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Incentives for Environmental Performance

There are many advantages for a company who is pursuing a course of superior environmental performance.

Governmental Trends to Improve Environmental Management

  • Better organization and more efficient management of environmental responsibilities.
  • Better compliance with laws and regulations.
  • Reduction in environmental risk and liabilities with possible insurance implications.
  • Identification of opportunities for waste minimization and improved efficiencies.
  • Reduction in environmental impacts and improved conservation of resources.
  • Creation of a company structure and culture emphasizing continuing improvement towards pollution prevention, resource conservation and environmental sustainability.
  • Improves public image.
  • Proactive environmental programs are characteristic of companies with proven business success and performing financially well.

In the past several years, there have been numerous efforts at the Federal and State levels to supplement the command and control driven environmental enforcement programs with various initiatives to stimulate innovation towards better protecting the environment and resolving environmental problems. This has been necessitated since a great deal of existing environmental problems for example, associated with growth, vehicle pollution and non-point source water pollution, etc., are not adequately being addressed within the existing regulatory framework.

Programs such as the Common Sense Initiative (CSI), Environmental leadership, Xellence in Leadership (XL), are examples of attempts by the Environmental Protection Agency, State environmental departments and interested companies to explore new mechanisms to not only improve compliance, but to obtain levels of environmental performance going far beyond the requirements of existing laws and regulations.

While such efforts have generally proven to result in improved environmental management, certain concepts have been receiving increased interest among regulators and those being regulated. Most notably has been the availability of incentives to regulated entities for improved environmental performance.

Some examples of such incentives that are economically based include:

  • Pollution charges, fees, and taxes.
  • Deposit-refund to systems.
  • Emissions trading programs.
  • Subsidies for pollution control.
  • Liability approaches.
  • Information disclosures.
  • Voluntary programs.

Regulatory Incentives

Certain regulatory incentives have been gaining in popularity among regulated entities both at the Federal and State levels. Thus far the most used of such initiatives offered by EPA is the environmental Audit Policy. The purpose of the policy is to enhance protection of human health and the environment by encouraging regulated entities to voluntarily discover, promptly disclose and expeditiously correct violations of Federal environmental requirements. While various conditions must be met, in general, the Audit Policy promotes a higher standard of self policing by waiving 100% of the gravity-based portion of civil penalties for violations that are promptly disclosed and corrected and which were discovered by employing a systematic due diligence process through one of the following:

  • Environmental Audit - which is defined as a systematic, documented, periodic and objective review by regulated entities of facility operations and practices related to meeting environmental requirements, or
  • Compliance Management System - which encompasses the regulated entities' documented systematic efforts, appropriate to the size and nature of its business, to prevent, detect and correct violations. (In essence, an Environmental Management System, EMS).

Entities that do not have in place a process for systematic discovery of violations but meet the policy's other conditions of voluntary discovery, prompt disclosure (independent of government or third party plaintiff), correction and remediation, preventing occurrences and not having a repeat violation or violation resulting in serious harm to the environment or presenting eminent and substantial endangerment are eligible for 75% reduction in the gravity-based portion of civil penalty assessment.

In addition to the elimination or substantial reduction of the gravity component of civil penalties, regulated entities that meet the terms of the Policy also receive a determination by the agency not to recommend criminal prosecution of the disclosing entity, provided the violations are not the result of willful disregard. Also, EPA will not request copies of a company's voluntary audit reports to trigger Federal enforcement investigations.

Use of the Audit Policy has been widespread. As of October 1999, approximately 670 organizations had disclosed violations at more than 2,700 facilities. The number of disclosures has increased each year. Surveys among regulated entities indicate a very high satisfaction rate among users of the policy.

Additionally, EPA may reduce penalties for a company that has timely disclosed to EPA and corrected any violation pursuant to its New Source Review (NSR) and Prevention of Significant Deterioration (PSD) requirements prior to issuance of its Title V permit.

Whether or not one participates in EPA's or a State's audit program, and violations are discovered through official government investigations, the presence of a good faith effort such as an EMS in place warrants favorable consideration under Federal Sentencing Guidelines for Organizational Defendants.

Additionally, EPA provides compliance incentives for small businesses. Accordingly, EPA will waive or reduce civil penalties whenever a small business makes a good faith effort to comply with environmental requirements by discovery of violations as part of: 1) A governmental sponsored assistance compliance program, or 2) A voluntary environmental audit which promptly discloses violations and corrects them in a timely manner. EPA will defer the issue to State, Local or Tribal authorities that have policies consistent with EPA for small businesses. Small businesses have up to 180 days to correct violations after discovery and up to one year if pollution prevention modifications are indicated.

