31 ELR 11266 | Environmental Law Reporter | copyright © 2001 | All rights reserved

Toward Integrated Approaches to Compliance Assurance

Mark Stoughton is an associate scientist in Tellus Institute's Business and Sustainability Group. He holds a Ph.D. in Technology, Management, and Policy from the Massachusetts Institute of Technology (MIT), and a Master's degree in Civil and Environmental Engineering. Jeanne Herb is the Manager of the Public Policy Program at Tellus Institute. Prior to joining Tellus in 1998, she was the founding Director of the Pollution Prevention Program at the New Jersey Department of Environmental Protection (DEP). She holds a Bachelor's degree from Rutgers University (Cook College) in Environmental Studies and a Master's degree from New York University in Environmental Journalism. Jennifer Sullivan is an entering doctoral student in public policy at Brandeis University. Formerly a research associate at Tellus Institute, she holds Masters' degrees in Technology and Policy and in Civil and Environmental Engineering from MIT. Michael Crow is an Associate Scientist in Tellus Institute's Business and Sustainability Group, where he specializes in practical research that helps align economic and environmental priorities and/or informs the "reinvention" of environmental policy. He has a Master of City Planning degree from MIT, and previously worked for the Cadmus Group. The authors gratefully acknowledge funding for this research by the National Academy of Public Administration, with particular thanks to DeWitt John and Rick Minard for their insights, encouragement, and support. We are grateful to the many individuals at U.S. Environmental Protection Agency (EPA) headquarters, EPA regional offices, state environmental agencies, and regulated entities whose insights and experience form the basis of the work reported here.

[31 ELR 11266]

Introduction and Overview

The U.S. Environmental Protection Agency (EPA) states that its mission is to "protect human health and safeguard the natural environment — air, water, and land — upon which life depends."¹ Most state environmental agencies formulate their missions in similar terms. Because the national environmental statutes remain the primary tools available to achieve these missions, assuring compliance with those laws and the regulations issued under their authority is a key operational goal of EPA and state environmental agencies. The Office of Enforcement and Compliance Assurance (OECA) is the EPA office with primary responsibility for compliance assurance.

There is broad agreement at the federal and state levels that the traditional, exclusive reliance on penalty-based enforcement approaches to compliance assurance is inadequate. The emphasis in the 1990s on a more partnership-focused, less adversarial approach to environmental policy has led to an increased focus on using multiple tools to advance compliance assurance. When EPA consolidated compliance assurance activities into the OECA in late 1994, one stated purpose was to facilitate coordinated and integrated approaches to compliance assurance, both across and within media.²

Through the OECA, EPA has publicly committed to promoting and practicing integrated approaches to compliance assurance. The OECA defines such approaches as involving the combination of enforcement with compliance assistance and/or compliance incentives.³

Compliance assurance is, however, among the most contentious issues in the post-2000 EPA policy agenda. The broad agreement between and within EPA and the states regarding the need for integrated approaches breaks down over two sets of issues. The first is essentially disputes over the proper application of federalism in the administration of the national environmental statutes. The second is instrumental: questions concerning the details and efficacy of individual compliance assurance tools, and the most effective means of constructing and implementing integrated compliance assurance approaches.

This Article documents the findings of an independent Tellus Institute study of six EPA national and regional integrated compliance assurance initiatives.⁴ The study focused on these instrumental questions, and examined the case study initiatives using publicly available documents, internal documentation, and extensive interviews with EPA officials and members of the relevant regulated communities. The study also conducted a focused survey of the literature and a set of interviews with enforcement experts in the academic, environmental/nongovernmental organization (NGO), and regulatory communities.

As independent research commissioned under the "Learning From Innovations in Environmental Protection" project of the National Academy of Public Administration,⁵ the study was explicitly focused on producing, via the academy, guidance for the compliance assurance functions [31 ELR 11267] of EPA and state agencies. Specifically, the study had two objectives.

The first objective was to inform the ongoing effort within EPA and the states to move integrated approaches to the center of compliance assurance policy. As noted, this represents a shift from traditional enforcement approaches, and one for which there are few established models. It is thus incumbent upon EPA and the states to derive maximum learning from those models that are available. The second objective was to inform an ideologically charged debate between EPA and the states that often conflates instrumental questions, e.g., the efficacy of compliance assistance, with ideological positions concerning the proper conduct of federalism. Our hope was that this and similar research may produce a more constructive base for dialogue between EPA and the states.

Given the current uncertainty over EPA's compliance assurance strategy — and particularly the future of the OECA and the federal role in enforcement — we believe that these objectives and our findings have particular relevance.

The scope of the study was obviously limited. All initiatives examined were federal and were operated by the OECA's and EPA's headquarters and regional compliance assurance programs. The study thus accepted compliance as a principle metric of success — with one key caveat: given limited resources, compliance assurance efforts should be targeted to best achieve environmental results, and the methods used to obtain compliance results should be cost effective. Issues of targeting and cost-effectiveness related to integrated initiatives are thus examined. The study did not address issues such as the proper division of resources between compliance assurance and other offices/functions within EPA.

Key Concepts and Definitions for Compliance Assurance

A primary goal of environmental regulatory agencies is compliance assurance: that is, obtaining the highest degree of compliance possible with environmental laws and regulations on the part of regulated entities.⁶ Agencies have multiple tools available to attempt to effect greater compliance. Such tools can be divided into three categories: enforcement; compliance assistance; and compliance incentives.

Enforcement

Enforcement is the practice of discovering violations of law or statute — typically through facility inspections — and then requiring corrective action, and usually imposing penalties. By taking and publicizing enforcement actions, environmental agencies intend to both address specific cases of noncompliance, and deter noncompliance in the regulated community at large. Enforcement has been EPA's traditional method of assuring compliance. In recent years, the Agency has added newer enforcement tools to the usual ones of inspections, settlements, and court cases. One such tool is the use of investigations and strategic information requests to examine more deeply overall facility issues that may not be addressed in traditional inspections — such as compliance history, commercial records, and other data.⁷

Compliance Assistance

Compliance assistance is the practice of building the capacity of regulated entities to comply with environmental laws. The effectiveness of assistance in assuring compliance is founded on the premise that the targeted regulated community is willing to obey regulations, but unable to do so because of a lack of awareness or technical capacity. An environmental agency attempts to compensate for those deficiencies through a variety of outreach methods, such as open meetings, hotlines, site visits, and dissemination of printed or electronic resource materials. Compliance assistance has frequently been provided to newly regulated communities, entities that have only recently become a focus of compliance assurance efforts, and small businesses. Some states have created nonregulatory agencies to provide compliance assistance, in an effort to enhance trust between government and the regulated community.⁸

Compliance Incentive

Compliance incentive tools are a much newer development, and are designed to reward regulated entities who take voluntary actions to come into compliance — rather than as the result of an enforcement action. For example, EPA's self-audit and small business policies mitigate penalties for firms that self-discover and self-disclose violations.⁹

EPA's Concept of "Integrated Approaches" to Compliance Assurance

As noted, the OECA's view of integrated approaches is centered on the combination of enforcement with compliance incentives and/or compliance assistance. For example, a regional air program might couple new offers of compliance assistance to a particular regulated community with a public threat of increased inspections.¹⁰ As the discussion below of EPA Tools and Strategies for Integrated Approaches indicates, the OECA has particularly held that neither compliance [31 ELR 11268] assistance nor compliance incentives work very effectively without a strong enforcement "hammer." As a result, the OECA's approaches in dealing with individual companies, facilities, or sectors always combine compliance assistance and/or incentives with traditional enforcement tools.¹¹

Integrated approaches are intrinsically rooted in the view that noncompliance is rooted both in economic and institutional causes.¹² In principle, the strength of integrated approaches is the synergy that results from attacking multiple sources of noncompliance simultaneously, using an approach customized to the characteristics of a particular regulated community.

