’s regulatory an entity was fully in compliance and a statute exrequirements, including discharge limits or dis- empted permitted discharges from its liability
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 125

scheme. Potentially enormous financial exposure

could encourage entities to reduce their use, generation, emission, and disposal of hazardous substances or other pollutants, and to implement

controls and safety procedures beyond those required by direct regulation. Liability also may

provide incentives for environmental auditing and

other self-appraisals, in order to gauge the potential financial exposure and correct problems before they grow.

Like most policy tools, liability is an effective

incentive for environmentally beneficial behavior

only to the degree liability impacts the decisionmaker. Factors that might affect such incentives

include whether decisionmakers bear responsibility within their organizations for their decisions, if

it is foreseeable that others might be harmed, the

time lag between managerial decisions and

eventual lawsuits, and the extent insurance protects the organization from the effects of liability

(120,162). The likelihood of being held liable is

also affected by whether the contamination is

traceable back to its source, if impacts are sufficiently concentrated to make a claim worthwhile

to the injured party, and if the contamination

stems from one or multiple sources.

This OTA assessment is focusing on liability

provisions established by statute and not upon

common-law foundations. However, the policymaker establishing statutory liability should consider how those provisions interact with the

common-law system. For example, should the

statutory scheme preempt, supplement, or coexist

with common-law claims?

Extent of Use

CERCLA or Superfund is an example of strict retroactive liability that can cost millions if an entity

is found liable for a Superfund site cleanup. Under

CERCLA, governments may collect cleanup

costs and the value of damages to natural resources from any or all waste producers27 that

used a particular site, entities that arranged for

waste disposal or treatment, those who transported waste to the site, and present and past

“owners or operators” of the site (248). Private individuals also can sue to recover cleanup costs;

however, liability is restricted to damages to publicly owned or controlled natural resources and

does not include harm to private parties. As a result, claims for private property damage or personal injury cannot be brought under CERCLA.

As of 1994, the average cost of cleaning up a Superfund site was approximately $30 million.

Other federal statutes address harm to private

parties and impose liability on entities that have

caused the harm. For example, entities that spill

petroleum into surface waters are strictly liable

under the Oil Pollution Act (OPA) for cleanup,

natural resource damages, and third party damages caused by the spill (244,253). The OPA

places limits on liability. However, these limits

probably do little to impair incentives for environmental compliance, because the liability limits are

so high and can be overcome by a showing that a

release resulted from violation of a safety or operating standard. In addition, the OPA does not preempt states from imposing more stringent liability

schemes.

The Clean Water Act (CWA) makes responsible parties liable for cleanup costs for a spill of

hazardous substances into surface waters. Liability is capped at $50 million unless the discharge

was the result of willful negligence or willful misconduct (245). The CWA does not preempt stricter

state liability provisions.

Liability costs, therefore, can be extremely

large under the CWA and the OPA, as illustrated

by Exxon’s experience following a large oil tanker

spill into Prince William Sound in Alaska in

March 1989. As of September 1994, Exxon had

already spent $3.4 billion to clean up the spill and

settle federal and state suits for cleanup reimbursement and natural resource damages. In addi27 This type of liability is known as “joint and several,” where each party who contributed to the problem is responsible for the entire cost of

cleanup, and not just its proportionate share.
126 | Environmental Policy Tools: A User’s Guide

tion, a jury awarded $5 billion to Native Alaskans

and fisherman for third party damages—roughly

equivalent to a year’s worth of Exxon profits.28

CERCLA, CWA, and OPA all contain defenses

to liability, which if applicable could allow the

source of a pollution emission to avoid responsibility for reimbursement and compensation to injured parties. These defenses apply only in narrow

circumstances. Liability is avoided only if the

source can prove that an emission was caused

solely by an act of God, an act of war, an act or

omission by a third party, or (under the CWA only)

negligence on the part of the U.S. government.

Key Criteria Affecting Tool Selection

Pollution prevention

Liability probably provides a moderate incentive

for entities to practice pollution prevention. Data

on actual effects are lacking, however.

When effectively implemented, liability

creates an incentive to reduce pollution. Firms

theoretically will seek out pollution reductions

wherever they are cheapest. Thus, like many other

instruments, whether liability results in pollution

prevention or control will vary from site to site,

depending on the relative costs of different pollution reduction strategies.

However, liability might offer encouragement

for pollution prevention if available end-of-thepipe solutions result in residuals that could become a source of future, retroactive liability. In

such a situation, entities have an incentive to prevent pollution in the first place rather than risk potential future liability.

Demands on government

Liability imposes demands on government in essentially two contexts: as a claimant seeking compensation, and as operator of the court or

administrative system through which claims are

made.

The government is often in a position to claim

compensation for cleanup costs and natural resource damages. The likelihood of collecting depends in part on the government resources

expended pursuing claims and administering the

liability program. The more resources expended,

the more likely it is that a claimant will establish

the required elements of a successful claim. Anecdotal evidence indicates that some types of successful claims can be very expensive to make.

Causality—that the injury is caused by pollution that comes from actions of a particular entity—can be particularly difficult and expensive to

prove for some kinds of damages. Linking pollution with cleanup costs or with injuries to natural

resources may not be that difficult in circumstances where the pollution is traceable. Identifying the source may be difficult if pollutants are

broadly dispersed, or if the damage is believed to

come from diffuse mass exposure with a long latency risk.

While scientific developments in the last 30

years have shown convincingly that man-made

pollutants can cause serious health and environmental problems, conclusions are often expressed

as statistically likely cancers per number of population. As a result, it is still very difficult to

conclusively demonstrate that a particular individual’s harms stem from a particular exposure.

Assessing the extent of damages also can be administratively expensive, sometimes exceeding

the extent of damages themselves. For example, a

study of the December 1985 Arco Anchorage

crude oil spill of 5,700 barrels could detect damages of only $31,930, while assessment costs

amounted to about $245,000 (69,219). Other

types of damage, such as cleanup costs, should

prove simpler to demonstrate provided that good

accounting records were kept during the remediation operation.

Several environmental statutes have adopted liability provisions that help reduce the costs of

28 As of this writing, Exxon is preparing an appeal. “Long Shadow of the Exxon Valdez,” New York Times, p. A22, Sept. 21, 1994.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 127

making claims and administering the liability regime. For example, strict liability means that the

proponent of a claim does not need to demonstrate

the defendant entity was negligent, or failed to

take adequate precautions. Some statutes spell out

a method of calculating damages for which parties

are liable, relieving the forum in which claims are

made from having to develop such a methodology. Some require entities that admit to causing the

pollution to establish private claims procedures,

reducing or eliminating court or other costs of

making a claim. And joint and several liability

provisions —where all contributing parties are liable for the whole damage, not just for the portion

they actually caused—relieve claimants from

having to prove which of several entities caused

what pollution. These and similar techniques may

help to lower the costs of successfully bringing a

claim.

Proponents of liability as an environmental

policy tool stress that in theory liability systems

can be administratively inexpensive to administer

because they might rely on the existing court system, thereby avoiding the need for institution

building. Furthermore, proponents argue that liability systems are administratively less expensive than other regulatory approaches where the

probability of harmful emissions is low, since they

need only come into play when damage occurs.

Without damage, the only administrative costs of

liability are those to add such provisions to a statute. It is unclear whether, on balance, the savings

from having to deal with only those harms that occur outweigh the high costs of pursuing a claim.

Adaptability

A liability program is unlikely to require reformulation in the event of new technologies or

scientific discoveries. The results of such a program may change, however. For example, scientific discoveries may give rise to new perceived

harms and more claims. Or new scientific data

might indicate that effects previously believed to

be harmful do not in fact occur. Improved monitoring could expand the class of individuals exposed to previously undetected pollutants. And

new pollution abatement technologies might

change the standard of care an entity must meet to

avoid liability, or to be protected by statutory strict

liability caps.

Prolonged inflation or a change in economic

circumstances might require a modification of the

program’s liability limits, if the compensation

dollar amounts begin to look insignificant in light

of potential profits from the polluting activity.

❚ Information Reporting

Information reporting is a regulatory instrument

that requires firms to provide specified types of information, either to a government agency or to the

public directly. Required information typically involves activities affecting environmental quality,

such as emissions, product characteristics, or ambient environmental data.

Information reporting programs fall into three

basic categories: 1) required emissions reporting

to the government for compliance and enforcement purposes; 2) reporting to the government to

help both government and polluters better understand and respond to problems; and 3) informing

the public of human health risks or environmental

consequences posed by a firm’s products or activities. These categories are not necessarily exclusive and in many cases a program designed to

meet one of the objectives may also meet another.

While information reporting for compliance and

enforcement is common for environmental

protection purposes, we are not focusing on it in

this assessment. Instead, this analysis looks closely at information reporting for public use and for

government and industry understanding of problems.

Information reporting for public use is based on

the theory that disclosure of polluting activities by

firms will raise public concern; it is then assumed

that firms will change their behavior, when possible, to directly respond to the public’s concern.

Although changes in pollution practices are not

made mandatory by these right-to-know laws,

firms face a variety of motivations to reduce pollution. These include the desire to be good neighbors and responsible corporate citizens, as well as
128 Environmental Policy Tools: A User’s Guide

Assurance of Meeting Goals

Promotes criterion: Liability poses an incentive to reduce pollution, in order to avoid paying potentially

large sums to injured parties.

Impairs criterion: Liability does not prohibit pollution by itself, but merely requires compensating those

harmed, Establishing the degree of harm and chain of causation can be very complex, particularly if

harm develops over many years.

Pollution Prevention

Promotes criterion: An entity has incentive to prevent pollution, because it maybe liable in the future even

if in compliance with permit control requirements now.

Impairs criterion: Liability does not require pollution prevention.

Environmental Equity and Justice

Promotes criterion: Liability provides an opportunity for those who are harmed by emissions to seek compensation and cleanup of the problem.

Impairs criterion: Those harmed do not receive compensation unless they first expend resources to assert

and prove a claim, which can be expensive and out of reach of many low-income people.

Cost-Effectiveness and Fairness to Sources

Promotes criterion: Liability is fair because entities are required to bear the costs of their emissions, even if

those emissions are allowed under a permit.

Impairs criterion: Compensation occurs only after injured parties successfully establish claim for recovery, i.e., expend resources (which may or may not be available). A significant share of compensation

may go to each party’s lawyers and experts, rather than to those harmed. Strict liability can be unfair,

because it need not acknowledge prior and ongoing pollution control activities.

Demands on Government

Promotes criterion: Liability programs might have low administrative costs, because they need come into

play only when damage occurs.

Impairs criterion: Administrative resources needed to prove all elements of liability can be high. Determining the extent of damages can be very expensive, sometimes exceeding the cost of the damages

themselves.

Adaptability

Promotes criterion: Sources are free to control pollution as they wish. Because liability can be retroactive,

new scientific discoveries and priorities are readily accommodated.

Technology Innovation and Diffusion

Promotes criterion: Liability is probably neutral with regards to technology innovation.

Impairs criterion; Entities that develop innovative control and remediation equipment might curtail their

activities, if they perceive themselves as a potential target for liability claims.

SOURCE: Office of Technology Assessment, 1995,
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 129

fear of adverse publicity or loss of sales. In addition, the public’s heightened awareness of polluting activities due to information disclosure

increases the possibility of regulatory agencies establishing stricter or more comprehensive regulatory requirements, another incentive for firms to

pursue more proactive pollution reductions. For

example, California’s Air Toxics “Hot Spots” Information and Assessment Act set up a toxics reporting program that required facilities to identify

potential health risks posed by emissions. The

“Hot Spots” Act was amended five years after implementation. Instead of simply reporting risks,

owners of “significant risk” facilities are now required to reduce the risk posed by toxics below the

state-determined level of significance.

The appropriate form and extent of public information is part of an ongoing debate among

those concerned with risk communication and the

public’s right to know. Some stakeholders, especially industry, are concerned with the public’s

perception of disclosed information, especially of

raw emissions data such as pounds of pollutants

per year. In these cases, the possibility for misunderstanding the actual risk related to exposure is

high. However, translating emission data into possible impacts on human health and the environment increases the cost (burden) on industry. And

as more kinds of information reporting are required, the risk of information overload is high.

Too much information may dilute the intended

impact on the public, either by confusing the important elements or by minimizing the impact of

any warning because it simply becomes one of

many.

Information reporting programs can be characterized by the method and extent of information

dissemination. The more accessible the information, the more likely it is that the program will

inform the public, raising awareness of environmental or health factors and possibly assisting in

better decisionmaking. Some programs, such as

the federal Toxics Release Inventory (TRI), require the government to actively distribute information, including access to the data in printed

and computerized form. In contrast, in an earlier

program, New Jersey’s Community Right-to

Know Act of 1984, industry emissions data is

available to the public, but citizens are required to

submit written requests in order to acquire the desired information.

Another aspect of information reporting is who

should be responsible for its generation and distribution. Government agencies have long been

involved in information collection and distribution. The value of the information for government

and public use depends on how often the industries are required to submit emissions release information, the accuracy of the information, and

the timeliness with which the data are made available.29 Current programs vary as directed by regulation or legislative mandate, although reports are

most frequently required annually. Regular reporting requirements are also useful over a given

time period in order to better track changes.

Concern about trade secrets and confidentiality

is another aspect of information reporting that influences the use and effectiveness of a program.

Government agencies are sensitive to business

concerns in these matters and try to include flexibility in some programs in order to diminish possible negative impacts from disclosure. However,

the firm or industry is typically responsible for

proving the need for confidentiality in reported

data.

The effectiveness of information reporting programs is particularly difficult to evaluate due to

the difficulties of isolating a firm’s exact motivation for changing its polluting behavior. Typically,

29 The data made available through information reporting may support efforts to enact new legislation, develop pollution prevention and

reduction strategies, and adopt new enforcement strategies. TRI data has also been found to help state agencies manage their own environmental programs. S.G. Hadden, A Citizen’s Right To Know: Risk Communication and Public Policy (Boulder, CO: Westview Press, 1989); National

Academy of Public Administration, The Environment Goes to Market: The Implementation of Economic Incentives for Pollution Control

(Washington, DC: July 1994).
130 | Environmental Policy Tools: A User’s Guide

a firm’s changed behavior is the result of many

factors. The firm may need to comply with other

environmental or health regulations. It may be anticipating new regulations. The firm may be responding to technology innovation or production

engineering considerations. Though it may be difficult to find direct relationships between information reporting and firm behavior, the fear of

negative publicity and threat of additional regulation probably encourage increased efforts to reduce risks associated with pollution (17).

Extent of Use

Information reporting programs—both those designed to inform the public and those designed to

assist the government and industry in managing

pollution—have become more common over the

last 10 years. Until 1984 there was no public accounting of toxic chemicals used in facilities or

discharged into air, water, and land. The first major efforts to require information reporting came

on the heels of public reaction to the chemical accident in Bhopal, India. This disaster alerted many

in the United States to the need to know more

about the chemicals used and stored at facilities

across the country.

Information reporting programs designed to

alert the public to the risks of pollution are often

referred to as community “right-to-know” laws.

New Jersey’s 1984 Community Right-to-Know

Act was the first information reporting program in

the country and served as the model for the national Toxics Release Inventory. Based on a survey

conducted in the mid-1970s, it requires information on the use, storage, and discharge as waste of

listed toxic chemicals.

The Emergency Planning and Community

Right-To-Know Act (EPCRA), enacted as part of

the 1986 Superfund Amendments, requires states

to receive and disseminate information on hazardous chemicals present at facilities within local

communities. Section 313 of EPCRA established

the Toxics Release Inventory. TRI calls for owners or operators of certain manufacturing facilities

to submit annual reports on the amounts of listed

“toxic chemicals” released (routinely or accidentally) into the environment. Sections 311 and 312

of EPCRA require the owner/ operator of facilities

with hazardous chemicals on site to report these

chemicals to state and local agencies responsible

for emergency response programs.

California’s Safe Drinking Water and Toxic Enforcement Act, otherwise known as Proposition

65, is one of the better known state information reporting programs.30 It is spelled out in two simple

steps. First, it targets those chemicals “officially

known to the state to cause cancer or reproductive

toxicity” and requires they be identified and compiled in a list. Second, it requires that businesses

should not knowingly and intentionally expose

any individual to any one of the listed chemicals

without first providing a clear and reasonable

warning.31

These programs have been followed by increasing numbers of pollution prevention and

toxics use reduction programs, which also incorporate reporting requirements to assist both government and industry understand and respond to

potential problems. The programs include New

Jersey’s Pollution Prevention Act and California’s

Air Toxics “Hot Spots” Information and Assessment Act (“Hot Spots”). The Pollution Prevention

Act requires firms to develop a publicly available

five-year pollution prevention plan.

“Hot Spots” requires sources to collect emissions data and report it to the state. Sources that

the state determines may cause localized impacts

are required to ascertain potential health risks and

inform nearby residents of these risks; “high-risk”

30 The law also requires that businesses should not discharge any listed toxic chemicals into any present or potential source of drinking

water, but as this is not an information reporting program it is not addressed in this section.

31 No warning is required if the amount of the listed chemical present in ambient environmental exposures, exposures from consumer product use, and discharges into current or future sources of drinking water fall below a level which would pose “no significant risk” for carcinogens.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 131

facilities must prepare and implement risk-reduction planning within six months.

Key Criteria Affecting Tool Selection

Assurance of meeting goals

Information reporting provides less direct assurance than many other tools that goals will be met,

because it does not mandate explicit pollution

limits or place an explicit price on pollution.

Instead, it relies solely on indirect incentives to

achieve goals. Anecdotal information indicates

that these incentives may have real power in particular situations where business profits are sensitive to public opinion.

A California EPA questionnaire attempting to

determine the effects of Proposition 65 found that

many businesses indicated that Proposition 65

was a factor in their own toxic emissions reductions. However, it was not clear to what extent

these reductions were due to Proposition 65 as opposed to other laws and legal trends imposing liability for the use of toxics.

Information reporting programs may allow

regulatory agencies to address risks which, although relatively easy to mitigate, are not on a

scale to have been prioritized by other programs,

For example, Proposition 65 has been used to

eliminate lead in foil wrappings on wine bottles.

An information program designed primarily to

alert firms and regulators to possible pollution

problems may be slightly more effective at ensuring that environmental goals will be met. Pollution prevention plans and risk planning at least

provide an “approved” framework for firms to

make changes that will benefit the environment.

For example, emissions data collected through

“Hot Spots” has helped to more comprehensively

manage toxic air contaminants in California by

identifying localized risks and providing a basis

for prioritizing further regulatory efforts.

Information programs can also be very important for highlighting environmental progress and

successful strategies for pollution prevention or

abatement. As such, information programs can

help increase familiarity with particular tools used

in combination with information programs.

Environmental equity and justice

Information reporting promotes environmental

equity and justice, at least to a certain extent. The

increased availability of information improves the

opportunity for effective public participation.

Theoretically, the information available under reporting programs can help citizens or regulatory

agencies identify significantly affected populations. Citizens may be motivated by concerns

about reported pollution levels or potential toxic

chemical exposures and work for change by promoting additional regulatory controls, contacting

or boycotting offending businesses, or pursuing

enforcement actions.

However, there are few, if any, formal institutions or mechanisms for public participation within an information program alone. In addition,

reporting programs do not address the issues of

multiple exposures or toxic hot spots, nor do they

do anything to remediate existing problems.

The type and accessibility of the information

are important factors in determining the likelihood of its use. Public interest groups may also fill

gaps in information interpretation and use. These

groups often target particular problems and utilize

available information through reports to widely

publicize their concerns (210). A common complaint is that the “right to know” isn’t necessarily

“right to understand,” so information is often

uninterpreted raw data, and not necessarily linked

to data about safe levels. More recent information

reporting laws, such as California’s “Hot Spots”

and Proposition 65, have tried to address this confusion by requiring industry to report health risks

rather than emissions data. However, this does increase the complexity of the program and the burden on industry.

In the end, while information programs may

better equip citizens to work for greater protection

of human health and environmental impacts, they

may not go far enough. By providing only indirect

incentives to polluters to improve environmental
132 | Environmental Policy Tools: A User’s Guide

performance, actual results will be mixed. Some

firms will make changes while others will not.

Therefore, impacts on some communities may

continue and be greater than in others.

Cost-effectiveness and fairness

An information reporting program is likely to be a

less onerous form of regulation than direct requirements for pollution control. However, the

burden on industry rises as more information is required of polluters—especially as the information

demands increase beyond what is already required

for compliance monitoring.

In theory, information reporting programs

could improve the cost-effectiveness of risk management if they replace a current regulation at

lower cost, or the efficiency if they correct a market failure not addressed by current regulations

and the benefits of correction exceed the costs. In

practice, the cost-effectiveness of information reporting programs is difficult to evaluate because it

is almost impossible to clearly link a firm’s

changed behavior directly to reporting programs.

The cost-effectiveness of any reductions depends on how much information reporting

changes the behavior of the reporting firms. If a

high percentage of firms report, but very few of

them change their behavior to reduce pollution,

then the total cost-effectiveness is very poor. If

polluting behavior changes, presumably it will be

no less cost effective than if the same level of reduction was required. Since firms have complete

flexibility in how they reduce emissions, it is possible that reductions from information reporting

programs are more cost effective than those obtained from direct regulation. How much more

cost effective is unknown, however.

When considering net benefits, one cannot simply assume that firms will control to a more efficient level. They may either overcontrol or

undercontrol in comparison to environmental objectives. Because firms at least theoretically have

an eye on the bottom line, the chance of significant

overcontrol is probably modest, although some

might include examples such as reformulating the

correcting fluid Wite-Out, a measure often

chalked up to Proposition 65, in this category

(187).

Demands on government

The burden information reporting places on government depends on the type of program and the

level of responsibility assumed by the implementing agency. Government roles vary widely among

information reporting programs. Their responsibilities may include the following: information

collection; information management; data interpretation and analysis; information dissemination; and enforcement. The more labor intensive

the government role is, the greater the demand

will be on agency resources and expertise.

Comparing administrative costs associated

with information reporting programs is not particularly instructive since program characteristics

vary widely. California’s Proposition 65, one example of an information reporting program, involves relatively minimal responsibility for the

implementing agency (271). By law, the state

agency helps to manage the list of chemicals used

for reporting purposes, provides some technical

guidance, and pursues enforcement activities.

There is no central collection or dissemination of

information in the program. Instead, Proposition

65 shifts the burden of proof from government to

producers or sellers to show that their activities do

not exceed the “no significant risk” level.32 Under

typical regulatory approaches, the law is not in

force until the government determines how much

is too much; therefore, the regulated entities have

no incentive to assist the government in drawing

this line.

32 For carcinogens, California has established that threshold at the level that would produce one excess cancer per 100,000 humans exposed

over a 70-year lifetime at that level. For chemicals with possible reproductive effects, regulations require there is less than a 1/1000 chance of

exceeding the “no observable effect” level (NOEL).
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 133

In contrast, warning labels are required under

Proposition 65 unless a company proves that the

amount it emits is not a significant risk. Thus it is

in industry’s interest to have clarity and certainty

when it comes to setting acceptable levels for

chemicals, so that companies know how to comply—and once such levels are set, they are generally accepted. Possibly as a result of industry

assistance, California’s regulators defined risk

levels for more chemicals in the first 12 months

than EPA has managed to address under the federal Toxic Substances Control Act (TSCA) in the

past 12 years (158).

The limited nature of government intervention

in Proposition 65 is somewhat unique. New

Jersey’s Community Right-to-Know Act of 1984

requires substantial government activity including data collection, information management,

data analysis, and public disclosure.

Adaptability

Information reporting programs are likely to be

capable of adapting to change. When new scientific information or technological developments occur, sources are free to modify their operations or

not, as they choose.

Changing the program itself is somewhat more

difficult, but probably not as difficult as changing

many other types of policy instruments. Recent

discussions on proposals for changing the Toxics

Release Inventory highlighted several major issues.33 Overall, industry is primarily concerned

with confidentiality and the added burden of collecting more information. The EPA expressed

concerns about additional costs associated with

data entry and the need to modify the current database to facilitate new data points. Although the industry’s increasing interest for electronic

reporting addresses some of the problems with

data entry, EPA accrued significant costs gearing

up their program and equipment to accept electronic data. Though issues such as these could be

resolved, they are nonetheless factors which influence adaptability to change.

❚ Subsidies

Subsidies are policy instruments that provide various forms of financial assistance, which can act

as an incentive for entities to change their behavior or help entities having difficulty complying

with imposed standards. Subsidies are the inverse

of pollution charges: instead of an entity paying a

fee for polluting behavior, the entity is given funds

to engage in environmentally beneficial behavior.

Subsidies might be provided by the government

or by other parties. In essence, subsidies provide

the means for the government or other parties to

bear part of the cost to stimulate adoption of new

or proven environmentally beneficial controls or

behavior.

Subsidies can come in many forms: grants,

low- or no-interest loans, preferential tax treatment, and deposit-refund systems. Note, however, that the recipients of such largess are

generally not free to spend it in accordance with

their own priorities. Prospective grantees and borrowers must fit their requests to stringent government procurement regulations, and recipients

must comply with fairly detailed requirements

governing how the money must be spent. Similarly, entities taking advantage of available tax

breaks must be prepared to demonstrate in detail

how the claimed expenditures come within the eligibility criteria. Deposit-refund systems require

the article to be properly returned before a refund

is given.

The use of subsidies historically has been affected by the “polluter pays” principle, which says

that entities should be responsible financially for

cleaning up the pollution they cause. Subsidies

run counter to this principle. As a result, many

public grant programs have subsidized public facilities’ pollution control efforts, such as publicly

owned wastewater treatment plants, but left pri33 Proposed changes have included: requiring materials accounting data; expanding the chemical list; expanding the number of regulated

industries; and requiring peak emissions data.
134 Environmental Policy Tools: A User’s Guide

Assurance of Meeting Goals

Promotes criterion: Information reporting helps to determine progress and goal achievement, and can encourage otherwise unregulated sources to lower emissions.

Impairs criterion: Because information reporting does not require a level of pollution abatement, it provides little assurance goals will be met (unless combined with other tools).

Pollution Prevention

Promotes criterion: Product warning labels may encourage industries to reformulate.

Impairs criterion: Information reporting does not guarantee that reductions will be made; if made, they

might be accomplished with additional control equipment.

Environmental Equity and Justice

Promotes criterion: More easily available information may encourage public participation in matters affecting human health and environmental protection. Information programs can promote greater awareness

of the risks posed by pollutants.

Impairs criterion: Information reporting programs provide no guarantee that communities will receive any

additional protection from pollutants.

Cost-Effectiveness and Fairness to Sources

Promotes criterion; If reductions are made, industry has complete flexibility in deciding how to do so. Industry considers information reporting programs less intrusive than tools with fixed pollution control

requirements.

Impairs criterion: Information generation may be very time- and labor-intensive, especially for smaller

firms.

Demands on Government

Promotes criterion: Typically, demands on government are comparatively light.

Impairs criterion: Collection and distribution of information can bean additional burden for government.

Adaptability

Promotes criterion: Sources are free to control as they wish. If an agency requires new information, it can

request it relatively easily.

Technology Innovation and Diffusion

Information reporting programs are probably neutral with regards to technology innovation,

SOURCE: Office of Technology Assessment, 1995.

vate sources of pollution largely on their own. Jus- pollution control as part of the cost of doing busitifications for this differential treatment tend to ness. Note that this public-private treatment is

focus on the public nature of pollution from public hardly absolute. For example, states are authosources, arguably appropriate candidates for the rized to use Clean Water Act federal grants to help

use of public funds. Also, public sources generally farmers pay for the cost of best management pracare not operating to make a profit, unlike private tices (BMPs) to control polluted runoff.

facilities which at least in theory could consider
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 135

In contrast to grants, tax breaks tend to be almost exclusively aimed at private sources of

pollution.34 Deposit-refund programs affect

whoever purchases and returns the items covered

by the program.

