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California Innovations for Environmental Excellence

Project Title
California Innovations for Environmental Excellence - This project will include: Permit Innovations, Process Innovations and Compliance Innovations. "State Innovation Pilot Grant Program" funding will be used to help develop and implement the Permit Innovations and Compliance Innovations initiatives.

Name of the Applicant State Agency
This pre-proposal is submitted on behalf of the California Environmental Protection Agency (Cal/EPA) and the six Boards Departments and Offices (BDOs) that comprise Cal/EPA. The Cal/EPA BDOs are the Air Resources Board, the Integrated Waste Management Board, the Water Resources Control Board, the Department of Pesticide Regulation, the Department of Toxic Substances Control and the Office of Environmental Health Hazard Assessment.

Project Contact
The project contact for California Innovations for Environmental Excellence is:

Mr. B.B. Blevins
Deputy Secretary for Business Assistance and Development
California Environmental Protection Agency
1001 I Street, P.O. Box 2815
Sacramento, California 95812
916-324-8741 (voice) 916-324-0908 (fax)

Related Federal Programs - The United States Environmental Protection Agency's (US EPA) Performance Track and Project XL programs.

Federal Regulatory Flexibility Required
Cal/EPA hopes to work in partnership with the USEPA to implement the Permit Innovations and Compliance Innovations initiatives using the discretionary authority created under California state environmental statutes and the federal Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Toxic Substances Control Act, Insecticide, Fungicide and Rodenticide Act and Safe Drinking Water Act. An example of regulatory flexibility might include a waiver under the federal Clean Air Act for a facility participating in the "second tier" Permit Innovations program that would allow for a defined set of "de minimis" process changes to decrease air emissions at the facility. All issues relating to regulatory flexibility under federal statutes and regulations will be negotiated with US EPA.

The Secretary of Cal/EPA supports the California Innovations for Environmental Excellence initiative.


Pre-Proposal Narrative
This pre-proposal narrative briefly describes a three-pronged initiative to augment Cal/EPA's traditional approach to permitting and enforcement in California. The "Innovations" umbrella covers a broad mix of policy, program and process areas that fall into three main categories: permits, process and compliance. However, the common goals of all three "Innovations" are: 1) achieving significant improvements in environmental performance; 2) achieving significant improvements in regulatory efficiency; and 3) establishing clearly defined, easily measured environmental results.

The California Innovations initiatives recognize that much of the legal authority for the current "command and control" regulatory system is based on federal law. Cal/EPA hopes to work in partnership with the United States Environmental Protection Agency ("US EPA") to implement the Innovations initiatives using the discretionary authority granted under California state environmental statutes and the federal Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Toxic Substances Control Act, Insecticide, Fungicide and Rodenticide Act and Safe Drinking Water Act.

The Permit Innovations component of this proposal has been developed using the lessons learned from previous "innovation projects" at US EPA, Cal/EPA and other states, including: US EPA's Project XL, US EPA's Performance Track, Cal/EPA's Innovations for Sustainability, the Environmental Performance Indicators for California (EPIC) initiative, the Michigan Department of Environmental Quality's Clean Corporate Citizen program, the Oregon Green Permits program, the New Jersey Silver Track/Gold Track program and the Wisconsin Green Tier program. The Compliance Innovations component has been developed using lessons learned from successful pollution prevention programs in the Department of Toxic Substances Control and the Massachusetts Environmental Results Program.

Permit Innovations Component
Any "next generation" approach to permitting must address the way in which permits are written and evaluated. As the 1995 National Environmental Policy Institute's "Reinventing the Vehicle for Environmental Management" observed: "[t]he most tangible manifestation of regulation is the facility permit. Nothing happens without a permit."

The Permit Innovations initiative will apply to all BDOs and will focus on industry leaders. The Innovations initiative will create three "tiers" or "tracks" for permit holders and applicants. Participation in these "tiers" will be voluntary. A significant education campaign will be required to inform potential participants and the public about the benefits of the program.

The first "tier" will serve as a "qualifying" level for permit holders that have: 1) demonstrated full compliance with all applicable environmental laws and regulations for at least five years; 2) completed an "EMS" or "ISO 14,000" plan for their permitted facility; and 3) have submitted an approved baseline of environmental data for the last two years of the facility's operation.(1) This third requirement will be particularly important for measuring future environmental improvements in California and demonstrating the success of the program.

