November 17, 2010 

### Definition of Solid Waste Rulemaking Compliance Research Background Document 1 Introduction The purpose of this background document is to describe compliance research literature supporting the following propositions:  Regulation (legislation and rules) is a critical determinant of facilit y environmental behav ior

– more important than any other single factor .  Self - monitoring, reporting, and disclosure of the associated compliance information can promote significant comp liance and performance improvements.

 Inspections and enforcement actions consistently produce improved compliance and/or environmental performance at evaluated or sanctioned facilities (specific deterrence) .  Inspections and enforcement actions consistently produce significant compliance/ performance spillover effects on similarly situated non - evaluated or sanctioned facilities (general deterrence) .  Higher penalties can produce greater deterrence. Primary Sources for Quotations and Citations in Compliance Research Background Document The primary

sources for most of the quotations and citations in this Compliance Research Background Document are: (1) Shimshack, Jay

P.; Monitoring, Enforcement, &Environmental Compliance: Understanding Specific & General Deterrence

– State - of - Science White Paper ( October 2007 ) (hereinafter cited as Deterrence White Paper) http://www.epa.gov/oecaerth/resources/reports /compliance/research/meec - whitepaper.pdf (2) USEPA; Compliance Literature Search Results -- Citations to Over Two Hundred Compliance -Related Books and Articles From 1999 to 2007 (April 2007) (hereinafter cited as Compliance Literature Search Results ) . http://www.epa.gov/oecaerth/resources/reports/compliance/research/lit - results - 2007.pdf 1 Prepared by: Jon Silberman, Attorney - Advisor, Office of Enforcement and Compliance Assurance

– Office of Com pliance

– Planning, Measures and Oversight Division. 202 - 564 - 2429 or Silberman.jon@epa.gov2

Additional compliance and deterrence measurement information (includi ng statistically valid empirical deterrence research results) on the following topics may also be found in the additional resources on EPA’s Compliance Research Literature web page : http://www.epa.gov/oecaerth/resources/reports/compliance/research/index.html .  Compliance assurance  Compliance monitoring  Deterrence  Enforcement  Environmental management  Program measurement and evaluation  Voluntary

programs  Environmental performance  Relationship of compliance and performance to business value and competitiveness Regulation (legislation and rules) is a critical determinant of facility environmental behavior

– more important than an y other single factor :  “Despite the man y factors influencing environmental performance ... the literature strongl y suggests one result central to this report. Regulation, monitoring, and enforcement have historically been, and remain, critical determinants of environmental behavio r. ... Every reviewed study indicated that regulation/legislation is a more important determinant of environmental behavior than any other single factor. ” Deterrence White Paper at 9 (emphasis added).  While Khanna and Anton’s [2002] survey of S&P 500 firm s indicated that second - order environmental practices like total quality management were largel y attributable to market factors, first - order practices like environmental staffing, audits, and internal policies were attributable to legal and regulatory fact ors. Kagan et al. [2003] argued that regulation is principally

responsible for large environmental gains for pulp and paper facilities in the US, Canada, Australia, and New Zealand. In a survey of Canadian pulp and paper facilities, Doonan et al. [2005] di scovered that a full 70 percent of managers rated the government as the single most important source of environmental pressure. Similarly , Delmas and Toffel’s [2005] survey of 493 US industrial sources indicated that the influence of regulators and legislators on environmental performance was considerabl y stronger than community organizations, activist groups, and the media. Finally , May

[2005] showed that traditional regulation had a considerabl y stronger influence on marine industry managers’ deterrence v iewpoints than non - mandatory regulation.” Id. at 9 - 10 (emphasis added) .3

 Paper examines the role of rationality and complexity

in compliance and finds empirical evidence to support that both are necessary to explain hazardous waste compliance behavior. ... [F] acilities subject to more complex regulations are more likely to violate but learn from past inspectio ns . Stafford, S. L .; Rational or Confused Polluters? Evidence from Hazardous W aste Compliance ; Contributions to Economic Analy sis & Policy : Vol. 5 : I ss. 1, Art. 21 (2006). Compliance Literature Search Results at 18 (emphasis added) . http://www.bepress.com/bejeap/contributions/vol5/iss1/art21/