Extent of Use

Subsidies are very widely used as a tool to promote environmentally beneficial behavior. The

examples below are illustrative, and by no means

exhaustive, of the various federal, state, and local

subsidy programs. Subsidies may also be provided by private parties, although such programs

are less common.

One of the largest public works program in history was accomplished through subsidies, the

Clean Water Act’s construction grant program.

Congress established the program in recognition

that localities would need to spend large sums of

money to comply with Clean Water Act regulatory

requirements. Construction grants were made

available for the building of publicly owned

wastewater treatment works. From inception in

1972 through 1994, over 60 billion federal dollars

were spent. Grant recipients were initially required to match federal funds with 25 percent, increasing to 45 percent in 1981.

The construction grant program was phased out

by the 1987 Amendments to the Clean Water Act,

and replaced with a state revolving loan fund

(SRF). Currently, the Act provides federal capitalization grants to SRFs—seed money—that provide state loans to localities for constructing

publicly owned wastewater treatment plants, implementing nonpoint source management plans,

or developing and implementing a national estuary program (247). Within those general statutory

guidelines, a state is free to structure its specific

programs in the way that it determines best pursues the goal of clean water. Some states, such as

New York, provide “negative interest” loans to financially strapped small communities (effectively, a grant coupled with a loan). The Act

authorized between $1.2 billion and $2.4 billion

for each of five years; since 1989, $7.8 billion has

been appropriated. States must provide a minimum of 20 percent matching funds to establish the

SRF.

The Clean Air Act also authorizes several grant

programs. For example, section 105 grants EPA

the authority to award grants to state and local

governments to develop and implement air pollution control programs. Since 1963, the federal

government has awarded states and localities over

$2 billion in air pollution control grants. EPA may

pay up to 60 percent of grant costs, but states must

provide the remaining 40 percent (214).

Grants and low- or no-interest loans are used in

other contexts, as well. For example, EPA operates a small grant program called Pollution Prevention Incentives for States (PPIS), which has

awarded over $23 million since 1989 to promote

pollution prevention activities (107). EPA also

provided grants to six universities, totaling over

$330,000 in 1992, for research on alternative

chemical manufacturing methods that would reduce the generation of waste while increasing productivity. The grants were part of Design for

Environment (DFE), a voluntary program to promote the use of safer chemicals, processes, and

technologies in the earliest design stages (67).

States also use grants and low- or no-interest

loans to promote environmentally beneficial behavior. For example, Wisconsin provides costshare grants for up to 70 percent of the costs for

corrective measures necessary to clean up agricultural runoff, a type of nonpoint source water pollution. Project grants average about $15,000 and

usually are accompanied by technical assistance

provided by county-based conservation technicians (138).

Tax breaks and other preferential tax treatment

have also been used to accomplish environmental

goals. For example, for many years private com34 One potential exception is the tax-free nature of interest from state and municipal bonds, which can—but need not necessarily—be for

building public pollution control facilities.
136 | Environmental Policy Tools: A User’s Guide

panies were allowed to take accelerated depreciation of investments aimed at reducing water

pollution (58). Under the tax law in effect from

1979 to 1985, employer-provided transportation—vanpools—between an employee’s residence and place of work was not considered

taxable compensation. Thus an employer could

provide a greater net benefit to employees if it set

up vanpools.35

States are also using the tax code to promote environmentally beneficial behavior. For example,

in December 1990, Louisiana enacted a new tax

rule that ties the amount of business property taxes

a firm pays to its environmental record. For almost 70 years, Louisiana has exempted new

equipment and capital expenditures from local

property taxes, as a way to encourage industry to

locate in the state. Under the new rule, a firm applying for an exemption or seeking a renewal of an

exemption from property tax was rated on a scale

according to the number of environmental violations it had received, the volume of chemicals it

released into the environment, and similar factors.

Firms with good records received higher scores

and a larger tax exemption. The program was terminated by Governor Edwards in 1992 (64,79,

203).

Deposit-refund programs are another example

of subsidies. On a small scale, deposit-refund systems have been in place for decades in grocery

stores, where customers or others who returned

empty soda containers were refunded a small deposit paid when the soda was purchased. Currently, at least nine states have enacted deposit-refund

programs—“bottle bills”—to reduce littering

with beverage containers.36 In effect, purchasers

of potentially polluting waste pay a surcharge

which is paid to whoever returns the container for

recycling or proper disposal. Thus the subsidy is

represented by the refund. Rhode Island and

Maine have adopted deposit-refund systems for

automobile batteries, and Maine has a system for

commercial-sized pesticide containers (184).

Key Criteria Affecting Tool Selection

Assurance of meeting goals

Subsidies are capable of achieving risk-based and

abatement goals to the extent that the government

or others are willing to pay to achieve those goals.

However, subsidies do not require a particular level of pollution control, because targeted entities

can refuse the subsidy and associated obligations.

When the government pays for abatement and

requires as a condition of payment proof that the

desired action has been taken, officials know that

emission reductions will almost certainly take

place. Private firms and local governments are

generally willing to install pollution control

technologies if somebody else will pay for it. If the

subsidy is not for the full amount of the pollution

control device, private companies and localities

may still be willing to invest in pollution control

technology, but they must perceive some benefit

to them from the investment.

Tax breaks can reduce the cost of compliance

with environmental requirements. Like pollution

charges, they can be “tuned” through a process of

trial and error to achieve pollution reduction

goals. Since they can be tied to a preexisting enforcement regime, tax incentives may be easier to

enforce. In practice, however, tax breaks are often

too small to inspire a company to install a technology that it would not otherwise have considered

(123,165). A tax break may be altogether meaningless to a company that is operating at a loss.

Still, if tax breaks can be used to offset expenditures on technologies that both increase plant efficiency and reduce pollution, they may offer a

35 All that is left now is a general purpose tax provision that renders de minimus fringe benefits nontaxable. Employee-provided public

transit passes often come under this provision. S. Gaines and R. Westin, Taxation for Environmental Protection: A Multinational Legal Study

(New York, NY: Quorum Books, 1991)

36 These states are, in order of adoption: Oregon, Vermont, Maine, Michigan, Iowa, Connecticut, Delaware, Massachusetts, and New York.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 137

significant incentive to invest in such technologies.

One problem with subsidies is that they typically are for capital costs, not operating and maintenance expenses. Some economists and others

have theorized that end-of-the-pipe technologies

paid for by the government will not be operated effectively if the government does not assume responsibility for some portion of the operating

costs (58,123).

A second potential problem with subsidies is

their effect on industry turnover. By making marginal firms more profitable, subsidies might even

encourage new entrants into the polluting industry

or discourage old ones from leaving, thereby causing larger aggregate emissions than there otherwise might be.

Environmental equity and justice

Subsidies can be used to promote environmental

justice because they can be targeted to specific

pollution sources affecting poor or minority

neighborhoods. Subsidies can also have a progressive income effect. For example, construction

grants for publicly owned wastewater treatment

works shifted much of the burden of complying

with the Clean Water Act from individual communities to the national tax base. Thus, sewage treatment became available to communities that

otherwise would have faced great difficulty raising sufficient funds.

Unless targeted specifically for community

outreach and activism, subsidies appear to have

little effect on communities’ abilities to affect

policy outcomes. Most individual subsidy grants

are not subject to notice-and-comment rulemaking, and so do not offer an opportunity for community concerns to be heard.

Subsidies can help remediation of existing environmental problem because they can provide a

revenue source for necessary clean-up procedures.

Demands on government

If the subsidy is funded by tax dollars, obviously

direct outlays by government can be high. If the

program is funded by other means, analytical demands are probably average or somewhat lower

than other types of policy instruments.

Some organization needs to determine which

entities are selected or entitled to receive a subsidy

and to ensure that actions for which the subsidy is

paid have in fact occurred. In the case of depositrefund subsidies, these functions are easy—pay

whoever walked in with the refundable item.

Ensuring under other types of subsidies that required actions are taken is somewhat more complicated. Government organizations that make

grants or loans to industrial entities could monitor

the funds’ use to ensure that they are expended

upon pollution controls and not on reducing

manufacturing costs generally (7,123).37 Alternatively, the government could make payment of

subsidies contingent on the recipient proving it

has undertaken the desired pollution prevention or

abatement action, thereby reducing government

resource requirements for monitoring and enforcement.

❚ Technical Assistance

The government offers technical assistance to

help target entities in a number of ways. Entities

might not be knowledgeable about whether existing regulations apply to them, be fully aware of

the environmental consequences of their actions,

or know what techniques or equipment reduce

those consequences. Government technical assistance programs are intended to educate entities to

make better environmental choices. Technical assistance may also be focused on the general public, to help educate them about the environmental

implications of existing programs, proposed

rules, and policy tradeoffs.

37 For example, firms might exaggerate baseline pollution levels in order to maximize their subsidies.
138 Environmental Policy Tools: A User’s Guide

Assurance of Meeting Goals

Promotes criterion: Full subsidies are capable of achieving environmental goals to the extent that those

funding the subsidies are willing to pay.

Impairs criterion: Subsidies when used alone do not require a particular level of pollutant abatement, They

can encourage new businesses to open and old ones to remain, thereby increasing aggregate emissions.

Pollution Prevention

Promotes criterion: Subsidies can be awarded expressly for pollution prevention,

Impairs criterion: Preferential tax treatment or other subsidies can be awarded for end-of-the-pipe control,

which can discourage pollution prevention.

Environmental Equity and Justice

Promotes criterion: Subsidies can promote environmental justice, by being targeted to specific pollution

sources affecting poor or minority neighborhoods.

Cost-Effectiveness and Fairness to Sources

Promotes criterion: Subsidies can be used to compensate for unfairness caused by regulatory programs.

Impairs criterion: Subsidies’ purposes are sometimes stated so specifically that they can lead to choices

that are not cost effective for society. They can create financial inequities among entities.

Demands on Government

Impairs criterion: Government subsidies cost money.

Adaptability

Promotes criterion: Subsidies can have enough flexibility to adapt to new science or technology.

Impairs criterion: The scope of many subsidies’ mandates is so narrow that rulemaking or legislation is

required to accommodate new science or technology.

Technology innovation and Diffusion

Promotes criterion: Subsidies can help diffuse new technologies.

Impairs criterion: There is little or no data to prove subsidies cause innovation,

SOURCE Office of Technology Assessment. 1995,

Technical assistance may take many forms, in- junctions of environmental agencies can be called

eluding manuals and guidance, training programs technical assistance. For example, the Oregon Deand materials, information clearinghouses, facil- partment of Environmental Quality (DEQ) identiity evaluations, and technology R&D. The latter fied 35 separate programs as providing technical

may be conducted in house or through grants or assistance, noting that technical assistance played

loans to regulated entities or universities. Many a large role in day-to-day environmental manage4
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 139

ment activities.38 Most technical assistance services are provided at no cost to the user. Yet

sometimes technical assistance is offered in exchange for a prior agreement from the facility to

implement any recommendations. For example,

in the federal Green Lights program, EPA performs an onsite evaluation to identify ways in

which a facility could reduce energy consumption, in exchange for a promise from the facility to

install recommended equipment.

Participation in technical assistance programs

typically is voluntary, not mandatory. However,

these programs often offer significant incentives

to participate. Such incentives include the benefits

of the knowledge or services provided, favorable

public relations, and perhaps, a positive working

relationship with a regulatory agency.

Extent of Use

Before the 1970s, the federal government’s primary environmental role was to provide technical assistance to states and private firms, offering them

the benefit of federal agency expertise in solving

what were viewed as largely local problems.

While the federal government’s role grew dramatically in the intervening years, with the passage of

major environmental legislation, it still performs

an important technical assistance function. In the

1990s these technical assistance programs are increasing both in number and variety.

Some technical assistance programs have been

developed in response to congressional mandates,

while others have been initiated by EPA and other

agencies.

An example of a congressionally mandated

technical assistance programs is the section 507

program established by the Clean Air Act Amendments of 1990 (239). The Act requires states to establish Small Business Stationary Source

Technical and Environmental Compliance Assistance Programs. These Section 507 programs are

targeted particularly at those small businesses that

are newly subject to regulation, are non-major

sources as defined under the Clean Air Act, and

which might otherwise lack the technical expertise and financial resources to evaluate regulatory

requirements and determine appropriate compliance approaches (202). The programs include

onsite auditing, information packets, information

clearinghouses, and other forms of technical assistance.

Similarly, CERCLA establishes the Technical

Assistance Grants (TAG) Program. TAGs are intended to assist the affected community at Superfund sites to understand and evaluate problems

posed and to help assure cleanup methods were

chosen appropriately. “[A]ny group of individuals

which may be affected by a release or threatened

release” is eligible for a TAG.39

Some technical assistance initiatives are intended to help implement mandated environmental programs. For example, section 319 of the

Clean Water Act calls for states to manage diffuse

nonpoint sources of water pollution. EPA and the

U.S. Department of Agriculture have developed

extensive guidance documents describing BMPs

that nonpoint sources might use to control their

pollution. Both federal and state agencies distribute this guidance widely and also have sponsored

a series of field evaluations.

Other technical assistance programs do not respond directly to statutory mandates, but are

derived from the general objective to improve environmental quality. A recent example of federal

technical assistance is EPA’s Green Lights Program. EPA conducts an energy audit of participat38 DEQ concluded that two-thirds of the programs were compliance oriented, while the remaining one-third focused on pollution prevention. The amount of assistance ranged from comprehensive technical help, including on-site evaluations, to more limited technical assistance

such as telephone hotlines. DEQ’s technical assistance programs cover a wide variety of audiences, including the general public; federal, state,

and local government agencies; schools; and regulated and nonregulated businesses. Oregon Department of Environmental Quality, Enhancing Technical Assistance and Pollution Prevention Initiatives at the Oregon Department of Environmental Quality, (Salem, OR: April 1994).

39 A TAG may not exceed $50,000 per grant recipient unless the President finds that the purposes of the program require the limit to be

waived. CERCLA § 117, 42 U.S.C. § 9617.
140 | Environmental Policy Tools: A User’s Guide

ing Green Lights Partners, and makes specific

recommendations for more energy-efficient lighting systems, in exchange for an agreement from

participants to install the recommended equipment.40 Participants receive the benefit of an energy audit and lower utility bills, favorable

publicity, and a cooperative working relationship

with a regulatory agency (41,68).

A similar EPA program, Water Alliance for

Voluntary Efficiency (WAVE), is designed to encourage participants to install water-efficient fixtures in exchange for an EPA audit of their

facilities. A number of similar programs have

sprung up in recent years and are receiving additional attention in the wake of Vice President

Gore’s reinventing government initiative. They

include the “energy star” program aimed at encouraging the development of energy-efficient

products such as green computers and superefficient refrigerators, and Wastewi$e and Climate-Wise, which provide technical assistance for

reductions in, respectively, solid waste and greenhouse gasses. Such programs are often supported

by hotlines, information packets, and onsite evaluations.

Hotlines are a form of technical assistance

heavily used for both mandated and discretionary

federal environmental programs. Hotlines generally provide free technical assistance to both the

regulated community and the public, usually either by providing information directly over the

telephone or by mailing requested materials. Examples of EPA hotlines functioning in late 1994

include—

 the Control Technology Center (CTC) Hotline

providing technical support and guidance concerning air emissions control technologies;

 Emergency Planning and Community RightTo-Know and Superfund Hotline, providing

regulatory, policy, and technical assistance to

government agencies, the public, and the regulated community;

 Pollution Prevention Information Clearinghouse, providing pollution prevention information to the public; and

 the Safe Drinking Water Hotline, providing assistance and information to the regulated community and the public.41

State governments have been very active in developing technical assistance programs, especially for pollution prevention. In fact, until recently

states have relied almost exclusively on technical

assistance as the instrument for pollution prevention. The size of state technical assistance programs varies widely.42 Since the late 1980s, EPA

appropriations have included special grants funds

for Pollution Prevention Incentives For States

(PPIS) grants, which offer a 50-percent federal

match for state assistance program funding

(195).43

Key Criteria Affecting Tool Selection

Assurance of meeting goals

Technical assistance programs do not require target entities to control their emissions. Instead,

these programs seek to achieve environmental

goals by increasing the understanding of pollution

40 Green Lights Partners must also submit an annual reporting form, specifying the number of fixtures, wattage per fixture, the number of

kilowatt hours, and other energy-related data. M. Arnold, Green Lights Program, U.S. Environmental Protection Agency, Washington, DC,

personal communication, Dec. 15, 1994.

41 For a complete list, see U.S. Environmental Protection Agency, Headquarters Telephone Directory, EPA 208-B-94-001 (Washington,

DC: August 1994).

42 Nationwide, the programs average three to four staff people although some are considerably larger. For instance, Massachusetts’ Office

of Technical Assistance and North Carolina’s Pollution Prevention Program each have about 30 staff.

43 The Pollution Prevention Act of 1991 authorized $8 million per year in grants. Between 1989 and 1993, about $20 million in PPIS grants

was awarded by EPA.
Chapter 3 Congress’ Environmental Policy Toolbox: A Review | 141

problems and potential solutions. Assistance can

always be rejected, and likely will be if the solutions identified are expensive or if the promised

paybacks do not fit with a particular firm’s economic horizon. Anecdotal and evaluative data indicate that technical assistance programs improve

environmental quality (129).

Available data are less clear about whether environmental goals are in fact achieved. Technical

assistance programs are often used in combination

with other environmental policy tools.

Pollution prevention

Technical assistance has a 10-year history as an

instrument for pollution prevention. There is a

growing body of anecdotal evidence that when the

government provides onsite evaluations, increased use of pollution prevention is more likely

(55).

What is less clear, however, is whether technical assistance alone can realize the goals of the

Pollution Prevention Act of 1991. States have

been the leaders in using technical assistance for

pollution prevention. Many are now moving toward more prescriptive means, integrating pollution prevention into regulations and requiring

facility planning. As a result, technical assistance

is becoming less of a stand-alone instrument and

being used more in combination with others to

achieve pollution prevention goals.

Environmental equity and justice

Some forms of technical assistance can help poor

and minority groups have meaningful input in the

public notice and comment rulemaking procedures. Often, proposed rules have very technical

and complex foundations that are difficult for nonspecialists to evaluate and comment upon. Technical assistance targeted at such groups could

highlight a proposal’s implications, and help

groups better understand and comment on the underlying issues. For instance, CERCLA Section

117 authorizes EPA to make technical assistance

grants to any group of individuals affected by a

Superfund site (249). The grant enables citizen

groups concerned about a particular Superfund

cleanup site to hire technical expertise to help

them understand the issues and evaluate alternative cleanup proposals.

Technical assistance to regulated entities

would only indirectly pursue environmental justice goals because it does not call for a particular

level of pollution abatement. However, technical

assistance might assist in remediation of existing

pollution problems, if those responsible for cleanup are uncertain as to the most effective and timely

remediation techniques.

Cost-effectiveness and fairness

Technical assistance programs can help attain

least-cost pollution reductions if they are targeted

at the appropriate entities and are at an appropriate

intensity. Firms operate with limited information

concerning the nature and impact of their emissions and the approaches which they might take to

reduce emissions. Technical assistance can help

reduce these information gaps that otherwise

might impair achievement of cost-effective pollution control.

However, to help attain a least-cost solution,

technical assistance must be at an appropriate intensity and targeted at groups with significant information gaps. Information and its dissemination

are not costless. If technical assistance programs

focus on onsite evaluations when informational

brochures would have as effectively educated the

target audience, the program does not attain environmental goals cost effectively. Similarly, a technical assistance program would not be cost

effective if most participants in technical assistance programs are those entities who are already

well informed and with other sources of necessary

information. Cost-effectiveness is ultimately determined by how well the resources devoted to

technical assistance motivate positive changes in

the environment.

Data on the cost-effectiveness of technical assistance programs are not extensive, in part be-
142 Environmental Policy Tools: A User’s Guide

Assurance of Meeting Goals

Promotes criterion: When combined with other instruments, technical assistance can lead to improved

environmental quality.

Impairs criterion: Technical assistance does not require reduction in pollution

Pollution Prevention

Promotes criterion: Technical assistance can help firms identify opportunities for pollution prevention, and

change attitudes towards pollution prevention.

Impairs criterion: Technical assistance alone might not be enough to achieve pollution prevention goals,

but may be better used in combination with other instruments.

Environmental Equity and Justice

Promotes criterion: Technical assistance to communities can help to increase public awareness of the environmental implications of existing programs and proposed rules.

Cost-Effectiveness and Fairness to Sources

Promotes criterion: Technical assistance can help reduce information gaps which

achievement of cost-effective control.

Impairs criterion: While technical assistance can result in savings to the target entities,

be cost effective for society.

Demands on Government

Impairs criterion: Technical assistance is a resource commitment by government.

Adaptability

otherwise impair

it mayor may not

Promotes criterion: Technical assistance can accommodate new scientific or engineering information,

without structural programmatic changes.

Technology Innovation and Diffusion

Promotes criterion: Technical assistance diffuses knowledge of pollution control technologies.

Impairs criterion: Technical assistance does little if anything to foster technology Innovation.

SOURCE, Off Ice of Technology Assessment, 1995

cause it is often difficult to attribute observed environmental progress to a particular technical

assistance program. Data does exist, however, that

indicate cost savings to firms from onsite technical assistance exceed the cost of providing the assistance. This was the case, for example, for the

Massachusetts Office of Technical Assistance

(MassOTA), discussed in chapter 2 of this assessment.

Adaptability

Technical assistance programs, compared to other

instruments, are easily modified in light of a

change in scientific knowledge, abatement capability, or budget. The modifications might be to

the information disseminated by the program or to

the structure of the program itself, depending on

the nature of the change.
Choosing

 Policy Tools:

Seven Important

 Criteria

INTRODUCTION

lthough the nation’s near-term commitment to a cleaner

environment is evident in the strong goals Congress has

established, considerable controversy exists about how

best to achieve these and future goals. For example, policymakers would ideally want to choose policy instruments that

move the nation toward a cleaner environment at the lowest possible cost while accommodating, and further encouraging, the

increasingly rapid changes in scientific and technological capabilities. Yet accomplishing all of this with the tools we have has

seldom been possible in the past and may be even more difficult in

the future.

One potential strategy for minimizing tradeoffs among these

strongly held, yet at times competing, values and interests is to

choose policy instruments according to their strengths and to use

additional instruments to shore up overall performance. In the

past, for example, the nation has relied heavily on harm-based

standards and design standards because we would be able to tell

on a source-by-source basis the progress being made in cleaning

up the environment. However, by emphasizing assurance of

meeting goals, in many instances we chose—implicitly or explicitly—to give up some of the potential for cost savings and

technology innovation.

Rather than discard harm-based or design standards, policymakers can combine them with other approaches, such as trading

programs or challenge regulations. These combinations offer

firms more flexibility to choose the means or timing of compliance, allowing the implementation of more cost-effective solutions for individual firms with relatively little loss of the

assurance the public wants. However, the use of trading programs | 143
144 | Environmental Policy Tools: A User’s Guide

or challenge regulations may raise concerns that,

even though overall environmental quality improves, the burden of remaining adverse environmental effects will be shifted from one group to

another. Careful monitoring and required information reporting can address some of those

concerns.

This chapter examines how knowledge about

differences in instrument performance on a set of

values and interests—called criteria in this report—might guide a policymaker’s choices. The

next section identifies each of the criteria used in

this study. The following sections define the criteria in more detail and compare the relative effectiveness of the policy instruments described in

chapter 3 for achieving each criterion.

IMPORTANT CRITERIA FOR

ENVIRONMENTAL POLICY

OTA has identified three broad themes in the debate over environmental policy. The first theme,

environmental results, addresses the public’s demand not only that goals be met but also that goals

be pursued in appropriate ways. The second

theme, costs and burdens, addresses the public’s

concern that environmental goals be achieved at

the lowest possible costs and with the fairest allocation of burdens among companies and between government and industry. And the last

theme, change, reflects a growing consensus that

adaptable programs are essential for encouraging

new scientific and technological solutions.

Sharpening the focus to the details underlying

these broad themes, OTA identified seven criteria

policymakers typically consider when adopting

specific programs to implement environmental

initiatives (see table 4-1). We use each of these

seven criteria as the basis for comparing the relative effectiveness of the policy instruments, based

on literature reviews and actual experience with

using the instruments.

Although lack of sufficient experience with

many of the instruments made us less certain

about how they might perform in some instances,

we found that assessing instrument choice from

the perspective of this set of criteria revealed distinctive and useful guidelines for policymakers.

Our rating system identifies those instruments

that are particularly effective (represented by a

filled-in circle), those for which it depends (represented by a partially filled-in circle), those that

we suggest a decisionmaker might use with caution (represented by a caution sign), and those that

are simply average (represented by a single dot).

An effective instrument is considered reliable to

use if the criterion is an important one. An instrument rated “it depends” is likely to be effective but

could in some instances be simply average. And

instruments that might be used with caution typically perform poorly on the criteria.

The remainder of this chapter is organized

around the three themes and seven criteria presented in table 4-1. After a brief section introducing one of the three themes, we compare

instrument effectiveness on each of the criteria

associated with that theme. For each criterion, information is presented in the following order:

 discussion of the criterion;

 explanation of the factors used for comparing

instruments;

 overview of instrument performance; and

 an instrument-by-instrument analysis, starting

with the most effective ones, followed by those

rated “it depends,” then those requiring some

caution, and concluding with those expected to

be about average.

ENVIRONMENTAL RESULTS

Congress sometimes chooses voluntary approaches for accomplishing environmental goals

and at other times requires specific actions to improve human health and the environment in some

way. Yet even when Congress has required specific actions, the nation has often fallen short of

achieving the goal (47). Thus, for many stakeholders in the environmental policy community,

the most important priority continues to be working toward satisfactory environmental results.

When it comes to very serious environmental

risks, the public is likely to want assurance that
Chapter 4 Choosing Policy Tools: Seven Important Criteria 145

CRITERIA FACTORS

ENVIRONMENTAL RESULTS

Assurance of Meeting Goals ● Action forcing

Do stakeholders have confidence that environmental ■ Monitoring capability

goals will be or have been met? ● Familiarity with use

Pollution Prevention ■ Gives prevention an advantage

Can the approach promote use of strategies for pre- ■ Focuses on learning

venting rather than controlling pollution?

Environmental Equity and Justice ● Distributional outcomes

Does the approach seek equality of outcomes, full ● Effective participation

participation by affected communities in ■ Remediation

decision-making, and freedom from bias in policy

implementation?

COSTS AND BURDENS

Cost-Effectiveness and Fairness ■ Cost-effectiveness for society

Are we protecting human health and the environment ■ Cost-effectiveness for sources

at the lowest possible cost and with the fairest alloca- ■ Fairness to sources

tion of burdens for sources? ■ Administrative burden for sources

Demands on Government ● costs

Are we protecting human health and the environment ● Ease of analysis

at the lowest possible cost and with the best use of

resources for government?

CHANGE

Adaptability ● Ease of program modification

How easily can the approach be adapted to new ● Ease of change for sources

scientific information or abatement capability?

Technology Innovation and Diffusion ■ Innovation in the regulated industries

Are we encouraging new ways to achieve our ■ Innovation in the EG&S industry

environmental goals that lead to improved ■ Diffusion of known technologies

performance in quality and costs?

SOURCE: Office of Technology Assessment, 1995.

goals will be met. In addition, the public has also equity and justice concerns at all levels of policybecome concerned about how goals are met. For making.

example, support has increased for the idea that The following three sections of this chapter—

sources should be asked to try their best to use assurance of meeting goals, pollution prevention,

pollution prevention rather than control. And, and environmental equity and justice—present

community-based groups have been highly suc- OTA’S assessment of which instruments might be

cessful in raising awareness about environmental most effective in achieving these criteria.
146 | Environmental Policy Tools: A User’s Guide

❚ Assurance of Meeting

Environmental Goals1

Assurance is stakeholder confidence that environmental goals have been or will be met.

