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Merck & Co., Inc.

Letter from David Hawkins and Chris Van Loben Sels to Fred Hansen and Keith Laughlin

Mr. Fred Hansen
Deputy Administrator
Mr. David Gardiner
Assistant Administrator
U.S. Environmental Protection Agency
401 M Street, S.W. Washington, D.C. 20460

Mr. Keith Laughlin
Associate Director
Council on Environmental Quality
722 Jackson Place, N.W.
Washington, D.C. 20501

Dear Sirs:

As discussed in our July 1, 1996 letter, please find attached our comments on the initial XL projects. We hope to discuss these with you in detail soon.

Sincerely,
David G. Hawkins, Senior Attorney
Chris van Loben Sels, Senior Project Analyst

July 1, 1996
Mr. Fred Hansen
Deputy Administrator
Mr. David Gardiner
Assistant Administrator
U.S. Environmental Protection Agency
401 M Street, S.W.
Washington, D.C. 20460

Mr. Keith Laughlin
Associate Director
Council on Environmental Quality
722 Jackson Place, N.W.
Washington, D.C. 20501

Dear Sirs:

Last year the Administration announced the establishment of Project XL and the selection of an initial group of candidates for XL project agreements. The Project XL announcement established eight criteria that individual projects would have to meet.

NRDC believes that the pending proposed projects and the results of the project negotiations to date do not meet several of these criteria, including the critical criteria of superior environmental performance, stakeholder support based on an adequate stakeholder process, and innovation and pollution prevention. While we and others have been supportive of Project XL to date, NRDC's support cannot continue unless real changes to the initiative are realized soon.

NRDC's work on pollution prevention has shown us that firms can achieve significant environmental performance gains at an economic savings under the current regulatory scheme. Thus, we have been enthusiastic about Project XL's potential to produce real environmental benefits, but unconvinced that significant regulatory relief is necessary to achieve such results. However, we have examined the specific Project XL proposals with an open mind: Where it can be shown that additional regulatory flexibility would make possible innovations that produce added environmental benefits, we would support efforts to provide that flexibility. Unfortunately, the first XL proposals do not achieve these goals.

Superior environmental performance and pollution prevention.

Rather than demonstrate environmental leadership, in which real pollution prevention is applied to improve all aspects of a facility's performance, all but one of the proposals we have evaluated would increase emissions from one or more processes in exchange for other emission reductions or for some other action -- for example, trading reductions in one pollutant for increases in other pollutants, or trading reductions from existing equipment for less stringent standards and increased emissions from new equipment. At only one facility has EPA performed a basic engineering or pollution prevention analysis to determine if the proposed emission increases are necessary or reasonable to make the proposed benefits viable given the specific features of the site.

In most cases, the proposed environmental benefits are token or questionable improvements on the status quo under the current regulatory scheme. In one notable case, the 3M Hutchinson project, the proposed agreement would increase, not decrease, air emissions; would allow air emissions increases that would likely not be allowed under current law; and would permit the facility to once again become one of the very largest sources of volatile organic compounds in the nation.

We and others (including EPA) have found that community representatives and companies can join together to guide impressive environmental and economic gains through real pollution prevention analysis and implementation. Yet none of the XL proposals include an ongoing, open process in which community representatives, facility managers, and workers use independent engineering and environmental expertise to pursue continuous improvement and pollution prevention.

Full stakeholder support.

Public participation in Project XL is of even greater concern. In our judgment, the stakeholder processes to date have not based on balanced, consensus-based decisionmaking. Neither EPA nor the project sponsors have succeeded in creating an open and inclusive process that provides for full participation by community stakeholders. In fact, EPA has made it clear that companies are not required to build consensus with the community to win EPA's support. Participating companies have selected the stakeholders, chosen the type and level of public input and review, and moderated (or chosen a moderator for) their own Project XL proposals.

This has led to processes with significant uncorrected failings. For example, few local or regional environmental groups and almost no workers are involved in the XL negotiations. Those groups that have been asked to participate in a consensus process have faced an incredible gulf of technical expertise and support, a gulf that neither EPA nor the project sponsor has effectively bridged.

