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Lucent Technologies

Letter from Hennelly to Morris

June 30, 1997

Dr. Alvin Morris
Mail Code 3WP00
841 Chestnut Street
Philadelphia, PA 19107


Dear Dr. Morris:

As you know, the Lucent Microelectronics Group ("Microelectronics Group") has now completed one full cycle of our ISO 14001 Environmental Management System ("EMS"). Having been certified by Lloyds Register Quality Assurance (we believe certification will help us move beyond enforcement to environmental performance), the EMS is now reality, not just promise. Yet, though we have been extremely encouraged by the first results, all of us (Microelectronics, our state regulators, our local community activists) are just beginning to understand the tremendous potential of the EMS structure, not just for companies, but for communities, ecosystems and the globalization of sound environmental management. We believe, however, that to realize the greatest environmental and efficiency benefits, we need the constructive involvement of the U.S. Environmental Protection Agency through Project XL. Our EMS is dynamic and continually improving. Each year sees a new environmental performance cycle and we believe EPA's participation through XL will help us push the innovation envelope continually outward.

As you are aware, the Interim Participation Agreement (IPA)* {*The IPA covers only "disclosure, use, sharing and confidentiality of information regarding Microelectronics in the current and on-going development and implementation of Microelectronics' environmental management system...prior to the execution of the Project XL Final Project Agreement ('FPA')."} expires today, June 30, 1997. It is our strong desire and intent to continue with the process of refining and improving the draft Final Project Agreement ("FPA") to reflect a project that not only achieves Superior Environmental Performance ("SEP") as it proceeds, but dramatically improves upon XL projects that have gone before it, while directly addressing the goal that XL projects test new concepts for improving the nation's environmental management system.


Let us emphasize a key point about the issue of innovations. Previous XL projects have tested methods of achieving SEP, and implementing fairly simple regulatory efficiencies at individual facilities. Clearly, they have proven that you can achieve SEP at a facility while lowering the cost of environmental management. These are important advances that will improve the present system. However, none of the existing XL projects has taken the major step of integrating incremental improvements in the present system into an entirely new management paradigm covering not just the U.S., but potentially facilities located

Dr. Alvin Morris
June 30, 1997
Page Two

outside the U.S. The Lucent Technologies Microelectronics Group Project ("Microelectronics Project") accomplishes this by allowing a test of the following concept:

A comprehensive, corporate-wide environmental management system (EMS) can become in itself a holistic regulatory paradigm for a corporation, integrating environmental standards and stakeholder concerns directly into national and international business management systems (as opposed to the current model, where standards and concerns must be overlaid from outside, and apply only to domestic facilities). This new paradigm can replace facility or media permits, expand environmental management to activities which impact the environment but which are unregulated, dramatically improve reporting and accountability to the public and eventually reduce or eliminate the need for facility-specific enforcement programs. It can enhance business flexibility and efficiency of operation in a way that will provide a competitive incentive for increasing momentum toward sustainability.

The importance of this concept to 21st Century environmental management needs to be discussed briefly. A critical weakness of the present environmental management system, as identified in various forums including The Aspen Institute's Series on the Environment in the 21st Century and the Enterprise for the Environment project, is that present environmental protection programs focus on end-of-pipe, Band-Aid type solutions, and do not integrate environmental management holistically into business planning. Current programs are not comprehensive and lead to the gross inefficiencies associated with differentiating between media and regulated activities and substances vs. those which are not regulated but which still potentially impact the environment. Additionally, the traditional enforcement/penalty model makes real environmental progress dependent upon winning individual battles in specific media rather than achieving true systemic change and focusing on the conservation of natural resources. The Microelectronics Project premise is that by creating a partnership with government environmental protection experts to integrate management and accountability into a single corporate-wide system, which itself is integrated completely into the business planning process, the inefficiencies of the old system can be reduced or eliminated, and environmental progress is enhanced dramatically.

The ultimate effects of such a system on the way EPA fulfills its critical role in the new millennium are significant because they allow both a simplification and leveraging (and corresponding improved efficiency) of environmental management, even while the scope of that management is broadened. This occurs because the paradigm flows from existing, tested and accepted societal management structures, such as the corporation or the municipality. It becomes a more familiar, more understandable system.

Such a structure likely could facilitate ecosystem or regional management by the efficient layering of management systems on top of each other in a manner similar to the way Microelectronics Group has layered a group level management system on top of a location management system. This would be similar to the "green planning" approach taken by various nations.

Dr. Alvin Morris
June 30, 1997
Page Three


Some of the critical questions the Microelectronics Group XL project will help answer over its development and implementation are:

Dr. Alvin Morris
June 30, 1997
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Dr. Alvin Morris
June 30, 1997
Page Five


These are all critical questions fundamental to the structuring of a new environmental management system. The Microelectronics Group project is already discussing many of the questions with the states and local communities and is poised to answer them, while concurrently providing clear and specific SEP. However, developing an FPA which accomplishes this will require time, and the involvement of EPA, states and our local communities.