The second "tier" will be open only to those permit holders who have already qualified for participation in the first "tier." The second "Permit Innovation" tier will offer permit applicants the opportunity to: 1) obtain an alternative permit containing a pre-selected set of permit waivers in exchange for a promise of significant environmental benefits at the facility; or 2) negotiate specific manufacturing process changes at the applicant facility with the potential to produce significant environmental benefits.(2) While each BDO will help define what constitutes a "significant environmental benefit" in their relevant media, cross-media benefits and environmental benefits related to "non-point source" discharges will also be eligible for consideration. However, all proposals will be measured against the baseline data established for that particular facility in the first "tier." Permit holders who achieve second "tier" status will also receive significant public recognition from those Cal/EPA boards, departments and offices involved with their projects.

The documented superior performance over three consecutive years of any facility that achieves second "tier" status will entitle that facility to be recommended by its regulators to a third "tier." Third "tier" status entitles a facility to a complete cross-media review of regulatory practices as they apply to the facility, the possibility of a simplified compliance process and qualify the facility for the use of newly instituted electronic reporting and filing procedures as they become available. In essence, in this third "tier," the facility operators and its regulators become partners in documenting the facility's ongoing superior environmental performance.

A significant outcome of the Permit Innovations initiative is that it establishes a mutually agreed upon baseline of environmental data for measuring environmental progress at a facility. It will also strictly ensure that facilities meet the criteria they agree to. If a facility violates the criteria established for any "tier," it will be expelled from the entire program and returned to the traditional regulatory scheme.

Process Innovations Component
Process Innovations are a separate but related initiative with shared goals (i.e. significant improvements in environmental performance; and clearly defined and easily measurable environmental results). However, the Process Innovations will focus on internal administrative and budget initiatives within Cal/EPA and the BDOs.(3) Though the Process Innovations have the potential of achieving the greatest levels of environmental benefit in the long term, this initiative will serve more as an internal management tool than the other two Innovations.

The Process Innovations will help focus budget and staff resources on those programs within Cal/EPA that have the greatest potential to yield significant environmental benefits and which are most likely to be duplicated or adopted by other BDOs. In light of the current California budget crisis, this mechanism will be critical in Cal/EPA's 2003/2004 budget process. As opposed to determining which new programs should be added, this component will be significant in determining which programs should be kept. By defining specific program goals tied to a more fully developed and refined set of EPIC Indicators, Cal/EPA and the BDOs will be better able to prioritize its current programs and approaches.

In general, the Strategic Plans of the BDOs and the Cal/EPA Strategic Vision will guide the Process Innovations initiative.(4) To receive continued funding (and hopefully new funding at some point in the future) a project or program will have to describe in detail how the EPIC Indicators can measure its benefits. New and existing programs will only receive continued funding if they can demonstrate environmental progress as measured by the EPIC Indicators. A near-term outcome of this approach during a protracted period of resource constraints will be a logical basis for "valuing" the true environmental benefits of one program over another.

The Process Innovations will better inform decisions by the Executive and Legislative branches of state government to fund or not to fund an existing program. Ultimately, this Process Innovations initiative holds out the potential for truly transforming the way in which Cal/EPA and the BDOs do business in a number of specific program areas.

Because the Process Innovations initiative addresses internal and administrative reforms, a public education campaign will not be required. However, key legislative, industry and non-profit stakeholders will be consulted and notified as to how Cal/EPA and the BDOs will use the Strategic Vision, Plans and EPIC Indicators to inform and guide the annual budget process.

Compliance Innovations Component - The Compliance Innovations initiative will borrow from successful Pollution Prevention programs in California and other states and focus primarily on three areas. First, Compliance Innovations will add a new dimension to enforcement techniques at Cal/EPA. The Compliance Initiative will provide training and outreach on an industry-specific basis on best practices in environmental and energy management systems. This first aspect of Compliance Innovations will help to institutionalize pollution prevention outreach programs in all of the BDOs. This first part of the Compliance Innovations outreach efforts will be modeled in part on successful pollution prevention programs in the Department of Toxic Substances Control and draw from some of the lessons learned from the Massachusetts Environmental Results Program.

Although the initial contact with the private sector will focus on the potential cost savings available through better environmental and energy management practices, a successful partnership will eventually cover a full "compliance checklist" of energy and waste management practices. These "compliance checklists" and training materials will be industry specific and will be developed with input from all of the BDOs within Cal/EPA. This program will start out as a voluntary program, but participation may eventually become mandatory for certain industries.

Second, the Compliance Innovations initiative will work to simplify and standardize the reporting requirements of various state and federal environmental programs. The focus of this effort is to make sure that data are shared in the most efficient and meaningful ways. In this way, facility inspections and required data submissions will become more efficient and productive for both the facility and the regulating agency. A special emphasis will be placed on technologies to assist in the analyses of reported data, and dialogue between inspectors and the regulated community on the format of data submissions. This second focus of the Compliance Innovations program will build on the current data collection and management efforts already in progress at Cal/EPA (IDEA) and US EPA (numerous).