Assurance of meeting the goal may be the bottom line criterion for many stakeholders, especially when the environmental problem poses serious

risks to human health. In recent years, for example, community scrutiny of facilities using toxic

or hazardous substances has increased, including

efforts to block siting. In such a context, choosing

policies that provide assurance of achieving the

desired results may seem more important than satisfying criteria that might otherwise be favored.

At the national level, reports assessing progress

toward protecting human health and the environment indicate that we are still far short of our goals

(47). When it seems essential to meet public expectations that progress toward goals will occur in

the future, requiring specific actions and establishing effective monitoring programs may be an

important approach. Using instruments that have

been implemented with some successful results in

the past may also enhance public confidence in

policy decisions.

Factors for Comparing Instruments

As defined in this OTA study, assurance means the

confidence stakeholders have that environmental

goals have been or will be met and sources held accountable for the results. Determining that environmental goals have been met requires the ability

to monitor results and to force action should the

results fall short of the goals. In addition, if an

instrument has been extensively used or implemented in the past with successful results, the

public may have confidence that the instrument

will be effective in meeting future goals.

In order to compare how well each instrument

assures meeting environmental goals, OTA uses

the following three components:

 action forcing;

 monitoring capability; and

 familiarity with use.

Degree of action forcing

Central to the concept of assurance is the extent to

which an instrument has “teeth” or the capacity to

force sources to undertake actions needed to attain

environmental goals. Action-forcing instruments

specify pollution reduction results and provide a

means for holding sources accountable. The relative importance of action forcing for a stakeholder

may depend in large part on his or her assessment

of what drives the behavior of sources or targeted

industries. Some believe that if industry is provided a clear goal or target of pollution reduction

and a reasonable timetable for action, a forcing action or level is not necessary for goal attainment.

However, others believe that only those instruments that contain a lever for forcing action provide sufficient pressure and accountability to

assure that individuals, facilities, or firms will

have to change their behavior until the goal has

been met.

Monitoring capability

Monitoring capability has two components: 1)

having the capacity to determine whether or not

the source is doing what is required, and 2) having

the capacity to determine whether or not progress

is being made toward the overall environmental

goal. The strategy underlying this instrument may

affect how easy or difficult it will be to monitor for

results. For example, a technology-based strategy

based on percent reductions in emissions or a best

available technology is inherently easier to monitor than a risk-based strategy designating an ambi1 Parts of this section are based on T.O. McGarity, “Assurance of Meeting Environmental Goals,” unpublished contractor report prepared

for the Office of Technology Assessment, U.S. Congress, Washington, DC, May 1994.
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 147

ent environmental quality goal across multiple

sources. Instrument performance that is relatively

easy to monitor increases the opportunities for

eventual accountability, enforcement, and evaluation of instrument effectiveness.

The availability of adequate monitoring

technologies and the type of monitoring regime

used may also affect a stakeholder’s sense of assurance. For example, continuous monitoring

may be considered by some to be essential for individual sources even though systematic, yet less

sophisticated and less frequent, monitoring may

be satisfactory for others.

Familiarity through use

If an instrument has been used with any success in

the past, policymakers may have more confidence

in using it in the future. In fact, some instruments

may be heavily used primarily because policymakers already know how to implement them and

existing institutional arrangements make it easy to

continue using them. Especially for problems that

have very serious short-term consequences, the

public may want policymakers to use instruments

that are tried and true even though they may not

achieve all or even any of the other major criteria.

Summary of Instrument Performance

Effective: Product bans, technology specifications, design standards, harm-based standards, integrated permitting

It depends: Tradeable emissions

 Use with caution: Information reporting,

subsidies, technical assistance

Instruments with a strong action-forcing component are the most effective at assuring stakeholders that environmental goals will be met (see

table 4-2). For example, all of the single-source,

fixed-target instruments—product bans, technology specifications, design standards, and

harm-based standards—and integrated permitting are very effective for assurance since the

public can hold sources accountable.

Since design standards are usually somewhat

easier to monitor than harm-based standards, depending on how they are implemented in permits,

design standards are a reliable choice either under a technology-based strategy or to shore up

progress under a harm-based strategy when assurance is a major priority.

Although the relative ease of monitoring

technology specifications and product bans

makes them attractive instruments, they have seldom been used under the Clean Air Act (CAA),

the Clean Water Act (CWA), or the Resource Conservation and Recovery Act (RCRA). Such prescriptive instruments may be most useful in a

situation in which the cost of not acting in the

short term might be very high.

Tradeable emissions and integrated permitting, two of the multisource instruments, also

contain strong action-forcing components

through provisions for emission caps and the writing of permits. However, we rated tradeable emissions somewhat less effective than integrated

permitting and the single-source instruments because of the potential difficulty with monitoring.

At the other end of the spectrum are a set of

instruments that might be used with caution if assurance is the major criterion. Information reporting can help with monitoring progress but

does not require pollution reduction or prevention

action by sources. Similarly, subsidies and technical assistance are almost always voluntary—

that is, sources may be asked to reduce pollution

but face no sanctions if the program is not successful—which may or may not result in attainment of

goals. However, when used as supplements to other instruments, they may increase the overall confidence of the public that goals will be met.

Pollution charges and challenge regulations

have the potential to move things in the right

direction. However, with pollution charges, the

action-forcing component is weakened since

sources are given an option to pay rather than to

reduce their discharges. And our lack of experience with challenge regulations makes them a less

reliable instrument at the present time, especially

if assurance is the primary concern. More experience in the future with instruments such as tradeable emissions, integrated permitting, challenge
148 Environmental Policy Tools: A User’s Guide

Single-source

Fixed Target

Multisource

Assurance of

meeting goals ● 0 0 0

Action forcing ● a e *

Monitoring capability ● ● o

Familiarity with use ●

● 00

● ● v

● = Effective O = It depends V = Use with caution ● = Average

NOTE: These ratings are OTA’s judgments, based on theoretical literature and reports of instrument use. The evaluatlon of each instrument on a particular criterion is relative to all other instruments. Thus, by definition most instruments are “average.”” Effective” means that the Instrument IS typically

a reliable choice for achieving the criterion. “It depends” means that it maybe effective or about average, depending on the particular situation, but

it is not likely to be a poor choice. And “use with caution” means that the instrument should be used carefully if the criterion is of particular concern

SOURCE: Office of Technology Assessment, 1995.

regulations, and pollution charges may increase

the confidence stakeholders have that they can ensure results.

Instrument-by-Instrument Comparison

● Product bans

Product bans and limitations provide a powerful

and clear message to the sources about what is required to meet the goal, and the results are relatively easy to monitor. This approach seems best

suited for a situation in which the risks of doing

nothing might be very high in the short term or not

easily reversed.

For example, if a product poses unacceptable

risks to consumers, the agency can prohibit its

sale, distribution, and use to eliminate those risks,

or the agency can place limitations on the sale, distribution, or use of the product to reduce those

risks to acceptable levels. Although they are seldom used by agencies to implement the CWA,

CAA, or RCRA, Congress itself has in some

instances enacted product bans or limitations,

such as the phaseout of chlorofluorocarbons

(CFCs).

In markets in which no substitutes are available, the product limitation or ban has the potential to induce technological innovation by

stimulating intensive research and development

aimed at producing products that are capable of

filling the void left by the limited or banned product. The section on technology innovation and diffusion discusses this in more detail.

● Technology specifications

Technology specifications have the potential to

be very effective at providing assurance, although

they are also a very intrusive and prescriptive approach. Once a problem is identified, the targeted

entity is told exactly how to act and faces both civil and criminal penalties for noncompliance.

Congress may want to use these standards in

instances in which a serious environmental hazard
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 149

to human health exists and a known technology

could provide at least an immediate result. For example, Congress enacted the requirement that new

hazardous waste landfills and surface impoundment’s install two or more liners and a leachate

collection system above and between the liners

(255). Although federal environmental statutes

seldom direct EPA to enact such specifications,

states often specify how sources must carry out

their operations in state implementation plans

promulgated pursuant to federal environmental

standards.

Like design standards, technology-specification standards usually make it simpler for the

inspector to ascertain whether a mandated technology has been installed and is working properly

than to measure ambient air or water concentrations and relate them to particular sources.

Many observers have little confidence in the

ability of legislative bodies or bureaucratic agencies to identify the technology or practice that

does in fact meet the intended goal in each individual context. Prescribing a uniform technology for

all facilities is not likely to be an efficient approach (7). And, more important, specification

standards, standing alone, may discourage dischargers from developing innovative changes in

manufacturing processes or recycling technologies to reduce the overall amounts of wasted residuals (3,86,175).

Design standards

Design standards perform relatively well on assurance when used to meet a technology-based

goal. In addition, they are used quite effectively in

combination with harm-based standards to provide assurance of some interim progress toward a

risk-based goal as well. In either case, the mandatory action and the relative ease of monitoring

make design standards a slightly better choice

than a stand-alone harm-based standard if assurance is the primary concern.

Design standards, while assuring some progress, can not ensure that risk goals will be fully

met. Existing technologies, for example, may not

be capable of reducing discharges from a single

source enough to achieve the media quality specified by the risk goals. In addition, the cumulative

effect of discharges from two or more facilities,

each of which complies with the prescribed design

standards, could be a concentration of pollutants

in the receiving media that still violates the risk

goal. Stringent application of the design approach

to all new sources might actually slow progress toward risk goals by discouraging companies from

replacing older, heavily polluting facilities (2).

In areas that currently meet risk goals, design

standards could help ensure that media quality

will not deteriorate as rapidly when new sources

of the same pollutant are built. In fact, design standards could leave that area “too clean,” at least for

the present, if the medium can assimilate additional pollutants without violating the risk goal.2

The degree of difficulty for monitoring a design

standard depends on how the permit is written and

whether or not its medium is air, water, or land. If

the design standard is translated by the states into

an emissions limit, then monitoring might be as

complicated and expensive as it is for harm-based

standards. However, the compliance officer may

also be able simply to check that the model

technology is installed and working correctly. For

example, if the model technology for volatile organic compounds (VOC) reductions is an incinerator, monitoring the temperature of the device

rather than effluent gas concentrations might be

sufficient.

Design standards have the advantage when it

comes to experience with use. We have used them

extensively because they provide a clear course of

2 Regulated entities frequently criticize an agency for requiring “technology for technology’s sake.” If the only goal of the regulatory program is to achieve the level of acceptable risk for today, then this criticism is well founded. If the program also seeks to achieve a best-efforts

goal, perhaps as a hedge against uncertainties about the future, the criticism is less cogent.
150 | Environmental Policy Tools: A User’s Guide

action that is easily enforced, even though they

often pose some tradeoffs with criteria like efficiency and technology innovation.

Harm-based standards

Harm-based standards can be very effective because they provide a clearly designated outcome

for each source and some accountability for results. Nonetheless, the analytical complexity and

scientific uncertainty of trying to establish a uniform harm-based standard that will actually result

in achieving the media quality goals, the difficulties with continuous monitoring, and subsequent

enforcement problems make the choice of a

“pure” or “solo” harm-based standard a hard one

for policymakers who insist on meeting goals.

These difficulties help explain why many

harm-based programs end up with a reasonableefforts floor or abatement strategy added on. Such

clauses asking sources to do the best they can until

the media quality goals are met provide assurance

that some progress will be made.

To satisfy concerns about assurance, harmbased standards need either a technology to monitor emissions or some other widely applicable

method for verifying that a source is complying

with its limit. If no such technology or technique

exists, or if it is too difficult or expensive, an

instrument with a lower monitoring burden may

be preferred. For example, design standards often

include a model technology, whose emission

characteristics are known and accepted by regulators, thus avoiding the need for direct emissions

monitoring.

Despite all of these concerns, harm-based standards are often preferred over many other instruments because we have enough experience with

them to know that they can be effective in assuring

source-by-source compliance while nonetheless

allowing the sources flexibility to choose the

means.

Integrated permitting

Integrated permitting may be among the more

effective instruments at providing assurance, once

agencies gain more experience with this instrument. At a minimum, having all of the information regarding a plant’s effluent, emissions, and

other environmental releases available in a single

place, governmental and private citizen enforcers

can more easily evaluate the plant’s environmental compliance record and decide whether to initiate enforcement efforts.

Using an integrated permit, such as a plantwide bubble, to give flexibility to a plant or facility to trade off sources may provide adequate

assurance to the public—assuming satisfactory

monitoring can be installed. For example, 3M

anted up improved continuous emissions monitoring for its Minnesota plant in order to gain

some flexibility in making changes that affect individual source emissions across the facility.

The integrated approach might also enhance assurance if, during the course of issuing the permit,

the agency and sources could identify instances in

which requirements promulgated pursuant to one

statute conflict with or hinder compliance with requirements promulgated pursuant to another statute. Congress has historically enacted separate

statutes for different receiving media and our environmental goals and programs have likewise

evolved separately.

Although we are learning, we really do not

know how to do multimedia permits well at this

point. A source might be allowed to reduce its

compliance with part of a CWA requirement if it

agreed to a more stringent requirement under the

CAA, so long as the net environmental risk would

be lower than that resulting from full compliance

with both requirements. The environmental statutes, however, do not currently allow such arrangements, although EPA has proposed such a

possibility for the Great Lakes. In any event, the

art and science of risk assessment have not yet

progressed to levels that can support such tradeoffs under most circumstances.

Tradeable emissions

Tradeable emissions can be an effective tool for

providing assurance in many instances. However,

since trying to monitor overall reductions made by
Chapter 4 Choosing Policy Tools: Seven Important Criteria 1151

multiple sources is potentially difficult, we rate

this instrument as “it depends.”

For sources, this instrument is eventually translated into an emissions limit—usually as the sum

of total allowable emissions over some longer

time period such as three months or a year, but

even over as short a period as a day—plus the

amount of credits or allowances that are purchased

from other sources. Thus, tradeable emissions

share some of the same strengths and weaknesses

for assurance as those discussed earlier for harmbased and design standards.

The degree of action forcing is quite similar to

harm-based standards. The burdens of monitoring

for an effective tradeable emissions program are

quite high, but if they are met the program can be

quite effective in holding sources accountable. To

provide an effective level of assurance of meeting

goals, a tradeable emissions program must also

have frequent self-reporting and periodic audits

by neutral outsiders (71,118,137). Since the ability of a regulator to determine compliance by any

single source depends on the integrity of the entire

system, monitoring for tradeable emissions may

beheld to a higher level of accuracy than for harmbased or design standards.

A very important distinction between this

instrument and harm-based standards is that,

while the emissions limit for a harm-based standard is location specific, a tradeable emissions

program usually provides no assurance that any

one source will achieve a specific limit. Thus, the

approach works well for certain types of pollutants where environmental quality can be safely

based on total loadings over large geographic

areas. If, however, emissions at individual facilities, rather than combined emissions from many,

are the principle source of concern in a particular

area, then moving from a source-by-source approach to a trading program may not satisfy the

public’s concern over maintaining environmental

quality.

A distinct threat to assurance is the possibility

of trading units of pollutants that do not represent

equivalent risks (42). Under this regime, tradeable

emissions could result in a decrease of easily controlled but innocuous substances and a corresponding increase in difficult to control but highly

toxic substances.

Tradeable emissions permits are now being

used in a variety of settings, including the national

S02 (acid rain) trading program; the Regional

Clean Air Incentives Market (RECLAIM) efforts

in Los Angeles (see chapter 2); an open market

trading system in Tulsa, Oklahoma; and several

other small efforts in watersheds. As more experience with this instrument and thus more information on successes as well as difficulties is gained,

the public may develop more confidence about the

potential for meeting goals.

V Information reporting

Information reporting does not guarantee that

any action will be taken by either the source or the

public to prevent harm, even though the programs

may be relatively easy to implement and may be

effective in identifying risks associated with a

product or facility. However, reporting require--

merits can help an agency assess which activities

pose the most serious environmental risks.

Under Section 5 of the Toxic Substances Control Act (TSCA), for example, manufacturers

must make EPA aware of the production of new

chemical substances or significant new uses of existing chemical substances (256) and must immediately inform EPA of any information that

reasonably supports the conclusion that the substance presents a substantial risk of injury to

health or the environment (258). EPA may use this

information as the basis for regulatory action to

protect the public.

In the direct consumer context, information

may help consumers identify and reward

manufacturers who develop less risky products or

technologies. Information reporting may also provide the public the kind of specific information it

needs to make a legal case against sources. For example, if a company’s monthly discharge monitoring reports filed under the Clean Water Act

show that the company is not complying with its

permit requirements, an environmental group that

becomes aware of those reports can use them in a
152 I Environmental Policy Tools: A User’s Guide

citizen enforcement action under section 505 of

the CWA (246).

Although we have considerable experience

with information reporting programs per se, we

have little evidence of sustained behavioral

changes in protecting the environment. Most of

these programs have no mechanism for forcing

less pollution from sources and thus cannot assure

the public that goals will be met if they are implemented.

V Subsidies

Since they are strictly voluntary, government subsidies, including tax expenditures, are capable of

achieving environmental goals only to the extent

that the government is willing to pay to achieve

those goals and sources are willing to participate.

Tax breaks can reduce the pain of compliance with

environmental requirements (165) and may be relatively easy to enforce (1 23). However, since participation is strictly voluntary, subsidies might be

approached with some caution when assurance is

an important consideration.

V Technical assistance

Similarly, although technical assistance can offer

companies valuable information and encouragement, it cannot provide stakeholders assurance

that environmental goals will be or have been met.

Its goal is to persuade sources to adopt best practices or to diffuse innovation in order to move

things generally in the right direction. The primary inducement behind such programs is the promise that taking environmentally beneficial action

will ultimately save the company money in reduced production or energy costs.

The voluntary nature of such programs means

that there is no leverage for forcing actions to

achieve goals. Even if companies initially participate, the specific technical assistance can always

be rejected, which may happen if the solutions

identified are expensive or if the promised paybacks are not fairly immediate.

Challenge regulation

Challenge regulation, one of the less intrusive

approaches for achieving environmental goals,

gives sources the responsibility for designing and

implementing a program to meet the targets established by government. The government would use

milestones to measure progress toward the targets

and retain the authority to implement a regulatory

program should progress be unsatisfactory or the

goals not met.

In the short run, since attainment of goals depends solely on industry choices, challenge regulation does not offer much a priori assurance to

those who believe goals must be met. On the other

hand, monitoring and information systems can be

put in place to provide evaluations at annual intervals in order to measure progress toward the goals.

If these evaluations are tracked and the targets

backed by a mandatory abatement strategy should

industry fail to meet them, then challenge might

be effective in providing assurance.

The United States has not yet implemented a

true challenge regulation, but the voluntary 33/50

program is very similar. Established by EPA in the

late 1980s, the program challenged companies

emitting 17 targeted toxic chemicals to reduce

their emission of toxics by 33 percent by 1992 and

50 percent by 1995 (250). EPA left the impression

that if releases were not reduced, it would take

additional action under its existing authorities to

bring about further reductions (167). Several challenge regulations have been implemented in Europe, including Germany’s Green Dot program

and several covenants in the Netherlands. However, uncertainty about the effectiveness of such

negotiated plans in our very open, highly fragmented system suggests proceeding with some

caution.

Pollution charges

To provide assurance to stakeholders of meeting

goals, the emissions subject to pollution charges

must be easily monitorable and enforceable and

the charge must be set high enough to induce the
Chapter 4 Choosing Policy Tools: Seven Important Criteria 1153

change necessary to reduce emissions. If available

pollution reduction technologies will not achieve

the goals, a high enough charge may nonetheless

provide a continuing incentive to develop alternative technologies. Pollution charges could also

make enforcement easier by replacing the bargaining that a company attempts with enforcement officials with the simple approach of “balance due,

delinquent charges, plus penalties” (123).

However, not all emissions are easy to monitor.

If emissions remain undetected, the source will

have no incentive to install pollution reduction

technologies, and estimates of progress toward

goals will be flawed (7,177).

From the sources’ point of view, pollution

charges are among the least attractive instruments.

Even though charges offer great flexibility in the

choice of control method—including the choice

of not controlling-they can be quite expensive

unless emissions are almost completely eliminated. Sources end up both paying the costs of reducing emissions and paying a charge on any

residual emissions, even after the desired levels

are met. Thus, if the charge is set high enough to

induce change (161 ,220), the owners of polluting

sources may decide to resist the fees in available

political and legal forums (86,95). Finally, pollution charges may not provide adequate assurance

for emergencies and activities that pose risks of

low probability but very large consequences

(7,123,161,220).

Although Europe has implemented various

forms of pollution charges, most are set to raise

revenues; only a few have been set high enough to

force substantial reductions. Most of the U.S. experience involves technology-based fees such as

per-bag fees for residential solid waste. Success

with these may make the public amenable to efforts to extend use of charges for other environmental problems.

Liability

A major barrier to liability providing adequate assurance is the very high burden of proof required

to establish that the defendant is the source of

harm and that the source acted in a manner that

was unreasonably dangerous or otherwise socially

unacceptable (77,93,1 13,188). If one party is demanding compensation from another party, the

courts have been generally unwilling to tolerate

uncertainties of the magnitude that are familiar in

environmental regulatory regimes (276). The

probability of being forced to compensate potential victims is often so low that polluters have little

incentive to reduce pollutants to levels that meet

the environmental goals.

Ideally, liability can be used both to encourage

the prevention of future environmental problems

and to fund remediation of existing sites that pose

environmental threats when a defendant has been

found responsible for harm in a court of law.

■ Pollution Prevention

Pollution prevention is reducing or eliminating pollution at the source of generation

through changes in production, operation, and

raw materials or resource use.

Pollution prevention is a strategic approach

sources can use to meet or exceed environmental

goals. Pollution prevention strategies seek the reduction of all nonproduct outputs, regardless of

medium, restricted only by the limits of current

process and product technology.

The Pollution Prevention Act of 1990 (PPA)

does not mandate prevention but rather states that

pollution should be prevented whenever feasible.

It does, however, require certain firms to report

through the Toxics Release Inventory (TRI) system on their “source reduction activities.” 3 Thirty

states have enacted pollution prevention statutes,

3 The Pollution Prevention Act of 1990 (42 U.S.C. 13l0l) defines pollution prevention as”. . . any practice which reduces the amount of any

hazardous substance, pollutant, or contaminant entering any waste stream or otherwise released into the environment (including fugitive emissions) prior to recycling, treatment, or disposal; and reduces the hazards to public health and environment . . . .“
154 I Environmental Policy Tools: A User’s Guide

over half of which include provisions for pollution

prevention facility planning. Some have also set

statewide numerical pollution reduction goals.

Despite these initiatives, both policymakers

and firms fail to adopt pollution prevention strategies as an alternative to pollution control in many

instances, even when they may be less expensive

in the long run. Explanations for continued reliance on control strategies include a lack of

awareness or information about pollution prevention, regulatory disincentives (or lack of incentives), and economic and institutional issues

(78,122).

Factors for Comparing Instruments

Policy instruments can provide an advantage for

pollution prevention efforts either by giving firms

a reason to choose pollution prevention instead of

control strategies or by demonstrating the value of

prevention strategies so that organizations incorporate them in routine decisionmaking. We

compare instruments on their potential for encouraging pollution prevention by assessing the extent

to which each instrument:

■ gives an advantage to prevention, and

■ focuses on organizational learning.

Gives an advantage to prevention

For both regulators and regulated entities, staying

with known control technologies is often the leastrisky choice even when regulations provide some

flexibility of choice because costs, operational

conditions, and monitoring capabilities are predictable. Making it easier to use, or even requiring

pollution prevention rather than control, is one

way that instruments can be effective.

Focuses on organizational learning

Both private and public sector experts typically

specialize in air, water, or waste management,

with a unique set of language, technologies, and

institutional concerns. Moving away from this

pattern toward prevention strategies may require

considerable learning within organizations. Important issues to be considered include how a firm

is organized to make decisions about environmental issues; who makes the key decisions; whether

or not top management demonstrates a commitment to prevention, makes resources available,

and rewards workers for their efforts; and capacity

for flexibility in production processes (146).

In most industrial firms except the smallest,

linkages between the production and environmental units have been weak (31 ). Since pollution prevention seeks to integrate the idea of prevention

into production design, organizational leadership

or even a change agent at the facility level maybe

essential for accomplishing this objective.

Summary of Instrument Performance

●

o

Effective: Product bans, technical assistance

It depends: Technology specifications, design standards, liability

Use with caution: —

Most instruments can be used in a way that is

compatible with pollution prevention (see table

4-3). While experiences with product bans and

technical assistance suggest their effectiveness,

neither is extensively used under the CAA, CWA,

or RCRA. Product bans eliminate a source of environmental risk and may force the development

and use of alternatives. The level of resources devoted to technical assistance is currently too low

to reach all firms that could benefit and, in general,

is not targeted at larger firms. Implementing combinations of these and other instruments may be

essential to improve the use of pollution prevention strategies (141).

Liability may also be effective at prevention

because many firms would rather prevent pollution, and thus reduce their liability exposure, than

rely on control of large quantities of potentially

damaging emissions or wastes.

Although widely criticized as perpetuating

preferences for end-of-pipe technologies, both

technology specifications and design standards

can be used effectively to promote pollution prevention approaches. The criticisms are most often

summarized as: “standards require specific endof-pipe technology” even though, except in the

most restrictive cases, regulated entities are actu-
Chapter 4 Choosing Policy Tools: Seven Important Criteria 155

Fixed Target

Pollution

prevention * 0 0 .

Multisource

● = Effective O = It depends V = Use with caution ● = Average

NOTE: These ratings are OTA’s judgments, based on theoretical literature and reports of instrument use The evaluation of each Instrument on a particular criterion is relative to all other instruments. Thus, by definition most instruments are “average.” “ Effective” means that the instrument IS typically

a reliable choice for achieving the criterion. “It depends” means that it maybe effective or about average, depending on the particular situation, but

it IS not likely to be a poor choice, And “use with caution” means that the Instrument should be used carefully if the criterion IS of particular concern

SOURCE: Office of Technology Assessment, 1995.

ally allowed to chose “equivalent” methods to

meet standards. The de facto requirements come

from the practice of setting and applying standards rather than the standard itself.

However, since most design standards were

written before pollution prevention became a

policy priority, they typically have not been based

on pollution prevention concepts or written in

ways that accommodate prevention options.

Thus, they tend to perpetuate the choice of control

technologies. Since pollution prevention often

involves process modifications rather than offthe-shelf technologies, continuing to use sourceby-source emission standards of any kind restricts

the opportunities for using pollution prevention

approaches.

Instrument-by-Instrument Comparison

● Product bans

Banning or phasing out a product deals directly

with the source of a problem but may require the

development of substitutions. Examples include

the domestic phaseout of lead in gasoline and

paints, the banning of polychlorinated biphenyls

under TSCA, and the international treaty on phasing out ozone-depleting substances, commonly

referred to as CFCs. A potential problem with

product bans, as discussed in chapter 3, is that

not all substitutions end up being as environmentally friendly as they might first appear or may result in shifts in the location or types of risk.

Product limitations, such as labeling and use restrictions, are not necessarily as effective at encouraging pollution prevention options unless

compliance costs or public pressure are high.

● Technical assistance

Since these programs are usually voluntary in nature, the decision about whether or not to use technical assistance is made by firms. For those that

do use the services, technical assistance has been
156 | Environmental Policy Tools: A User’s Guide

successful in getting firms to use prevention to address specific environmental problems.

The primary argument for using technical assistance has been that firms are much more likely

to adopt pollution prevention once they learn

about its advantages for specific problems and

have access to reliable technical and economic information (204). Whether this kind of assistance

alone is sufficient to persuade sources to pursue

pollution prevention rather than control strategies

on a continuous, long-term basis is not yet clear

(55). While the government has learned a great

deal about the value of technical assistance, and

especially the importance of change agents or key

individuals in the agricultural and energy policy

systems, application of this approach is relatively

new for achieving pollution prevention.