Therefore, this letter defines a proposed process which will allow the project to focus on the critical questions raised above and move forward in a manner consistent with our EMS and the highest goals of Project XL. While we could be ready to provide a revised FPA draft within the next few weeks, we believe XL, EPA's need for specificity, and the best environmental management program will be best served by setting an October 31 target for agreement on an FPA.

There are several reasons for this time frame. First, we would like to clarify and expand our important initial proposal that our EMS Goals, Objectives and Targets and Environmental Project Plans be the fundamental FPA building blocks. Now, with a year of experience, we believe we understand the best ways to accomplish this. This will allow us to meet EPA's need for specificity, maintain the integrity of the EMS and allow for the dynamic process the EMS represents.

Second, consistent with XL stakeholder guidelines, new FPA elements should arise from and be reviewed by the stakeholder teams, in this case, the Local Environmental Action Groups ("LEAG"). That process requires time.

Third, we are proposing certain expansions of the project to allow all the questions identified earlier in this letter to be addressed and, where possible, answered. For example, we propose potential inclusion of our Matamoros and Monterrey, Mexico facilities, perhaps in partnership with our Mesquite facility. Other facilities may become involved, but we need the time to bring them in.

Finally, with the comprehensive approach being taken by Microelectronics Group, there likely will be opportunities for additional, creative regulatory flexibilities. However, these flexibilities would need to be developed in consultation with the LEAGs, EPA and the states.

As we have all outlined in past Project correspondence, there are two important concerns regarding the FPA development process that have not been resolved. They are the specificity question and the disclosure privilege question. Let us address both in a manner we believe will allow us to proceed together.

Dr. Alvin Morris
June 30, 1997
Page Six


Solution: We propose to use our EMS Goals, Objectives and Targets and Environmental Project Plans to meet EPA's program need for specific Superior Environmental Performance indicators.

The Microelectronics Group proposal provides for several levels of Superior Environmental Performance (SEP), all unprecedented in Project XL. The first is corporate-level SEP (Microelectronics Group). The second is multi-facility locational SEP. The third is single facility locational SEP.

Before addressing the single facility locational SEP, which is EPA's current need for XL, let us address how we might move SEP to a broader plane.

A consistent and lingering concern of EPA and national and local NGOs since the beginning of Project XL has been that the projects to date have not established systems that adequately address corporate transparency and accountability or adequately encourage pollution prevention or DfE. The Microelectronics Group proposal addresses both these issues far better than past projects. Transparency and accountability are enhanced by offering regulators an ongoing seat at the Microelectronics Group EMS management table, both at the corporate and facility levels, and offering local communities input throughout the process. No other project has offered this opportunity. This allows regulators and local communities to participate in the development of environmental performance goals (for both regulated and non-regulated activities) and maintenance or improvement Objectives and Targets, the management of the EMS, potentially the identification of problems, and the implementation of continuous improvement programs.

Pollution prevention and DfE are enhanced dramatically because the EMS integrates environmental management into product design and corporate business decisions. With regulators at the table, Microelectronics Group takes the unique step of allowing regulatory input as well, not just into potential design issues but, as indicated earlier, into life cycle planning issues. No other project is even contemplating such involvement.

Additionally, at each individual facility, regulators and the LEAGs are provided the opportunity to participate in the implementation of the specific SEP programs. As we have learned over their first year of operation the value of LEAG input, and how to effectively maximize it, we are adjusting and improving our program.

Many program improvements are arising now as the EMS planning process is entering its second full EMS cycle.

Dr. Alvin Morris
June 30, 1997
Page Seven

Yet, EPA wants the FPA and attached facility addenda to include the specifics of proposed SEP programs. As indicated, within the Microelectronics Group EMS, these specific programs are already represented by the Environmental Goals (corporate-wide), the Objectives and Targets (group and location specific), and the Environmental Project Plans (which implement the Objectives and Targets). These equal and frequently exceed the specificity of programs defined in the previously signed XL agreements.

Therefore, Microelectronics Group proposes to include the Environmental Goals and the Group Objectives and Targets and Environmental Project Plans in the overarching FPA, and the facility Objectives and Targets and associated Environmental Project Plans in the location-specific addenda.

The form of the Environmental Goals and Objectives and Targets is very similar to what EPA has seen in the Weyerhaeuser, Intel and OSi FPAs. For example, a Corporate Environmental Goal is to improve energy efficiency and reduce greenhouse gases by 135,000 metric tons by the year 2000. To achieve this goal, an Objective & Target has been established of improving energy conservation by 35 percent in 1998 and by 40 percent long term. The Environmental Project Plan details how this will be accomplished.

A critical point that differentiates the Microelectronics Project from other XL projects is that the goals of the FPA are not static. Under the Microelectronics XL Project, the Goals, as well as the Objectives & Targets, are dynamic, set each year using the process that Microelectronics Group has invited EPA and state regulators to join.

While the legal debate kept EPA from full involvement in the establishment of the first cycle Goals and Objectives & Targets, it is hoped that the expanded project proposed in this letter can be fully underway as the second cycle begins this Fall.