 Empirical study

of fourteen pulp and paper mills in 4 countries, including the United States. Article discusses factors affecting firm - level performance differences. Large improvements are linked to tightening regulatory requirements and political pressur es which serve as coordinating mechanisms for culture and behavior. Kagan, R., Gunningham, N., & Thornton, D.; Explaining Corporate Environmental Performance: How Does Regulation Matter? ; L aw & Societ y Review, Vol. 37, No. , pp. 51 - 90 (2003) . Compliance Literature Search Results at 26 (emphasis added) . http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1084&context=igs

 Empirical study

of Canadian program co mbining traditional enforcement and public disclosure finds .... stricter standards and higher penalties ... also significantly affected emissions because s trong, clear standards, together with a significant, credible penalty system, sends appropriate signals to the regulated community which responds by lowering pollution emissions . L aplante, B., Lanoie, P. & Foulon, J.; Incentives for Pollution Control - Regulation and Public Disclosure ; No 2291, Policy Research Working Paper Series, The World Bank (2000) (emphasis added) . http://ideas.repec.org/p/wbk/wbrwps/2291.html Self - monitoring, reporting, and /or disclosure of associated compliance information can promote significant compliance and performance improvements :  The issue of the relationship between enhanced self - monitoring, reporting, and/or disclosure of associated compliance information to improved regulatory compliance and environmental performance has to date been the subject of relatively little formal research. Nevertheless, the following examples demonstrat e that the relationship exists and can be significant.

 Several studies have linked the public availability of Toxic Release Inventory (TRI) data to improved compliance and reduced pollution. For examp le, using a micro - level data set linking TRIreleases to plant level Census data, one researcher found , among other things, that the local and state governmental use of TRI disclosures helps induce firms to become cleaner . Bui, L.; Public Disclosure of Pri vate Information as a Tool for4

Regulating Environmental Emissions: Firm - Level Responses by Petroleum Refineries to the Toxics Release Inventory ; Brandeis Univ. Working Paper Series (June 2005). http://ideas.repec.org/p/cen/wpaper/05 - 13.html

 Under the Toxic Release Inventory (TRI), the s ys tematic use of performance monitoring and benchmarking as a regulatory tool has been cited as a watershed event enabling and compelling facilities to monitor, co mpare, and improve their environmental performance. At the same time, it enhances enhancing transparency and accountability

to external parties. Karkkainen, Bradley C.; Information as Environmental Regulation: TRI and Performance Benchmarking, Precursor to a New Paradigm? , 89 Geo. L.J. 257 (2001). By decreasing the time required for EPA to compile, verify , and anal yz e data, e - filing can reduce the lag times from when EPA receives data to when the Agency is able to make it publicly available. TRI e - report ing, for example, achieves this by reducing costly

and cumbersome paperwork for reporters while speeding EPA’s ability to make it publicly available. Id. at 289, 336 - 7.

 Studies of enhanced disclosure regulations and environmental compliance in other co ntexts have also linked enhanced disclosure to statistically significant compliance improvements. See, e .g. , Bennear & Olmstead; The Impacts of the “Right to Know” Information Disclosure and the Violation of Drinking W ater Standards , JEEM Vol. 50, Iss. 2; pp. 117 - 130 (2008) (larger utilities required to mail annual Consumer Confidence Reports on water supplier compliance pursuant to the 1998 Safe Drinking Water Act amendments reduced total violations by 30% - 44% and more severe health violations by 40 - 57% ).