There is also EPA policy that forgoes Federal civil penalty assessment or injunctive relief in circumstances where small communities (less than 25,000 people) request State offered compliance assistance resulting in reasonable progress towards compliance. Additional incentives to small communities by participating States can include waiving part or all of penalties associated with violations and allowing the community to prioritize among competing environmental requirements based upon risk.

EPA's Performance Track Program

Further EPA incentives for environmental performance have been emerging. Facilities that have implemented an EMS, commit to improving their environmental performance, public outreach and performance reporting and have a record of sustained environmental compliance can seek entry into EPA's Performance Track Program. In exchange for superior environmental performance, Performance Track Facilities receive:

  • Low priority for routine inspections.
  • Use of performance track logo at their facility and in facility communication and education materials.
  • Listing on EPA websites and inclusion in feature articles and case studies that profile performance track members' accomplishments.
  • Participation in recognition events and peer exchanges, including special invitation conferences, workshops and networks to share practices.
  • Better access and information sessions with sr. EPA officials.
  • Direct access to reduce reporting and monitoring available under discharge monitoring reports (DMR's) provisions of the Clean Water Act.

Also, EPA will consider a facility's good faith participation in the program as an indication of its good faith efforts to comply.

EPA intends to pursue additional incentives relative to Performance Track facilities. EPA will:

  • Recommend that States conduct a simplified control technology review under Best Available Control Technology where a facility is unable to start construction within 18 months of its BACT determination.
  • Encourage States to provide better terms (i.e., reduced loan rates and extended payback times) for facilities seeking loans under State Revolving Fund provisions of the Clean Water Act.
  • Grant expedited review of new, reduced risk pesticides under the Federal Insecticide, Fungicide and Rodenticide Act.
  • Propose regulatory changes to:
  • Reduce reporting required under Maximum Achievable Control Technology Provisions of the Clean Air Act if achieving MACT or better emissions levels through pollution prevention methods.
  • Streamline monitoring, reporting and other procedural requirements for publicly owned treatment works (POTW's).
  • Consider additional incentives such as:
  • Expedited review of pre-manufacturing notifications under Toxic Substances Control Act for facilities using the agency's pollution prevention framework in preparing notification submissions.
  • Consolidating reporting under various environmental statutes into a single report.
  • Extending the time period from 90 to 180 days for a facility to accumulate wastes before triggering the need for RCRA (Part B) Storage Permit.

EMS Requirements of Other Entities

It is important to note that for companies doing business in certain foreign countries, implementation of an EMS which has been certified by an entity recognized by the International Standards Organization is required. Also, certain US automobile manufacturers require an ISO certification EMS of their suppliers.

State Incentives

Many states have their own program versions of offering incentives for entities exercising good faith efforts and due diligence towards improving environmental performance. In fact, some states may offer even more progressive incentives than EPA in exchange for voluntary and aggressive environmental management programs which are achieving high levels of environmental performance; for example, more timely consideration of permit applications. While states must be consistent with EPA incentive policies with respect to Federally delegated programs, namely under CAA, CWA, RCRA, CERCLA, EPCRA, and SDWA, those programs where EPA exercises no regulatory authority such as certain ground water protection programs or in areas that go beyond EPA's requirements, are more the purview of the states. Also, it must be kept in mind that better than 80% of all environmental enforcement activity in the US is conducted by State environment departments.

Thus, where EPA authority does not extend, states have leeway within the parameters of their respective statutes and regulations to develop innovative processes for dealing with environmental issues. Many states, while assuring a strong enforcement presence, are pragmatic in their approach to environmental management, interested more in seeking solutions to environmental problems and improved compliance versus a solely enforcement objective.

States interested in pursuing regulatory innovations relative to Federally delegated programs, proceed through the joint EPA/State Agreement to Pursue Regulatory Innovation. This process has led to more timely adoption of a variety of innovative concepts. The agreement recognizes that states are the primary frontline delivery agent for environmental programs, and are a natural laboratory for testing new ideas. A factor, which should help to further promote meaningful innovations in addressing environmental issues, is the recent appointment of State Environmental Department officials to fill 5 of EPA's 10 Regional Administrator positions.