The voluntary, cooperative nature of technical

assistance is part of its appeal. However, the success of technical assistance programs lies in demonstrating to regulated entities that altering their

behavior and the way they think about solutions to

environmental problems can have tangible payoffs. This may require a long period of shared

learning and building trust between technical staff

in the government or vendor firms and the volunteering firm before the firm is willing to make major changes.

More than 60 programs are operating at the

state and local level today, but most are very

small. While some of the mature programs may

have up to 30 staff people, the average size is four

to five people. Thus, even the largest programs

“reach only a small fraction of facilities that might

benefit” (204).

Design standards

While there is no reason in theory for end-of-pipe

technologies to be selected as the model for design standards, they generally have been. The

model often becomes the de facto standard, despite the fact that design standards may be expressed as emission limits in the agency’s final

rule. For instance, even though CWA effluent

guidelines based on best available technology

(BAT) are expressed as effluent limitations, they

may be written into a permit as a technology, making prevention a difficult choice (6).

Even when a design standard remains as an effluent limitation, regulated entities face a dilemma. They can choose to minimize the regulatory

burden by using the technology they know is the

basis for the standard or they can attempt to lower

their abatement costs by finding an alternative but

pay the cost of proving equivalence to regulators

or the facility inspector.

EPA’s proposed joint rule for the pulp and paper

industry used prevention as the reference control

technology for best available technology and

made prevention the only way to comply by setting the measurement point for limitations after

the process but before the outlet pipe to the wastewater treatment plant. Environmentalists wanted

EPA to go further and select total chlorine free

(TCF) technology as the reference. EPA instead

offered regulated entities a break from monitoring

if they used the TCF technology once it was operating and meeting the effluent limitation.

Technology specifications

Technology specifications are straightforward:

they either are or are not based on a preventive

strategy. There are only a few cases where prevention has been chosen as a technology specification. One example is oxygenated fuel provisions

added to the CAA in 1990 to control carbon monoxide. Congress instructed EPA to give preference

to oxygenates made from nonfossil sources.

Under RCRA, landfill operators are required to

install specific technology, such as special liners

and monitoring systems, for hazardous waste facilities. However, this is at a point at which pollution already exists. If the standards raise the costs

of landfilling high enough and if those costs are

passed back to the waste generator, they create an

incentive for pollution prevention.

Liability

Anecdotal evidence suggests that liability provisions prompt regulated entities to adopt pollution

prevention. The Superfund statute, with its retroactive joint and several liability provisions, has
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 157

been one of the most effective strategies if judged

by this criterion because prevention is perceived

as the only sure way of avoiding possible future

liabilities. However, Superfund uses a strict liability approach; not all forms of liability create as

strong a set of pressures. In addition, impacts from

Superfund liability on industries other than the

petrochemical industry may be less profound or

absent (43).

When firms take into account future liabilities,

such as the estimated costs of future litigation and

cleanup, in addition to waste management or treatment costs, the comparative viability of prevention projects may increase. While future costs and

benefits can be difficult to quantify, newly developed cost-accounting systems include methodologies for quantifying future liabilities.

Harm-based standards

Because a regulated entity is free to choose the

technical means it determines is most cost effective for meeting the standard, a harm-basedstandard is neutral to the choice of prevention or

control. However, the fact that they tie the desired

outcome to the single-source level of emissions

can inhibit initiatives for process-based prevention solutions.

The way harm-based standards are expressed at

the facility level can affect prevention. Expressing

the standards as a mass-based limit, for example,

may increase prevention options, while using concentration limits for water emissions may restrict

options to conserve water use. Eliminating part of

a waste stream through water conservation might

cause a facility to increase pollutant concentrations even though total mass might decrease

(209). Mass-based emissions could become

technology forcing if an overall cap on emissions

is included.

Integrated permitting

The goals of integrated permitting may determine whether or not pollution prevention is chosen. These permits can be written in a way that

requires or favors pollution prevention strategies,

but that is not a necessary feature of integrated permits.

Permitting has traditionally been done separately for sources according to air, water, and

waste problems. One goal for integrated permitting is to help resolve these conflicts by allowing

multi- or cross-media tradeoffs. Another goal is to

change the way an organization approaches

choices about environmental solutions in order to

increase the adoption of pollution prevention

strategies.

For example, New Jersey’s integrated permitting program utilizes the information and experience gained from a required facility-wide

pollution prevention planning process. Before the

permitting process begins, a facility has already

examined all its process units (as sources of

nonproduct outputs to all media), identified

prevention opportunities, and planned an implementation schedule. Despite these types of efforts

in several states, it is too early to draw conclusions

about the impact of integrated permitting on the

adoption of pollution prevention strategies.

Tradeable emissions

Tradeable emissions allow regulated entities to

choose whatever method of compliance they determine is most cost effective, including paying

for releases, and thus are essentially neutral to the

choice of prevention versus control. No empirical

evidence to date suggests that these programs can

be counted on to stimulate prevention more than

control strategies, independent of the cost implications for the firms.

When pollution prevention is the least-cost option for industry, it may be chosen; but other influential factors may include the nature of the

environmental problem, the availability of prevention approaches that can produce results in a

timely manner, the extent to which the regulated

entities use methodologies, such as total cost accounting, and the presence of individuals who

strongly support pollution prevention.
158 | Environmental Policy Tools: A User’s Guide

Challenge regulations

Because the content and purpose of challenge

regulations could be so variable, pollution prevention is not necessarily an outcome. The Green

Dot program in Germany has had mixed results.

Although the evidence indicates that a reduction

occurred in some types of packaging materials for

large shippers, most other types of packaging

were recycled.

Although EPA labeled 33/50 a pollution prevention initiative,4 the agency used changes in the

TRI to measure success. Thus, either a prevention

or a control option that reduced releases from a facility would count. EPA did not ask firms to identify what percent of their reductions came from

prevention and to explain why pollution prevention was or was not chosen. A number of groups

are studying the 33/50 data to determine whether

the program’s flexibility did, in fact, result in

greater pollution prevention.

Pollution charges

Pollution charges, such as waste end fees, emission fees, tipping fees, and permit fees, are rarely

set high enough to change behavior, but instead

are used to raise revenue for environmental programs. However, even when they are set high

enough, they are absolutely neutral toward whether firms adopt a prevention, control, or payment

strategy. Pollution charges might encourage

pollution prevention if they are made avoidable

only through prevention (141).

Information reporting

Requiring information reporting may have two

potentially beneficial outcomes. First, the information collected may help policymakers make

better choices in the future to promote pollution

prevention. Second, the way a firm is required to

collect and organize information for submission

may help it learn more about its own processes and

identify opportunities for pollution prevention.

Attributing successful outcomes to information

reporting, however, may be difficult to justify given the many other influences on sources.

The RCRA Amendments of 1984 required certain hazardous waste generators to include their

waste minimization efforts in their RCRA biennial reports. In addition, generators who ship

wastes offsite have to certify on RCRA manifests

and in permit applications that they have a waste

minimization program in place. Despite claims

the wastes from the largest generators are being

minimized, there is no clear indication that the reporting requirements are the cause (206).

The Toxics Release Inventory, although enacted as a right-to-know measure, has also been

characterized as creating incentives for pollution

prevention. However, as an information reporting

tool for promoting pollution prevention, TRI initially had at least two drawbacks. First, it has

counted chemical releases from facilities but not

chemicals generated. Both prevention or control

options implemented on the site of a facility can

result in reduced levels of reported releases. Second, releases are not necessarily related in any

way to production levels.

Facilities subject to TRI are now required to

submit annual prevention and recycling reports

showing changes over the previous year, using a

production ratio. And facilities that claim reductions through pollution prevention must submit

qualitative information that help officials understand why and how pollution prevention happens.

State mandates for filing facility planning reports are still another example of trying to use

information reporting to promote pollution prevention. As of early 1994, 16 state governments

had enacted such laws (226). A major assumption

is that the planning process will spur organizational awareness and change as firms discover for

themselves the benefits of adopting pollution prevention.

It is too early to evaluate the impact of these

programs on pollution prevention efforts in the

private sector. Successful outcomes may depend

4 Under its original title of “Industrial Toxics Project,” it was part of the EPA Pollution Prevention Strategy published in February 1991.
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 159

highly on a firm’s existing culture and staff expertise. If a firm simply hires a consultant to create a

report that will comply with the requirements,

little learning may occur within the firm. On the

other hand, these laws may enable environmental

managers inside firms to push for pollution prevention (66).

States have also enacted information reporting

programs, such as California’s Proposition 65,

which allows regulated entities to choose between

prevention, such as reformulation to remove a

listed chemical, and warning labels for consumer

products. These programs have not been fully

evaluated for their pollution prevention impact.

Subsidies

Although the federal government does not offer

subsidies to regulated entities specifically for prevention, some states do in the form of financial assistance, such as grants, loans, or tax deductions

or credits, for prevention technology development, demonstration, or application (201).

Since a comparison of subsidies has not been

done, their impacts on the investment behavior of

regulated entities toward pollution prevention is

unknown. For example, it is unclear whether motivated firms find applicable subsidies or the

availability of the subsidy motivates the firms.

The effectiveness of subsidies for prevention

can be more difficult to verify than for pollution

control equipment. The latter is a discrete set of

easily recognized technologies, whereas prevention is synonymous with manufacturing processes

and products. Other countries have attempted to

solve this problem. The Netherlands, for example,

allows tax rebates only for a list of cleaner

technologies that are preselected on a periodic basis through a special review process.

❚ Environmental Equity and Justice

Environmental equity and justice seeks equality of outcomes, full participation by affected

communities in decisionmaking, and freedom

from bias in policy implementation.

Traditionally, concern about the distributional

effects of environmental protection policies focused primarily on the relative costs and burdens

placed on particular industries or on the differential impacts on small versus large or old versus

new control sources (see the following section on

costs and burdens). Less attention was given to

understanding how these policies might redistribute environmental risks and benefits among individuals (99). In fact, the thrust of much of the

theoretical literature has been that environmental

protection might hurt low-income individuals by

eliminating jobs or forcing facilities to relocate

(189a).

Over the past decade, however, even these

traditional concerns of environmental equity have

been recast toward determining the extent to

which specific groups of Americans may bear a

disproportionate burden of environmental risks.

This new focus is now widely referred to as “environmental justice”.5

The body of empirical research investigating

this focus is relatively new. However, initial studies indicate that some minority and low-income

communities have experienced adverse impacts

from discriminatory siting of facilities and from

the implementation of environmental laws (36,

124,194,199,221,225).

These studies generally conclude that minorities and those in low-income communities are

more likely to be exposed to higher levels and

multiple sources of environmental risks than are

whites and higher income neighborhoods. A num5 The literature remains unsettled about which words best identify this new focus. See, for example, D. Ferris, “A Challenge to EPA,” EPA

Journal 18:28, 1992; N. Walker and M. Traynor, “The Environmental Justice Movement: Two Cases in Point,” Environmental Law 12:3, 1992;

R.D. Bullard, “The Threat of Environmental Racism,” National Resources and the Environment, winter 1993, pp. 23-26, 55-56.
160 | Environmental Policy Tools: A User’s Guide

ber of other interpretations of these data have been

offered, and attempts to verify the data and, where

possible, to clarify the reasons for and the extent

of the disparities are continuing (18,20).

Advocates of environmental justice seek to

institute the following set of principles for decisionmaking on environmental issues: “right to

protection, prevention of harm, shifting the

burden of proof, obviating proof of intent to

discriminate, and targeting resources to redress

inequities. . .” (23). These principles restate environmental priorities to address the concerns of minorities and other vulnerable populations that

environmental issues are issues of equity, social

justice, and public health, not conflicts requiring

tradeoffs between health and economic well-being (24,25).

Environmental equity and justice is now one of

the standards against which environmental

protection policies are measured. For example,

federal agencies are now required to address the

“disproportionately high and adverse human

health or environmental effects of its programs,

policies, and activities on minority populations

and low-income populations” (268). The EPA,

which has characterized environmental justice as

concerned with identifying and addressing disproportionately high and adverse human health or

environmental effects in minority populations and

in low-income populations, incorporates it as one

of its six “guiding principles” for strategic planning (213). More recently, the Clinton Administration’s “10 Principles for Reinventing

Environmental Protection” incorporated ideas of

environmental equity and justice as well (32).

Factors for Comparing Instruments

The concept of environmental equity and justice

encompasses multiple concerns, ranging from

funding more research to identify the disparate

impacts of environmental policies to developing

more effective strategies for achieving the goals.

At the heart of the environmental justice concept

is the theme that environmental policies have discriminated against racial minorities and low-income communities in both direct and indirect

ways (63). A major concern is that, through their

neighborhoods, jobs, and diet, these groups are

exposed to more pollution than are other members

of the public.

Many of the strategies for pursuing environmental equity and justice, while important, involve initiatives that fall outside the scope of this

assessment. For example, efforts to reshape the

siting procedures for hazardous waste facilities in

the states can be important for achieving equity

and justice goals. However, procedural improvements for decisionmaking are not instrument specific in effect.

In this section, OTA has restricted its comparison of the policy instruments to three major components of environmental equity and justice:

 distributional outcomes of policies;

 effective participation in policymaking; and

 remediation of existing problems.

Distributional outcomes of policies

The redistribution of risks and benefits through

implementation of environmental laws occurs at

varying geographic scales. For example, some

areas of the country, notably urban areas such as

Los Angeles, have much higher concentrations of

air pollutants such as ozone than do rural areas.

Within a local community there may be large differences among neighborhoods in the relative exposure to hazardous or toxic substances. These

types of inequities, especially in the absence of

compensating benefits, are a primary concern for

achieving environmental equity and justice.6

This report looks at two specific types of distributional outcomes that are central for trying to

protect all members of the public. First, environ6 Economists have used the assumption that winners will pay losers to “wash out” the distributional inequities that ultimately develop in any

real-world implementation of policies. This has generally not happened, although the idea of direct compensation for siting has been adopted by

some states; see V. Been, “Compensated Siting Proposals: Is It Time To Pay Attention?” Fordham Urban Law Journal 21(3):787-826, 1994.
Chapter 4 Choosing Policy Tools: Seven Important Criteria 1161

mental equity and justice seek to address the issue

of protection for the most vulnerable populations,

especially since evidence exists that environmental regulatory agencies have failed to protect these

populations adequately in the past (189,208).

For example, in establishing water quality standards, proponents point out that fish consumption

data are usually averaged across populations and

may miss special sensitivity within smaller subgroups such as Native Americans (222). It is this

more sensitive group. according to advocates, on

which the regulations should be established since

they not only eat more fish but also more of each

fish, often including the head and tail, which are

parts with higher bioaccumulation (92).

Second, proponents of environmental equity

and justice are concerned that, once that level of

protection is set, the actual levels of exposure to

pollutants should not differ across individuals or

groups. For example, proponents argue that, if national standards are set for air pollution emissions,

no individual should be more exposed than another individual. Thus, differential exposure across

areas of the country or within local communities—so-called “hot spots’’—would not be acceptable. This proposition is based on the claim

for a “civil right to equal protection” from environmental harm (34,65,191 ).

Effective participation in policymaking

Another major component of environmental equity and justice is to establish informed and meaningful participation in all decisionmaking arenas

where specific environmental policies are developed (52). By forcing policymakers to consult

with communities and local grass-roots leaders,

proponents expect to achieve higher visibility for

their ideas and to change the regulatory culture for

environmental policymaking at the federal level

(35,61,191).

A major difficulty is often the discrepancy between the capacity of industry and government

and that of minority and low-income communities

to participate as equals. Language barriers, convenience of the forums, and lack of technical preparation are examples of problems that may have to

be overcome for individuals to get involved in

neighborhood and community problem solving

(26).

Remediation of existing problems

Some minority and poor communities also have

experienced discrimination when decisions have

been made about siting hazardous facilities and

about choosing priority sites for cleanup (98). Yet

efforts to establish remediation through equal

protection suits have been generally unsuccessful

(65). While remediation will continue to be a concern in the short run, because communities cannot

simply move away from their problems, the ideal

is to eliminate the need for remediation efforts in

the future by emphasizing pollution prevention

strategies.

Summary of Instrument Performance

• Effective: Information reporting, subsidies,

technical assistance

O It depends: —

V Use with caution: Tradeable emissions, challenge regulation, pollution charges

The concerns of environmental equity and justice are not easily addressed by the choice of

policy instruments. In fact, many of the proposed

strategies for achieving equity and justice—including redesigning administrative processes to

secure more meaningful participation, establishing an active enforcement and compliance program, requiring more financial and analytical

support of environmental justice issues, and

strengthening environmental goals—for the most

part require actions that are far beyond the scope

of this assessment.

Instrument choice is not a particularly effective

way to achieve those goals, although few of the

instruments actually impede the goals. In fact,

most of these instruments can be used in a manner

that is either consistent or inconsistent with seeking one or more of the factors that are part of environmental equity and justice.

The most effective instruments for achieving

environmental equity and justice are those that

can provide either financial or technical assistance
162 Environmental Policy Tools: A User’s Guide

Single-source

Fixed Target

Multisource

No Fixed Target

Environmental

equity and justice . . . .

Distributional

outcomes ● ● . ●

Remediation ● ● ●

● = Effective O = It depends V= Use with caution . = Average

NOTE These ratings are OTA’s judgments, based on theoretical Iiterature and reports of Instrument use. The evaluation of each Instrument on a particular criterion is relative to all other Instruments Thus, by definition most instruments are "average." “Effective” means that the Instrument IS typically

a reliable choice for achieving the criterion “It depends” means that it maybe effective or about average, depending on the particular situation, but

it is not Iikely to be a poor choice, And “use with caution” means that the Instrument should be used carefully if the criterion is of particular concern

SOURCE Off Ice of Technology Assessment, 1995

to community groups and other organizations to

enhance and improve their capacity to become involved in decisionmaking and to affect progress

toward local environmental quality (see table

4-4). Although boosting the participation of such

groups may help with assurance of meeting goals,

the purpose goes beyond that criterion to seek the

views and ideas of those individuals likely to be

affected by choices about priorities and programs.

Several instruments have the potential to provide funding to help local communities. For

example, although liability has been quite controversial, it nonetheless could provide a vehicle for

obtaining remediation funds for cleaning up environmental hazards. Subsidies can also be used in

similar ways. Technical assistance can increase

the capacity of communities to understand the

environmental risks in their communities and

prepare them for participation in technical proceedings. And information reporting by facilities and government agencies alike can be critical

for communities trying to evaluate the environmental risks they face.

In the case of distributional outcomes, instrument choice may bean important issue. For example, requiring all sources to adopt the same

pollution abatement capacity regardless of the

ambient environmental quality in an area, as a design standard does, cannot address the fact that

some areas may have multiple facilities and thus

face relatively higher exposure levels. In contrast,

harm-based standards, which are typically

based on the media quality in an area, could be

tightened for sources that are discharging pollutants into areas with relatively poorer air or water

quality.

Three instruments---tradeable emissions,

challenge regulation, and pollution charges—

may create serious problems if equity is a major

concern. The first two give firms or industries the

choice regarding which facilities will make improvements in performance and in which order
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 163

these improvements will be made. Thus individuals in one area of a region could be comparatively

worse off even though others are much better

off—even though the overall environmental performance for the industries or firms involved is

improved. In the case of pollution charges, firms

have the choice of paying the charge per unit of

pollution emitted or discharged rather than controlling or reducing the pollution.

None of the instruments per se are very effective at ensuring that groups are experiencing the

same exposure levels of pollutants. The real gains

for improving distributional impacts are likely to

come through improving the quality and level of

participation in environmental policymaking and

increasing efforts to secure remediation of existing problems. However, these changes are more

likely to be successfully pursued through changing social and political values rather than through

instrument choice.

Instrument-by-Instrument Comparison

Information reporting

Information reporting can aid the goals of environmental justice in several important ways. Information can be used by researchers to identify

ongoing environmental problems and to improve

our understanding of effects of exposure on individuals and communities, by citizens to improve

grass-roots participation in decisionmaking, and

by government officials to identify and respond to

inequities in the implementation of environmental policies.

For the public to participate fully in decisionmaking, communities need adequate notice, accurate information, and an understanding of the

community and individual risks involved. One of

the factors that led to the environmental justice

movement was the increase in public knowledge

about the nature of transfer and storage facilities

for toxic and hazardous waste provided by

changes in right-to-know laws and “cradle-tograve” manifests (35).

Publicly available information from facilities

can also be used by technical experts to help educate and empower local groups (35). Changes in

right-to-know laws have empowered minorities

and local communities. The Environmental Justice Committee of the California Comparative

Risk Project recently recommended that the state

expand community right-to-know opportunities

because of their demonstrated effectiveness in

several disputes (26).

Subsidies

The Environmental Justice Act proposed a number of subsidies to promote its goals (269). It contained provisions for grants, for example, to

support inspections of facilities and research on

environmental issues. It also directed EPA to establish user fees on toxic chemical facilities to be

used in funding the grants.

Grants are particularly useful instruments for

funding such projects as remediation work at existing facilities or abandoned property, technical

education and training of members of minority or

low-income communities to prepare them for careers in environmental science and engineering,

and research on health impacts in communities

with a history of high exposure to pollutants. EPA,

for example, is providing subsidies to several

health clinics, including one in Torrance, California, to help communities assess the health impacts

of high exposure levels to toxics (46).

Financial compensation to communities for accepting hazardous facilities has been a widespread

practice in states. The Massachusetts Hazardous

Waste Facility Siting Act, for example, has been

sited as a model for other states and Wisconsin has

experienced moderate success using compensated

siting. However, many grass-roots organizations

and communities have opposed the concept of

compensating communities for the inequitable

burden they bear by accepting a hazardous waste

facility (19).

Technical assistance

Technical assistance can be a powerful tool for

improving the capacity of communities to evaluate for themselves the status of environmental

problems in their communities and to work more
164 | Environmental Policy Tools: A User’s Guide

effectively with government and industry in developing solutions (191). For example, programs

can be developed to provide information about environmental problems and issues in the community’s primary language, to train local workers in the

kinds of practical skills needed to participate in

decisionmaking or in monitoring environmental

problems.

Technical assistance programs are currently

available under the Comprehensive Environmental Response, Compensation and Liability Act

(CERCLA) to help communities hire technical

advisors. However, administrative requirements

for obtaining the grants have impeded efforts to

take full advantage of them (52). Such technical

assistance is especially important for helping

communities understand and evaluate the cleanup status of remediation projects.

EPA has awarded a number of grants to local

organizations representing low-income and minority communities to implement programs to advance the goals of environmental justice. Six

Massachusetts community groups, for example,

received small grants for activities to reduce lead

contamination, complete research on air quality,

and survey public housing communities to identify environmental concerns of residents (44).

 Tradeable emissions

Tradeable emissions, one of several multisource

instruments that treat emissions from a group of

sources or facilities as a single source, might be

used with caution if distributional issues are a concern. In a tradeable emissions program it is possible that, even though the emissions cap is

stringent enough to protect the overall population,

the patterns of the trading may lead to very different levels of exposure for individuals. For example, one possible outcome is the further

aggravation of pollution hot spots in minority or

low-income communities and neighborhoods

(4,155).

This is not necessarily the case, however. As

discussed in the case study of the RECLAIM program in Southern California in chapter 2, little difference is expected for the Los Angeles area in the

exposure outcomes for minorities between RECLAIM and a more traditional regulatory alternative. Moreover, since the emissions cap is

increasingly stringent over the life of the program,

everyone should be better off.

 Challenge regulations

Challenge regulations focusing on industry sectors or large individual firms represent a potential

threat to the idea of emphasizing the distributional

effects of environmental policies. A major

strength of challenge regulations is that they set

standards at a larger geographic scale than the facility level in order to improve opportunities for

efficiency and innovation in meeting goals. They

also emphasize less formal administrative proceedings in favor of more consensus-based decisionmaking.

But when standards or targets to be met are established by industrial sector rather than for a facility or source, the distribution of environmental

impacts is uncertain. Particularly when standards

cover a relatively large geographic scale, the exposure patterns for the area will depend on the

choices of specific companies or facilities. However, since overall emissions would be reduced,

everyone should be less exposed than when the

program was initiated.

The implications of challenge regulations for

participation are uncertain. If decisionmaking

moves more toward negotiation between regulators and industry, the capacity of minorities and

low-income individuals to participate may be

even more constrained.

 Pollution charges

Pollution charges are unresponsive to concerns

about the unequal distributional impacts of environmental policies. Their strength lies in the simplicity of administration and uniform application

to all discharging sources. The disadvantages in

terms of equity and justice are twofold. First, such

uniformity in the implementation of charges prevents taking actions to improve hot spots by ratcheting down the allowable discharges from specific

facilities. And second, a facility has the right un-
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 165

der such a program to pay the fee and continue

discharging regardless of the impacts on environmental quality.

One possible advantage of pollution charges

might be the use of fees to fund remediation efforts in particular communities. The charges

might be placed in a fund for use in the future or

used to clean up existing sites.

Product bans

Actions to alter product status may enhance the

goals of equity and justice by benefiting all of us.

However, they may also increase protection for

minorities and the poor, who are often more exposed than others. For example, pesticides are

more likely to be handled by farm workers, increasing their exposure through multiple pathways (144). Since toxic and hazardous products

are more likely to be handled by minority and poor

employees (60), efforts to reduce risks through

product bans or limitations might provide more

direct benefits to these workers.

Technology specifications

The uniformity of technology specifications

goes to the spirit of ensuring that any facility that

is built uses equally performing technology. However, since these standards are uniform for

sources, they will not be effective at addressing

pollution problems in areas with multiple sources

or with unique conditions.

Formulating these standards requires considerable expertise and knowledge of the equipment

and industrial setting. The process for rulemaking

can also be lengthy and focus on highly technical

issues. These circumstances may work against

some grass-roots organizations participating effectively in formulating policies.

Design standards

Design standards are often established based on

a determination of what it is possible for an industry to do, rather than according to public health

concerns. By requiring that every facility do the

same thing, design standards cannot accommodate all of the concerns of communities that already have a large number of facilities in the area.

While new sources usually have to adopt stateof-the-art technologies, older facilities may not

have to do so, at least until their permits are renewed. Especially in communities which have a

large number of older facilities, this instrument

will be generally unresponsive to concerns about

distributional impacts. Yet, as discussed in the

section on assurance of meeting goals, design

standards may be a safer bet for getting actual reductions in pollution levels than more complex

approaches, simply because they are relatively

easy to administer (95).

Harm-based standards

Since harm-based standards are typically expressed as a mean or maximum permissible discharge from a particular source, they can be

adjusted to respond to differences in exposure levels at the community level.

For problem areas such as those with unique

meteorological conditions, harm-based standards

could be particularly useful for bringing the ambient quality in line with surrounding areas. However, efforts to base harm-based standards on the

most vulnerable populations rather than on average populations may run into difficulties because

of the statutory language describing the basis for

the standard.

Harm-based standards are not very effective in

promoting participation by a wide range of individuals. The technical quality of most proceedings makes it difficult for most members of the

public to take advantage of the public participation opportunities offered under administrative

law, such as public notice of rulemaking, notice

and comment periods, and representatives allowed to participate in siting, regulatory negotiation, etc.

Integrated permitting

Integrated permitting, in contrast to the other

multisource instruments, is used to increase flexibility in controlling emissions across sources in a

single facility. Thus, it is unlikely that substituting

an integrated permit for a single media or single-
166 | Environmental Policy Tools: A User’s Guide

source permit would create a large difference in

the distributional impacts around a facility. Overall, permits implemented as facility bubbles, allowing facility-wide trading of source emissions,

should be neutral for equity and justice concerns.