Moreover, although these projects are intended to be national models, EPA has not provided for adequate participation by the national environmental policy community in their design and implementation. While EPA has been open to informal information-sharing with national environmental groups, EPA Regional Offices have reached apparent agreements with project sponsors on fundamental aspects of proposals before taking steps to air the proposals beyond the selected stakeholder participants. Even the views and expertise of EPA Headquarters program staff have been excluded from at least one negotiation, while more than once EPA Headquarters staff have lacked basic information on the status of project negotiations.

Poor initial results.

Not surprisingly, an inadequately supported stakeholder process has produced poor results. Without adequate support and assistance to local stakeholders and without an effective participation strategy for national groups (and even EPA Headquarters), the current proposals are riddled with serious policy and technical problems. Many key provisions of the proposed agreements would be difficult, if not impossible, to enforce. Some agreements pose serious policy problems for the Agency's future rulemaking and permitting. For example, both 3M an Intel's projects would allow trading emissions of less toxic hazardous air pollutants for emissions of more toxic hazardous air pollutants.

Other agreements are drafted in ways that could defeat the ultimate goal of the project. Merck's project, for example, is predicated on improving visibility in Shenandoah National Park by trading SO2 and NOx emission reductions for VOC emission increases and exemption from most permitting requirements. However, as drafted, the agreement would allow Merck to "trade back" its VOC reductions and resume problematic emission levels of SO2 and NOx, thereby nullifying the environmental benefit for which flexibility was provided.

It is clear to us that the weaknesses in these early proposals provide some early lessons for Project XL.

NRDC hopes to work with the Agency and project sponsors to remedy such critical problems. Our detailed comments regarding the initial Project XL proposals will follow shortly. We hope we can meet with you soon to address these concerns without delay.

Beyond our concerns with the specific pending projects, it is clear that the design of Project XL, from the local negotiation to the national policy level, requires significant and swift improvement. Such improvements are critical to continued support by many in the environmental community and should be a prerequisite for continued support by the Administration.

Sincerely,

David G. Hawkins, Senior Attorney

Chris van Lobel Sels, Senior Project Analyst

Merck

1. The environmental benefits of this agreement stem from cutting SO2 and NOx, emissions, which impact visibility in Shenandoah National Park, in exchange for which Merck would gain the right to trade these reductions for substantial increases in emissions of other criteria pollutants and to expand and modify the plant without prior approval. However, the current agreement would allow Merck to enjoy increased emissions of other pollutants and then "trade back" its increases and resume emissions of SO2 and NOx at only a 25 percent reduction from current levels -- an insufficient reduction to justify the emissions increases and broad flexibility granted under the agreement. In fact, as written, Merck would enjoy all of the proposed environmental flexibility simply by reducing its boiler usage by 25 percent.

The SO2 and NOx emissions caps should be based on levels that represent BACT performance for the new powerhouse. If new control equipment added pursuant to the pharmaceutical MACT would be incompatible with compliance with such SO2 and NOx caps, then control equipment installed for the purposes of MACT compliance should be permitted normally outside the facility-wide caps. The regulatory flexibility should commence once the new powerhouse, and its concordant environmental benefits, come on-line.

2. The agreement would allow the facility to triple its current VOC emissions. While the participants have analyzed the impacts such a VOC increase might have on local ozone levels, there has been little analysis of which chemicals would likely be contained in the VOC emissions. Some compounds in the facility's VOC emissions may pose significant risks. In 1993, for example, the facility released over 190,000 pounds of chloromethane, which constitutes 90 percent of the airborne emissions of chlorinated organics in Rockingham County.