Controversies

As mentioned above, there exists widespread agreement on the need to utilize "integrated" or "balanced" approaches to compliance assurance. That agreement is rooted in an understanding that, despite the real environmental gains made under EPA's traditional command-inspect-enforce model, a great deal of progress still remains to be made, especially in light of continuing significant noncompliance issues that a simple deterrence approach does not fully address. The recognition that pollution prevention should be the preferred means to achieve compliance also has implications for compliance assurance policy in that pollution prevention relies upon both industry knowledge and industry willingness for success. Compliance assistance and incentives are intended to address those concerns.

There is less agreement, however, on the details of how integrated approaches should be designed and deployed. Particular controversy has erupted between EPA and the states on two broad issues: control and the philosophy of federalism; and instrumental and organizational questions related to the proper design and implementation of integrated approaches.

Compliance assurance conflicts between the states and the OECA, in part, reflect the long-standing tension between states and the federal government over the proper conduct of federalism in environmental protection. Particularly given current emphasis on "performance-based management" and the development of the National Environmental Performance Partnership System (NEPPS), agency leaders and the staff of many states feel that EPA should not dictate the makeup of compliance assurance activities, as long as states meet specific environmental or compliance outcome goals. The issue deserves attention, but is not the focus of this work.¹³

Our study focused on a second aspect of the debate over compliance assurance — the disagreements among observers and practitioners over instrumental and organizational questions. Those questions concern the details and efficacy of individual compliance assurance tools, as well as the most effective means of constructing and implementing integrated compliance assurance approaches. Three issues are prominent in the debate.¹⁴

The first of these issues is the public cost-effectiveness of integrated assurance approaches. Some observers have argued that the deterrent effect — hitting violators with heavy penalties that reimburse government coffers — may be more cost effective to government than "softer" policies that involve more communication and coordination with the regulated community. Others have pointed out that compliance assistance and incentives show the potential of greatly expanding the reach of environmental agencies, because a large number of regulated entities have come to believe that diminishing resources of environmental agencies means that regulatory hammers will likely never hit them.

The second set of issues centers on the proper mix of compliance assistance and enforcement. As mentioned above, the OECA has consistently held that the deterrent effect is of paramount importance to the success of integrated approaches. OECA managers question the efficacy of compliance assistance alone in improving compliance rates. But many states believe such assistance can have more far-reaching impacts than the deterrent effect.¹⁵

The final set of issues concerns effective organization and implementation of integrated approaches. EPA has little institutional experience to date in implementing and overcoming obstacles to such approaches. Integrated approaches present several challenging obstacles, such as internal and external coordination demands; building awareness among regulated entities; maintaining agency credibility; flexible resource management; proper sequencing of tools; follow-through; and measurement of outcomes.

We observed in our previous research on NEPPS¹⁶ that, in the absence of significant data on the issues, the essentially [31 ELR 11269] instrumental questions, e.g., the efficacy of compliance assistance, become the subject of unproductive debate — debate that often conflates instrumental questions with ideological positions concerning the proper conduct of federalism.¹⁷ It is our hope that this and similar research may produce a more constructive base for dialogue between EPA and state agencies, as well as inform the ongoing effort within EPA and state agencies to move integrated approaches to the center of compliance assurance policy.

Theoretical and Empirical Basis for Integrated Approaches

Our case study research approach reflects the embryonic state of scholarship regarding next generation compliance assurance. Not only do integrated approaches constitute a small percentage of regulatory agency compliance assurance activities in practice, but the theoretical literature provides little specific guidance for the practitioner or researcher. A theoretically agnostic reading of the theoretical literature does, however, clearly support the principle of integrated compliance assurance.¹⁸ Specifically, the theoretical literature offers two general views of noncompliance:¹⁹

Economic perspectives on noncompliance treat noncompliance as a gamble to which one can apply the standard theory of choice under uncertainty.²⁰ In the most basic economic model, a firm decides to comply if the cost of compliance is less than the expected outcome of noncompliance, i.e., the penalty for non-compliance multiplied by the chance of noncompliance being detected. A number of more sophisticated variants build on this model. But those variants maintain the basic premise that the firm makes an economically rational decision to comply or not to comply.²¹

In contrast, institutional and organizational perspectives on noncompliance posit that, all else being equal, firms will tend to comply with regulations because environmental compliance is a social norm. Under those models, firms are not cynical economic rationalists with regard to compliance. Thus, failure to comply arises from four key sources: ignorance of regulatory requirements; inadequate knowledge of the firm's own operations; poor internal environmental management systems; and inadequate capability to comply.²²

Economic perspectives suggest that increasing the penalties for noncompliance, or increasing enforcement effort (that is, increasing the probability that violators will be discovered), are the most effective means to improve compliance. Institutional and organizational perspectives suggest that the best tools for improving compliance are outreach and assistance, which increase awareness of regulatory requirements, as well as their capabilities to comply with those requirements. Both perspectives suggest that regulatory streamlining and rationalization, which reduce the transaction costs of compliance and render regulatory requirements more transparent, will tend to result in increased compliance.

Both economic and institutional perspectives on compliance provide useful insight into the nature of noncompliance, but current scholarship indicates that neither alone provides sufficient explanation for the real-world behavior of regulated entities. That point is clearly made by a limited set of representative examples from the empirical and descriptive literatures.

For example, the pure economic model appears to be contradicted on two levels: in the gross results it predicts, and in the assumptions it makes regarding the unitary nature of the firm. While compliance levels are difficult to measure, indications are that compliance in the United States is substantially in excess of that suggested by the simple economic model. While adjustments can be made to the model to account for at least some of the "excess compliance," indications are that social norms do play a role in firm behavior.²³ However, the view of a firm as a unitary economic actor is rarely a valid one. The economic incentives facing individuals arise as a function of organizational structure and job description, and may not reflect profit-maximizing behavior for the firm as a whole. Noncompliance, if deliberate, may be the result of individual rationality rather than firm rationality.

Purely institutional perspectives are likewise problematic. Strictly voluntary approaches — such as voluntary programs focused on knowledge dissemination and technical assistance — are not of proven efficacy as stand-alone tools in promoting compliance and pollution prevention. Absent the plausible threat of enforcement, cooperative approaches [31 ELR 11270] to achieving compliance seem to have only limited effect on regulated entities.²⁴ Such voluntary approaches achieve far better results when they are closely linked to statutory requirements than when there is no statutory base.²⁵ However, there is clear evidence that capability and knowledge barriers to compliance are real, particularly for smaller enterprises, and that reducing those barriers can improve environmental performance.²⁶

Thus, indications are that, in most situations, both economic and institutional factors contribute to noncompliance. Large, publicly held entities might be expected to conform more closely to models of economically rational behavior, both because they are under a legal mandate to maximize shareholder value, and because they are more likely than smaller entities to possess significant economic analysis capabilities. Large entities, however, are also institutionally complex, and, thus, institutional and organizational sources of noncompliance do apply.