There is no evidence to date that integrated permitting has explicitly incorporated concerns

about greater participation by minorities or other

member of the local public. In fact, these permitting initiatives have been developed by state and

industry officials, rather than by the environmental advocacy groups (149). However, it seems

likely that a more systematic, comprehensive inventory of a facility and the subsequent filing of a

permit with that information in one place could

improve the quality of information available to the

public.

Liability

Liability could provide a mechanism for seeking

funds to be used in remediation work, thus aiding

environmental justice goals. The CAA and RCRA

do not provide a mechanism for those alleging injury from pollution to seek compensation; the

CWA, as amended by the Oil Pollution Act (OPA)

following the Exxon Valdez incident does allow

compensatory damages. CERCLA, or Superfund,

which imposes strict and joint and several liability

on anyone whose disposal of hazardous substances causes a property owner to incur remediation or cleanup costs, has been widely criticized

(248). Nonetheless, it has given members of the

public a mechanism for getting support for cleanup efforts (52).

COSTS AND BURDENS

Although meeting environmental goals remains a

priority, the public is also concerned that these

goals be achieved at the lowest possible cost and

with the fairest allocation of burden among companies and between government and industry.

Congress has seldom set goals without including a

concession to the costs and burdens imposed. In

some instances, however, the desire to provide

sufficient protection of human health or the environment has resulted in the use of strict source

controls and additional requirements, such as continuous monitoring, which has added significant

costs and burdens.

One of the most pervasive concerns about environmental protection programs in the United

States has been that they are costly to implement,

thus reducing productivity and placing firms at a

competitive disadvantage. Certainly, identifying

and implementing policies that are effective at improving both cost-effectiveness and fairness has

not been an easy task.

Concerns about the administrative demands

on government has also intensified. Especially

pertinent to this study have been claims that some

alternatives for protecting human health and the

environment offer the advantage of placing a significantly lighter burden on government, either by

shifting the burdens to ward other groups—industry or consumers—or by loosening the level of

control altogether.

The following two sections—cost-effectiveness and fairness and demand on government—

present OTA’s assessments of which instruments

might be most effective in lessening burdens and

lowering costs.

❚ Cost-Effectiveness and

Fairness to Sources7

Cost-effectiveness and fairness to sources considers protection of human health and the environment at the lowest possible cost and with the

minimum burdens on industry.

Concern about the impact of environmental

regulations on U.S. productivity as well as the impact of compliance costs on sources has been a recurring theme in the environmental policy

community since the 1970s. However, current ef7 Parts of this section are based on C.S. Russell and P.T. Powell, “Efficiency and Fairness of Candidate Approaches to Environmental Pollution Management,” umpublished contractor report prepared for the Office of Technology Assessment, U.S. Congress, Washington, DC, May

1994.
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 167

forts to improve the performance of the U.S. economy in comparison to other countries have

heightened the scrutiny given to the relative effect

of environmental policy choices on cost-effectiveness and fairness (73,88,197).

One of the most consistent criticisms of environmental regulations in the United States has

been that they force very inefficient activities on

sources while also placing heavy administrative

demands on regulatory agencies (88). Such criticisms often assert that using different policy

instruments, particularly economic incentives,

would result in accomplishing the goals at lower

costs for both sources and the government (4,22,

145,200).

Evaluating which instruments use resources in

the most efficient and fair way, given an environmental goal, has sparked considerable academic

and political debate over the past 2 1/2 decades

(37). However, a major barrier to comparing the

efficiency of policy instruments has been the paucity and poor quality of information on the social

benefits of pollution abatement, in comparison to

the availability of reasonable, if imperfect, estimates of compliance costs (9,192). Moreover,

there is little systematic empirical evidence that

economic incentives are effective in changing the

behavior of sources in the desired direction (81).

In fact, experiences with real-world implementation of these instruments suggest that the conclusions about relative performance on efficiency

that are derived from theoretical studies should be

interpreted cautiously (197). Yet, even when political compromises and negotiation among stakeholders in a particular context make pure

efficiency unreasonable to seek, it may be possible to identify second-best strategies that allow

at least some potential for cost savings.

Factors for Comparing Instruments

Instruments that are cost effective—for sources

and for society as a whole—have a relatively low

administrative burden for industry and for government and are viewed by sources as evenhanded.

Despite continuing efforts to implement strategies

which are both cost effective and fair across the

board, most situations seem to require tradeoffs

among some the following four components:

 cost-effectiveness for society;

 cost-effectiveness for individual sources;

 fairness to sources; and

 administrative burden for sources.

Cost-effectiveness for society

This study does not attempt to assess the benefits

or value of a legislatively determined goal, but

rather assumes that Congress has chosen a statutory goal that captures the desirable level of social

benefits (97,142,170). Thus cost-effectiveness for

society considers the total industry and government expenditures per unit of pollution abatement

required to meet the environmental goal. The

maximum net benefits to society for accomplishing a particular goal would be achieved by use of

the instrument with the lowest total of expenditures by industry, government costs, and transfers

of money to and from government—for example,

through taxes or subsidies.

Cost-effectiveness for individual sources

Another measure of cost-effectiveness is at the

firm level—that is, does the instrument allow a

firm to minimize its costs for compliance. In most

studies, the goal is assumed to be an unchanging

one and the regulator and the firm are interested in

finding the least-cost solution in that particular

context (21). However, the potential of long-run

cost-effectiveness, where an instrument allows

the firm the flexibility to continue seeking leastcost adjustments over a period of time, is also important. The following sections on adaptability to

change and technology innovation and diffusion

discuss the importance of allowing sources and

regulators more flexibility to respond to dynamic

conditions.

Some instruments can be cost effective for society but not for a firm, and vice versa. This is particularly true for those instruments that transfer
168 | Environmental Policy Tools: A User’s Guide

money from firms to government (taxes) or from

government to firms (subsidies).

Administrative burden for sources

Another concern for regulated industries is the extent to which various instruments add burdens, especially those that do not seem necessary to

accomplish the environmental goal. The most typical responsibilities firms have are problem solving (e.g., information, technologies, prices,

expertise, etc.) and monitoring (auditing and reporting emissions of pollutants). Unless they expect changes to a regulatory program to be

particularly efficient compared to other options,

sources may resist taking on such additional costs

as new analytical studies, extensive reporting requirements, fees for service, or certification costs.

This may be the case particularly when sources

view the requirements as unrelated to achieving

environmental goals or as adding legal costs or delaying production schedules. On the other hand,

they may be supportive of an alternative that, although adding initial costs, gives the firm greater

responsibility for and control over the development and implementation of solutions.

Fairness to sources

Fairness is usually in the eye of the beholder. Accordingly, this report assesses the perspective of

sources on how the instruments might affect either

their choices or their competitive position vis-àvis other similar firms. (For a consideration of

fairness from the perspective of how instrument

choice affects individuals and communities, see

the preceding section on environmental equity and

justice.) When choosing among environmental

policy instruments, an agency typically confronts

an inherent tension between treating all sources as

if they were the same (uniformity of treatment)

and trying to assure that all sources experience the

same outcomes (uniformity of outcomes) because

few policies, if any, can achieve both.

Within an industrial sector and even within

some firms, there are always important differences in size, age of facilities, location, financial

arrangements, profitability, etc. These differences

ultimately create tensions for government in making specific policy choices. For example, under

what circumstances might it be best to treat small

and large firms alike, even though the small firms

might be placed at a competitive disadvantage?

Are there other circumstances in which it might be

better to choose a different policy that regulates

small and large firms very differently in order to

promote a more equal outcome among all the

sources? Uniform national standards could be

judged “fair” in the sense that everyone is treated

the same. But differences in firm characteristics,

such as type of industry, type and volume of production, location and age of facilities, and

technology performance, may have more bearing

on how a firm is affected by a policy and thus how

it assesses fairness.

Another dimension of fairness to sources is the

extent to which a policy instrument allows a firm

some autonomy in choosing environmental strategies for itself. Although firms argue that this autonomy gives them the requisite flexibility to

achieve least-cost solutions, the principle of private sector control over internal decisions regarding process- and product-related changes is also

an ideological issue in American culture.

Government policies can sometimes be crafted

to satisfy all of the sources, but not very often.

Most approaches involve tradeoffs between degrees of equality of treatment and equality of outcome (106).

Summary of Instrument Performance

Effective: Tradeable emissions

It depends: Integrated permitting, challenge

regulations, information reporting, technical assistance

 Use with caution: Product bans, technology

specifications

The most effective instruments for promoting

cost-effective and fair use of resources are those

that expand the range of options for sources at the

facility level or higher to respond to environmental regulations. This will be particularly true

where high variability in marginal abatement

costs among stationary sources provides the po-
Chapter 4 Choosing Policy Tools: Seven Important Criteria 169

Fixed Target

Single-source Multisource

● = Effective O = It depends V = Use with caution . = Average

NOTE: These ratings are OTA’s judgments, based on theoretical literature and reports of instrument use. The evaluation of each instrument on a particular criterion is relative to all other instruments. Thus, by definition most instruments are “average. ” Effective” means that the instrument IS typically

a reliable choice for achieving the criterion. “It depends” means that it maybe effective or about average, depending on the particular situation, but

it is not likely to be a poor choice. And “use with caution” means that the instrument should be used carefully if the criterion IS of particular concern

SOURCE: Office of Technology Assessment, 1995.

tential to achieve significant cost savings by relaxing uniform control requirements for all sources.

Conversely, those instruments for which we recommend using caution—product bans and

technology specifications-require uniform

control of all sources, regardless of the cost.

Tradeable emissions offer the best opportunities for efficient and fair use of resources in comparison with other approaches (see table 4-5).

Tradeable emissions give firms holding facility

permits the options of trading, pollution abatement, or a mix of the two, depending on which

strategy meets their needs, as long as the overall

choices of multiple firms are within the program

rules and will meet the ambient environmental

standards established for an airshed or water quality limited stream (16).

Integrated permitting and challenge regulations can open opportunities for such interfirm

strategies as trading, information sharing, and

technology innovation or diffusion within an industrial sector. For both instruments the initial

costs and hassle of establishing a program and

maintaining adequate monitoring might be substantially increased for both industry and government, although over the long run this may become

less burdensome.

Information reporting and technical assistance also have the potential to be quite cost effective and fair, depending on their design and

associated requirements. Although information

reporting usually requires additional work by

firms, they usually prefer this approach since it

leaves choices about reduction strategies to the
170 | Environmental Policy Tools: A User’s Guide

firm. Similarly, technical assistance is usually free

to firms and so is obviously cost effective for

them. However, neither instrument requires that

firms produce results toward the environmental

goal, so we have rated them as “it depends.”

Pollution charges, while cost-effective for society, ultimately fall short on the fairness issues.

Charges allow firms the flexibility to identify the

point at which it is more cost effective for them to

pay the charge than to reduce pollution. Also, a

charge system, once in place, is relatively easy for

government to administer in comparison to many

of the other instruments. However, firms are not

likely to consider paying both the cost of pollution

reduction investments to meet the goal and

charges on the remaining pollution as fair.

The instruments that we have rated “use with

caution”—technology specifications and product bans—are usually implemented for other reasons, such as assurance of meeting goals. Because

they require all firms, facilities, or products to

meet the goal in exactly the same way and within

the same timetables, they restrict opportunities for

identifying facility- or industry-specific, leastcost solutions in the short run. In addition, locking

the technology standard or product restriction into

a firm’s production routines is likely to create a

disincentive to seek a more efficient solution. The

uniform treatment of sources could be considered

fair only in the restricted sense that each source

must meet the same requirement. The widely disparate impacts on the expenditures required by

firms within the same industry or across industries

may be perceived as unfair by the majority affected.

The remaining instruments fall somewhere in

the middle. That is, they could be efficient or fair

depending on the particular context in which they

are used, but the inherent characteristics of the

instruments themselves do not seem as promising

for success on this criterion as do tradeable emissions, integrated permitting, challenge regulations, and technical assistance. Other tools, like

subsidies, may be very cost effective for firms, for

example, because they are free or relatively low in

cost to the firm. However, other factors such as the

costs to government or the perception of lack of

uniform availability because of resource constraints restrict their overall performance on this

criterion.

Instrument-by-Instrument Comparison

Tradeable emissions

Tradeable emissions have the potential to perform very cost effectively and fairly. They offer an

opportunity to lower per-unit expenditures for

pollution abatement. Firms are given flexibility to

seek least-cost solutions and a clear set of rules, allowing the government to get out of the way once

the targets have been established. In addition,

most firms are already familiar with permits and

thus may be comfortable with the idea of a permitbased system.

However, early efforts to establish RECLAIM

suggest that, at least in the short run, the analytical

and administrative burdens on both industry and

government will be considerable (15). These additional transaction costs lessen the cost-effectiveness of abatement under a tradeable emissions

regime, although they may lessen over time as

agencies gain more experience.

The initial allocations of permits can be every

bit as time consuming and analytically difficult as

harm-based and design standards. In addition, in

the end they may not be evaluated as fair by all

since the process and outcomes are likely to reflect

political compromise rather than optimization of

efficiency concerns. Any efforts to change the permit allowances or schedules once they are in place

may be viewed as unfair because it would be

changing the rules. However, once the initial allocations are set, no firm can be made to trade or to

be worse off with a tradeable emissions program

than it would be with a straight harm-based standard written into a permit.

Integrated permitting

One of the key arguments for using integrated

permitting is that it is more cost effective for both

sources and the government agency than permitting a facility separately for air, water, and solid

waste. Cost savings could be realized if the firm is

able to find more cost-effective ways to meet ex-
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 171

isting requirements or if the firm and agency incur

fewer administrative costs because of the coordinated permitting process.

However, at least initially, the learning curve

for this instrument may require more investment

of time and resources for writing new permits for

which there is no model or example (149). Firms

may be able to identify ways to prevent pollution

at a lower cost than reducing pollutants in some facilities. However, early experiences in New Jersey

and in Minnesota suggest that states and the

sources have underestimated the personnel, research, documentation, and time required to complete the permits.

Nonetheless, if a facility is large enough and

has multiple sources of the same pollutant, such as

many of the refineries in the mid-Atlantic and

Gulf Coast area, a facility-wide harm-based standard (or bubble) may be a very cost-effective approach for pollution control and would be judged

more fair by sources than source-specific emission limits. The 3M plant in Minnesota, for example, has used the integrated permitting tool to

establish a facility bubble in which they have a

VOC facility cap rather than specific source limits. To satisfy concerns about violations, 3M developed a continuous emissions monitoring

system (149).

Challenge regulations

Challenge regulations redirect the government’s

effort from facility level standards to the next level

up (e.g., industry or regional level standards), allowing firms to determine for themselves how

they intend to comply, thus providing an opportunity for an increase in cost-effectiveness for firms

and a decrease in overall abatement costs in comparison to the costs of using uniform source controls. The opportunities for cost savings at the

national and firm level also improve because

sources participating in determining the means for

meeting the targets can identify potential market

and technology constraints. In addition, because

of their ability to participate, sources may see this

approach as generally fair for meeting goals (152).

The Dutch have used a type of challenge regulation that combines statutorily-based, long-range

environmental targets for industry sectors and a

system of permits specifying the level of control

should the targets not be met. Once the government sets the targets, it works with specific industries or even individual large firms to establish

agreements outlining how the targets will be met.

Although data are not yet available to assess

whether or not the firms involved believe they

have been able to achieve more cost-effective

solutions than they would have under another approach, some potential benefits from participation

in such an approach include overall savings at the

industry level through, for example, emissions

trading, cooperative activities to spur technology

innovation or diffusion, and reduced financial liability (39,134).

Germany’s Green Dot program, which encourages reduction of packaging waste, is also an example of challenge regulation. The mixed results

achieved to date suggest using caution if adopting

this approach in order to achieve the best possible

results.

The United States has had no experience with

challenge regulation, although the 33/50 program

is somewhat similar. The major component 33/50

lacks is the backstop of mandatory requirements

should industry fail to meet the targets established.

The primary concern over fairness to sources

focuses on companies that may refuse to participate in pollution abatement efforts (free riders),

forcing other firms to overcomply or risk failure

(53). Thus industries may want the agency to enforce challenge regulations once choices have

been made. Concerns may also exist over the potential for corruption in reporting and compliance

activities given the difficulty of monitoring. However, the potential for industry acceptance of environmental targets established through challenge

regulation is high given industry’s participation in

determining the feasible means for meeting the

targets (39).
172 | Environmental Policy Tools: A User’s Guide

Information reporting

Information reporting by firms regarding the

types and quantities of pollutants emitted provides the agency and the public information about

some of the environmental impacts of facilities.

Political choices about priorities for environmental protection, either locally or nationally, can thus

be made more carefully (11,12). Accessible information about facilities in an area could be used

by the public in making such choices as where to

live, when to seek actions requiring a facility to

improve its performance, etc.

Possibly of greater importance, information

reporting may induce firms to identify the magnitude of problems and develop solutions voluntarily (12). Each firm can weigh the costs of

control against the benefits from improved public

perception. While this allows each firm to choose

the most cost-effective means to lower emissions,

this may not be a particularly fair way to lower

emissions.

Costs to government come in the form of administrative responsibility for database development, management, and, if desired, distribution to

the public. However, information reporting programs such as the TRI may be less burdensome for

government to administer than an alternative regulatory scheme.

Technical assistance

Technical assistance is essentially a cost-reducing program for sources because the government

provides the infrastructure costs for maintaining

state-of-the-art expertise and outreach capacity.

Firms that choose to participate are not obligated

to use the assistance they are offered. If they do not

benefit from the assistance, the high costs to government would obviously outweigh the cost savings to industry.

Nonetheless, most programs are directed at

small firms that may operate with limited information concerning the nature and impact of

their emissions or what the best practices might be

for minimizing emissions. Programs that disseminate information or turnkey programs utilizing

new abatement capability, for example, could provide cost savings. (See the following section on

technology innovation and diffusion for a discussion of diffusion of new technologies.) Under

these circumstances, technical assistance programs have the potential to help firms make more

cost-effective decisions about meeting environmental regulations. The ultimate test for the costeffectiveness of technical assistance programs is

the extent to which they are successful in motivating the kind of behavioral changes regulators

want.

 Product bans

Product bans and limitations are not used because of concern over efficiency; in fact, almost

no literature exists that examines their performance on efficient and fair use of resources. In

addition, firms faced with restrictions on production, marketing, or sales are unlikely to believe

that they are fair, although a case can be made that

they produce a uniform result and thus are fair to

consumers. Sources are not likely to consider such

bans as fair without very compelling evidence of

risk, since they will have considerable “sunk

costs” invested in the products. However, a case

can be made that they produce a uniform result for

consumers in that no one has access to them.

Product bans are typically reserved for cases

when the potentially negative impacts of a particular single-purpose product are known to be large,

such as with spraying a particular pesticide, using

lead paints, or allowing use of a product that

becomes hazardous upon disposal. In these

instances, simply banning the product is a quick

way for the government to provide protection with

a reasonable degree of assurance of meeting

goals.

 Technology specifications

Technology specifications are not implemented

to achieve cost-effectiveness across firms. Requiring all sources to use identical equipment or

placing uniform restrictions on techniques obviously constrains opportunities for firms to seek

least-cost solutions. In addition, requiring all

firms to solve problems in an identical manner,

despite such meaningful differences as location,
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 173

technological capacity, and marginal abatement

costs, is unlikely to be considered fair. These standards are seldom used and the evidence suggests

that technology specifications are not adopted

with efficiency in mind. They could only be considered fair in the sense of treating all sources the

same.

Harm-based standards

Because harm-based standards are controlled

on a source-by-source basis, they are only average

in comparison to other instruments on cost-effectiveness, even though they allow firms or facilities

to choose the means through which they comply.

Firms are free to adopt new technologies to improve their productivity, costs, or environmental

performance, yet there is no specific incentive for

firms to do so.

In addition, the administrative burden for government is relatively high. (See the following section on demands on government for more detailed

discussion of this issue.) For example, the analytical work required to establish harm-based standards is usually very demanding and resource

intensive. Also, monitoring requirements for

harm-based standards are more extensive than for

other instruments.

With a harm-based standard, the ambient

condition of the environment typically determines

the ultimate emissions limit that all sources will

face (e.g., tons per day out of the pipe, averaged

over a 24-hour period).8 On the one hand, since a

harm-based standard is defined by what is good

for human health or the environment, it treats all

sources the same and, in that sense, may be considered fair. On the other hand, precisely because

sources across industries are typically very different, some industries may believe that in a particular instance harm-based standards place a

disproportionate burden on them in comparison to

other industries. Firms can make a decision to shut

down a facility in an area or move to another location to escape onerous standards in a particular

area, but they may not save enough to make the

move worthwhile.

The fact that sources are given the flexibility to

meet a harm-based standard in whatever manner

they choose may seem fair to industry. This is because firms value the increase in flexibility and

slight decrease in government involvement in

their facilities as a good thing, independently of

the implications for efficiency.

Design standards

Design standards are usually based on a model

technology or technologies, but are often expressed as emission limits. Thus, firms have some

flexibility to meet the emissions level or to adopt

the model technologies or an “equivalent”

technology.

The original purpose of design standards was to

require regulated entities to improve their pollution reduction technologies continuously, in part

to provide markets for new technologies, but the

reality has been that once a facility complies with

the standard, there is no specific incentive to do

anything more to save money (227), unless innovations with much improved performance or

cheaper costs become available. In those cases,

firms might adopt those innovations if the transaction costs of changing technologies were not prohibitive.

Since production and treatment technologies

may differ across firms and facilities even within

an industry, design standards may constrain a regulated entity’s choices and thus reduce some opportunity for cost savings.

Design standards typically place a moderate to

heavy burden on government for establishing the

standards. Moreover, since they are typically implemented uniformly across similar firms, design

standards are regarded as unfair because they ignore the current level of pollution, differences in

8 In contrast, for a design standard the technological capability of the source type determines the kind of emissions limit (e.g., parts per

million, maximum concentration level, no averaging).
174 | Environmental Policy Tools: A User’s Guide

facility designs, and often widely varying costs of

control.

It is doubtful, however, that design standards

have ever been utilized with efficient and fair use

of resources as the primary concern, except to the

degree that they incorporate balancing tests such

as “achievable,” “feasible,” “available,” etc. They

are typically implemented because the government can define what it wants, at least as a minimum requirement, and they are comparatively

easy to enforce.

Pollution charges

A pollution charge has long been advocated by

economists as having the greatest potential for

cost savings, both for industry and government.

However, the use of charges as an instrument to

force pollution abatement, rather than to raise revenues, has not been widely adopted anywhere.9

Moreover, the hope that a charge can be based on

an individual source’s marginal damages at the

optimal level of pollution or emissions in relation

to the environmental goal is probably impossible

for an agency to realize.

The open-endedness of charges does offer a

“second best” type of efficiency by providing

firms the discretion to determine how to reach as

cheaply as possible the level of pollution discharges it decides it must. Depending on how the

program is established, the open-endedness could

also provide an incentive to continue to reduce

discharges, at least up to the point at which it

would be cheaper to prevent or control pollution

than to pay the charge.

The analytical burden to government of this approach could be relatively moderate, especially if

the pollution charge is technology based and remains fairly static. The more frequently the government decides to adjust the charge upward to

keep pressure on firms to reduce emissions, the

more analytically and politically difficult the

charge program would become. In addition, as

mentioned earlier, firms are not likely to consider

it fair to pay for investments to meet the environmental goal and continue to pay for discharging

the residual pollution.

Charges used to reduce solid waste, through

making it very expensive for corporations or citizens to dispose of wastes (e.g., per-bag fees), are

typically designed both to raise revenues and to

change behavior. These kinds of charges, set

through some sort of percent reduction targets,

may be relatively inexpensive ways for society to

induce desired behavior.

Liability

Theoretically, liability provides a rough signal to

a firm of the costs of exceeding desirable pollution

levels. Since liability provisions only require action when a party believes damage has occurred

(post facto), the ongoing burden for administration of a program is relatively small. However,

proving causality for damages may be quite

burdensome for a range of the stakeholders. Firms

do not always view such provisions as fair because

they often have to retain insurance and take actions that are designed to protect themselves financially rather than directing that money toward

protecting the environment. The uncertainty

about both whether or not damage will occur and

whether or not they will actually have to pay for

damages in the future can lead sources to overcomply or undercomply, either of which would be

inefficient (21).

Subsidies

Subsidies may offer an effective incentive for

firms or other entities to adopt abatement measures because they reduce the financial impacts

and provide an easy enforcement mechanism for

the regulator. Because subsidies by definition are

free, they will lower a firm’s or municipality’s cost

to achieve the environmental goal in the short run.

However, if the subsidy is restricted to certain

methods for achieving a goal, it may not lead to

the most cost effective approach from society’s

9 European countries have experimented with pollution charges, although the programs are primarily oriented toward revenue raising.
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 175

perspective. For this reason, subsidies might be

most cost effective when restricted to use during

transitional periods, for example, to speed adoption of new technologies.

The case of the deposit-refund system as a subsidy offers potential for efficient pollution control

through the use of self-financing (the deposit) and

a reward (refund) for proper disposal. The lowered

costs of enforcement and reduced motivation for

evasion would offer savings for government.

❚ Demands on Government10

Demands on government concern the costs and

administrative burdens placed on government

by requirements to protect human health and

the environment.

One of the most persistent complaints about

current approaches to environmental protection is

that they require too much involvement by government agencies, costing taxpayers money and

often delaying companies ready to get on with the

task of improving environmental performance.

Rather than simply setting the targets and getting

out of the way so that sources can choose the best

strategies for meeting the targets, government

agencies spend too much time and too many resources deciding what each type of source must do

and then enforcing rather than facilitating compliance. According to this view, instruments that

use incentives to reward improved environmental

performance or rely on voluntary efforts by companies would be much cheaper for government to

develop and administer.

Although much of this criticism is directed at

the federal agencies, especially EPA, a majority of

the oversight, implementation, and enforcement

of federally mandated environmental regulations

takes place at the state level. Moreover, states have

discretionary authority in many areas to go beyond federal requirements. Thus, in comparing

how effective the instruments might be at minimizing the demands placed on government, both

federal and state governments are considered.

Factors for Comparing Instruments

In order to assess the relative demands placed on

federal and state administrative agencies by the set

of instruments, OTA uses the following two components:

 costs, and

 ease of analysis.

Costs

Governmental agencies expend considerable resources in the course of formulating and implementing environmental protection programs. The

federal government spends more on environmental protection than the states. Yet, over the past 15

years, EPA’s budget has decreased, while many of

the states have held their expenditures at a

constant level or actually increased in some areas

(154). In 1992, the federal and state governments

spent an estimated 1.8 billion in current dollars on

regulation and monitoring activities, or 2 percent

of estimated total expenditures on pollution abatement and control in the United States (171).

Even though this is a relatively small proportion of the overall expenditures, differences in the

instruments’ requirements for analytical support,

rulemaking, ongoing administration and implementation, monitoring, and compliance activities

suggest opportunities for reducing or reallocating

expenditures. Information costs to government

for becoming an expert on a particular industrial

sector, for example, can be very high; in some

instances, these costs may restrict the government’s ability to know what it should in order to

regulate effectively. Those instruments that must

be established through the rulemaking process extract additional resources from the agency in the

10 Parts of this section are based on T.O. McGarity, “Assurance of Meeting Environmental Goals,” unpublished contractor report prepared

for the Office of Technology Assessment, U.S. Congress, Washington, DC, May 1994; and S.A. Shapiro, “Rethinking Environmental Change:

Policy Instruments and Adaptability to Change,” unpublished contractor report prepared for the Office of Technology Assessment, U.S. Congress, Washington, DC, August 1994.
176 | Environmental Policy Tools: A User’s Guide

form of time and preparation of supporting documentation. For example, a major rule may take

tens of thousands of pages of documentation, responses from industry and other stakeholders, and

even trying to change mistakes in these rules can

be a formidable undertaking.