One community representative has made it clear throughout the process that her chief concern is the potential health effects associated with the potential for doubling or tripling the VOC emissions at the facility. To date, the facility has only offered a wholly unacceptable analysis of these concerns. Although one of the community representatives lives nearly adjacent to the facility, the representative has not been given any information on the health effects of the VOCs the facility currently releases or estimates of the elevated concentrations of VOCs at nearby homes that would be permitted under the agreement. No technical assistance to analyze these public health issues has been provided to the community. To build full, informed stakeholder support, Project XL must provide clear, relevant information regarding its impacts on the health of affected communities.

The agreement must ensure that the community is kept apprised of the constituents of the VOC emissions, is provided the independent technical assistance to interpret these data, and is given the opportunity to bring its analysis and concerns to bear on the continuing regulation of the facility. The agreement should establish an open dialogue that gives the community the information and technical resources it needs to assures itself that real pollution prevention has been brought to bear on the plant's operations and that the emissions at the facility do not pose a threat to the community's health -- and that provides accountability when the se assurances cannot be made.

3. There has been no analysis of whether license for such large VOC increases would be necessary or appropriate given the level of activity at the plant. Only three facilities in the same industry emitted such large amounts of VOCs in 1990.

4. The agreement would relax both the substantive -- e.g., emissions limits -- and the procedural elements of air permitting. Although the agreement includes an expression of Merck's intentions to follow 'good practice' when building new equipment, the facility has stated in the workgroup meetings that its intention is to preserve the ability to emit more VOCs than would be allowed by normal standards for new equipment (i.e., BACT).

5. The foundation of the request for increased VOC emissions -- the premise that ozone formation in the area is dependent on concentrations of NOx, making VOC levels irrelevant -- may be flawed. The technical analysis that VOC emissions are not environmentally detrimental has not included an analysis of seasonal variation. Due to seasonal variation in biogenic VOC concentrations, ambient VOC concentrations may extend the ozone season further into autumn.

6. The project sponsors intend the agreement to provide incentives to keep emissions as low as possible, so that such incentives would be more powerful than, and produce lower emissions than, current requirements. However, the agreement clearly allows the facility to exceed the emissions that would be allowed under current requirements (i.e., BACT).

For all pollutants, the pollutant-specific and total criteria pollutant emissions caps should be reduced by the amount of reductions that BACT would yield in a manner similar to the adjustments made for new regulations (discussed below). This would provide broad flexibility in meeting these limits by the most cost-effective means.

7. Under the current proposal, upcoming regulations would not reduce total emissions, as they would normally, since any reductions resulting from the new requirements could be immediately "traded" for increases in other pollutants.

The basis of this agreement is to reward Merck for voluntary reductions, not to create new rights for Merck to increase emissions when the facility makes mandatory reductions nor to create new rights for Merck to escape new or newly applicable requirements.

All new or newly applicable regulations should lower the allowable emissions of the pollutant to which they apply -- including required, pollutant-specific reductions in VOCs and CO as well as including required VOC reductions that occur pursuant to compliance with HAP regulations -- in addition to lowering the facility-wide emissions cap.

8. Some upcoming regulations that would reduce emissions at the facility today would not apply to the facility because of the proposed "baseline" for adjusting the permit to conform with new requirements.

It is possible that new regulations, permits, or regional initiatives to improve air quality in the Park would, in the absence of Project XL, have required this facility to switch fuels from coal to gas. In such a case, the net environmental of Project XL would be that the facility had switched fuels earlier than would otherwise have occurred. However, under the agreement, the regulatory flexibility is open-ended and ongoing, even if the environmental benefits are for a finite duration.

The reduction to the emissions caps should be the greater of 1) the total reduction based on the average operations and production rate of 1992 and 1993; 2) the total reduction based on the operations and production rate during the time period defined by the highest emission point (HEP); or 3) the total reduction based on another more appropriate emission rate, as agreed upon by the VADEQ, EPA, and Merck.

The five-year review should include an affirmative determination, agreed to by all signatories, that the emission rates for SO2, NOx, PM-10, lead, CO, and the total for all criteria pollutants are no more than would be allowed had the facility complied with the applicable regulations and permitting requirements. If this determination cannot be made, the FPA would then terminate after an established interval.