Third, the Compliance Innovations component will, for those permitted facilities that achieve the third "tier" under the Permit Innovations component, review current regulatory practices for assessing compliance at those specific facilities. The purpose of this review will be to assess the potential for simplifying those regulatory practices without diminishing required compliance thresholds. The degree to which simplified regulatory processes are identified, they then can become an incentive for involving other permitted facilities to meet the criteria established in the Permit Innovations component.

One foundation of this effort will be a December 10, 1999 analysis -- "Organizational and Fiscal Review of Cal/EPA" - that identified inconsistencies in the application of enforcement regulations statewide. Since then, as noted in the "Cal/EPA Enforcement Progress Report for 1999-2001" a number of reforms and changes have been made throughout Cal/EPA and the BDOs. This Compliance Initiative component will build upon this work to further coordinate enforcement and compliance efforts within Cal/EPA and the BDOs. As this initiative will focus on facilities rather than individual media or activities, all of the BDOs will play an active role.(5)

By its very nature, this proposal does not target a specific environmental area. Instead, it focuses on the groundwork that must be laid (specifically in California) to create a regulatory paradigm that embraces innovative approaches affecting all areas. Being a large state whose environmental regulatory structure has been designed from the bottom up, lasting progress is best made in slow steady turns rather than sudden jerks. This proposal represents the first leanings in a slow turn. Underlying each component of the Innovations program is a subtle incentive that encourages improved performance on the part of both the regulator and the regulated, plus the opportunity to identify new regulatory approaches and compliance strategies that are easily measured, transferable to other program areas and open to public review. The Innovations initiatives will greatly enhance Cal/EPA's ability to apply the recently completed EPIC environmental indicators, providing an opportunity to measure the Innovations' successes and failures in a meaningful way.

Project Timeline

Year 1: Create and convene Innovations Executive Committee and Permit, Process and Compliance Sub-Committees; Solicit nominations for the Innovations Advisory Committee and convene 1st meetings. Review California facility memberships in US EPA's Performance Tracking Program. Negotiate "baseline data requirements" for Tier 1 and Tier 2 facilities. Contact facilities that qualify for Cal/EPA Tier 1 and invite their application for Tier 2 status. Negotiate MOA with US EPA. Complete integration of EPIC Indicators with BDO Strategic Plans. Publish regulations on Tier 2 waivers and Permit Innovations program. Complete compliance checklist and outreach materials for targeted industry sectors. Create Permit Innovations web page for posting Tier 2 agreements and data submissions.

Year 2: Continue activities and regular meetings of the Innovations Executive Committee and Permit, Process and Compliance Sub-Committees and the Innovations Advisory Committee. Complete 1st draft of Tier 3 benefits and data exchange requirements. Negotiate Tier 3 requirements with US EPA and publish Tier 3 regulations. Complete compliance checklist and outreach materials for 3 additional targeted industry sectors; compile results of outreach to originally targeted industry sectors. Complete full budget evaluation for Cal/EPA using Process Innovations approach and EPIC Indicators.

Year 3: Continue activities and regular meetings of the Innovations Executive Committee and Permit, Process and Compliance Sub-Committees and the Innovations Advisory Committee. Publish all regulations related to Permit and Compliance Innovations; Repeat full Cal/EPA budget analysis using the Process Innovations review criteria. Select potential Tier 3 applicants and implement the enhanced data exchange program for participating facilities. Publish summary of Permit innovations program and environmental results; post all data reporting information on Cal/EPA web site.

Proposed Three-Year Budget

Budget Component Total ProjectProposed StateUS EPA

Costs    Leverage Funds    Funding


1. 1 This first or "qualifying" Cal/EPA Permit Innovations "tier" will be implemented in cooperation with US EPA's Performance Track program.

2. 2 The transactions costs of the first, "off the shelf" permit approach will be lower than the facility specific, negotiated permit approach. However, both options will be available in this second "tier."

3. 3 Cal/EPA intends to implement all three Innovations at the same time as separate but related initiatives. This pre-proposal narrative anticipates that all US EPA funding will be devoted to the further development and implementation of the Permit Innovations and Compliance Innovations initiatives. It is important however, that US EPA be aware of the Process Innovations initiative.

4. 4 The Strategic Vision, the Strategic Plans and EPIC Indicators are "living" or "working" documents that are continually revisited and refined by the BDOs.

5. 5 The Compliance Innovations initiative will also lay the groundwork for other efforts to prioritize Cal/EPA's Compliance Innovations to "target its enforcement resources effectively on the worst offenders." M. Sparrow, THE REGULATORY CRAFT: CONTROLLING RISKS, SOLVING PROBLEMS, AND MANAGING COMPLIANCE (Brookings 2000), pp. 12-14.

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