In addition, multiple levels of government may

also be involved in administering and enforcing

the instrument. Some instruments may require a

level of monitoring and enforcement by the state

that is expensive for the agency in terms of personnel and documentation. Problems such as variability in processes, equipment malfunctions, and

operator errors may compound the cost of monitoring for some instruments. For other instruments, the initial implementation may be

relatively simple and straightforward but once in

place more extensive enforcement efforts are required.

Ease of analysis

Ease of analysis concerns the degree of analytical

complexity an instrument poses for the regulatory

agency in translating the congressional goal into

actions that sources can understand and implement. When Congress establishes risk goals, the

task of determining the level of exposure that

poses an acceptable risk to human health or the environment is usually left to the implementing

agency. Congress most often states acceptable risk

in general terms.11 Occasionally, however, risk

definitions have been quite specific (250). Similarly, when Congress enacts an abatement goal,

usually stated in terms of “best efforts” for reducing pollution, the agency must identify those

technologies that will satisfy the congressional

language.12

Instruments used with a risk strategy may require more analytical work and be more controversial because of the scientific uncertainty

involved and the need to update the goals continually after they are put in place. Those that are used

with abatement strategies may also be resource intensive, but once in place require less continual revision.

Regardless of whether Congress chooses a risk

or abatement goal or a mix of the two, EPA must

usually complete a range of analyses to characterize the problem posed by the particular process or

product and alternative ways to handle that problem. It must also document its analyses in sufficient detail to withstand the rulemaking process or

other challenges to come in the implementation

phase. Analyses might include scientific studies

to establish pollutant pathways, engineering studies which document the best technological, designs, cost-benefit analysis of the potential

regulatory impact, and cost-benefit analyses of

postimplementation impacts. The uncertainty

and/or difficulty of interpreting the technological,

economic, scientific, and socio-political data can

be daunting for regulators. At a minimum, analytical complexity can prolong the period required

for translation, provide opportunities for challenges to the agency’s efforts, and increase the opportunities for errors in translation.

The credibility and certainty of the supporting

analytical work and documentation, the level of

institutional resources committed to implementation, resistance by regulated entities or the public,

11 Examples of this type of statutory goal include setting National Ambient Air Quality Standards (NAAQS) at a level that protects the

public health with an adequate margin of safety [42 U.S.C. § 7409(b)(1)]; setting standards under the Clean Water Act that protect the public

health and welfare with an ample margin of safety [33 U.S.C. § 1307(a)(2)]; prohibition in the Resource Conservation and Recovery Act

(§ 3004) on the disposal of untreated hazardous wastes in land disposal facilities as long as the wastes remain hazardous, unless EPA approves a

method that will be protective of human health and the environment [42 U.S.C. § 6924(g)(5)].

12 For example, the Clean Water Act requires sources of listed toxic water pollutants to meet effluent limitations based upon the best available control technology economically achievable [33 U.S.C. § 1311 (b)(2)(A)]; the Clean Water Act and the Clean Air Act provide for standards

reflecting best efforts for new sources of pollution [33 U.S.C. §1316 (best available demonstrated control technology); 42 U.S.C. §7411(a)(1)

(best adequately demonstrated control technology)]; The 1990 Amendments to the Clean Air Act require EPA to promulgate standards for new

and existing sources of listed hazardous air pollutants reflecting the maximum degree of reduction achievable [42 U.S.C. §7412(d)(2)].
Chapter 4 Choosing Policy Tools: Seven Important Criteria 177

Single-source

Fixed Target

Multisource

Demands on

● = Effective O = It depends V = Use with caution ● = Average

NOTE: These ratings are OTA’s judgments, based on theoretical literature and reports of instrument use. The evaluation of each instrument on a particular criterion IS relative to all other instruments. Thus, by definition most Instruments are “average. “ “Effective” means that the Instrument IS typically

a reliable choice for achieving the criterion “It depends” means that it maybe effective or about average, depending on the particular situation, but

it is not likely to be a poor choice And ‘(use with caution” means that the instrument should be used carefully if the criterion IS of particular concern.

SOURCE: Office of Technology Assessment, 1995.

and the opportunities for administrative, congressional, and judicial review are all factors with the

potential to affect whether or not a particular

instrument is implemented in a successful and

timely manner.

Summary of Instrument Performance

●

o

v

Effective: Information reporting

It depends: Challenge regulations

Use with caution: Harm-based standards,

subsidies

All of these instruments place primary responsibility on governmental agencies for the successful outcomes, although they vary considerably on

the extent to which the agencies actually use their

own resources to accomplish various program

components. On a comparative basis, the one requiring the least from government agencies is an

information reporting program (see table 4-6).

The agency must flesh out the design and protocols of the program, but the implementation of the

program essentially shifts to sources.

Challenge regulations also offer the potential

for shifting responsibility for most of the implementation to the sources, thus reducing demands

on governmental resources. However, our relative

inexperience with implementing challenge regulations makes the potential gains in reducing governmental burdens somewhat unpredictable.

Nonetheless, OTA expects that with challenge

regulations, industries will assume more responsibility for design and implementation, thus alleviating some of these costs for government.

Tradeable emissions have the potential to reduce burdens. However, with RECLAIM, the

front-end costs of the analytical work and program

design have been very high (see chapter 2 case

study). More experience with a variety of trading

programs may reduce these types of costs.

We recommend using harm-based standards

with some caution if the primary concern is reducing the burden on governmental agencies. Although harm-based standards have been heavily

used, primarily because of their effectiveness for

assurance of meeting goals, their analytical and
178 | Environmental Policy Tools: A User’s Guide

implementation requirements place very high demands on government.

One of the long-term goals for integrated permitting is to reduce the burden on facilities and on

the state permit writers. Yet, in the near-term, the

level of work required by state agencies in developing an integrated permit for each facility can be

daunting. Also, while the concept of multimedia

coordination through the permit process is attractive, the scientific and practical information and

expertise essential for such decisionmaking is not

fully developed.

Liability, if never invoked, is not terribly

burdensome for government. But once an agency

must develop an action against a firm, the costs

and analytical demands can be very large, as demonstrated by the efforts to pursue liability for the

Exxon Valdez case. In contrast, subsidies might

not require much in the way of analysis or implementation but require direct outlays from the treasury. If lower cost to government is the criterion,

subsidies should be used with caution.

Instrument-by-Instrument Comparison

Information reporting

Information reporting is relatively inexpensive

for government to implement because the primary

burden for information gathering and reporting

rests with sources. Government may or may not

decide to take an active role in disseminating the

information since the primary purpose of such

programs is to induce companies to reduce emissions rather than face disclosure of what might

seem large releases of pollutants.

The analytical demands of conceptualizing and

designing the program adequately to accomplish

the desired goal are at least as difficult as the analytical requirements for designing programs utilizing some of the other instruments—that is, they

pose a moderate burden. However, the fact that the

program then gets handed to sources for ongoing

implementation makes it a particularly attractive

instrument from the perspective of lowering government costs and implementation responsibilities.

Challenge regulations

Because experience with programs similar to

challenge is limited, predicting the impact on use

of governmental resources is difficult. However,

challenge regulations could be very effective at

reducing barriers to implementation by moving

toward cooperative or negotiating processes for

establishing implementation activities such as

benchmarks and timetables.

Depending on how the particular challenge regulation is designed, however, it could easily end

up changing the nature of the administrative activities in some ways without actually reducing the

burdens. If the ultimate goal is a harm-based one,

for example, the agency is likely to complete the

same difficult analytical tasks it would have with a

harm-based standard. On the other hand, if the

goal is technology based, then the analytical task

may be somewhat easier. It is possible that, even

with a risk goal, the working relationship among

sources, interest groups, and the government

could be collaborative enough to make the overall

task easier; but without some experience this kind

of scenario is speculative.

 Harm-based standards

Harm-based standards, typically expressed as a

media quality goal, depend on complicated models of performance and require more complex

monitoring in order to establish significant progress. The level of scientific and technological expertise needed and the uncertainty typically

present for setting or revising a harm-based standard requires considerable administrative resources.

The initial task of translating statutory language into a particular concentration of a pollutant

in the receiving medium is exceedingly difficult.

Methodologies are not sufficiently well developed to allow agencies to specify with a great deal

of accuracy the degree of health and environmental risk posed by various concentrations of a toxic

pollutant in a receiving medium (95,112). In

addition, the value-laden questions and methodological uncertainties surrounding existing risk-
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 179

assessment techniques reduce the credibility and

confidence that stakeholders can place in the

agency’s media quality goal as an equivalent for

the established acceptable risk goal (101,

112,130).

Media quality goals in some cases are delegated to the states for implementation. At that

point, states often develop source-by-source

harm-based standards in order to be able to write

permits for facilities spelling out the allowable

emissions levels. In fact, sources themselves often

seek this protection—as long as they are in compliance with their permit, they can not be held liable if the state does not meet its media quality

goal.

Harm-based standards are also subject to

executive and judicial review. For example, although only one relatively minor aspect of the

original 1971 National Ambient Air Quality Standards (NAAQS) was challenged in court, every

subsequent attempt to revise those standards or to

write standards for new pollutants has been the

subject of intense executive review (114,119) and

later judicial challenges (132).

 Subsidies

Subsidies are obviously very costly to government because they require direct outlays. Thus, if

reducing costs to government is a primary consideration, subsidies should be used with caution.

The analytical difficulty of designing a subsidy

program should not be particularly burdensome.

And since implementation of the program would

be shifted to firms participating in the subsidy program, the government would have minimal responsibility for activities other than evaluating the

implementation by sources to ensure that they

were meeting the program goals.

Product bans

Although product bans are only about average in

overall demands placed on government in comparison to other instruments, completing the analytical work to justify their use can be quite

demanding. Because of the implications of interfering with commerce, those choosing bans will

want to have incontrovertible proof that such

products pose serious health or environmental

risks. However, barring a very dramatic causal

episode, such information is usually quite timeconsuming and costly to develop.

Technology specifications

Technology specifications are rarely used and

when they are, Congress usually specifies the

standard. This greatly reduces the political analytical efforts associated with design standards as

well as the costs. The primary burden for governmental agencies is in the implementation phase,

especially the permitting and enforcement aspects.

Design standards

Most design standards are associated with an

abatement or a “best efforts” goal and can be recognized by the alphabet soup descriptions, such as

BACT (best available control technology), BAT

(best available technology), BPT (best practicable

technology), LAER (lowest achievable emissions

rate), MACT (maximum achievable control

technology), etc. When Congress mandates that

new sources in nonattainment areas meet the lowest achievable emissions rate or when it requires

new and existing sources of toxic air pollutants to

install maximum achievable control technology,

it is establishing the framework in which sources

must use their best efforts to reduce emissions of

the relevant pollutants. The language allows individual sources the flexibility to achieve the same

degree of pollution control by other acceptable

means, but the processes of demonstrating equivalency or obtaining waivers not only place demands on sources but on government resources as

well (113). The benefits of this flexibility are discussed in the section on cost-effectiveness and

fairness to sources.

Instruments associated with technology-based

strategies such as BAT are usually less complicated to establish and the results less complicated

to measure than those associated with risk-based

strategies; but they are nonetheless moderately

difficult. To support and document its decisions

about abatement technologies, the agency must
180 | Environmental Policy Tools: A User’s Guide

study the industries’ production processes, product and waste streams, facilities, control technology costs, and other factors that appear relevant to

the agency and its engineers. In order to select a

model technology capable of reaching the abatement goal, the agency must incorporate economic

judgments as well as engineering judgments, yet

the technological feasibility of reducing emissions of pollutants is the primary consideration.

Finally, the agency establishes pollution limits designed to induce dischargers to implement the

specified control technology or any other technology or practice capable of achieving the same degree of pollutant reduction.13

If an agency attempts to use design standards to

achieve a very ambitious abatement goal, it may

have difficulty developing a record capable of

supporting its prediction that the model technology is capable of achieving a particular level of performance. If EPA proposes to press technology in

the slightest, it must engage in a leap of faith that

the model technology will reach a generic effluent

limitation in all regulated contexts. The agency

often has a difficult time persuading reviewing

institutions, such as the Office of Management

and Budget (OMB) and the courts of appeals, to

take the same leap of faith (3,113).

Agency efforts to write design standards for existing sources of pollution may encounter resistance from the owners of those sources and their

employees. The model technologies used in most

design standards are often capital intensive, and

the investments in pollution control are generally

not offset by increased profits (7). However, there

is no reason that pollution prevention approaches

cannot be used as the model technologies, with

more capital-intensive end-of-line technologies

being allowed as substitutes if their performance

is equivalent.

Since design standards are nearly always challenged in court, the agency must be prepared to

meet every conceivable technical and legal objection to its standard-setting initiative before it issues the final regulation. The possibility of

judicial review continues to influence agency administrative practices, adding to the level of resources allocated to documentation.

Integrated permitting

The most common arguments for integrated permitting are its potential to reduce the administrative efforts for both the sources and the

governmental agencies in issuing and revising facility permits. However, to date, rather than reducing the overall government burden, they may have

actually increased the burden in the short-term as

facility managers and government officials gain

experience in writing these types of permits and

implementing them (149). Thus, if the primary

criterion is reducing the burden on government, it

is important to recognize that at least initially,

agencies may actually have to dedicate a higher

level of resources to implementing this instrument.

One advantage of these permits may be in reducing the complexity and costs of monitoring

and enforcement. Being able to approach a facility

as a whole with better understanding of its overall

strengths and weaknesses for emission problems

may improve overall efforts to detect violations

and develop plans for improved monitoring capability.

Another advantage associated with the concept

of integrated permits is their potential for incorporating multimedia tradeoffs. A few efforts in Minnesota, New Jersey, and Wisconsin have indicated

that this approach has potential for using a multi13 Examples of the technology-based approach include “best available technology” and “best conventional technology” effluent guidelines

and limitations promulgated under section 301 of the Clean Water Act; new source performance standards promulgated under section 306 of the

Clean Water Act and section 111 of the Clean Air Act; “best available control technology” for new sources in clean air areas promulgated under

section 165 of the Clean Air Act; “lowest achievable emissions rate” requirement for new sources in nonattainment areas promulgated under

section 173 of the Clean Air Act; and “best demonstrated available technology” for treatment of hazardous wastes under section 3004(m) of the

Resource Conservation and Recovery Act.
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 181

media framework in tackling pollution reduction

by facilities. These initial experiments have required considerable investment of resources by

state agencies and have been analytically complex, although state officials with experience in

working with these permits are optimistic about

their potential (149).

Tradeable emissions

One of the key arguments for using tradeable

emissions is that they will greatly reduce the role

of government. Although we do not yet have

enough experience with this approach to evaluate

fully how much they reduce the level of governmental involvement characteristic of other approaches, thus far trading programs have required

considerable efforts by governmental agencies.

For example, the initial allocation of allowances

or permits and the schedule of reductions has been

contentious.

However, when government is determined to

make something work, as in the case of the RECLAIM tradable emissions program for NOx and

SO2, it can concentrate resources effectively.

What might have been close to a decade of rulemaking was condensed into two years. However,

the time and effort invested in designing the program over those first two years was extraordinary.

Critics have objected to the delays introduced

by trading programs requiring pre-approval of

proposed trades by agencies. Current efforts to establish open markets stem in part from frustration

over the implementation difficulties that have

slowed other trading efforts (16). As conceptualized and implemented to date, these trades do not

require prior approval from government officials

and do not require revisions of state implementation plans (SIPs), thus minimizing the delays encountered when waiting for government approval.

However, many issues such as inter-pollutant

trading and cross-regional trading are beginning

to emerge. Taking time to resolve these may slow

the programs down.

Thus, while trading programs may introduce

flexibility for sources and encourage more costeffective ways for sources to reduce pollution,

concern over other criteria such as assurance and

the equity and justice of the outcomes of trading

choices for various areas suggests the need for

care in designing and implementing trading programs. Weighing these concerns will require continuing involvement by federal and state agencies.

Pollution charges

Pollution charges are likely to place moderate

burdens on governmental agencies—much less

than harm-based standards but considerably more

than information programs. After all, the United

States has considerable experience in administering tax programs at all levels of government. Yet

the potential for political difficulties in initiating

and revising “taxes” on pollution discharges suggests the potential for at least a moderate level of

administrative effort by agencies responsible for

the programs.

The uncertainty of predicting the impact of a

particular charge on receiving media (7,123,186)

is perhaps the greatest analytical demand in using

this approach to meet goals. Determining the optimum charge under a risk-based strategy can be

very difficult for an agency and requires continuous monitoring and adjustments to keep the fee at

the desired level. The agency must predict how individual companies will react to a charge, translate that prediction into an estimated reduction in

the pollution load, and determine whether that reduction will result in acceptable media quality.

Given sufficient regulatory patience, the appropriate fee can be determined by trial and error, but

political and administrative efficiency considerations generally preclude that strategy. Environmental groups are likely to object to an iterative

process that begins with a modest fee and works

upward. Pollution sources can be expected to resist vigorously a process that works in the other

direction, arguing that once pollution controls

have been installed or manufacturing processes

changed it is small consolation when the fee-setting entity acknowledges that it overshot the acceptable risk mark (7,156,160,161).

If the environmental goal is to achieve a specified level of environmental quality, continuous
182 | Environmental Policy Tools: A User’s Guide

monitoring would be needed as new discharging

facilities are constructed and existing facilities expanded, and the charge adjusted when the overall

pollution load increases (57,160,220). A constantly changing charge might generate considerable administrative costs and political opposition

(123,160,220). However, these difficulties might

be offset by the ease of enforcement once the system is in place.

Liability

Since liability defines the consequences of environmental damage, it theoretically places little

burden on governmental agencies until damage

actually occurs. At that point, the burden for agencies to characterize and estimate the damages,

costs for remediation, and support the legal work

required to make a successful case are substantial.

Moreover, when they win the case, it affects just

that one company. Although it serves as a warning

or deterrent, devoting similar efforts and resources to create a general rule or regulation might

have a more certain effect.

Technical assistance

Technical assistance, depending on how a program is designed, is about average on the level of

demands placed on government. These programs

can vary widely in form, ranging from direct service delivery by the states or federal government

to contracted service arrangements. They may be

hands-on assistance provided through site visits

or the design and maintenance of databases on

technical issues or technologies.

However, since they do not require the government to regulate, monitor, or enforce fixed targets

for pollution reduction, technical assistance programs place relatively moderate demands on

agencies. In addition, they currently represent a

relatively small proportion of the resources committed to environmental protection policies.

CHANGE

Almost all parties involved in environmental issues express a desire to improve their capacity to

encourage and take advantage of new technological capabilities that can improve environmental

protection. Yet, both industry and government

often express frustration at the complexity and

lack of responsiveness to change that characterize

the decisionmaking processes.

Sometimes, having to proceed slowly may be

what we intended to accomplish. For example, the

Administrative Procedure Act (APA), the proposed congressional “waitover” period, legislative veto, and mandate for risk assessment all

encourage deliberation before action to protect the

rights of those affected by government actions.

And when choosing instruments for implementing policies, we often bet on a “sure thing,” even

though it may restrict opportunities to learn about

new technologies or to respond to new information about environmental risks.

Yet in a world dominated by increasing complexity and uncertainty, there are many advocates

for making environmental policy both easier to

change and more responsive to change. The following two sections discuss adaptability and

technology innovation and diffusion, criteria

that capture this interest in creating a future-oriented policy framework that both encourages and

accommodates change.

❚ Adaptability14

Adaptability considers how easily the policy

instruments, once implemented, can be modified, either by government or by regulated

entities, to accommodate new scientific information or abatement capability.

A key criticism of current approaches for protecting the environment is that they are not very

adaptable to important and rapid changes in the

base of scientific information or technological capabilities (49,54,163). According to this view, the

14 Parts of this section are based on S.A. Shapiro, “Rethinking Environmental Change: Policy Instruments and Adaptability to Change,”

unpublished contractor report prepared for the Office of Technology Assessment, U.S. Congress, Washington, DC, August 1994.
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 183

only sensible way to address the uncertainty

associated with complex environmental policies

is to use instruments that give government agencies and sources the needed flexibility to adapt to

changing circumstances and to learn from experimental efforts.

Critics believe the policy instruments we typically use unnecessarily restrict options for effective solutions. Companies express frustration, for

example, at their inability to make even minor

product or process changes to improve performance and maintain competitiveness without

seeking administrative approval for variations—

no matter how slight or temporary—from environmental requirements. Government officials

are similarly frustrated when innovative policies

they wish to support are blocked by statutory restrictions or the objections of special groups.

However, when tradeoffs between adaptability

to change and other public values have emerged,

policymakers have sometimes given adaptability

the back seat. For example, they may decide that

they are more interested in assuring a high level of

protection from hazardous waste storage and in

providing opportunities for full public participation in siting decisions than in using an approach

that might be easily adapted to changing information.

Once the level of protection is in place, federal

and state agencies have often been reluctant to reopen such a decision because of the institutional

difficulties of modification. In addition, some

companies may prefer a high degree of certainty

over adaptability in situations where a rule or regulation protects their investments or enhances

their competitiveness. However, if policymakers

agree that the capacity to accommodate change is

desirable, then basing the choice of policy instruments on a strategy that is either not likely to require modifications or is relatively easy to modify

makes the most sense.

This section evaluates the difficulty or “marginal grief” for government of modifying a particular instrument. It also assesses the extent to

which a targeted entity has some autonomy to

adapt its responses to changes that affect its environmental performance without waiting for approval from a regulatory agency.

Factors for Comparing Instruments

The two major sources of change that trigger a

need to modify policy instruments are a change in

the perception of risk from a pollutant or activity

or a change in abatement capability. A change in

risk perception typically comes from new scientific information or from changing interpretations of

existing information. Both can affect the assumptions of an underlying risk assessment or costbenefit analysis by demonstrating that a pollutant

poses a greater or lesser risk than was previously

understood. A revised risk assessment might suggest that a different level of risk is socially appropriate.15

Pollution abatement innovations can affect environmental regulations by producing techniques

that are less expensive to install and/or utilize than

existing technologies or that are capable of greater

pollution abatement. Ideally, technologies offering lower costs or improved capacity could be

readily adopted by firms without agency intervention if the changes could improve their overall performance.

Since both types of change are inevitable, all

policy instruments would ideally be either unaffected or easily adaptable. However, the potential

administrative and political constraints involved

in revising a regulatory decision may make it difficult for policymakers to achieve such adaptability

in every circumstance. Nonetheless, if adaptability to change is a priority, policymakers can

choose and use instruments strategically to im15 For example, new information on risk pathways indicating greater risks from pollutants than previously understood might trigger reevaluation of acceptable risk levels. Also, the public’s willingness to accept risks from a particular activity might change even though scientific

knowledge about such risks has not changed. For example, such knowledge may simply become more widespread or the public may perceive

the benefits from the activity as diminishing or becoming less important in comparison to perceived risks.
184 | Environmental Policy Tools: A User’s Guide

prove their overall performance in achieving this

criterion.

The simplest way to ensure adaptability is to

use a strategy and instrument combination that remains, as much as possible, unaffected by such

change. For example, since harm-based standards

are tied to risk, sources have complete flexibility

to respond to favorable changes in cost, availability or new capability in abatement technologies

without waiting for a revised standard.

Similarly, when the perception of risk changes,

it may not be necessary to modify a technologybased standard, such as a design standard, especially if no significant changes in the performance

of technologies have occurred. If, given the current state of technology, overcontrol is not likely

to be a problem in the near future, then sidestepping the need to justify a risk-based standard for

each pollutant has advantages.

Nevertheless, sometimes change makes modification of the instrument itself desirable. The ease

of such change depends more on the decisionmaking procedures required, in particular those

associated with the administrative decisionmaking requirements and congressional and judicial

review requirements than on any inherent characteristics of the instrument. These complex procedures usually apply to those instruments that

require sources to take specific pollution reduction actions. Thus, there is often a tradeoff between improving performance on adaptability to

change and maintaining assurance of meeting environmental goals.

Before comparing each of the instruments, the

sections below explore two factors important for

assessing adaptability to change:

 ease of program modification, and

 ease of source changes.

Ease of program modification

Policy instruments vary in the degree of difficulty

for the regulatory agency in completing the steps

required for their modification. Some believe that

even the most inherently adaptable of instruments

is likely to become difficult to modify once it is

embedded in the current institutional configuration of agencies and decisionmaking processes for

environmental policymaking (95).

EPA is required by both statutes and Executive

Orders to evaluate risks to health and the environment and to consider the feasibility of alternative

solutions for reducing those risks (231,251,257).

When EPA modifies an instrument, it must identify and resolve the scientific, engineering, and legal issues that the changes have raised. Because

EPA employs a relatively small number of scientists, engineers, and economists capable of undertaking rigorous scientific and policy analyses, the

number of difficult projects that the agency can

undertake at any given point in time is limited.

The legal and procedural requirements of the

Administrative Procedure Act, while providing

important guarantees for due process to sources

and agency accountability to the public, nonetheless can restrict EPA’s ability to respond to

changes in a timely manner. In addition, instruments for which a large number of waivers must

be individually handled can also be resource intensive.

Ease of source changes

For many firms, the ability to make product or

process changes quickly can be essential for competitiveness. Having to wait for decisions by

administrative agencies regarding permit modifications or waivers can be frustrating, especially

when the facility managers believe the impact on

environmental performance will be nonexistent or

negligible.

Continuous, incremental innovations are often

the lifeblood of companies in highly competitive

industries. Giving these industries the flexibility

to adapt how they meet goals without having to

seek preapprovals from an agency official before

acting on process or product modifications could

spur improvements in technologies and increase

opportunities for the most cost-effective solutions.
Chapter 4 Choosing Policy Tools: Seven Important Criteria 185

Single-source

Fixed Target

Multisource

Adaptability

Ease of program

modification

Ease of change

for sources

No Fixed Target

● = Effective O = It depends V = Use with caution . = Average

NOTE: These ratings are OTA’s judgments, based on theoretical literature and reports of instrument use. The evaluahon of each instrument on a particular criterion IS relative to all other instruments Thus, by definition most instruments are “average." “Effective” means that the instrument is typically

a reliable choice for achieving the criterion. “It depends” means that it maybe effective or about average, depending on the particular situation, but

it IS not Iikely to be a poor choice And “use with caution” means that the instrument should be used carefully if the criterion IS of particular concern.

SOURCE: Office of Technology Assessment, 1995

Summary of Instrument Performance

●

o

v

Effective: Liability, information reporting,

technical assistance

It depends: Challenge regulations

Use with caution: Product bans, technology

specifications, design standards

Two general conclusions about adaptability

emerge from a comparison of the policy instruments. First, almost all of these instruments are

difficult for an agency to modify primarily because of administrative complexities associated

with rulemaking and the potential for congressional and judicial review. And second, if policymakers anticipate and want to accommodate

certain kinds of changes, they could choose those

instruments that would be most resilient or least

affected by the expected changes.

Instruments tightly wedded to either a risk- or

technology-based strategy—such as harm-based

standards or design standards-almost always

have to be modified when faced with changes

from that particular source (see table 4-7). Exceptions—liability, information reporting, technical assistance, and depending on the particular

program provisions, challenge regulations—

tend to be tied to broad strategic goals rather than

to specific models of acceptable risk levels or performance of technologies. In addition, several of

these instruments can be relatively easily modified without rulemaking or adjudication, using

agency discretion after consultation with stakeholders. Of course, major changes in the statutory

basis for any of these programs would require congressional action.

If policymakers expect and want to accommodate changes in abatement capability but also

want to limit pollution, using a harm-based standard provides a context in which technological

changes have the least effect. Sources are free to

adopt the technology or not and the agency does

not have to rewrite instruments to incorporate the

new capability. For example, if a tradeable emissions program is established with a risk-based cap
186 | Environmental Policy Tools: A User’s Guide

on emissions, a firm can decide whether or not to

adopt any changes in abatement capability, without an agency having to rewrite regulations.

