Standing Committee Symposium on The Role of Private Institutions in Public Environmental Decisionmaking: Negotiated Rulemaking: D. Negotiated Rulemaking at EPA: The Examples of Wood Stove Emissions and Truck Engine Emissions

David D. Doniger

David D. Doniger is Senior Attorney, Natural Resources Defense Council, Washington, DC.

I have been involved in two of the experimental U.S. Environmental Protection Agency (EPA) regulatory negotiations. The first had to do with setting penalties for the truck makers who make engines that do not meet standards. The second, in which I am still participating, involves drawing up a standard for new woodstoves. I have also been involved in traditional settlement discussions in the context of lawsuits, several of which have been successful, and a couple of which are still in the works.

I would like to turn to the two regulatory negotiations in EPA's Regulatory Negotiation Pilot Project. Initially, we reacted to emergence of this project with a cry of: Oh, no. Here comes another "bubble" concept, another regulatory reform that is being pushed by an office with a bureaucratic mandate to produce a result regardless of what it runs over on the way. God forbid that it should pick up steam.

There was a bill in the Senate to institutionalize this project before there had even been a single experiment. We were fearful of participating even in experiments for fear of legitimizing what might become a runaway train.

Today, I still have some fears about the danger of the concept running away with us. There are people who believe that it is more important to negotiate than anything else, that the process is more important than the subject matter in the outcome. The environmental community probably has the capability to protect its own interests, however, simply by picking and choosing subjects appropriate for negotiation.

With regard to the truck negotiations, under the Clean Air Act¹, EPA is supposed to set truck engine emission standards based on the best engines. In the past, however, EPA did not do so because the penalty for noncompliance is rather severe: the engine cannot be sold. In enacting the Clean Air Act Amendments of 1977, Congress, in what I think was an example [17 ELR 10252] of true regulatory reform, said: Let's change the system. Let's require the EPA to set leader-based standards, and to protect the laggards during the time it takes their manufacturers to catch up with the latest technology on the market, by allowing them to be sold under a monetary "non-conformance penalty (NCP)."

In response to EPA's reluctance to regulate, the Natural Resources Defense Council (NRDC) brought suit to establish a deadline by which the agency would be forced to set the standards and the penalty regulations.

The truck makers, for their part, have never conceded that these non-conformance penalties legitimize standards that are geared to the best technology in the industry. It is a classic legal question, and they are entitled to their opinion. It ultimately will be decided by the judges of the U.S. Court of Appeals.

How did it become possible to negotiate the penalties? I thought that it would be to our advantage in pursuit ofleader-based standards if the penalties became an agreed-upon reality, rather than remain an unenforced provision of the law. The truck makers were not quite sure why there had to be negotiations. They are extremely risk averse, however, and the fear of a last minute problem in the introduction of a new engine line was so high in their minds that they felt that they needed a safety valve. They wanted to have a way to keep a noncomplying engine on the market for the months or years that it would take to fix what went wrong. They also had a reason, then, to bring the NCPs from theory to practice.

Also present at the talks were state representatives whose interest seemed to be about the same as ours. States lack the authority to control mobile emissions sources, so they depend upon the EPA. They wanted to see tight control of the truck emissions. They saw the promulgation of NCPs as facilitatng leader-based standards.

The negotiations continued for about four or five months. Our first task was to learn to talk to each other instead of past each other, to understand each other's vocabulary and concerns. We finally invented a language all of our own. The resulting regulation is probably unintelligible to anyone outside the community of affected parties.

During the course of the talks, we stumbled upon a basic structure for a mathematical formula to express the penalty. The person who proposed it did so really against his own interest. It allowed us, in the final weeks of the negotiations, to start arguing about values for the coefficients in front of his variables. On the last day, a fellow from the Office of Management and Budget (OMB) brought out his portable computer, and we tried plugging in different formulae and coefficients to see whether the results fell within a mutual range of acceptable outcomes. Industry was saying: We can't live with more than X percent of the industry taking the penalties in the second year, and the penalty can't be higher than Y dollars. We were saying: We can't live with less than A in the fourth year, and so forth. By trial and error, we ended up with a formula that fit within everyone's parameters, and we agreed.

The truck engine manufacturers may now be worried about whether our interest in leader-based standards was too well served. A case about EPA's failure to set such leader standards is now awaiting decision by the Court of Appeals. The existence of an agreed upon NCP system is going to make it easier for the Court to order EPA to set strong standards. On the other hand, industry does have a fail-safe in the event that something goes wrong: with the payment of a penalty, a noncomplying engine can stay on the market.

The second negotiation that I have joined is currently in progress. I would like to discuss what has brought the parties to the table. The U.S. EPA plans to set a standard for emissions from new wood stoves. Although it has taken a long time, EPA has finally realized that wood stove smoke is a major pollutant. Obviously, a single wood stove does not pose much of a threat. In combination, however, the threat is quite real. While the exact figure is not certain, it is generally agreed that between two-thirds of a million and one million new wood stoves are installed in homes each year in the United States. Partly due to the success of other clean air programs, wood stoves have actually become a dominant source of air pollution in some parts of the country.