To be effective, regulatory agencies' compliance assurance policy and strategy must successfully target the causes of noncompliance. A clear indication from the descriptive/empirical literature is that the compliance assurance strategies of regulatory agencies should address both economic and institutional sources of noncompliance. Thus, EPA's stated commitment to integrated compliance assurance (as defined above) is well supported by the literature.

That is, EPA's consistent commitment to enforcement and a credible deterrent speaks to economic sources of noncompliance. Effects on institutional sources of noncompliance are secondary. For example, a credible threat of enforcement may be an incentive for firms to establish and maintain rigorous environmental management systems (EMSs). At the same time, EPA's stated commitment to compliance assistance and outreach largely address institutional sources of noncompliance. Effects of those activities on economic sources of noncompliance are secondary. For example, technical assistance may reduce the transaction costs of compliance. And finally, compliance incentives address in principle both economic and institutional sources of noncompliance. For firms that elect to use them, they typically increase the certainty of the economic penalty for noncompliance, but reduce its amount. To the extent that they are linked to sound environmental management requirements (as the audit policy is, for example), they address institutional sources of noncompliance.

Again, however, the literature offers little specific guidance, however, regarding the conduct of integrated compliance assurance approaches. The authors are aware of no taxonomy of integrated compliance assurance approaches, or of any statistical studies that would permit comparative assessment of such approaches. There is an emerging case study literature (to which this current study contributes), much of it generated by the regulatory agencies themselves,²⁷ but it is too new to permit many conclusions or generalizations. But the value of a credible regulatory hammer as a backdrop to compliance assistance and outreach is one common theme. Another is the importance of clear definition of the targeted regulated community.

The dearth of third-party guidance and evaluation emphasizes the need for EPA to learn from its own integrated compliance assurance initiatives, as well as those of the states.

EPA Tools and Strategies for Integrated Approaches

Then-EPA Administrator Carol Browner created the OECA in late 1994, consolidating compliance assurance — and particularly enforcement — functions previously housed in the various EPA headquarters' media offices. She intended the consolidation to facilitate coordinated and integrated approaches to compliance assurance, both across and within media. As a Federal Register notice soliciting comments on the OECA's five-year anniversary noted, "the reorganization reflected a belief in the value of complementary approaches in achieving compliance with public health and environmental laws."²⁸

In the course of Browner's tenure, the OECA engaged in significant activities in all three elements of integrated approaches — compliance assistance, compliance incentives, and enforcement.²⁹ This section provides essential background, outlining the tools available to the OECA in conducting integrated initiatives, and the strategies by which its activities in this area are in principle governed. Accordingly, the text summarizes the published policies, strategies, and commitments produced by the office in three areas: compliance incentive tools, strategy setting, and national coordination and performance metrics.

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Published documents and policies in the three areas are the focus of the discussion for three reasons. They reflect the substantive commitments made by the office in the area of integrated approaches, the tools available to implement those commitments, and the degree to which integrated approaches are being prioritized as the agency moves to the performance-based management regime mandated by the Government Performance and Results Act (GPRA).³⁰

In addition, we summarize the OECA's central compliance assistance efforts to date — an important part of integrated compliance assurance. In general, the OECA has consistently asserted that any integrated approach depends for its effectiveness on the maintenance of a strong enforcement program. The tools and initiatives described below reflect this position. The OECA has exerted significant pressure through memoranda of agreement, and through other channels, to attempt to assure that states and EPA regions maintain strong enforcement programs.

Note that the entirety of this section reflects efforts and strategy of the previous administration; the degree of continuity under the new administration is yet to be determined.

Compliance Incentives

Audit Policy

EPA's audit policy³¹ took effect January 1, 1996, after an extensive public development process. It establishes the qualifying conditions and nature of penalty mitigation for voluntary disclosures of noncompliance. Under the policy, voluntary self-disclosures meeting the qualifying conditions are eligible for elimination of gravity-based (but not economic benefit-based) penalties associated with a violation.³²

EPA established the audit policy in part as a preemptive measure to guard against the possibility of more-sweeping audit privilege initiatives in Congress because EPA has long held that granting immunity to audits is counter to the national interest in assuring maximum compliance with environmental laws. EPA has brought pressure to bear on the states to reduce scope of audit immunity under existing or prospective state audit laws. The OECA's Office of Regulatory Enforcement (ORE) has responsibility for the audit policy.

Small Business Policy

Very similar in concept and design to the audit policy, the small business policy (formally, the Policy on Compliance Incentives for Small Businesses) came into effect on June 10, 1996.³³ The small business policy was developed in response to the Executive Memorandum on Regulatory Reform³⁴ and the Small Business Regulatory Enforcement Fairness Act of 1996 § 323,³⁵ both of which directed regulatory agencies to mitigate penalties for small businesses given good-faith compliance efforts. The policy allows for 100% mitigation of the gravity-based portion of penalties for businesses having less than 100 employees.³⁶

In the first half of 2000, EPA issued revisions to both the audit and small business policies.³⁷ Changes are relatively minor and focus on lengthening the "window" within which violations must be reported under the policy, as well as on the conditions under which discovery of a violation qualifies for self-disclosure penalty mitigation under the policies.

Strategy Setting

The OECA has promulgated two key strategy documents in support of integrated compliance assurance efforts: Operating Principles for an Integrated EPA Enforcement and Compliance Assurance Program³⁸ and Innovative Approaches to Enforcement and Compliance Assurance: Action Plan for Innovation.³⁹

Operating Principles for an Integrated EPA Enforcement and Compliance Assurance Program describes a set of core principles by which EPA's compliance assurance program should operate. It also defines the various compliance assurance tools available to EPA — civil and criminal enforcement, compliance monitoring, compliance incentives, and compliance assistance. Very general guidance is provided on the appropriate use of each tool. The need for collaboration between federal, state, local, and tribal agencies is identified, and a commitment is made to developing a "more sophisticated and comprehensive approach to measuring success" beyond traditional activity counts.

In conveying the principles to his staff, senior agency management and regional enforcement personnel, OECA Assistant Administrator Steve Herman characterized their impetus and intent: "The principles should help guide planning and decision-making of Agency enforcement and compliance assurance personnel. I also believe they will help other Agency personnel and external stakeholders understand … the OECA program."⁴⁰

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The Innovative Approaches to Enforcement and Compliance Assurance: Action Plan for Innovation was developed through an extensive public outreach and involvement process, including two stakeholder conferences in early 1999. It articulates a set of generally stated action items, timelines, and responsible offices, focusing on six areas: compliance assistance, self-auditing and EMSs, support of "performance track" development, public involvement and data access, self-assessment and performance evaluation, and integrated approaches.