This same type of tracking occurs for instruments associated with risk-based strategies.

Harm-based standards, tradeable emissions, and

perhaps challenge regulations would typically

have to be modified if knowledge or public perception related to their particular goals were to

change significantly. For example, if the tradeable

emissions program’s risk-based cap is now believed to be inadequate to protect human health,

then the overall harm-based standard or emissions

cap for the area would have to be rewritten.

Design standards, technology specifications,

integrated permitting, and pollution charges

would be much less affected since they are not

usually as tightly linked to acceptable risk levels.

However, even technology-based instruments

may have to be modified if new information about

risks makes decisions about what is achievable,

practicable, or available no longer seem valid.

Most policy instruments under this strategy face

some sort of balancing test about what constitutes

the state of abatement capability.

Instrument-by-Instrument Comparison

Liability

Although Congress normally defines liability

through individual statutes, once that regime is in

place it is generally able to respond to changes in

new information or abatement capability through

interpretations by the agency and the courts rather

than through statutory revisions. New scientific

information could suggest, for example, that a

pollutant posed previously unknown risks. If this

were the case, it would improve the ability to establish a causal link between the discharge and the

damage it caused. The information would be presented as part of the case against the polluter.

Firms are able to make pollution abatement

choices based on their own needs and evaluation

of risks. Thus liability is effective at leaving firms

free to respond and adapt to new information and

capabilities.

Information reporting

Information reporting is highly adaptable because once such requirements are imposed, their

value does not depend on marginal changes concerning what risk exists or what level of risk is appropriate. A source’s obligation to tell EPA or the

public how much of a pollutant it emits is unaffected by changes in the perceived level of risk

that pollutant presents except in the unlikely circumstance regulators decide that the pollutant is

no longer dangerous. However, an obligation to

report to the public the known dangers of a pollutant might be affected by new scientific developments about its impacts. The agency might have to

reformulate the reporting program to convey this

new information and, of course, the sources would

have to adapt their reporting accordingly.

Technical assistance

These programs are usually unaffected by specific

changes in risk perception or new technologies.

EPA’s choices concerning technical assistance

are normally exempt from rulemaking as a “policy

statement” or “a rule of organization” (277). If

new scientific developments or a change in political priorities leads to a decision to scrap one of

these goals, the entire assistance program might

have to be reformulated to achieve a different

goal. But it would take a dramatic shift in scientific information or political priorities to merit scrapping an assistance program altogether. Such a

change is more likely to cause Congress, or EPA if

it had the necessary discretion, to change the resources committed to these instruments.

Challenge regulations

The adaptability of challenge regulations probably depends on how the program is developed,

although the potential to change such programs

appears to be easier than for most of the other

instruments. For example, if long-term targets are

based on a consensus of stakeholders, the basis exists for accommodating new information relatively easily. However, if there are significant

differences among interested parties about the lev-
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 187

el or timing of targets, pressure for modification of

the program may emerge in the face of new information or capability.

Changes in risk perception pose the most difficult issue for challenge regulations. Those sources

attempting to comply with the original target

could be expected to oppose a new target, especially if they have already relied on the old goal by

investing in a particular abatement approach. Indeed, a change by EPA in the target might cause

the sources to end their compliance efforts altogether.

 Product bans

Product bans and limitations are generally used

only after a regulator determines that existing

scientific information indicates that a product

poses sufficient risk to justify total or partial prohibition of its use. Product limitations are usually

established through regulations, while some bans

have been established by Congress (e.g., CFCs).

Thus, efforts to modify them would not be easy,

requiring rulemaking or legislative action.

New abatement capability such as better product substitutes or better control technologies

might not require the agency to change harmbased bans or limitations. Industries would be

able to adopt these new capabilities according to

their own needs. However, if product limitations

are put into place based on technological capability or the available of adequate substitutes, then

new capabilities might be sufficient to justify reopening the restrictions.

 Technology specifications

Although seldom used, technology specifications would have to be completely reformulated

to accommodate improvements in abatement capability. Otherwise, firms adopting the new

technology would risk being out of compliance.

Changes in technology specifications may face

serious challenges from sources because they dislike such specifications intensively and already

have “sunk costs” in existing technologies.

Changes in risk perception would generate the

same kind of uncertainty about modification as

design standards. That is, if a “balancing” test has

been done to determine the feasibility of a particular technology, then new information or perceptions about risk might change the outcome of that

calculation.

 Design standards

A design standard gives sources the option of

adopting the technology specified in the regulation or another that “performs like the model

technology.” Sources might take advantage of this

option if new control technologies were marketed

that were less expensive. EPA would have to

verify that the new technology performs like the

model, but it would not have to reformulate its

standard. A source would not have the same incentive to adopt a new technology if it were more

expensive, even if it would reduce emissions more

than its existing abatement method. In this case,

EPA might decide to reformulate its design standard to force sources to adopt the new technology.

The model technologies approach does permit

firms some discretion to seek approval for a different design on a case-by-case basis. Such approvals

provide the opportunity for firms to use innovative technologies. Although any particular case

might not be as difficult as a rulemaking, resolving technology choices on a firm-by-firm basis

could be burdensome (see the section on cost-effectiveness and fairness). Design standards modifications must be made through the rulemaking

process, making them vulnerable to the usual delays and challenges.

When abatement capability changes, design

standards established for a risk-based strategy,

such as a backup to harm-based standards, might

remain unaffected and allow firms the choice

about whether or not to adopt the new capability.

The agency might decide to modify the standards

for new sources. If the design standard was written

as a technology-based strategy to characterize the

state-of-the-art technology, then the agency

would eventually have to modify the standard,
188 | Environmental Policy Tools: A User’s Guide

particularly for new sources. However, if a balancing test is required by the statute, then the agency

would have to reconsider that test to determine the

model technology.

Harm-based standards

Modifying a harm-based standard is never easy

because the agency must use the rulemaking process. The analytical complexity and likelihood of

contentiousness by various stakeholders will depend on the nature of the new information. A

harm-based standard would not have to be rewritten to accommodate new abatement capability.

Sources would be free to take advantage of the

new abatement capability, and they might do so if

it is cost effective. In fact, given the choice between a design and a harm-based standard,

sources usually prefer the latter because they have

flexibility to design and implement the means for

compliance.

If a change in risk perception occurs that suggests that current standards are not adequate, then

a harm-based standard would probably have to be

rewritten. If the analytical work required to support the original standard is considered sound,

then much of the agency’s modeling work can be

used to recalculate the appropriate new standard.

However, even with that step simplified in comparison to the original standard setting, going

through rulemaking requires considerable time

and agency resources.

Integrated permitting

Most current efforts to write integrated permits

involve learning how to do the first ones. It is possible that the complexity of writing these types of

permits will result in making changes in any one

part more difficult than if a single-medium permit

existed. However, it is also possible that once a

permit captures the relationships and tradeoffs

within a facility, making incremental changes will

be easier for sources. The need for modification of

the permit will depend primarily on the type of

instruments on which the integrated permit is

based and the nature of the change.

Tradeable emissions

Tradeable emissions programs are complicated to

establish and the prospect of modification once

implementation has begun might be difficult

politically. However, once the market rules are in

place, sources have considerable flexibility to

adapt their strategies. Firms would be free to

choose the course of action that meets their own

strategic interests; firms generally like tradeable

emissions because of this aspect.

Current efforts to implement tradeable emissions programs (e.g., RECLAIM) suggest that

modifying the overall standard for a particular

pollutant would be very difficult, although with

more experience the difficulties may lessen.16

When abatement capability improves, an emissions cap based on acceptable level of risk would

not have to be modified. However, if the original

strategy and allocations were based on an agreement about abatement capability, there might be

pressure to modify the program to reflect the new

capability.

Proposed changes in tradeable emissions programs might face particularly difficult political resistance. Changing a tradeable emissions regime

would probably involve more than the usual

amount of oversight and organized interest involvement. Environmentalists would likely oppose an increase in the number of permits, while

regulated sources would likely oppose a reduction. The opposition of the latter group might be

especially strong because the modification of per16 The experience with RECLAIM has been described as “condensing 10 years of rulemaking into 2 years.” Thus, although establishing

these kinds of programs looks formidable, future programs may be less difficult.
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 189

mits could destabilize market expectations.17 The

possibility of additional trades in emission permits might soften this opposition, but it is unlikely

to eliminate it.18

Judicial review can also be expected, but it may

be more complex than the usual challenge to an

EPA decision. Litigants might argue that a reduction in the number of permits constitutes a taking

in violation of the Fifth Amendment. Although

this argument may not ultimately prevail,19 resolution of the issue will require a Supreme Court

ruling, which would likely take a considerable

amount of time.

Pollution charges

Modifying pollution charges is probably not

easy regardless of the initial strategy used, although setting a new charge based on an abatement strategy might be easier than trying to make

changes based on a harm-based approach. Any attempt to establish, track, and iteratively modify

charges based on the marginal costs to facilities in

order to achieve fairly certain ambient levels of

pollutants would be very difficult.

EPA is likely to face more than the usual degree

of oversight. The agency is likely to be scrutinized

by the tax committees in Congress in addition to

committees responsible for environmental protection (22). In fact, there is some question whether

EPA even has the authority to set a pollution

charge. The Supreme Court has approved the delegation of the authority to set user fees, suggesting that Congress can delegate the authority to set

pollution charges as long as it clearly establishes

the limits of EPA’s authority.20

One key difficulty is how bargaining and compromise might occur. A student of the European

experience with pollution charges concludes that

17 In comparing pollution charges (or taxes) and tradeable permits, Sanford Gaines and Richard Westin note: “Because pollution control

entails long-term capital investment, the market will work well only when the total amount of rights can be held stable for many years. If new

scientific data require the government to reduce the number of rights unexpectedly, confidence in the market will be undermined. . . . [I]f the

amount of acceptable pollution is subject to rapid change, or if regulation of the market becomes necessary to prevent abuses [i.e., wealthy firms

buying up rights in order to drive out competition] public policy would favor a tax.” S. Gaines and R. Westin, Taxation for Environmental

Protection: A Multinational Legal Study (New York, NY: Quorum Books, 1991).

18 Firms with high abatement costs could lower those costs by purchasing additional permits from firms with low abatement costs. Nevertheless, a reduction in permits would increase costs for both sets of firms. Firms with low abatement costs would have to pay for additional

abatement, while firms with high abatement costs would have to pay for additional pollution permits.

19 The Clean Air Act states that SO2 allowances granted to power plants do not constitute property rights, 42 U.S.C. § 7651 b(f). Whether this

statement would bind a court is unclear. The statement should reduce the legitimate investment-backed expectations of the allowance holder,

thus reducing the chances of a taking occurring.

20 In Skinner v. Mid-American Pipeline Co., 490 U.S. 212 (1989), which concerned fees to recover the costs of inspection of natural gas

pipelines, the Court applied the standard that “Congress must indicate clearly its intention to delegate to the executive the discretionary authority to recover administrative costs not inuring directly to the benefit of regulated parties . . . whether characterized as ‘fees’ or ‘taxes’ on those

parties.” Id. at 224. In upholding the fees, the Court cited that the agency could only apply criteria set by Congress and could not establish a fee

schedule that does not bear a reasonable relationship to these criteria. These restrictions satisfied the nondelegation doctrine according to the

Court.

Skinner clarified that National Cable Television Assn. v. United States, 415 U.S. 336 (1974), did not prohibit the delegation of user fees even

if the benefits of such fees were for public purposes rather than for the benefit of the entity that was charged the fees. According to Skinner,

National Cable stands for the proposition that Congress must clearly delegate the authority to charge fees that benefit the public.

United States v. Rohm and Haas Co., 2 F.3d 1265 (3rd Cir. 1993), drew on the distinction made in Skinner, when the court overturned EPA’s

attempt to collect oversight costs at Superfund sites as unauthorized by Congress. Because oversight costs were “’administrative costs not inuring directly to the benefit of regulated parties but rather to the public at large,” id. at 1273, the court declared, “To the extent that the fee was used

to further the benefit of the public, it was more appropriately considered a tax and required explicit congressional authorization.” Id. at 1274 n.

12.

If Congress expressly authorized EPA to collect user fees, it should satisfy National Cable and Rohm & Haas. Moreover, if Congress “provides [the] administrative agency with [sufficient] standards guiding its actions, no delegation of legislative authority trenching on the principle

of separation of powers [will] occur.” Skinner, 490 U.S. at 218.
190 | Environmental Policy Tools: A User’s Guide

“nothing in the nature of a charge makes it immune to the political virus” (168). Another study

finds, “Contrary to the expectation of some American economists that a system of charges ‘would

reduce the scope for administrative discretion and

bargaining,’ bargaining and negotiations play a

major role in the French system” (110).

Changes in abatement capability would not require modifications to pollution charges. If the

improved capability would lower payments for a

particular firm, then presumably the firm would

adopt it. However, if an agency has used payments

as a source of revenues, then it may want to consider raising the charge. For example, pollution

charges in the form of per-bag fees on household

wastes are not set according to a calculation about

the level of acceptable risk but rather on the capacity of the system to handle trash and estimates of

the customer’s willingness to pay.

If the agency is using charges to force firms to

reduce levels of pollutants to meet an ambient

goal based on acceptable risk, then any changes in

risk perception will require the agency to raise the

fee to force more reductions. If the charges are

based on estimates of the levels that can be

reached with the best abatement capabilities, then

changes in risk perceptions would provide pressure to reconsider the balancing test or to consider

moving to a technology-forcing strategy.

In contrast to the difficulty that EPA might face

modifying a charge in response to changes in

technology or risk perceptions, sources have considerable freedom to make changes as they see fit.

Again, sources might object to the prospect of

EPA’s making adjustments to a charge, but once a

charge is set, the only interaction the source must

have with the agency is to monitor and report

emissions and to pay the charge.

Subsidies

Subsidies usually provide financial assistance to

sources, who can choose whether or not to take advantage of them, with the purpose of stimulating

environmentally beneficial behavior. If tax allowances are to be used as the subsidy, Congress

would normally establish new eligibility rules

(62,143,223). EPA can originate grants and loans

only for purposes and amounts legislated by Congress. If EPA has the authority to change subsidies, it can avoid rulemaking under an exception

for rules concerning “public property, loans,

grants, benefits, and contracts” (230). The Administrative Conference, however, has recommended that agencies use notice and comment

rulemaking for these functions (260).

It would take a dramatic shift in new information to change an existing subsidy program and

proposed changes would be likely to generate

more than the usual degree of legislative oversight. Any such changes would be of interest to

any member of Congress who has eligible constituents affected by the proposed changes. For example, the degree of political infighting that

surrounds reallocation of grants under the Clean

Water Act (such as sewer construction grants) is

quite high.

❚ Technology Innovation and Diffusion21

Technology innovation and diffusion seeks improved environmental performance—in quality or cost—through changes to or widespread

adoption of existing technologies.

Technology innovation and diffusion22 can be a

major source of both economic growth and a

cleaner environment. From an environmental perspective, innovation and diffusion offer ways to

21 Parts of this section are based on G.R. Heaton, Jr., “Environmental Policy Instruments and Technology Innovation,” unpublished contractor report prepared for the Office of Technology Assessment, U.S. Congress, Washington, DC, June 1994.

22 Technology innovation is the first commercial application of a technical idea or method. Innovations can be classified as radical or incremental improvements, depending on the degree of change from the status quo. Although radical or new innovations often receive the most

attention, the majority of innovations involve small improvements to existing technologies.
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 191

deliver goods and services with less environmental pollution and to provide new ways to trap or

clean up pollutants.

Concern persists, however, that environmental

regulations may hurt the competitive position of

U.S. firms in the global economy by adding to

production costs and impeding performance and

cost innovations.23 Examples of the concerns include: 1) regulation-driven costs place U.S. firms

at a competitive disadvantage; 2) compliance

costs divert money from commercial innovation;

and 3) rigid regulations are incompatible with the

trial-and-error processes essential for economic

success in many technology sectors (89,166,197).

Examples of specific criticisms directed at specific policy instruments include: 1) technologybased instruments favor known technologies; 2)

permits create barriers to innovative improvements; and 3) end-of-pipe, media-specific standards restrict innovative process solutions.

Yet when trying to understand exactly how

policy tools affect technology innovation and diffusion, we face at least three basic challenges: 1)

technology innovation is trying to do what no one

knows how to do (87); 2) it occurs within complex

and unique institutional arrangements (84,

88,140); and 3) little research is available on the

effect of specific regulatory instruments on

technology innovation.

We do know that establishing regulations in a

way that provides reasonably certain targets and

clear timetables reduces uncertainty, making investments in innovation less risky. Further, if innovation is a key purpose, targets and timetables

must also put the kind of financial or technological pressure on companies that will stimulate a

search for new ways of meeting environmental

goals.

While environmental regulations can be important, they are in most cases a relatively small factor among many that firms consider when

choosing to innovate (197). This suggests that if

technology innovation is a high priority, there

may be much more direct and effective ways to encourage it than reforming the particular regulatory

instruments used to implement environmental

goals.

Factors for Comparing Instruments

In this section, we use three factors for evaluating

and comparing the impact of policy instruments

on technology innovation and diffusion:

 innovation in the regulated industries;

 innovation in the environmental goods and services (EG&S) industry; and

 diffusion of known technologies.

Each of these categories offers opportunities

for furthering technological solutions to environmental problems. Emphasizing one path, however, can sometimes constrain opportunities for

utilizing another.

Innovation in the regulated industries

Environmental regulations can have both direct

and indirect impacts on manufacturing firms or

governmental entities like sewage treatments

plants by, for example, creating preferences for a

type of technology, generating new markets, raising the costs of production, or diverting capital

from other investments and businesses. The response of individual firms regarding innovation

will be based on many complex factors, both internal and external to that firm. Especially for large

complex facilities, incremental innovations may

offer a relatively low risk route to profitability

(85,89,164). In smaller firms, diffusion may be a

better strategy.

Innovation in the EG&S industry

This industry is comprised of firms whose primary business is the supply of environmental equip23 Some critics note that these estimates often fail to incorporate that environmental policy 1) may stimulate economic growth by creating

new markets in some sectors, and 2) may prevent decreasing productivity in sectors dependent on a healthy environment, such as agriculture or

fisheries.
192 I Environmental Policy Tools: A User’s Guide

ment and services that control, treat, clean up,

and/or prevent pollution and waste (197). Government regulation has created and sustained most of

the markets for the EG&S industry and thus any

changes in the way regulations are written may affect the health of the industry.

Diffusion of known technologies

Technology diffusion is the common follow-onto

successful innovations. Diffusion occurs because

firms find technologies beneficial and often essential if they are to be competitive. Subsequent

producers or users of an innovation may modify

the technology or the context into which it will fit,

in order to gain advantage. Such adaptations are

an important part of the process of technological

change, and they commonly provide known solutions or best practices to firms that do not have the

resources for in-house innovation. Some instruments that promote technology diffusion, however, may delay or impede a firm’s search for

innovations. A company could, of course, always

choose to innovate for performance or cost reasons related to productivity.

Diffusion may bean ideal strategy when technological solutions for environmental problems

are available but are not widely known or have not

been widely adopted. This is especially so for

small-to medium-sized firms that find the costs of

information searching and R&D prohibitive. For

these companies, diffusion may provide a way to

reduce costs and achieve state-of-the-art abatement.

Summary of Instrument Performance

• Effective: Product bans, pollution charges

O It depends: Tradeable emissions, challenge

regulations

V Use with caution: —

As indicated above, the empirical basis for understanding the relationships between policy

instruments and technology innovation in sources

and the EG&S industry is not well developed

(197). Activities related to the diffusion of known

technologies have been more widely discussed,

but seldom with a focus on the impacts of specific

policy instruments on these activities.

Innovation is essentially done in firms or within the networks to which the firm or its personnel

are connected. And, even if a firm wants to innovate, it can not always accomplish its goal. Thus,

the role of government in spurring innovation is

necessarily limited to a set of important but ultimately insufficient activities (89). Nonetheless, it

is possible to draw some tentative conclusions

about differences among the 12 instruments in

promoting technology innovation or diffusion.

As shown in table 4-8, the most effective

instruments for promoting innovation are product bans and pollution charges. By removing a

product or limiting its use in commerce, the

agency creates a market for some other product or

process. The consumer could be an end-user or a

manufacturing facility that is using the product as

part of an intermediary process in which value is

being added along the way. Pollution charges, although not widely used in the United States, have

the potential to keep steady pressure on firms to

innovate to reduce the fees they must pay for residual discharges.

Tradeable emissions and challenge regulations increase the flexibility firms have to solve

pollution problems and thus may be more likely to

spur innovation. Depending on how they are used,

however, these instruments also run the risk of being simply average or comparable to the performance of the other instruments.

The remaining instruments do not provide the

same encouragement to innovate as those mentioned above, although none of them are necessarily barriers. In our overall strategy we weight

innovation somewhat more heavily than diffusion. Thus, an instrument like a design standard,

which can promote diffusion of technologies and

provide incentives for the EG&S industry to innovate but which may reduce incentives for a regulated industry to innovate, might be approached

cautiously.

Instruments that specify examples of technologies that would constitute compliance or make

adoption of experimental technologies very risky
Chapter 4 Choosing Policy Tools: Seven Important Criteria 193

Single-source

Fixed Target I No Fixed Target

Technology innovaInnovation in

regulated industry ●

Innovation in EG&S

industry ●

Diffusion of

technologies ● ● 0.

Multisource

● 0 0 ● . . . .

● = Effective O = It depends V = Use with caution ● = Average

NOTE: These ratings are OTA’s judgments, based on theoretical literature and reports of instrument use. The evaluation of each instrument on a particular criterion IS relative to all other instruments. Thus, by definition most instruments are “average.”” Effective” means that the instrument is typically

a reliable choice for achieving the criterion “It depends” means that it may be effective or about average, depending on the particular situation, but

it IS not likely to be a poor choice And “use with caution” means that the instrument should be used carefully if the criterion IS of particular concern.

SOURCE: Office of Technology Assessment, 1995

may make innovation a less attractive option for

some firms. However, many of the instruments

that are rated not quite as high for innovative

technologies tend to promote diffusion of known

technologies, which can also increase productivity and help meet environmental goals. Moreover,

firms could still choose to innovate or to adopt

known technologies for cost or performance improvements under a regime using almost any of

these policy instruments.

Instrument-by-Instrument Comparison

● Product bans

Product bans are the instrument with the best

chance of promoting technology innovation simply because they prohibit “business as usual.”

They represent at the time they are implemented a

very stringent and certain action. However, because the industry response is left open, some type

of innovation may occur, ranging from simple

substitutions for an existing product or component to new products or processes. In markets

where no substitutes are readily available, the

product ban has the most potential to induce radical innovation.

In the case of consumer or industrial products

such as polychlorinated biphenyls, phosphate detergents, asbestos, CFCs, etc., the affected industries have responded with environmentally

superior products. However, this form of “radical

technology forcing,” requires a leap of faith on the

part of the regulatory agency and reviewing institutions (118). Substitutes may not become available by the deadline or their costs may be much

higher than anticipated.

For important products for which there are no

substitutes, the approach invites a degree of brink-
194 | Environmental Policy Tools: A User’s Guide

manship that is sometimes difficult to manage in a

regulatory setting. For example, when EPA initiated cancellation proceedings against the pesticide Mirex, its manufacturer protested that

farmers and ranchers throughout the southeastern

United States would be left defenseless against

imported fire ants, because the only registered

substitute for Mirex was a pesticide that was also

the subject of an EPA notice of intent to cancel. In

phasing out Mirex use over an 18-month period,

EPA took the risk that other companies would

come forward with alternative fire ant killers to fill

the void left by the absence of Mirex; four substitutes did in fact become available before the end of

the phaseout period (117).

Pollution charges

The reason that economic studies rank pollution

charges high on their ability to spur innovation is

clear: firms pay more to achieve the same level of

control than under direct controls, hence they can

save more by innovating. Firms pay more under

charges because they must still pay for pollution

discharges, even after desired control levels have

been reached, in addition to their control costs. By

making pollution itself one of several production

costs, pollution charges build in an incentive to innovate (59).

Pollution charges allow firms substantial flexibility to decide how to respond to signals about the

costs of pollution. This flexibility includes an option to buy out of the system—that is, to pay to

discharge if the firm wishes to do so.

In addition, while it is tempting to say that

firms will innovate if EPA simply sets the charge

high enough, setting the charge at the right level to

get innovation rather than diffusion or continuing

discharges is far from simple. In the past, pollution charges have not been widely used because of

the political difficulties of establishing a fee high

enough to achieve the desired level of pollution

control. Charges have been widely used to fund

pollution control agencies, but have not been set

high enough to change behavior (193).

Tradeable emissions

In theory, tradeable emissions should promote

innovation. The primary advantage of a tradeable

emissions program is that it allows firms with

widely varying marginal costs of abatement control to cooperate in meeting environmental standards with lower overall costs. Since they are used

infrequently, not much is known about how firms

will respond in terms of innovation. Yet, firms

with high marginal costs could be expected to innovate to reduce pollution instead of buying emission credits. However, firms facing relatively high

control costs can also buy credits instead, thus reducing the pressure for innovation (111). The degree of innovation will strongly depend on the

stringency of the emissions cap faced by the facilities (197).

Although tradeable emissions might initially

promote adoption of technologies among firms

for which the technology achieves the standard,

the degree of stringency in later emission reductions for the program might actually impede diffusion of new technologies. For example, under an

increasingly competitive trading process, a firm

that developed effective and relatively cheap

technologies for pollution abatement might try to

protect its position through secrecy or patenting

because diffusion would reduce the value of the

firm’s credits. However, it could also choose to recoup the costs of innovation by selling the innovation at a very high price (121).

The effect of a tradeable emissions regime on

the EG&S industry will depend on the structure of

the particular regulated industry. If the industry relies heavily on suppliers for compliance technologies or services, it may have indirect incentives for

innovation or increased opportunities for diffusion of known solutions to more clients. For example, in the automobile or electric power

industries, such a regime might create pressure on

the suppliers for innovations; in the chemicals industry, the EG&S industry would be less affected.

Tradeable emissions, in comparison to uniform

standards that would apply under a design stan-
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 195

dard, clearly widens the field of available technologies. For example, analysts expect to see a wider

array of control approaches under the acid rain

tradeable emissions program than if a uniform

standard had been adopted. This also applies to

other multisource instruments such as integrated

permitting or challenge regulations. Again, this

may be more likely to encourage diffusion than innovation, especially if the EG&S industry plays a

major role.

Challenge regulations

The setting of long-range goals and scheduled targets allows industry to see where an agency is going with its policy and in that way provides some

level of certainty or stability that can help firms

decide about the risks involved in innovating. A

major difficulty for the United States is the degree

and frequency to which political pressures can affect the stability of such national environmental

policy setting.

Like most of the other instruments, challenge

regulations do not ensure that innovation will occur. Instead, the strategy incorporates and implements the idea that the knowledge and expertise

required to solve problems in an innovative way

generally resides in the companies and not in the

regulatory agency. A possible advantage for spurring innovation is the degree to which challenge

regulations can encourage an industry or set of

firms to find that balance between cooperation and

competition that results in low-cost, innovative

solutions for meeting the targets.

The frequent duplication of environmentally

oriented R&D among companies in some industries was mentioned by technical experts in a 1991

survey as a key opportunity for cost savings while

still promoting innovation (74). Other countries,

such as Germany, the Netherlands, and Japan, that

have encouraged such cooperation in R&D and information sharing on innovative environmental

technologies have a positive track record. In the

United States, a range of nonenvironmentally related policies such as antitrust regulations and the

lack of strong organizations or institutions such as

trade associations constrain opportunities for such

collaboration.