 Evidence gathered in an EPA Region 5 study of the refinery

sector demonstrated that when facilities installed Continuous Emissions Monitoring (CEM) equipment, they uncovered previousl y unknown operational and mechanical problems. This allowed operator s to take corrective action to reduce sulfur dioxide emissions . Operations and maintenance ( O&M ) methods did not indicate the true picture of what was being emitted to the environment. After the installation of the CEM, previously unknown operational and mechanical problems were uncovered. The data generated b y the CEM, allowed operators to take the necessary corrective actions and ultimately reduce emissions of SO2 to the atmosphere. Curtis, C.; The Benefits of CEM as Enhanced Monitoring: A Study Based o n Two Investigative Approaches at Petroleum Refineries (1995). http://www.epa.gov/reg5oair/enforce/cemrefpp.html 2  Monitoring, disclosure, and e - reporting together have produced extremel y si gnificant emission reductions. Specificall y, EPA's Acid Rain Program contribute d to the “largest 2 See also : McCoy, et al .; Statistical Revie w of U.S. EPA Region 5's CEM Database (c. 1996). http://www.epa.gov/reg5oair/enforce/r5cempp2.html5

quantified human health benefits of an y federal regulatory program implemented in the last 10 [years], with annual benefits exceeding costs by >40 to 1 .” It did so by

promoting “public confidence in the programs, highly accurate and complete emissions data, and a high compliance rate ( > 99% overall) .” Schakenbach, et al.; Fundamentals of Successful Monitoring, Reporting, and Verification under a Cap - and - Trade Program , J. Air & Waste Manag e. . Ass oc., 56:1576

– 1583 2006). http://www.epa.gov/airmarkt/cap trade/docs/fundamentals.pdf  E - reporting of environmental data is being increasingl y adopted b y states because of the positive environmental and financial benefits it provides. An example is Michigan DEQ’s eDMR s ys tem for wastewater facilities. As MIDEQ reports on its web page, 3 the benefits of the state’s e - reporting s ys tem include: (1 ) s aving wastewater discharge facilities compliance costs with a streamlined reporting method and readil y available computer tools; (2) saving program costs b y reducing resources required for managing paper - based DMR reports; (3) improve the accuracy of co mpliance data b y eliminating potential errors that might otherwise be introduced through manual data entry in the database; and (4) improving the DEQ wastewater program's overall effectiveness with faster responses to data analy ses, compliance assessment, and decision - making. Inspections and enforcement actions consistently produce improved compliance and/or environmental performance at evaluated or sanctioned facilities (specific deterrence) :  The emphasis in this section is on the impact of inspections on compliance and environmental performance, though information on the impact of enforcement actions and penalties is included for some studies addressing both. See the Deterrence White Paper and the resources posted on EPA’s Compliance Research Literature web page at http://www.epa.gov/oecaerth/resources/reports/compliance/research/index.html if additional information is desired on the relationship of enforcement acti ons, penalties, and compliance/performance .  [S]pecific deterrence refers to the effects of regulatory actions on the evaluated or sanctioned firm itself. General deterrence effects, in which regulatory actions aimed at one facilit y impact the environmenta l performance at other facilities, are considered in the next section. [f.n. omitted] ... Collectively , the results of the specific deterrence literature indicate that both qualitative and quantitative methods exist to measure specific deterrence. Further, joint results show that significant reductions in non - compliance and emissions are obtainable with traditional monitoring and enforcement. Inspections and enforcement actions consistently produce improved future environmental performance at 3 https://secure1.state.mi.us/e2rs/config/helpdoc/e2rs_faq.pdf6

the evaluated or sanctioned facility. Results hold both historically and currently . Deterrence White Paper at 10 - 11 ( emphasis in original).  Environmental monitoring and enforcement activities generate substantial specific deterrence. [paragraph break omitted] Every r eviewed study that examined the impacts of domestic environmental monitoring and enforcement actions on the inspected or sanctioned facility found at least some evidence for specific deterrence. This includes Magat and Viscusi [1990], Deily and Gray [1991] , Gray

and Deily

[1996], Nadeau [1997], Earnhart [2004a], Earnhart [2004c], May [2005], Gray

and Shadbegian [2005], Keohane et al. [2006], and Glicksman and Earnhart [2007]. In many cases, the specific deterrence effects were large.” Id . at 22 (emphasis added).