Under compliance assistance, EPA makes an expanded commitment to providing timely compliance assistance for final rules, and to coordinating and prioritizing diverse compliance assistance efforts within the Agency. The plan emphasizes a shift in EPA's compliance assistance focus from "retailer" to "wholesaler," "providing tools and other assistance to frontline compliance assistance providers in states and the private sector."⁴¹ With regard to self-auditing and EMSs, EPA commits to issuing revised audit and small business policies to increase "user-friendliness." The Agency also commits to further evaluating the compliance effects of EMSs.⁴² Under support of "performance track" development, EPA commits to formalizing regulatory flexibility for superior environmental performers (the document does not specify the definition of flexibility, or the criteria for superior performance).⁴³ In addressing public involvement and data access, EPA proposes a greater stakeholder role in identifying compliance priorities, increased public access to compliance data, establishment of a single hotline for citizen complaints, and development of publications.⁴⁴ With respect to self-assessment and performance evaluation, the document calls for improved performance measures for compliance assurance activities.⁴⁵ And finally, under integrated approaches, EPA plans to expand use of integrated enforcement strategies for program priorities.⁴⁶

Metrics and Coordination

The OECA's National Performance Measures Strategy

The GPRA requires federal agencies to assess and report on program performance. The intent of the act is that performance should be measured by the progress programs have achieved against the ends they are supposed to achieve rather than on program actions per se, e.g., reporting pollution prevented rather than inspections conducted.

The GPRA and a set of similar influences, such as the performance-based management model upon which NEPPS is based, have spurred the OECA's efforts to develop indicators of the performance of its compliance assurance program that go beyond traditional activity counts. (The two strategy documents discussed above confirm that commitment.) The metrics by which the OECA measures success are relevant to any discussion of integrated initiatives, as metrics serve to define incentives for EPA enforcement personnel, and reflect the priority accorded to integrated initiatives in practice.

The OECA initiated the National Compliance Measures Strategy in early 1997 with a public outreach effort.⁴⁷ The result was the selection of 12 sets of measures collectively known as the "Performance Profile."⁴⁸ Since 1998, the OECA has been working to design and create a necessary data collection infrastructure and pilot program for these measures, which are described in Table 1. Note that only in Phase 2 are environmental and human health results, as well as measures of compliance assistance and integrated initiative measures, incorporated. The measures were designed to be implemented in two phases beginning in fiscal year (FY) 1999. The measures for both Phase 1 and 2 are listed below.

Table 1: OECA National Performance Measures⁴⁹

(TABLE)

*2*Phase 1 (implemented in last portion of FY 99)

.(NEW COLUMN)average duration for significant violators to return to

(NEW COLUMN)compliance

.(NEW COLUMN)percentage of significant violators with recurrent

(NEW COLUMN)violations

.(NEW COLUMN)number of investigations conducted

.(NEW COLUMN)responses to citizen complaints

.(NEW COLUMN)number of violations issued by media program

.(NEW COLUMN)capacity-building efforts provided to state, local,

(NEW COLUMN)tribal programs

*2*Phase 2 (implemented in FY 2000)

.(NEW COLUMN)statistically valid compliance rates for selected

(NEW COLUMN)regulated populations

.(NEW COLUMN)facilities/entities reached through compliance

(NEW COLUMN)assistance *

.(NEW COLUMN)environmental and human health improvements from

(NEW COLUMN)compliance assistance

.(NEW COLUMN)environmental and human health improvements from

(NEW COLUMN)enforcement *

.(NEW COLUMN)environmental and human health improvements from

(NEW COLUMN)integrated initiatives

.(NEW COLUMN)self-policing efforts by using compliance incentive

(NEW COLUMN)policies *

.(NEW COLUMN)self-policing settlements concluded

*(NEW COLUMN)Existing metrics undergoing revision in FY 2000(END TABLE)

The national compliance assurance performance measures support EPA-wide performance assessment; the GPRA mandates such agencywide assessment against EPA's strategic plan.

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Because most national environmental programs are delegated to the states, the OECA's performance measures must reflect the performance of and data reported by state programs. EPA and the Environmental Council of the States have negotiated Core Performance Measures (CPMs) to report the performance of delegated state programs under NEPPS. The OECA intends that those CPMs dealing with compliance assurance will feed directly into the national performance measures. However, ensuring compatibility between the CPMs and the national measures is an ongoing process.⁵⁰

Memorandum of Agreement (MOA) Guidance

The OECA is a headquarters office, and regional enforcement personnel are not directly supervised under the OECA. Each fiscal year, the OECA enters into an MOA with each region regarding the conduct of the regional enforcement program during that year. It is through the MOA process that the OECA promulgates national compliance assurance priorities and strategies. Because regions oversee delegated state programs, the MOA process is also a principal means by which the OECA influences state-level enforcement activity. The MOA process includes a mid-year adjustment element intended to allow for changes in resource allocations to accommodate unanticipated costs, as well as for changes in priorities.

The OECA MOA guidance for fiscal years 2000 and 2001 mentions compliance assistance and compliance incentive activities for each core regulatory program area.⁵¹ However, the guidance enumerates performance expectations for activities far less specifically in those areas than for traditional monitoring and enforcement. In addition, it does not prominently emphasize integrated initiatives.

Compliance Assistance

The OECA notes that "states and localities are the primary providers of direct assistance to the regulated community. EPA views its role as providing tools for states, tribes, localities and the regulated community."⁵² Since its establishment, the OECA's central compliance assistance efforts have been: compliance assistance centers, sector notebooks, and audit protocols.

Over the past few years, the OECA, in cooperation with other agencies, industries, institutions, and organizations has established nine national, sector-specific compliance assistance centers. The sectors chosen were those "heavily populated with small businesses and entities that face substantial federal regulation."⁵³ Examples include printing, metal finishing, chemicals, transportation, and paint and coatings, among others. The centers are "virtual," i.e., weband telephone hotline-based, and are intended to provide "first stop shopping" for regulatory requirements, compliance assistance tools, and pollution prevention information.

During the last several years, the OECA developed a series of more than 30 sector notebooks and profiles containing information on industries/sectors of significant environmental and economic importance.⁵⁴ The notebooks integrate a set of key information about the industry, including an environmental emissions profile related to production processes, regulatory requirements, pollution prevention information, and enforcement/compliance history.

The OECA is developing a series of 12 audit protocols covering the major federal environmental statutes. The protocols are intended to assist regulated entities in evaluating their compliance status. Each protocol summarizes statutory requirements, defines regulatory terms, and gives overviews of applicable federal laws. A regulatory checklist is the central element of each protocol, containing detailed procedures on conducting a review and audit of facility operations and conditions.⁵⁵

In addition to those efforts, the OECA has developed more than 20 compliance assistance tools, ranging from compliance checklists to in-depth compliance assessment guides. The tools are specialized for industry sectors or manufacturing processes, and give detailed information on how to comply with applicable regulations. The OECA also publishes periodic "Enforcement Alert" newsletters to inform the public and regulated community regarding important environmental enforcement issues, recent trends, and significant enforcement actions.⁵⁶

The Six Case Studies

This section presents summary descriptions of the six integrated-approach cases examined for our study.⁵⁷ The descriptions synthesize the information gained from our documentation review and interviews, and are not constructed from the words or views of any one interviewee. Cases reflect status as of mid-2000.

Selection Criteria

We selected the six case study initiatives in collaboration with the OECA's ORE and National Academy of Public Administration staff. Criteria included perceived success and variation across key dimensions.