Regarding the specifics of flexibilities, several points should be noted:

Dr. Alvin Morris
June 30, 1997
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Disclosure, Use, Sharing and Confidentiality Issues

Solution: Proceed and rely on EPA's enforcement discretion relative to any violations discovered at participating facilities during FPA development, but modify EPA's participation in key decision making bodies until such time as suitable guarantees based upon those described in your April 3 letter are crafted, either during FPA development or during implementation of the XL project.

Microelectronics Group has developed a program that attempts to move out of the box, to alter traditional penalty-based relationships and proceed to a partnership that results in clear, superior environmental performance. Critical to achieving this is open discussion based upon comprehensive performance data. For the EMS, whose ultimate goal is to prevent problems, to work most effectively, it must encourage managers and employees to seek out and anticipate problems, and to proactively identify them in EMS management sessions.

From the start, Microelectronics Group has been concerned that under the traditional enforcement model having regulators at the management table in such a non-traditional relationship will have a chilling effect, whether intended or not, on the discussion of system weaknesses and actual or potential environmental problems. Yet, without complete openness of discussion, the EMS cannot work to the level Microelectronics Group, regulators and stakeholders all desire. That is specifically why Microelectronics Group originally proposed the disclosure, use, sharing and confidentiality structure of the Interim Participation Agreement (IPA).

Microelectronics Group is prepared to move the project forward based upon EPA's enforcement discretion and work off the guarantees described in your April 3 letter. However, to meet Microelectronics Group's concerns, we need to develop a process in which EPA participates only in those EnAcT meetings where program and policy questions, rather than the detailed facility-specific performance issues, are discussed.

Microelectronics Group will need to work on how to achieve this separation of issues, but we are confident we can accomplish this as the FPA development process moves forward.

Dr. Alvin Morris
June 30, 1997
Page Nine

The purpose here is to get beyond the enforcement issue that has divided us in the past and to the substance of an innovative program. As you know, we believe we can get the quality of discussion we need without the broad protections, such as those related to criminal penalties, defined in the IPA. And, we are willing to work through innovative ways to improve the protections of the existing system relative to accidental violations that may cause imminent and substantial endangerment.

Our goal is to move the system towards a performance-based model where the greatest attention is, as it should be, given to preventing rather than punishing problems.

The FPA Development Process

To revise the overarching draft FPA and the draft facility addenda, Microelectronics Group proposes a three-step process. The first step is for Microelectronics Group to work with EPA, state regulators and its LEAGs to fine tune the proposed program to ensure that adequate data to answer or begin answering the critical questions presented at the beginning of this letter can be developed as the Project is implemented.

The second step is to begin involving EPA in all parts of the EMS process except those discussed under the disclosure section of this letter. Concurrently with this task, Microelectronics Group, participating regulators and the LEAGs would revise the draft overarching FPA and each of the facility-specific addenda. The details of each SEP element (which are the Goals, the Objectives & Targets, and the Environmental Project Plans) would be added as they are completed in the normal course of the EMS process. This process is nearly identical to Intel's and Weyerhaeuser's, but would contain greater detail in the elements and implementation plans.

Finally, in mid-to-late October, Microelectronics Group, regulators and the LEAGs would finalize wording of the overarching FPA and addenda to prepare them for the public comment required by the XL process.

The Microelectronics Group Commitment

The Microelectronics Group certified ISO 14001 EMS is already beginning to produce a system that is superior to management at the Company under the command-and-control model. Environmental aspects, Environmental Performance Goals and Objectives & Targets have been and are being identified by Microelectronics Group, regulators and a maturing community involvement process. Environmental Project Plans are being developed and some are entering implementation. Yet, this is just the first of the yearly cycles.

Dr. Alvin Morris
June 30, 1997
Page Ten

The Microelectronics Project offers EPA and XL the rare opportunity not merely to participate in a dynamic and constantly improving system, but to work with an existing program whose results can be measured almost immediately. This is an opportunity EPA has not had before, and it is one that can help avoid many of the problems and criticisms that have troubled XL in the past.

Most importantly, the FPA can be crafted to define a program that will answer the critical questions presented at the beginning of this letter and advance EPA's most important goal of identifying the characteristics, organization and structure of a new environmental management paradigm.

Microelectronics Group is desirous of moving forward expeditiously. To this end, and beyond discussions regarding the specifics of this letter (which may occur in the next two weeks), we would propose scheduling a full meeting for the last week of July to begin reviewing specific elements of the revised FPA and facility addenda. The timing of such a meeting will allow us to have the latest Objectives & Targets data assembled.

Thank you for your courtesy and attention.


Debra Sabatini Hennelly
Corporate Counsel

Ted Polakowski
E&S Officer & Manager

cc: Lisa Lund, EPA
Robert J. Barkanic, Pennsylvania DEP
Andrew Neblett, TNRCC
Erik J. Meyers, Environmental Law Institute

Attachments: Allentown Facility Demonstration Project Addendum
Mesquite Facility Demonstration Project Addendum


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