 “The seminal paper empirically assessing specific deterrence is Magat and Viscusi [1990]. Magat and Viscusi [1990] explored the relationship between EPA inspections and self - reported biochemical oxygen demand (BOD) discharges at 77 major US pulp and paper mills for the period 1982 - 1985. The authors found that lagged inspections had statistically

significant negative impacts on both BOD compliance status and continuous BOD discharges. The results were also economically significant. Lagged inspection s induced as much as a 20 percent reduction in mean BOD discharges in the quarter following an inspection.” Id. at 11.

 “Deil y and Gray [1991] studied 49 steel plants between 1976 and 1986, a period of rapid decline in the steel industry . They studied the response of plant - closing probabilities to all EPA/state enforcement actions in the industry . The authors found that a 12 percent increase in the predicted probability of EPA and state enforcement activity over the entire sample period increased the likel ihood that a plant would close b y 1 percentage point. Id.

 In a related study , Gray and Deily

[1996] analyzed the impact of non - monetary enforcement actions on the self - reported annual particulate, sulfur dioxide, and nitrogen oxide compliance of 41 US s teel manufacturers for the period 1980 - 1989. Here, the authors detected a substantial impact of actual lagged inspections and non - monetary enforcement actions on air pollution compliance, ... Actual enforcement actions seem to have spurred changes in environmental behavior.” Id.

 “In a study of self

- reported air pollution compliance rates for 175 US pulp and paper plants from 1979 - 1989, Nadeau [1997] showed that EPA regulatory activity can significantl y affect plants’ duration of non - compliance. In particular, Nadeau [1997] studied the response of time spent in violation of air pollution statutes to EPA/state inspections and enforcement actions. Results indicated that a 10 percent increase in a plant’s predicted threat of enforcement actions, including monetary penalties, resulted in a 4 to 5 percent reduction in the violation length. Results for predicted inspection activity ,7

however, were largel y indeterminate. A 10 percent increase in a plant’s predicted threat of inspection resulted in a 0 to 4 percent red uction in the length of non - compliance.” Id .  “Earnhart [2004a] and Earnhart [2004c] investigated the relationship between regulator activity and self - reported BOD discharges from 40 Kansas wastewater treatment facilities for the period 1990 - 1998. The key metric in both studies was the response of BOD discharges to EPA/state enforcement and monitoring actions. The most consistent result across the anal ys es was that lagged actual inspections and lagged actual enforcement actions caused reductions in BOD discharges (as a percentage of permitted levels).” Id .  “May [2005] analy

zed survey

results from approximately 200 marine facilities (marinas and boat yards) in Washington and California. In a study of how managers’ reported deterrence fears responded to regulator inspections and sanctions, the author foun d that inspections significantl y contributed to managers’ deterrence viewpoints. Facilities inspected in the last 5 ye ars had higher deterrent fears than those not inspected.” Id. at 11 - 12.

 “... Glicksman and Earnhart [2007] analy zed both qualitative and qu antitative evidence of specific deterrence for water discharges in the chemical industry . The statistical database anal ys is examined how plants’ composite BOD and TSS discharges responded to EPA/state enforcement actions. The survey component covered 267 o f the 1003 originall y solicited chemical facilities (a 26.6 percent response rate). Glicksman and Earnhart [2007] established that inspections and fines both produced significant deterrence effects. Nearly 75 percent of survey

respondents reported that fin es were an effective deterrent and approximately 87 percent reported that inspections definitely or probably effectivel y induced water pollution compliance. Similarly, the statistical results indicated that both inspections and enforcement actions resulted in decreased aggregate conventional water pollution emissions.” Id. at 12.