For the perceived success criteria, initiatives selected were those that the OECA believes are successful, i.e., resulting [31 ELR 11274] in improved compliance. Examining "success" cases facilitated the development of a better understanding of what may be working — especially important at this early stage of experimentation — and allows easier comparison across other dimensions of variation that influenced case study selection.

The small sample was intended to represent a full set of variation across the following key dimensions: scope of the initiative (national vs. regional); type of sector (industrial vs. nonindustrial); and type of approach (compliance incentives vs. no compliance incentives). Table 2 details how the cases compare across these dimensions of variation.

Table 2: Case Study Dimensions of Variation(TABLE)

(NEW COLUMN)*2*Scope(NEW COLUMN)*2*Sector(NEW COLUMN)*2*Use of Incentives?

(NEW COLUMN)National(NEW COLUMN)Regional(NEW COLUMN)Industrial(NEW COLUMN)Non-Industrial(NEW COLUMN)Audit(NEW COLUMN)Non-Audit

(NEW COLUMN)(NEW COLUMN)(NEW COLUMN)(NEW COLUMN)(NEW COLUMN)Policy(NEW COLUMN)Policy

Refineries(NEW COLUMN).(NEW COLUMN)(NEW COLUMN).(NEW COLUMN)(NEW COLUMN)(NEW COLUMN).

Telecommunicat(NEW COLUMN).(NEW COLUMN)(NEW COLUMN).(NEW COLUMN)(NEW COLUMN).

ions

Lead(NEW COLUMN).(NEW COLUMN)(NEW COLUMN)(NEW COLUMN).(NEW COLUMN)(NEW COLUMN).

Minimills(NEW COLUMN)(NEW COLUMN).(NEW COLUMN).(NEW COLUMN)(NEW COLUMN).

Universities(NEW COLUMN)(NEW COLUMN).(NEW COLUMN)(NEW COLUMN).(NEW COLUMN)(NEW COLUMN).

Publicly Owned(NEW COLUMN)(NEW COLUMN).(NEW COLUMN)(NEW COLUMN).(NEW COLUMN).

Treatment

Works(END TABLE)

Methodology

Primary contacts were usually the staff member or manager with principal responsibility for each initiative. The research team procured background materials, documentation, and additional contact names from the primary contact, and conducted phone interviews with EPA staff and management involved in the initiative. When possible, staff and managerial interviews were conducted separately to encourage candor. Where possible and relevant, we interviewed state agency personnel in the affected states, members of the regulated communities affected by the programs, and industry association representatives.

Lead-Based Paint Notification Initiative

EPA's "Section 1018" activities cover a wide range of actions undertaken to implement and assure compliance with § 1018 of the Residential Lead-Based Paint Hazard Reduction Act of 1992.⁵⁸ Section 1018 required EPA and the Department of Housing and Urban Development (HUD) to jointly issue regulations requiring disclosure of known lead-based paint and/or lead-based paint hazards in housing built before 1978.⁵⁹ The disclosure obligations were imposed on lessors and sellers of such housing, and their agents. The rule,⁶⁰ promulgated in 1996, required sellers/lessors of pre-1978 housing to: disclose any known lead-based paint or paint hazards; provide any reports or documentation relating to lead-based paint assessment and/or remediation; provide a federally approved lead hazard information pamphlet to purchasers or lessors; and provide purchasers with a 10-day period to conduct assessment or inspection for lead-based paint hazards before being obligated under any purchase contract.⁶¹ Agents must ensure compliance with these provisions.⁶² The Section 1018 program is not delegable, though a number of states have "look alike" laws, some more stringent than the federal requirements.

The mandate of the 1992 act, reflected in the rule, established a large and highly unusual regulated constituency for EPA — private landlords, real estate agents, and property management companies. Neither the act nor the implementing rule contained the authority to compel abatement, rather the rule implemented a right-to-know requirement aimed at reducing the incidence of lead poisoning in children.

A "compliance assistance year" followed the finalization of the § 1018 rule and preceded the release of EPA's Interim Enforcement Response Policy (IERP) in January 1998.⁶³ During that year, compliance assurance activities consisted of outreach and compliance assistance inspections. EPA inspectors worked with real estate firms and property managers to assess their level of compliance with the new law, and provided on-site instruction on how to meet the new law's requirements. Regions were (and remain) the front-line implementers of such activity, with national coordination and guidance provided by three headquarters offices. Consolidating lead activities into one office is not possible, given current EPA structure.

EPA's outreach to the regulated community has been extensive and creative. While variation by region has been [31 ELR 11275] considerable, real estate offices, real estate associations, and large landlords were the principal targets of early § 1018 outreach activity. Regions typically conducted mass mailings, working with state real estate registries. Outreach to these constituencies continues, but regions have shifted the focus of outreach to increasing the awareness of at-risk groups. Region 7, for example, is conducting outreach to children in school classrooms and day care centers, and has developed information for children about lead hazards in a storybook format.

EPA is also conducting limited, targeted enforcement under § 1018. As a result of early outreach efforts, EPA managers and staff interviewed generally feel that there is currently good awareness of § 1018 requirements in the regulated community, but that the challenge now is to make an appreciable difference in the incidence of lead poisoning. That requires public awareness and outreach efforts, of the type described above, as well as enforcement resources.

The final § 1018 Enforcement Response Policy (ERP) was issued in early 2000.⁶⁴ Whereas the IERP made enforcement essentially conditional on "egregious" violations, ERP expands the scope of violations that may be subject to penalty. Under the IERP, regions conducted more than 1,000 inspections, 517 Notices of Noncompliance were issued, and 19 civil complaints were filed with approximately $ 700,000 in proposed penalties.⁶⁵

Under ERP, the current, targeted enforcement efforts continue. In mid-2000, the OECA considered deploying a § 1018 self-disclosure initiative, which would employ both the audit policy and a penalty cap. Letters would be sent to large landlords in target cities inviting them to disclose under the audit policy. Landlords would not, however, be eligible for penalty relief under the audit policy for any units in which child lead-poisoning cases exist.

Minimills Initiative

In November 1996, EPA Region 5's Enforcement and Compliance Assurance Team (ECAT) focused a self-audit initiative on the region's 22 independently operating steel minimills.⁶⁶ Those minimills comprised approximately one-fourth of all the minimills in the United States.⁶⁷ Iron and steel had been a priority sector for EPA, but Region 5's air enforcement staff had become concerned about the subsector because of recent growth, and suspected compliance violations. ECAT announced that facilities would have six months within which to conduct self-audits and to self-disclose violations under EPA's self-audit/disclosure policy.⁶⁸ As part of the initiative, the region would also provide facilities with information on auditing and respond to compliance assistance requests. After those six months, multimedia inspection teams would inspect all nonauditing facilities (reserving the right to inspect others), and the region would take necessary enforcement actions.

Ten facilities submitted self-audits and self-disclosures under the initiative, with two other facilities submitting just self-disclosures. Facilities self-disclosed violations in five different regulatory categories: the Clean Air Act (CAA),⁶⁹ the Clean Water Act (CWA),⁷⁰ the Resource Conservation and Recovery Act (RCRA),⁷¹ the Spill Prevention Control and Countermeasure (SPCC plan), and the Emergency Planning and Community Right-To-Know Act (EPCRA).⁷² By July 1998, the initiative team had resolved all but one self-disclosure — all without penalties. EPA staff commented that the violations were of the kind that typically would not generate penalties even if discovered during an inspection. For example, of approximately 100 self-disclosed violations, over one-half related to incomplete monitoring, reporting, and recordkeeping.⁷³ Because of the minor nature of violations, EPA staff reported that they did not have to utilize penalty mitigation available under EPA's audit policy.