Harm-based standards

Companies report a preference for harm-based

standards over design standards because of the

flexibility they provide in choosing a compliance

strategy for the source (105). A standard expressed, for example, as an allowable emissions

rate or pollutant concentration in effluents, but

without a restriction on how to meet it, gives firms

the freedom to develop the best solution for that

source.

If the standard is set to achieve a desired level of

environmental quality, then sources may face nonuniform requirements. For those facing a more

stringent control requirement, innovation may be

the best way to achieve compliance. However, it is

also possible that existing technology is available

for meeting the standard, either from an EG&S

firm or from another firm. Competition among

EG&S firms for clients might also result in innovations to reduce the costs of meeting harmbased standards.

If the difference between the acceptable risk

goal which must be attained and the current capability of technologies to meet that goal is substantial, firms have an incentive to innovate. However,

once that goal has been met, productivity concerns

rather than meeting the goal become the key

source of continuing pressure on a firm to innovate, although some firms may decide to improve

environmental performance for other reasons.

Examples of harm-based standards that have

been studied for their impact on technology innovation include SO2 standards for copper smelters (108) and mercury in the chloralkali industry,

vinyl chloride, asbestos, cotton dust, and lead

(14). These studies concluded that major innovations tended to come from newer firms or from

firms more heavily affected by the regulations.

Diffusion of innovations were faster when the new

technologies were developed by the EG&S industry.
196 | Environmental Policy Tools: A User’s Guide

For small firms, combining harm-based standards with other instruments such as technical assistance can promote diffusion of known

technologies that can meet the standard or that

would be considered best controlling technologies at the time.

Design standards

One of the original goals for design standards

was to spur continual innovation by revising regulations as the state of the art of technologies improved (13). Moreover, some argue that the

legislative language developed for design standards (e.g., BAT, MACT, LAER, BACT, etc.) was

intended to provide incentives for firms to continue innovating incrementally over a period of time

until the unwritten goal—or, in the case of the

CWA, the written goal—of zero or near zero emissions was achieved.

In practice, however, this desired link between

design standards and continuous innovation has

seldom happened. For example, under CWA standards that considered technology forcing five and

10 years out from the statute, industry was able to

meet nearly all of the five-year standards and most

of the 10-year standards with existing technologies (117). Agencies may also be reluctant to reopen rulemakings on design standards once they

are in place for many reasons, including some of

the political and analytical difficulties outlined in

the sections on assurance and adaptability to

change (30).

The common use of a “reference” technology

for design standards probably hurts efforts to spur

innovation. Since no source is required to achieve

pollution control beyond what the regulatory

agency knows can be done with existing technologies, innovation would not be necessary to satisfy

the standard.

However, if the reference technology would be

very expensive for a source to adopt, there might

be an incentive for innovation. While the “or

equivalent” provision accompanying design standards allows a firm or the EG&S industry to substitute an innovative technology, most firms

report that the effort to establish equivalency is

often difficult or risky. This is especially true

when the model technology is written into the permit so that preapproval of a change is required

rather than a demonstration of equivalent performance after installation. Moreover, the conventional wisdom has been that, contrary to original

expectations, firms have not been inclined to seek

innovations because of concern that new facilities

would be forced to adopt them or that old facilities

would have to adopt them when their permits are

renewed (13,105).

The designation of uniform technology requirements for source compliance has been very

important for establishing and maintaining markets for the EG&S industry, since any reconsideration of the technologies listed or not listed may

create uncertainty for suppliers in that industry as

well (153). Particularly when available technologies were not widely used prior to issuance of the

standard, EG&S firms can play a large and effective role in promoting diffusion of the technologies.

Technology specifications

Technology standards, rarely used, are based on

known technologies and thus could promote wide

diffusion of technologies or restrictions of others.

This type of uniform standard can create a relatively stable set of market conditions for the

EG&S industry.

Once the technology is specified, however, and

adopted by sources, the pressure for technical improvements in environmental performance is reduced. Unless the standards are revised to track

technological developments, pressure to innovate

will come from productivity concerns or from the

desire to escape the regulatory net altogether

(13,105).

Integrated permitting

Integrated permitting, almost by definition, allows the regulation of facilities in new ways. The

task of considering the facility as a whole gives

both the regulatory agency and the firm the opportunity to develop new techniques or processes for

meeting environmental goals. It does not neces-
Chapter 4 Choosing Policy Tools: Seven Important Criteria | 197

sarily lead to innovation, but the firm is free to find

innovative solutions. For example, the integrated

permit for VOCs issued to the 3M facility in St.

Paul, Minnesota, gave the firm complete flexibility to identify reductions that could be made more

cost effectively than others and to trade off those

sources. The price 3M paid for this flexible permit

was significantly lowered allowable emissions

and the investment and implementation of an innovative continuous emissions monitoring system for VOCs (149).

Looking across media may provoke some innovation in technical processes. The innovation

literature suggests that firms faced with having to

rethink how they do business are currently using

such opportunities to go back to the drawing board

and redesign entire processes to capture efficiencies—that is, it is often cheaper to solve 10 problems at once than separately, one at a time. This

conclusion suggests that integrated permits may

offer a good opportunity for spurring innovation

(150).

However, as long as integrated permitting is

tied to the facility level and to the permit process,

the firm is limited to choosing what is best for it in

a particular facility setting. The impact of this type

of permitting on diffusion for EG&S firms is uncertain, depending on the particular relationship

of a facility to suppliers and to the particular problems being solved.

Liability

The uncertainty liability creates about outcomes

can encourage firms to innovate to reduce or control pollution rather than take a chance on disposal

or control of wastes. However, if signals about accountability are too inconsistent, liability might

become counterproductive. Except for CERCLA

provisions, that have been widely criticized, there

is very little systematic evidence about how firms

behave in the face of statutory provisions (as opposed to the body of common law known as torts

or the issues of enforcement of civil and criminal

penalties).

Theoretically, the possibility of suffering large

judgments for compensatory damages if found in

violation of environmental standards is regarded

as an incentive for every firm to comply. Neither

governmental entities nor companies, however,

strictly comply with all environmental regulations, usually because the laws require more than a

regulated entity knows how to do (100). Moreover, firms may vary regarding how risk-averse

they are.

Liability can create both direct and indirect

pressures on firms to innovate. The direct responsibility for remediation of environmental damage

can promote problem solving by firms to reduce

hazards. At a minimum, most firms want to avoid

the negative publicity that can accompany the

types of environmental degradation that result in

efforts to secure compensatory damages.

The more indirect pressures are increasingly

being seen in requirements by lenders and insurance companies who want assurances that firms

are behaving in an environmentally responsible

way or that property they are buying or insuring is

free from liability under environmental laws. Liability provisions, especially associated with remediation efforts under CERCLA, have created a

significant market for the EG&S industry. Banks

and insurers themselves are now developing more

in-house capability to evaluate environmental

performance and to diffuse technical information

to clients about how to prevent or solve environmental problems.

Information reporting

For technology innovation, the major impact of

information reporting is likely to come from the

way the sources interpret and act on the information they gather. Several firms have said that they

were surprised by the results of the information

they compiled for programs such as TRI and used

the information to make changes in their facilities

to reduce emissions (105). To the extent that information reporting, such as TRI or self-audits,

can improve a firm’s knowledge of its facility’s

emissions, that knowledge may be linked by the

firm to other productivity concerns to produce innovations (159). However, the response does not

have to be innovative; an incentive to lower emis-
198 | Environmental Policy Tools: A User’s Guide

sions is by no means equivalent to an incentive to

innovate.

Subsidies

Subsidies are widely used in many countries to

promote technology development, although support for environmental technologies has been used

only recently in the United States (133). There are

two major approaches to subsidizing technology

innovation and diffusion. In the first, the government offers to pay firms well enough to spur

reduced discharges through innovation. For example, subsidies could be used to promote diffusion of best practices to reduce nonpoint source

pollution by subsidizing landowners, particularly

farmers, who cooperate with guidelines.

The other major approach is to subsidize frontend research and development activities such as

generic R&D, consortia arrangements, or specific

products. For example, the CWA used to contain

an Innovative and Alternative Technologies Program intended to promote innovation and diffusion of new sewage treatment technologies. The

United States has used this approach most frequently in the agricultural, aircraft and aerospace,

defense, and pharmaceutical industries, with a

pattern of widespread subsidies rather than narrowly targeted project subsidies.

While experience indicates that these kinds of

subsidies are indeed successful in promoting

technology innovations (85), the record has been

mixed, with some projects judged as failing to deliver desirable results (33). With either approach

there is likely to be disagreement about whether it

produces innovations that would not otherwise

have occurred and, consequently, whether the redistribution of public monies into private hands is

desirable or effective.

Technical assistance

Technical assistance is an effective instrument

for promoting technology diffusion. These programs are not regarded as particularly effective in

promoting innovation, particularly in large

sources where considerable in-house expertise is

available.

The typical clients targeted by technical assistance programs are companies or governmental entities that have lagged behind the state of the art.

These programs have been widely favored for diffusing known techniques and methods, especially

among smaller and medium-sized firms.

The federal government has considerable experience in using technical assistance to improve

performance in an industry. For example, technical assistance programs were the backbone of the

federal agricultural extension service’s efforts to

diffuse best practices and the evidence seems conclusive that it has been an extremely effective

policy instrument in that setting. More recently,

the federal government has been using the concept

of technical assistance to promote cooperation

among companies with similar technical environmental problems. For example, the Industry

Cooperative for Ozone Layer Protection has developed standardized approaches to CFC substitution that are being disseminated to companies

in other countries.

Government-sponsored technical assistance

programs to support diffusion may either complement or actually compete with efforts within the

EG&S industry. For example, some federal efforts

at technical assistance are contracted out to the

EG&S industry, using those firms as agents for

diffusion.

SUMMARY

This chapter presented a criterion-by-criterion

comparison of the effectiveness of the 12 policy

instruments or tools. Our composite picture of

instrument performance on all seven of the criteria

and their underlying components, shown in table

4-9, underscores that trying to satisfy several,

much less all, of these when addressing a particular environmental problem may be quite frustrating.

Yet policymakers are typically faced with these

difficult tradeoffs among broad concerns such as

lowering the costs and burdens for industry and

government, achieving the desired environmental

results, and spurring the development and use of

new technologies. Choosing the most effective
Chapter 4 Choosing Policy Tools: Seven Important Criteria 199

TABLE 4-9: Strengths and Weaknesses of Policy Instruments

NOTE: These ratings are OTA’s judgments, based on theoretical literature and reports of instrument use. The evaluation of each instrument on a particular criterion is relative to all other instruments.Thus, by definition most instruments are “average.” “Effective” means that the instrument is typically a reliable choice for achieving the criterion. “It depends” means that it may be effective or aboutaverage, depending on the particular situation, but it is not likely to be a poor choice. And “use with caution” means that the instrument should be used carefully if the criterion is of particular concern.SOURCE: Office of Technology Assessment, 1995.
200 | Environmental Policy Tools: A User’s Guide

policy instruments to achieve a goal can thus become a very complicated task for policymakers

whether at the state, local, or federal level.

Clearly, choosing an instrument for its strength

on any one criterion may diminish the chances of

achieving any of the other criteria on which it performs poorly. The single-source tools that can be

so effective at providing assurance of meeting

goals, for example, are much less effective at addressing concerns about cost-effectiveness and

fairness or adaptability to change. However, multisource tools that facilitate lower costs and burdens for industry and may spur technology

innovation can be more difficult to monitor and

raise concerns about the distribution of costs and

benefits among various communities.

Chapter 1 of this report discusses one approach

for narrowing the choice of instruments by posing

a set of questions about both the problem itself and

the preferences of the policymakers. After working through these questions, policymakers may

find the perfect instruments for dealing with the

problem. However, they are just as likely to be

faced with the kinds of tradeoffs discussed in this

chapter. Rather than depend on a single instrument, policymakers may want to combine two or

more instruments to shore up the weaknesses of

one with the strengths of the others.
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212 | Environmental Policy Tools: A User’s Guide

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Administrative Procedure Act

230. § 553(a), 5 USC § 553(a).

Clean Air Act

231. § 108, 42 USC § 7408.

232. § 110(a), 42 USC § 7410(a).

233. § 172(c), 42 USC § 7502(c).

234. § 182(g), 42 USC 7511a(g).

235. § 183, 42 USC § 7511b.

236. § 185(b), 42 USC § 7511d(b).

237. §§ 202 - 250, 42 USC §§ 7521 - 7590.

238. § 211(n), 42 USC § 7545(n).

239. § 507, 42 USC § 7661f.

240. §§ 601 -618, 42 USC § 7671a - 7671q.

241. § 602 (c), 42 USC § 7671a(c).

242. § 602(e), 42 USC § 7671a(e).

Clean Water Act

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244. § 311, 33 USC § 1321.

245. § 311(f), 33 USC § 1321(f).

246. § 505, 33 USC § 1365.

247. § 601(a), 33 USC § 1381(a).

Comprehensive Environmental Response,

Compensation and Liability Act

248. § 107(a), 42 USC § 9607(a).

249. § 117(e), 42 USC § 9617(e).

Emergency Planning and Community

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250. §§ 301 - 330, 42 USC §§ 11001 - 11049.

Federal Insecticide, Fungicide

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251. § 6, 7 USC § 136d.

Internal Revenue Code

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Oil Pollution Act

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Resource Conservation

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254. § 3004(d), 42 USC § 6924(d).

255. § 3004(o), 42 USC § 6924(o).

Toxic Substances Control Act

256. § 4(a), 15 USC § 2604(a).

257. § 6(d), 15 USC § 2605(d).

258. § 8(e), 15 USC § 2607(e).

259. § 203, 15 USC § 2463.

Regulations and Executive Orders

260. 1 CFR § 305.69-8.

261. 40 CFR § 264.343.

262. 45 FR 33290 ( May 19, 1980).

263. 47 FR 14146 (Oct. 29, 1982).

264. 48 FR 14146 (Apr. 1, 1983).

265. 50 FR 9386 (Mar. 7, 1985).

266. 50 FR 13116 (Apr. 2, 1985).

267. 51 FR 43814 (Dec. 4, 1986).

268. E.O. 12898, 59 FR 7629 (Feb. 11, 1994).

Legislative Proposals

269. U.S. Congress, House of Representatives,

H.R. 2105, the proposed “Environmental

Justice Act of 1992” (Washington, DC:

U.S. Government Printing Office, 1992).

State Statutes and Regulations

270. Cal. Health & Safety Code §25249.5 et seq.

(West 1988).

271. Safe Drinking Water and Enforcement Act

(Cal. Water Code §25249.5 et seq. (West

1988)).

272. Air Toxics ‘Hot Spots’ Information and

Assessment Act of 1987, Cal. Health &

Safety Code §44300 et seq. (Deering 1994).

273. “Pollution Prevention Act,” N.J. Rev.Stat.

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274. NJ Register, December 7, 1992, 4323.

275. Wisconsin Stat. §212 (1981).

Case Law

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277. Lincoln v. Virgil, 113 S.Ct. 2024 (1993).
ndex

A

air toxics, see hazardous air pollutants

adaptability

definition of criterion, 182-183

factors for comparing instruments, 183-184

ease of program modification, 184

ease of source changes, 184

instrument-by-instrument comparison, 186-190

instrument effectiveness

challenge regulations, 118, 120, 186-187

design standards, 95, 96, 187-188

harm-based standards, 91, 188

information reporting, 133, 134, 186

integrated permitting, 107, 188

liability, 127, 128, 186

pollution charges, 124, 189-190

product bans, 101, 102, 187

subsidies, 138, 190

technical assistance, 142, 186

technology specifications, 97-98, 99, 187

tradeable emissions, 114, 188-189

summary of instrument effectiveness, 27-28,

185-186

assurance of meeting environmental goals

definition of criterion, 146

factors for comparing instruments, 146-147

degree of action forcing, 146

familiarity through use, 147

monitoring capability, 146-147

instrument-by-instrument comparison, 148-153

instrument effectiveness

challenge regulation, 120, 152

design standards, 95, 96, 149-150

harm-based standards, 89, 91, 150

information reporting, 131, 134, 151-152

integrated permitting, 104-105, 107, 150

liability, 128, 153

pollution charges, 122, 124, 152-153

product bans, 100, 102, 148,

subsidies, 136-137, 138, 152

technical assistance, 140-141, 142, 152

technology specifications, 97, 99, 148-149

tradeable emissions, 110-111, 114, 150-151

summary of instrument effectiveness, 26,

147-148

B

bubble policy, EPA, see tradeable emissions

C

California Air Toxics “Hot Spots” Information and

Assessment Act, see “Hot Spots” California air

toxics program

California Safe Drinking Water and Toxic Enforcement Act, see Proposition 65

case studies

summary of criteria and key issues, 30, 58

see also individual case studies: “Hot Spots,”

California air toxics program; Massachusetts

Office of Technical Assistance (MassOTA);

New Jersey facility-wide permitting; Proposition 65, California; RECLAIM tradeable

emissions program.

challenge regulation

debates about, 120

definition of instrument, 16, 84, 113, 115

extent of use, 18, 86-87, 115-117

key criteria affecting tool selection

adaptability, 118, 120, 186-187

cost-effectiveness and fairness, 117-118, 120,

171

demands on government, 118, 120, 178

environmental equity and justice, 117, 120,

164

choosing instruments, framework for

key questions for matching instruments to

problems, 34

pollutants, characteristics of, 35-36

sources, characteristics of, 36

uncertainty and expectations for change, 36-37

| 213
214 | Environmental Policy Tools: A User’s Guide

multiple instrument use, 15, 37-40

responsibility for choosing instruments, 29-31

consolidated permitting, see integrated permitting

cost of pollution abatement

as percent of sector total expenditures, 52-53

by major statute, 20, 49

for air pollution

expenditures by sector, 21, 49, 51

improvements achieved by, 49

for hazardous waste

expenditures by sector, 21, 49, 51

for solid waste

expenditures by sector, 21, 49, 51

improvements achieved by, 50

for water pollution

expenditures by sector, 21, 48-49, 51

improvements achieved by, 48-49

pollution prevention, capital expenditures, 52

cost-effectiveness and fairness to sources

definition of criterion, 166-167

factors for comparing instruments, 167-168

administrative burden for sources, 168

fairness to sources, 168

cost-effectiveness for individual sources,

167-168

cost-effectiveness for society, 167

instrument-by-instrument comparison, 170-175

instrument effectiveness

challenge regulations, 117-118, 120, 171

design standards, 96, 174

harm-based standards, 91, 173

information reporting, 132, 134, 172

integrated permitting, 105, 107, 170-171

liability, 128, 174

pollution charges, 124, 174

product bans, 100, 102, 172

subsidies, 138, 174-175

technical assistance, 141-142, 172

technology specifications, 97, 99, 172-173

tradeable emissions, 111-112, 113, 114, 170

summary of instrument effectiveness, 24-25,

168-170

criteria

definitions and important factors, 23

summary tables of instrument effectiveness on,

33, 39, 199

see also individual criteria: adaptability, assurance of meeting environmental goals, costeffectiveness and fairness to sources, demands

on government, environmental equity and justice, pollution prevention, technology innovation and diffusion

D

demands on government

definition of criterion, 175

factors for comparing instruments, 175-177

costs, 175-176

ease of analysis, 176-177

instrument-by-instrument comparison, 178-182

instrument effectiveness

challenge regulation, 118, 120, 178

design standards, 94, 96, 179-180

harm-based standards, 89-90, 91, 178-179

information reporting, 132-133, 134, 178

integrated permitting, 105-106, 107, 180-181

liability, 126-127, 128, 182

pollution charges, 124, 181-182

product bans, 102, 179

subsidies, 137, 138, 179

technical assistance, 142, 182

technology specifications, 99, 179

tradeable emissions, 114, 181

summary of instrument effectiveness, 25,

177-178

deposit-refund, see subsidies

design standards

debates about, 96

definition of instrument, 9, 10, 84, 90, 92

extent of use, 16, 86-87, 92-93

key criteria affecting tool selection

adaptability, 95-96, 187-188

assurance of meeting goals, 93, 96, 149-150

demands on government, 94, 96, 179-180

pollution prevention, 94, 96, 156

E

emissions trading, see tradeable emissions

environmental equity and justice

definition of criterion, 159-160

factors for comparing instruments, 160-161

distributional outcomes of policies, 160-161

effective participation in policymaking, 161

remediation of existing problems, 161

instrument-by-instrument comparison, 163-166

instrument effectiveness

challenge regulation, 117, 120, 164

design standards, 96, 165

harm-based standards, 91, 165

information reporting, 131-132, 134, 163

integrated permitting, 107, 165-166

liability, 128, 166

pollution charges, 122-123, 124, 164-165

product bans, 102, 165
Index | 215

subsidies, 137, 138, 163

technical assistance, 141, 142, 163-164

technology specifications, 99, 165

tradeable emissions, 111, 114, 164

summary of instrument effectiveness, 27,

161-163

H

harm-based standards

debates about, 91

definition of instrument, 9, 10, 84, 85, 88

extent of use, 16, 86-87, 88-89

key criteria affecting tool selection

assurance of meeting goals, 89, 91, 150

demands on government, 89-90, 91, 178-179

hazardous air pollutants, 89, 93, 94-95

see also, “Hot Spots.”

“Hot Spots,” California air toxics program

criteria discussed

assurance of meeting goals, 74, 131

environmental equity and justice, 131

description of program, 72-73

I

information reporting

debates about, 134

definition of instrument, 11, 13, 85, 127,

129-133, 134

extent of use, 18, 86-87, 130-131

key criteria affecting tool selection

adaptability, 133, 134, 186

assurance of meeting goals, 131, 134, 151-152

cost-effectiveness and fairness, 132, 134, 172

demands on government, 132-133, 134, 178

environmental equity and justice, 131-132,

134, 163

see also Proposition 65, California; “Hot Spots,”

California air toxics program

instruments

categorical definitions, 10-11, 81-85, 119

examples of early uses, 17

summary of performance on 12 criteria, 33, 39,

199

used under major environmental statues, 13-15,

86-87, 88-89, 92-93, 97, 98-100, 103, 108-110,

115-117, 119, 121-122, 125-126, 130-131,

135-136, 139-140

used for risk based strategies and technologybased strategies, 42

see also individual instruments: challenge regulation, design standards, harm-based standards,

information reporting, integrated permitting,

liability provisions, pollution charges, product

bans and limitations, subsidies, technical assistance, technology specifications, and tradeable

emissions.

integrated permitting

debates about, 107

definition of instrument, 10 ,12, 84, 101, 103

extent of use, 18, 86-87, 103

key criteria affecting tool selection

assurance of meeting goals, 104-105, 107, 150

cost-effectiveness and fairness, 105, 107,

170-171

demands on government, 105-106, 107,

180-181

see also New Jersey facility-wide permitting

L

liability provisions

debates about, 128

definition of instrument, 11, 13, 85, 123-125

extent of use, 19, 86-87, 125-126

key criteria affecting tool selection

adaptability, 127, 128, 189-190

demands on government, 126-127, 128,

181-182

pollution prevention, 126, 128, 156-157

M

Massachusetts Office of Technical Assistance

(MassOTA)

criteria discussed

adaptability, 79

technology innovation and diffusion, 79-80

description of program, 76-78

N

New Jersey facility-wide permitting

criteria discussed

adaptability to change, 71

assurance of meeting goals, 104, 105

demands on government, 106

pollution prevention, 70-71

description of program, 67-70

O

options for Congress, see stumbling blocks that limit

use of desirable instruments

P

performance standards, see harm-based standards

pollution charges

debates about, 124

definition of instrument, 11, 13, 85, 119

extent of use, 18, 86-87, 119, 121-122

key criteria affecting tool selection
216 | Environmental Policy Tools: A User’s Guide

assurance of meeting goals, 122, 124, 152-153

environmental equity and justice, 122-123,

124, 164-165

technology innovation and diffusion, 123, 124,

194

pollution prevention

definition of criterion, 153-154

factors for comparing instruments, 154

focuses on organizational learning, 154

gives an advantage to prevention, 154

instrument-by-instrument comparison, 155-159

instrument effectiveness

challenge regulations, 120, 158

design standards, 94-95, 96, 156

harm-based standards, 91, 157

information reporting, 134, 158-159

integrated permitting, 107, 157

liability, 126, 128, 156-157

pollution charges, 124, 158

product bans, 100, 102, 155

subsidies, 138, 159

technical assistance, 140, 141, 155-156

technology specifications, 97, 99, 156

tradeable emissions, 114, 157

summary of instrument effectiveness, 26-27,

154-155

product bans and limitations

debates about, 102

definition of instrument, 9, 10, 84, 98

extent of use, 16, 86-87, 98-100

key criteria affecting tool selection

adaptability, 101, 102, 187

assurance of meeting goals, 100, 102, 148

cost-effectiveness and fairness, 100, 102, 172

pollution prevention, 100, 102, 155

technology innovation and diffusion, 100, 102,

193-194

Proposition 65, California

criteria discussed

assurance of meeting goals, 73-74, 131

demands on government, 132-133

environmental equity and justice, 75-76, 131

pollution prevention, 74-75

description of program, 71-72, 130

R

ranking of environmental problems

by EPA-region studies, 53-56

by national studies, 52-53

by state studies, 56-57

RECLAIM tradeable emissions program

criteria discussed

administrative burden to sources, 61-62

assurance of meeting goals, 65-67, 109

cost-effectiveness for sources, 60-61, 109

environmental equity and justice, 63-65

fairness for sources, 62-63, 112

description of program, 57-60, 109

S

stumbling blocks that limit use of desirable

instruments

to learning about strengths and weaknesses of

less-often used instruments, 44-45

congressional options, 45

to a results orientation, 43-44

congressional options, 44

to a risk-based approach, 41-42

congressional options, 42-43

subsidies

debates about, 138

definition of instrument, 11, 13, 85, 133-135

extent of use, 19, 86-87, 133-135

key criteria affecting tool selection

assurance of meeting goals, 136-137, 138, 152

demands on government, 137, 138, 179

environmental equity and justice, 137, 138,

163

T

technical assistance

debates about, 142

definition of instrument, 11, 12, 85, 137-139

extent of use, 19, 86-87, 139-140

key criteria affecting tool selection

adaptability, 142, 186

assurance of meeting goals, 140, 142, 142,

152

cost-effectiveness and fairness, 141-142, 172

environmental equity and justice, 141, 142,

163-164

pollution prevention, 141, 142, 155-156

see also Massachusetts Office of Technical

Assistance

technology innovation and diffusion

definition of criterion, 190-191

factors for comparing instruments, 191-192

diffusion of known technologies, 192

innovation in the eg&s industry, 191, 192

innovation in the regulated industries, 191

instrument-by-instrument comparison, 193-198

instrument effectiveness

challenge regulations, 118-119, 120, 195

design standards, 96, 196

harm-based standards, 91, 195-196

information reporting, 134, 197-198
Index | 217

integrated permitting, 107, 196-197

liability, 128, 197

pollution charges, 123, 124, 194

product bans, 101, 102, 193-194

subsidies, 138, 198

technical assistance, 142, 198

technology specifications, 99, 196

tradeable emissions, 112-113, 114, 194-195

summary of instrument effectiveness, 28-29,

192-193

technology specifications

debates about, 99

definition of instrument, 9, 10, 84, 95, 97

extent of use, 16, 86-87, 97

key criteria affecting tool selection

adaptability, 97-98, 99, 187

assurance of meeting goals, 97, 99, 148-149

cost-effectiveness and fairness, 97, 99,

172-173

pollution prevention, 97, 99, 156

tradeable emissions

debates about, 114

definition of instrument, 10, 12, 84, 106, 108

extent of use, 16, 86-87, 108-110

key criteria affecting tool selection

assurance of meeting goals, 110-111, 114,

150-151

cost-effectiveness and fairness, 111-112, 114,

170

environmental equity and justice, 111, 114,

164

technology innovation and diffusion, 112-113,

114, 194-195

see also RECLAIM tradeable emissions program