At NRDC, through a lawsuit indirectly involved with this subject, we were able to set a deadline for EPA to promulgate a rule, with or without negotiations. And at a meeting incidental to this litigation with the lawyer for the trade association of the wood stove makers, we discovered that both sides believed this to be an appropriate subject for regulatory negotiation.

In this case, the negotiation is advantageous to NRDC because the normal process of setting new source performance standards is fairly opaque. It generally consists of a technical exchange and informal negotiation between EPA and the affected industry. There are advantages for us to be on the inside of that process rather than on the outside.

The wood stove makers are interested in negotiating because two states, Oregon and Colorado, have established their own standards, and they are inconsistent with each other. Other states are threatening to set their own standards. As manufacturers of a product for national commerce, the wood stove makers are understandably concerned at the prospect of having to abide by multiple state standards. Even if all the standards could be met by the same stoves, they would still have to go through multiple test procedures in the environmental departments of most states. These are small companies with limited means.

The states have sent representatives to the negotiations as well. They understand the value of continuing to rattle the sabre. They are saying they will join in a good federal standard but will do their own thing if there is no agreement or a bad one.

I would like to turn to some more general observations on negotiated rulemaking. Perhaps the most serious drawback for environmental groups in this process is a lack of resources. If a reliable means of reimbursing groups like NRDC for the expense of participating is not developed, we will not join in many future negotiations. The cost to us is enormous, and we have been exploring ways to defray it. The Federal Advisory Committee Act² (FACA) may hold some promise. EPA must address this resource question, however, if it wants to see this process continue.

There is also a limited range of topics appropriate for negotiation, and a concurrent risk that negotiation will be promoted simply for its own sake. One of the first areas considered by EPA for this process was radioactive waste disposal site selection. It was about to be approved, and I personally went to EPA's Deputy Administrator and urged him to scrap the idea, because there was no way to choose the participants. It was impossible to imagine how one could discover who was on what side. In siting questions, the parties are particularly ad hoc. How would one designate a national representative of [17 ELR 10253] the parties to negotiate the ground rules? Also, the area of radiation is simply not a good starting point. So the proposal was dropped.

I would argue that a small class of rules is suitable for EPA's new process. In most cases, it is not difficult to guess what the environmentalists want: they want a regulation from EPA, and they want it to be stringent. If the process is opened to them and holds a reasonable prospect of producing such a rule, they can be expected to come to the table. Absent the special circumstances of the two negotiations in which I have joined, however, it is hard to imagine what will attract the industries to the negotiating table.

Discussion

ALAN ECKERT: I have a question for Scott Ferguson. The FIFRA³ legislative negotiations were counter to theory, in the sense that one of the actors — EPA — had a stake in the outcome, and perhaps even some ability to influence the outcome, but was not included in the negotiations. I would like to know what statement that decision makes about the parties' views of EPA's role, and whether it has any implications for negotiated rulemaking in other areas.

FERGUSON: An interesting question. It parallels a question that I was asked earlier, during the break, about whether we intentionally excluded EPA in the negotiations. The answer is yes. One of the things that in many ways drew the two sides together was a mutual suspicion and fear of EPA.

In dealing with some of the problems — for example, the inerts issue — the environmentalists were outraged that the agency had not done more. For our part, we were fearful that if and when the agency did something, it would do something to our detriment. We were both of the same mind in wanting to have something in place. We wanted to spell it out.

I'm not sure that involving EPA in those kinds of negotiations would have been very helpful. We did talk with EPA frequently, and people on both sides knew a good deal about what was going on in the agency. So we had a pretty good idea of how EPA would come out on the issue, technically and politically. We strived to shape our agreement so that EPA would feel comfortable with it.

With regard to the inerts issue, EPA did not think much of what we had to say. But on the other topics, with some massaging, they agreed that they could live with it.

PARTICIPANT: Under the present Administration, I would expect that the experience of the pesticide negotiations would cause the agency and the Administration to be aware of the dangers of being left out. The agency is an important player, by virtue of the fact that it has the power to do or not to do things. At the same time, it does not really represent the interest group — it is not another party in the normal sense. It plays a very positive role, as LaJuana Wilcher suggested, when it says: If you folks can't agree here, we will do something on our own, and you will bear the risks and uncertainty. Instead, however, the agency's posture is: We're not going to sponsor anything. The nongovernmental parties had best negotiate among themselves.

WILCHER: There is a certain balance to be achieved, I think. In one recent situation, negotiations were held by environmental groups and industry on some PCB cleanup standards. EPA was not a party to the negotiations. Ultimately an agreement was reached by the environmental groups and industry. Later, certain information to which EPA had access was discovered. I recall seeing an exchange of angry letters from some of the parties, because people felt that they had not been privy to all the available information during the negotiations.

EPA does have access to a vast amount of information, expertise and knowledge. We also know something about implementation — what procedures may and may not work. It is important for the agency to be represented at negotiations, so that the parties don't spend a lot of time and effort coming up with what they see as a workable compromise, when it might not be technically feasible or might not be based on all the information available to EPA.