EPA and/or the participating states ultimately inspected all 12 of the facilities that did not submit evidence of a self-audit. By January 2000, the region had initiated enforcement actions at six facilities, and more are possible.⁷⁴ As of mid-2000, the region had settled four of the existing enforcement actions.⁷⁵ Inspections at two facilities revealed no significant violations. In addition, several inspected facilities may have conducted self-audits, choosing not to submit the results.

Publicly Owned Treatment Works (POTWs) Management, Operations, and Maintenance (MOM) Initiative

The POTWs MOM self-audit initiative in Region 4⁷⁶ is aimed at prevention of sanitary sewer overflows (SSOs), which are overflows of raw sewage from wastewater collection systems into streets or basements. The SSOs, which are violations of the CWA, are a major public health and environmental concern. However, it is difficult for EPA to determine a proper enforcement approach for the SSOs because they occur at nearly every POTW. Region 4's approach to the SSO issue has been to emphasize prevention of overflows through improvement of utilities' MOM.

[31 ELR 11276]

The POTW MOM self-audit program grew out of several traditional enforcement cases against POTWs in the early 1990s. While the approach of suing major POTWs was effective, the region had only enough resources to conduct one such case each year — a problematic rate given the endemic nature of the problem and the 2,000 POTWs in Region 4.

Region 4 has implemented the program in a series of iterations targeting selected watersheds. The region has focused on watersheds that have existing water quality problems, or are vulnerable to stressors such as pollutant loadings and population growth. Utilities in the target watersheds are contacted and can elect to conduct and submit a detailed self-audit under the program, or they may decline. Those utilities that decide not to conduct a self-audit are audited by Region 4's enforcement personnel within a few months.

As of mid-2000, Region 4 had commenced three rounds of audit requests. In the first two rounds, which included POTWs in Alabama, Florida, Kentucky, Mississippi, South Carolina, and Tennessee, 68 POTWs were invited to participate, and 59 agreed. All the participants have submitted self-audits. EPA has audited all nonparticipants and is currently reviewing the self-audit reports received from the participants. The water enforcement office has five full-time staff working on the initiative. Region 4's staff have estimated that the POTWs MOM program involves about the same resources as a lawsuit against one large POTW.

It is too early to see environmental or compliance outcomes from the MOM program; EPA staff believe they have seen evidence of new MOM activities at utilities, and our POTWs interviewees concurred that participation has led to improved compliance. Further, the region is seeing evidence that it has reached POTWs beyond those that were explicitly targeted because some POTWs have conducted unsolicited self-audits, and wastewater engineering consultants in the region are marketing MOM services.

National Refineries Initiative

Unlike the other initiatives we examined, the National Refineries Initiative was not focused on self-disclosure or on compliance assistance. Rather, the OECA's ORE intended that the initiative would create a more credible deterrent by increasing EPA's expertise in refineries. The ORE aimed to disseminate to the regions an improved method of targeting and actively policing what EPA regards as a complex and highly polluting industry. Launched in 1997, the effort also employs other tools, such as "enforcement alerts" (bulletins to the regulated community) and a recently finalized "compliance partnership."

The office originally hoped the initiative would improve compliance rates against a 1997 baseline by 50%, and reduce emissions, discharges, and releases by 20%.⁷⁷ In large part, the initiative was built upon the success of some regions in targeting inspections at refineries.⁷⁸

In 1998, the OECA determined three "marquee" compliance issues upon which regional investigations ought to be focused: new source review and prevention of significant deterioration requirements; volatile organic compound emissions related to leak detection and repair and "no visible gap" requirements for storage tanks; and the wastewater benzene national emission standards for hazardous air pollutant. The OECA's management shared those goals with regional management, and negotiated mid-year corrections to the regional MOA to implement the strategy.

The OECA initiated workgroups comprising staff-level EPA and U.S. Department of Justice (DOJ) experts for each of the three marquee issues. The OECA also organized teams of trainers — EPA experts from the more advanced regions, headquarters, and EPA's National Enforcement Investigations Center — to make training visits to regions. The OECA has dedicated approximately two full-time employees to refineries since 1997, a slight increase from prior levels. However, the project lead noted that the increase cannot be solely attributed to the initiative, because the OECA intended to devote more resources to refineries whatever its approach.

As of mid-2000, EPA had completed 58 investigations under the national initiative, with 52 more in progress.⁷⁹ Nineteen cases (at 13 different facilities) had been referred, with as many as 30 more anticipated by mid-2001.⁸⁰ It was hoped, however, that the Agency's now-stronger hand will lead to quicker resolution of cases.⁸¹ Those numbers represent what EPA staff consider an excellent "hit rate," i.e., enforcement actions per investigations, of 85%. The figure is comparable to previous hit rates for the sector. However, OECA management describes the referrals as being of fundamentally higher quality than previous referrals, in part because they deal with the most critical violations. In addition, previous referral numbers were reportedly inflated, because referrals were often returned by the DOJ for lack of substance.⁸²

Telecommunications Initiative

The Telecommunications Initiative is an audit initiative of the Multimedia Enforcement Division in the ORE.⁸³ The initiative, an open-ended invitation to self-disclose targeted at the telecommunications industry, has focused on EPCRA reporting and SPCC plan violations. The initiative is intended to increase industry compliance with those regulations.

The initiative was devised in response to an unsolicited audit policy disclosure by the GTE Corporation.⁸⁴ In early 1996, GTE initiated an audit of approximately 10,000 facilities [31 ELR 11277] that resulted in the disclosure of 600 violations at 314 telecommunications sites. Under EPCRA, GTE had failed to notify state environmental agencies and local fire departments of the presence of hazardous substances at some wireless relay stations and telephone switching center sites (specifically, sulfuric acid in lead-acid batteries and diesel fuel in storage tanks). GTE had also failed to develop SPCC plans for some wireless relay stations and telephone switching center sites that stored diesel fuel for backup generators. GTE paid a penalty of $ 52,000, which recaptured the economic benefit gained by its delayed compliance. Gravity-based penalties, potentially totaling about $ 2.38 million, were waived under the terms of the audit policy. As a result of GTE's disclosure, the ORE believed it possible that similar violations were common within the telecommunications industry.⁸⁵

Given the potential for widespread noncompliance, an ORE response was indicated. Three factors combined to suggest an approach centered on education and invitations to self-disclose: (1) the violations did not involve releases to the environment; (2) the industry seemed to be largely unaware of the regulatory requirements in question; and (3) ORE resources were limited, particularly as the telecommunications industry was not a national priority sector. Via letter, the ORE issued the industry's leading firms an open-ended invitation to audit: no penalty caps or deadlines were introduced. Initial response was low. However, after follow-up with the original group of 10 companies and 9 additional companies, 15 regulated entities responded to the invitation to audit letters — 7 of the initial 9, and 8 of the subsequent 19, of which 13 disclosed violations.⁸⁶ As of mid-2000, the Agency had reached 12 final settlements under the audit policy with 17 companies that voluntarily disclosed and promptly corrected violations.⁸⁷ The settlements cover more than 2,000 environmental violations involving EPCRA, the CWA, and the CAA that occurred at more than 600 facilities.⁸⁸ The companies have ensured that 156 facilities now have SPCC plans in place.