 “Gray and Shadbegian [2005]. In addition to measuring specific deterrence in a framework consistent with earlier studies, the authors also considered factors that influenced the responsivenes s to monitoring and enforcement actions. They examined 116 pulp and paper mills for the period 1979 - 1990, and their key metric was the response of air pollution compliance to EPA/state inspections and enforcement actions. Results indicated that plants incr eased their CDS - reported air pollution compliance rates b y approximately

10 percent in response to a marginal regulator action.” Id .  “Specific deterrence effects are not restricted to domestic environmental institutions. For example, L aplante and Rilsto ne [1996] explored the impact of inspections and the predicted threat of inspection on the biochemical oxygen demand (BOD) and total suspended solid (TSS) discharges of 47 Canadian pulp and paper mills. The authors found inspections and their associated threat reduced mills’ absolute BOD discharges by8

approximately

28 percent. Similarly , Dasgupta et al. [2001] demonstrated that inspections on manufacturing facilities in Zenjiang, China reduced common water pollutants by between 0.4 and 1.2 percent and reduc ed air particulates by approximately

0.3 percent. Outside of the environmental arena, Gray and Mendeloff [2005] found that OSHA inspections reduced workplace injuries b y approximately 19% in 1979 - 1985, 11% in 1987 - 1991, and 1% in 1992 - 1998. Further, they s howed that inspections with penalties had a significantl y stronger effect than inspections without penalties.” Id . at 12 - 13.

 “ Gray and Mendeloff [2005] found that OSHA inspections reduced workplace injuries by approximately

19% in 1979 - 1985, 11% in 1987 - 1 991, and 1% in 1992 - 1998. Further, they showed that inspections with penalties had a significantl y stronger effect than inspections without penalties. ” Id. at 13. Inspections and enforcement actions consistently produce significant compliance/performanc e spillover effects on similarly situated non - evaluated or sanctioned facilities (general deterrence) :  The emphasis in this section is , again, on the impact of inspections on compliance and environmental performance, though information on the impact of en forcement actions and penalties is included for some studies addressing both. See the Deterrence White Paper and the resources posted on EPA’s Compliance Research Literature web page at http://www.epa.gov/oecaerth/resources/reports/compliance/research/index.html if additional information is desired on the relationship of enforcement actions, penalties, and compliance/performance.

 “Collectively , the results of the g eneral deterrence literature indicate that both qualitative and quantitative methods exist to measure general deterrence. Further, joint results show that environmental facilities learn from the experiences of their neighbors, and this learning impacts compliance behavior. Inspections and enforcement actions consistently produce significant spillover effects on non -sanctioned facilities. Consequently, a substantial improvement in environmental quality might be achieved from a relatively small additional inv estment in traditional monitoring and enforcement. ” Deterrence White Paper at 14 ( emphasis in original).  “ Environmental monitoring and enforcement activities generate substantial general deterrence. [paragraph break omitted] Every reviewed study that exa mined the spillover effects of environmental monitoring and enforcement on other facilities uncovered support for the existence of general deterrence. This includes Thorton et al. [2005], Gunningham et al. [2005], Shimshack and Ward [2005], Oregon DEQ [2004], Gray and Shadbegian [2007], and Shimshack and Ward [2007]. In man y cases, general deterrence effects are practically important.” Id . at 24.9

 “Shimshack and Ward [2005] used data on BOD and TSS discharges from 217 pulp and paper mills to explore the regulator reputation - building effect of general deterrence. In particular, the authors statistically anal yz ed the response of plants’ BOD and TSS di scharges to lagged enforcement and monitoring activity at both the sanctioned plant and other plants in the same regulatory jurisdiction. Shimshack and Ward [2005] found that an additional fine induced about a two - thirds reduction in the statewide water po llution violation rate in the year following that fine. Nearly all of this large result was attributable to spillover effects, as the average deterrence impact on each of the other plants in a state was almost as strong as the impact on the sanctioned faci lity .” Id. at 15 - 16.