9. The agreement includes a force majeure provision that would allow Merck, in the case of an unforeseen event, such as an unexpected change in natural gas prices, to avoid all of its environmental commitments under the agreement.

The force majeure provision should be deleted. If major changes to the agreement are required, the agreement should be re-negotiated by the stakeholders in an open process that, if necessary, provides that Merck will deliver alternative environmental benefits proportionate to the regulatory flexibility enjoyed during the life of the original agreement.

10. Since the facility is located next to Shenandoah National Park, which has special and acute concerns regarding air quality, the National Park Service plays a role in overseeing some aspects of the facility's air permits. The current proposal would greatly diminish the federal land manager's role in protecting this valuable airshed.

The agreement should provide for air quality related value reviews to evaluate the facility's overall performance, both periodically and upon incremental increases in the facility's emissions.

More importantly, the Federal Land Managers currently possess specific rights to participate in the regulation of the facility each time facility activities trigger specific permitting requirements. Since the facility anticipates engaging in activities that would otherwise trigger such requirements, termination of the Federal Land Managers' rights to review emissions increases at the facility is unacceptable. The agreement must provide a surrogate for these rights that is linked to facility emissions increases that would otherwise trigger such participation and to the five-year review.

11. The agreement does not establish concrete procedures and penalties for violations, thus decreasing incentives for compliance.

The agreement should include specific penalties for noncompliance with the emissions cap. We would suggest the two-pronged approach of the acid rain training program -- a set fine per ton of exceedance and a lowering of the emissions cap for the next 12-months by the number of tons exceeded. Moreover, like any other permit, the civil liability per day of violation ($25,000) should be included in the text of the permit.

12. Significant modifications to the agreement could be made with minimal or without public notice and comment.

Notice and comment in Project XL should be a model for public participation. At a minimum, the agreement should ensure that modifications would require no less notice and comment than the Title V program would require.

13. In addition to broad flexibility in complying with regulations, the facility would receive default approval after a certain comment period for its calculations of the actual emissions reductions that new regulations would require.

The default approval mechanism should be deleted. If the participating agencies fail repeatedly to meet deadlines, Merck should have cause to terminate the agreement.

14. The agreement would eliminate the requirement to report accidental releases of hazardous and toxic substances unless the releases were so large as to exceed the facility-wide cap. This provision would yield no environmental benefit, would make it more difficult to track continued "good housekeeping" by Merck, and would eliminate the incentives for continuous improvement of handling hazardous and toxic substances.

The CERCLA exemption should be modified to make clear that only normal operations, start-up, and shut-down is considered a "permitted" release for the purposes of CERCLA. Sudden and accidental releases should remain subject to accident reporting requirements. Such release reporting is only onerous when a facility has frequent spills, which is not consistent with leadership performance. If this has been the case at Merck, there should be a goal for improved spill performance included a permit condition.

15. Since the 12-month rolling total is not reported monthly, the facility may be in non-compliance or may be using the wrong tier of monitoring for a significant length of time before the agencies have information to discover the discrepancy.

The 12-month rolling sum for each pollutant should be made available to the public and the signatories monthly.

16. One benefit to the agreement's monitoring scheme is that, since monitoring becomes more accurate as the facility approaches the cap, greater certainty of compliance is assured. When emissions are well below the cap, less monitoring is less of a concern, since, despite potential inaccuracies in emissions estimates, actual emissions are likely still below the cap. However, the monitoring stringency is based on the 12-month rolling total, which means that the least stringent regime could be used even when estimated emission rates are very close to the rate that would exceed the maximum for extended periods of time, as long as the 12-month total 'averaged out' below the cap. During such periods, the imprecision in the estimation and monitoring scheme could obscure actual exceedances.

Following general principals of statistical control, when a 'sample' exceeds the appropriate confidence range for the sampling frequency (which is proposed to be 75 percent of the cap), sampling frequency should increase. If one month's emissions exceed 1/12th of the 75 percent or 90 percent level, monitoring should step up to Tier 2 or 3, respectively.

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