Since the early 1970s, EPA’s organization and approach toward environmental regulation have mirrored the statutes that authorize the agency’s programs. These statutes generally assign pollution control responsibilities according to the regulated environmental medium (such as water or air) or the category of pollutant (such as pesticides or other chemical substances). As a result, the statutes have led to the creation of individual EPA program offices that focus on reducing pollution within the particular environmental medium for which each office has responsibility—rather than on reducing overall pollutant discharges. Among other problems, this structure has made it difficult for the agency to base its priorities on an assessment of risk across all environmental problems and to take into account the cost and feasibility of various approaches. The agency’s traditional approach toward environmental regulation has also been criticized as precluding innovative and more cost-effective ways to reduce pollution and as being inflexible in dealing with other stakeholders in the regulatory process, such as states and regulated entities. EPA’s efforts to address these issues go back at least as far as the mid-1980s, when the Administrator called on the agency to manage its resources and activities so that they (1) account for the relative risks posed by environmental problems, (2) recognize that pollution control efforts in one medium can cause pollution problems in another, and (3) lead to achieving measurable environmental results. Other efforts have also sought to involve stakeholders in the process in a more collaborative manner, calling, for example, for more negotiated rulemakings. Since that time, however, GAO, EPA’s Science Advisory Board, the National Academy of Public Administration, and other organizations have all pointed to the need to make significantly greater progress in this direction. The passage of the Government Performance and Results Act of 1993 set the stage for reinforced efforts to protect the environment more efficiently and effectively. The Results Act requires agencies to consult with the Congress and other stakeholders to clearly define their missions, establish long-term strategic goals (and annual goals linked to them), and measure their performance against the goals they have set. Importantly, the statute emphasizes the need for agencies to focus not on the performance of prescribed tasks and processes but on the achievement of measurable program results. EPA and state officials agree that early reinvention efforts were hampered by disagreements and misunderstandings over EPA’s and the states’ roles in developing and implementing reinvention projects. These differences centered around issues such as how much flexibility the states have to negotiate and approve reinvention projects and how to include stakeholders in negotiations. These differences came to a head in February 1997, when EPA temporarily withdrew from negotiations, begun in November 1996, on a proposal jointly prepared by ECOS and EPA outlining a framework for EPA and the states to promote and implement regulatory reinvention efforts. Among other things, the proposal was intended to “establish guiding principles for reinvention and an efficient process that is receptive to innovation proposals” and “improve decision-making between states and EPA on innovation proposals, emphasizing clear lines of communication, decision authority, accountability, and timeliness.” EPA and ECOS subsequently renewed negotiations. The renewed negotiations between EPA and ECOS led to a draft “Joint EPA/State Agreement to Pursue Regulatory Innovation,” which ECOS approved on September 24, 1997, and EPA recently published in the Federal Register for public comment. As its preamble states, the purpose of the joint agreement is to “establish a clear pathway and decision-making process for state innovations that have encountered federal barriers or need greater attention to help them succeed.” Toward this end, the draft agreement outlines (1) a set of general principles that will govern regulatory innovation activities that EPA and the states will manage jointly; (2) a process that EPA and the states will use to identify which innovation proposals to pursue, including the establishment of a mechanism for making decisions about how to manage innovation proposals that do not fit into ongoing reinvention programs; and (3) guidelines for EPA and the states to evaluate the success of innovation activities carried out under the agreement. The agreement outlines seven principles for guiding joint EPA/state regulatory innovation activities. The principles, as summarized in Part I of the agreement, are as follows: Experimentation: Innovation involves change, new ideas, experimentation, and some risk of failure. Experiments that will help achieve environmental goals in better ways are worth pursuing when success is clearly defined, costs are reasonable, and environmental and public health protections are maintained. Environmental Performance: Innovations must seek more efficient and/or effective ways to achieve environmental and programmatic goals, with the objective of achieving a cleaner, healthier environment and promoting sustainable ecosystems. Smarter Approaches: To reinvent environmental regulation, regulators must be willing to change the way traditionally look at environmental problems and be receptive to innovative, common sense approaches. Stakeholder Involvement: Stakeholders must have an opportunity for meaningful involvement in the design and evaluation of innovations. . . . The opportunities for stakeholder involvement