 “State of Oregon Department of Environmental Quality [2004] conducted an extensive survey of 450 regulated companies in Oregon for one month in 2002. The sample was selected primarily

from high priorit y industries, and thus results are not representative for less visible industrial sectors. Key metrics included the response of managers’ selfreported environmental behavior to hearing about inspections and sanctions at other facilities. Respondents frequently reported significant gener al deterrence effects. For example, 38 percent of surveyed companies made changes in response to hearing about inspections at another facility and 14 percent reportedly made changes in response to hearing about sanctions at other facilities. Such changes i ncluded improved water treatment, investment in new equipment, environmental personnel additions, and employee training. Oregon DEQ estimated that inspections and penalties directly generated an average of 1.6 environmental changes per compan y. 2.6 additio nal environmental actions per compan y occurred when other facilities later heard about the enforcement response. [paragraph break omitted] In Oregon DEQ [2004], inspections seemed to have stronger specific and general deterrence effects than penalty acti ons, largel y because inspections appeared to be better publicized.” Id . at 16 .  “In a study of particulate, sulfur dioxide, and toxics emissions from 521 US manufacturing plants located within 50 miles of three major cities, Gray and Shadbegian [2007] ana ly

zed the response of toxic and conventional air pollution violations and emissions to EPA/state inspections and enforcement actions. The authors found evidence for both specific and general deterrence. Inspections increased compliance with regulations for both the inspected facility and for nearb y plants. The specific and general deterrence effects of inspections were found to be approximately the same magnitude. Id . Higher penalties can produce greater deterrence :  Consider ... the relationship between pe nalty amounts and deterrence. While there is a dearth of data in this regard,[ f.n. omitted

] the established wisdom is that the10

effectiveness of a legal threat depends on three related factors, (1) the certainty that a lawbreaker will be caught ( A certaint y @ ), (2) the nature and severity of the punishment A (severity @ ) , and (3) the speed of apprehension and punishment ( A celerity @ ), and that increases in each dimension correlate with increased deterrence and compliance . [f.n. omitted] ” Silberman, J D..; Does Environmental Deterrence Work? Evidence and Experience Say Yes, But We Need to Understand How and W hy ; 30 Env. Law Inst. 10523 - 36 (July

2000). Abridged version reprinted in Making Law W ork (INECE 2005) . http://www.inece.org/mlw/Chapter4_DomesticEnforcementStrategies.pdf

 “Shimshack and Ward [2005] used data on BOD and TSS discharges from 217 pulp and paper mills to explore the regulator reputation - building effect of genera l deterrence. In particular, the authors statistically anal yz ed the response of plants’ BOD and TSS discharges to lagged enforcement and monitoring activity at both the sanctioned plant and other plants in the same regulatory jurisdiction. Shimshack and Ward [2005] found that an additional fine induced about a two - thirds reduction in the statewide water pollution violation rate in the year following that fine. Nearly all of this large result was attributable to spillover effects, as the average deterrence impact on each of the other plants in a state was almost as strong as the impact on the sanctioned facility . The authors also showed that general deterrence was increasing in the amount of the penalty. In other words, larger fines induced fewer subsequent violations by other plants in the state. Other results included the finding that non - monetary enforcement responses like notices of violation alone had little influence on plant - level compliance .” Deterrence White Paper at 15 - 16 (emphasis added).

 “ Staffo rd [2002] studied the response of 8411 hazardous waste - generating facilities to a rule change that significantly increased financial penalties for violation. The 10 to 20 fold increase in potential fine magnitudes generated an approximately 15 percent redu ction in regulated plants’ violation probabilities. 4 ” Deterrence White Paper at 13. S. Stafford, The Effect of Punishment on Firm Compliance with Hazardous Waste Regulations, J. Environ. Econ. Manage . 44, 290 - 308 (2002). Id . at 13 (emphasis added).

4 “C lass I pollution violations ... [ brief description of 2 nd Stafford study on strict liability approach not included here ] While these findings may indicate improved environmental performance, results may also suggest the presence of firm - level strategic reporting behavior since Class II record - keeping violations increased at the same time. In other words, while it is possib le that increased spending reduced violations, it is also possible that increased spending increased instances where firms cheat by no longer self - reporting violations.” Id .