DONIGER: I would like to comment on the wood stove negotiations. The agency is playing an extremely valuable role, with the assistance of the Colorado and Oregon agencies, by serving as the primary source of information and analysis. The parties are chiefly discussing the implications of the data as pulled together, summarized, and analyzed by EPA. At this stage in the negotiation, EPA's people seem to be presenting a polite but forceful sense of what they think it means. They are being very active in their role in the negotiations so far. And I think that's good.

PARTICIPANT: In the last week or two, I noticed that an agreement has been reached in Alaska between environmental groups and the oil industry concerning what areas on the outer continental shelf should be leased. It was sponsored by Robert Redford, so the negotiation is by Redford's group. It has been an area of longstanding hot dispute. The Minerals Management Service in the Department of Interior was not involved in the negotiation at all. They are now bringing that agreement to the Secretary of Interior, and he's saying: Gee, that sounds good, I can hardly wait to see the details. It is another example where the federal agency was, I presume, deliberately excluded, and apparently it was not thought that they would be helpful.

PARTICIPANT: I have a question for both Dave Doniger and Phil Harter. I was involved in the heavy duty diesel emissions regulatory negotiations, and it seems to me that industry benefits a great deal from having both the agency and the envionmental group participate. If nothing else, there is the relative certainty that the final product will not be challenged in court. To that end I'd like to ask whether the resource allocation question to which Dave referred earlier is necessarily a limitation on that participation. Why not have industry pay for participation or defray the expenses of environmental groups in their participation in the negotiated rulemaking process?

DONIGER: I have the uncomfortable task in this process of having my hand out but also having to refuse donations from certain givers. I do see it as a problem. I do not believe that my judgment would be influenced, but then again, that's what everyone says, even those people whose judgment is affected. I'm not certain therefore that I could trust my own judgment. Also, there is the matter of a perception of impropriety. So I don't think that financing by the affected industry is a good route.

This problem would hold for industry as well. Suppose that someone from my side goes through the process and makes some substantial compromises. That person's view may have been changed in good faith based on what he or she has learned. But if the compromise diverges significantly from the initial position held by environmental groups generally, and some other group is unhappy about it, industry does not want to have the debate over the merits of the compromise tainted by the question of whether the environmental group was "bought."

[17 ELR 10254]

HARTER: I agree. I think it would place the public interest organizations in a horrible position. There are two potential responses, and one is that there are advisory committee resources. The Federal Advisory Committee Act provides an authorization for such reimbursement. The Administration currently has regulations opposing this, which I think are flatly illegal. OMB has requested that the General Services Administration (GSA) withdraw them, but that has not been done.

The original ACUS recommendations were that the government ought to pay the per diem just like any other advisory committee. I do not understand why there should be reticence about it. I think that one ought to use the federal machinery that is already established to address this problem.

Second, there is some discussion about establishing a revolving fund, which one could also call a sophisticated money laundering program, by which the affected industry and others could chip into one pot, without the appearance of improper influence. Groups could draw against the pot for regulatory negotiations or any other kind of proposed environmental negotiations.

PARTICIPANT: I've heard the language used in the description of the various processes — Machiavellian, horse trading, compromise, exacting concessions, and so forth. I am wondering to what degree the negotiations have proceeded along standard conventional labor-management lines, or to what degree they have departed from that model and improved the techniques of negotiation, or produced better outcomes because of the techniques of negotiation.

HARTER: I'll take a stab at answering, without having made a really comprehensive study. In each negotiation that I have observed and discussed with people, negotiations turned out to be very principled, and against the statutory background. Everybody is going to negotiate with an eye toward what they can get in another process, and that is controlled by the legal process.

PARTICIPANT: I think that it would be wrong to suggest that there is an exclusive formula for how negotiations ought to proceed when they're being used in the kind of context we've been discussing. Take the point we discussed earlier about the wisdom of agency participation. It is not clear that everyone has to take part in every stage. Naturally, some people will enter a negotiation with the attitude: I'm not leaving my prior experience and methods at the door. Too much is at stake, even if the rule is not the most important. People are going to come in and try whatever they think will work for them.

Once they begin, it can become clear that they might advance their own interests more effectively by switching from one bargaining style to another. There must be a gradual building of confidence, if not trust, and it ought to be ad hoc. The parties themselves should try, in a less rigid, less formalized way, to see what they can do to advance their interests collaboratively. I don't think that you can write rules about it. It may be that if parties behave in a positional, horse-trading way, they will get something better than what they thought they would get.

Regardless of how many demonstrations occur, it is important not to believe that as a result of them we will be able to squeeze out a new set of amendments to the Administrative Procedure Act⁴, and replace an old process with a new rigid formula. It would be a terrible thing to do.

1. 42 U.S.C. §§ 7401-7642, ELR STAT. 42201.

2. 5 U.S.C. App. 2, §§ 1 et seq.

3. Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§ 135-136y, ELR STAT. 42301.

4. 5 U.S.C. §§ 551 et seq., 701 et seq., 3105, 3344.