should be appropriate to the type and complexity of the innovation proposal. Measuring and Verifying Results: Innovations must be based on agreed-upon goals and objectives with results that can be reliably measured in order to enable regulators and stakeholders to monitor progress, analyze results, and respond appropriately. Accountability/Enforcement: For innovations that can be implemented within the current regulatory framework, current systems of accountability and mechanisms of enforcement remain in place. For innovations that involve some degree of regulatory flexibility, innovators must be accountable to the public, both for alternative regulatory requirements that replace existing regulations and for meeting commitments that go beyond compliance with current requirements. . . . State-EPA Partnership: The states and EPA will promote innovations at all levels to increase the efficiency and effectiveness of environmental programs. must work together in the design, testing, evaluation, and implementation of innovative ideas and programs, utilizing each other’s strengths to full advantage. The draft agreement states that “where procedures currently exist, innovation proposals should be handled through normal EPA/state program activities or other ongoing reinvention activities.” Such ongoing reinvention activities would include, for example, Project XL and the Common Sense Initiative. Those proposals that do not fit into an existing reinvention effort can be handled by an optional process outlined in the agreement. Acknowledging that “the most challenging regulatory innovation proposals have been difficult to address,” the agreement says that the process provides an option “which states may use to get timely decisions on innovation proposals.” It establishes a management framework that identifies the steps to be taken in developing and reviewing innovation proposals; the decisionmakers for each step in the process; and the procedures for communicating decisions. The optional process also requires a 3-month time frame within which EPA must decide whether to approve a project. The new process for reviewing proposals also includes procedures for classifying projects into one of three categories: Category 1: Straightforward, transparent proposals that have clear advantages, present few obstacles, are technically achievable, and pose minimum environmental risk. Category 2: Experimental proposals that have a more uncertain environmental outcome; require more attention to design, implement, and evaluate; and may involve some risk of failure. Category 3: Strategic proposals that involve broad-based, new approaches (e.g., statutory changes) and require policy discussion. As the agreement notes, this categorization is intended to ensure that the level of EPA management attention takes into account a project’s complexity. For example, the agreement specifies that if a proposal involves a national policy or regulatory issue, the decision will be made jointly by the appropriate EPA regional administrator, relevant EPA national program managers, and officials from EPA’s Office of Reinvention. EPA and the state will determine the category into which a proposal falls, and this categorization will affect the time frame for its implementation. The draft agreement also stresses the importance of measuring both the success of the decision-making process outlined in the agreement and the success of individual innovation projects. In addition, the agreement acknowledges that developing useful measures is challenging. To help measure the success of the decision-making process, EPA and the states plan to collect a variety of information, including (1) the number and quality of innovation projects proposed, (2) the number and quality of innovations implemented, (3) the timeliness of the actions taken in the process, (4) the number of proposals appealed, and (5) the speed with which information about successful innovations is disseminated to other states. To measure the success of individual project proposals, the agreement stresses that common criteria must be used by both EPA and the states to evaluate projects. The agreement refers to a separate, ongoing effort by EPA and ECOS to develop core performance measures and suggests that the proposed measures developed to date under this effort be used as a starting point for evaluating projects initiated under the agreement. As might be expected with any such agreement, a number of practical questions and procedural issues will need to be clarified. Among the key issues needing clarification are (1) the extent to which the new optional process will be used to select and review project proposals and (2) the degree of environmental protection that innovation projects will be expected to meet. Until EPA and the states have had a chance to implement the agreement, it may be difficult to predict the extent to which the states will rely on the optional process in an effort to expedite the consideration of innovation proposals. For example, while the agreement states that current review procedures should be used where such procedures exist (such as in the case of XL or CSI projects), an official with EPA’s Office of Reinvention suggested that the process could also be used to address XL projects that run into difficulty. State officials we contacted who were involved in the negotiations also noted that the language in the draft is ambiguous and that it is presently unclear how many reinvention projects will actually go through this process. According to these officials, the extent of reliance on the optional process should become clearer during implementation.