During the initiative, the ORE has dedicated about one full-time employee — somewhat more than was expected. The initiative has also taken longer than the ORE initially expected. While the response rate was high — probably in part because the industry had little previous interaction with EPA — it was also fragmented, and involved extra transaction costs. In the absence of previous interactions which might have established a basis for trust, and probably in part because EPA's enforcement office was sponsoring the initiative, most of the respondents engaged outside counsel, and approached the ORE individually. The highly competitive telecommunications market, along with the fragmented nature of the trade associations, probably prevented the industry from acting collectively.

Universities Initiative

Region 1's colleges and universities initiative aims to rectify compliance problems and promote "beyond-compliance" environmental performance at New England colleges and universities. Colleges and universities have a large number of environmental compliance requirements because they engage in a wide range of regulated activities: from vehicle maintenance, to water treatment, to operation of chemical labs.

Region 1's Office of Environmental Stewardship, which includes both enforcement and compliance assistance teams, has taken a collaborative approach toward compliance assurance at universities, using stepped-up enforcement activities in combination with compliance assistance. Initially, the region's increased enforcement activities resulted from the discovery of significant compliance issues at a few universities inspected as part of other initiatives. The enforcement office then decided to integrate compliance assistance because: (1) Region 1 believed that colleges and universities did not have a clear understanding of compliance requirements; and (2) universities were perceived as having the resources and expertise to participate in assistance activities. Aspects of the initiative included use of a focus group from the regulated community to guide compliance assistance activities, direct meetings with university presidents, and use of press releases as a deterrent for these particularly image-conscious institutions.

The initiative has involved significant coordination between the enforcement and compliance assistance programs at Region 1, which had previously worked fairly independently. Enforcement and compliance assistance staff collaborated on two compliance assistance conferences attended by 385 college and university representatives, for example. Because most compliance issues at universities are related to hazardous waste, the bulk of activity has involved the RCRA program, but air and water staff have also been involved in both inspections and compliance assistance activities.

In mid-2000, Region 1 was devoting about 4.5 full-time employees to the initiative. While 4.5 full-time employees may be considered high, effort is lower than traditional enforcement, which can be extremely resource-intensive due to the size, decentralized nature, and complexity of campuses. Region 1 hopes the initiative will result in lasting changes in environmental practices at colleges and universities. Indications of this as of mid-2000, included heightened audit activity, hiring of full-time environmental compliance specialists, inter-university cooperation to share information and strategies, high interest in EPA compliance assistance events, and a higher volume of compliance requirement queries to EPA.

For the next few years, EPA will continue to target universities with both inspections and compliance assistance. The compliance assistance program will taper off in a few years, with some portions perhaps being sustained by partners such as trade associations and consultants. Inspecting universities will continue to be a regular part of the region's enforcement activities.

[31 ELR 11278]

General Conclusions

In general, integrated approaches to compliance assurance — approaches that combine enforcement, compliance assistance, and/or compliance incentives — are strongly indicated by the best current knowledge regarding sources of noncompliance. EPA's stated position that integrated approaches depend for their success on a credible threat of enforcement is supported by current scholarship, our interpretation of the case studies, and, indeed, all the stakeholders interviewed for this project.

We judged the integrated compliance assurance initiatives examined for our study to have been generally effective. This conclusion is best described as a qualitative judgment broadly supported by interviewees both inside and outside the Agency and by our own analysis. The conclusion is not unexpected, as the initiatives were selected in part on the basis of perceived success. Effectiveness was measured in terms of compliance outcomes,⁸⁹ and the cost-effectiveness of obtaining these outcomes.⁹⁰

Environmental outcomes are more difficult to assess. It is true that some of the initiatives addressed so-called paper violations — failures to meet reporting and disclosure requirements — and that direct environmental impacts are likely to be minimal. However, it should be noted that regardless of the data and methods employed in the particular initiatives, overall, the OECA makes a strong effort to target compliance assurance activity to environmental problems. Further, "paper violations" are violations of regulations established in response to real public policy concerns, such as the integrity of national environmental data systems, effective responses to spill incidents, and childhood lead exposure. Particularly when faced with evidence of violations, the OECA must address compliance in those areas. Nevertheless, even in cases where the violations can be characterized as "paper violations," the OECA's expectation was that they were widespread and, the integrated initiatives discussed here that address such paper violations seem to be cost-effective approaches to doing so.

We underscore that the six integrated initiatives studied here are atypical — a majority of the work conducted by the OECA and regional enforcement managers and staff is focused on more traditional enforcement activities. Further, the initiatives do not engage EPA in the essential issue of fostering and rewarding innovative approaches to compliance assurance by the states, which are responsible for the large majority of compliance assurance activity. They do, however, demonstrate that innovative, integrated approaches to particular compliance problems are being designed and implemented, both at the headquarters and the regional level. And, rather than standing alone as "reinvention" or "pilot" projects, such initiatives are a part of the day-to-day work of EPA's compliance assurance functions.

Given EPA's stated commitment to broader use of integrated approaches, the case study initiatives should provide valuable learning to EPA, beyond those direct compliance assurance goals they are intended to serve. The initiatives provide in many cases models that merit wider duplication, and they also illustrate the measurement and organizational challenges EPA must meet. The analysis and discussion that follows is intended to facilitate such learning.

Observed Criteria for and Key Obstacles to Success

While the case studies represent a broad range of integrated approaches, a common set of criteria for and obstacles to success emerged from our analysis. These are discussed in this section, and form the basis for our recommendations.

Note that the six case study initiatives exist in, and are affected by, the larger context of EPA's compliance assurance activities, and by the history of interaction between EPA and specific regulated entities and sectors. However, we restrict the analysis here to issues of particular and specific relevance to integrated approaches.

Agency Credibility Is Essential for Success

EPA's credibility emerged as an essential component to the success of self-disclosure initiatives particularly, but of integrated compliance assurance approaches more generally. Credibility had several aspects: creating a sense of jeopardy, establishing trust, and quick and consistent resolution.

Creating a Sense of Jeopardy

The OECA's position has generally been that the success of self-disclosure initiatives depends on creating a "sense of jeopardy" — that is, the belief within the regulated community that failure to self-disclose violations incurs a substantial chance of the violations being discovered and penalized. Targeted invitations to self-disclose are generally phrased to imply such an outcome, whether or not a self-disclosure [31 ELR 11279] window is explicitly specified.⁹¹ Creating a sense of jeopardy requires not only sufficient inspection resources on EPA's part, but also sector-specific expertise sufficient to discern violations.⁹² Outside of certain categories of major sources, which tend to be inspected regularly, interviewees noted that sectors with which the Agency has had little sustained interaction tend to respond with greater alacrity to initiatives — precisely because they have greater wariness of EPA's enforcement arm.

Establishing Trust

Our interviews also indicated that the success of self-disclosure and compliance assistance-based initiatives requires that a sense of jeopardy be matched by a sense of trust in EPA's enforcement and compliance assistance functions.

A decision by a regulated entity to self-disclose is a decision to move from a condition in which EPA may at some future point discover a violation to a situation in which EPA has certain knowledge of a violation. And, in having knowledge of a violation, EPA has also acquired a "foot in the door" to issue information requests and search for additional violations. Thus, regulated entities must believe that EPA will not engage in unreasonable fishing expeditions, and that EPA will treat violations in the promised manner and not actively seek "technicalities" upon which to disqualify disclosures made in good faith. And while EPA cannot overlook additional violations that come to light in the process of a self-disclosure, it can give entities the option to include those violations in their self-audit disclosures. That approach to self-auditing was reaffirmed by the consensus of discussion at the national self-audit policy meeting held at EPA headquarters in late 1999.

Similar reasoning applies when entities are not disclosing to EPA, but are taking advantage of compliance assistance resources. Entities must be confident that inquiries and questions will not be used as a source of tips for enforcement follow-up. There is no indication from our case studies that EPA has used self-disclosures as a basis for enforcement actions, or has abused its compliance assistance functions so as to create distrust of Agency motivations. It is also clear, however, that neither has EPA yet established the national track record required to achieve the full potential of the audit policy. The case studies indicate, unsurprisingly, that establishing trust is more difficult when a sector has a historically adversarial relationship with the Agency or when a sector has had little or no previous interaction with the Agency. Further, some regulated entities apparently perceive that taking advantage of compliance assistance might invite regulatory scrutiny, though again there is no evidence of that in fact.

Quick and Consistent Resolution

Self-disclosure and other integrated approaches are intended to leverage limited EPA resources, but are also intended to represent a more efficient and productive means for the Agency to interact with the regulated community. Regulated entities will be discouraged from engaging with the Agency if resolution under such initiatives is excessively prolonged or if treatment of cases is inconsistent from region to region. We examined such consistency and quick resolution with regard to the audit policy.

In our case studies, we did not observe difficulties with inconsistent treatment of audit policy cases across regions. In several, cases, however, the effort EPA expended to achieve consistency was significant and higher than anticipated. In part, that reflects EPA's inexperience with the audit policy at the time the case study initiatives took place. Maintaining consistent resolution nationally will depend on continued coordination among and between regions, and will be facilitated by further development of guidance materials, as well as by the Agency's increasing experience with the policy itself.

Achieving quick resolution of audit policy cases has proven more problematic for EPA. Quick resolution depends on resource availability (see discussion infra) and on the existence of established procedures, so that each new initiative does not become an exercise in administrative reinvention. As EPA's experience with the policy grows, such procedures are beginning to become institutionalized.

Difficulties of Resource Planning

As in all areas of the Agency, resources to pursue integrated approaches are at a premium. There are several characteristics of self-disclosure and other integrated approaches, however, that present unusual obstacles to resource planning. Self-disclosure initiatives can "spill" across regions, and initiatives can result in an unexpected number of responses.

An initiative deployed by one region can engender disclosures in another. Firms disclosing violations at facilities in the initiative's "home" region may elect to disclose violations at facilities in other regions. That can create unexpected resource demands in other regions. If such demands are not met expeditiously or cases resolved quickly, Agency credibility suffers, and transaction costs for the regulated community increase.

Likewise, self-disclosure initiatives may engender a large and unexpected number of self-disclosures, or the disclosures may be more time-extensive than anticipated. Compliance assistance requests or activities may be more numerous or more resource-intensive than expected.

For those reasons and others, our case study initiatives generally incurred a larger resource commitment than their planners anticipated. In part, that outcome reflects the nature of enforcement, which must be, in part, opportunistic. Enforcement activity occurs in response to tips and complaints and to unpredictable and sometimes dramatic spills or incidents. But because integrated initiatives often put EPA in the position of being responsive and reactive to the regulated community, control over the number, timing, and extent of interactions is reduced, and the difficulty of resource planning increases. A commitment to integrated initiatives requires flexibility in the resource planning [31 ELR 11280] process — the ability to revisit and revise commitments made, and to make trade offs over the course of a fiscal year or years.

Unsurprisingly, the case studies indicate that such flexibility is far easier to obtain when initiatives are confined within regions, rather than when initiatives "spill" between regions, involve coordination with states, or are devolved from EPA headquarters to regions. Similar reasoning applies when an initiative is confined within a single office, rather than requiring multioffice coordination.

The MOA process formalizes compliance assurance resource allocations, representing the regions' commitments to the OECA. Historically, advance planning for integrated initiative resource allocations within the MOA process seems to have been minimal.⁹³

The Essential Task of Effective Targeting

Defining the target-regulated community in an integrated initiative is substantially different from more traditional approaches to enforcement, in which targeting may not have moved beyond picking priority sectors and inspecting all major facilities within sectors or subsectors. EPA staff in many of the initiatives used a combination of targeting methods.

In most cases we examined, EPA targeted based on sector. Staff chose to target integrated initiatives at sectors (or subsectors) in which compliance had been lagging and/or EPA's enforcement presence had been found wanting. In addition, the Agency also targeted based on characteristics of individual entities. After choosing a sector, EPA staff in some of the cases further targeted their actions to particular regulated entities relying upon previously available information, e.g., continuous monitoring emissions data, and/or information and analysis developed during the course of the initiative.

In several of the cases, such as POTWs and refineries, EPA staff targeted particular violations within particular sectors. In defining the initiative, or in its early stages, enforcement staff conducted a "root cause analysis" in order to understand which violations were contributing most substantially to environmental problems. For example, in the Region 4 POTW case, water division staff recognized that the SSOs caused many water quality violations in the region, and that the only way to effectively address the issue was via POTWs MOM programs.

In addition, like enforcement cases, EPA-integrated compliance assurance initiatives must respond to and target based on need and opportunity. For example, OECA staff had not included the telecommunications firms in their strategic plans, but reacted to an opportunity when GTE submitted a self-audit. Furthermore, Region 1's staff had been targeting enforcement on geographic and environmental justice criteria, but decided to target universities when they noticed that schools presented greater compliance problems than initially understood.

Selecting Appropriate Tools

Target community and tools used together define the basic character of an integrated compliance assurance initiative. Use of appropriate tools is clearly a necessary condition for success. Tool selection was typically based upon an informal evaluation of the approach that would be most effective in terms of resource allocation and outcomes. Using best professional judgment, staff considered multiple factors, including: the complexity of the industry; the nature and severity of violations; and the sector's perceived attitude toward compliance, compliance history, existing EMSs; and the geographic dispersion and population size of the target.

As an example of the complexity of industry, the complexity of refineries issues led EPA staff to focus on an approach that emphasized building expertise and investigating discrete problems, as opposed to providing compliance assistance and continuing to conduct traditional inspections. With the lead and universities initiatives, on the other hand, EPA acted in reverse, focusing on compliance assistance to the regulated community.

With respect to compliance history, OECA staff felt that the expected telecommunications violations would only relate to reporting and did not deserve high prioritization. As such, they merited a relatively low-resource, letter-based, audit approach. Alternatively, given that iron and steel was a priority sector and that Region 5's staff suspected significant violations at minimills, they decided to explicitly commit to inspections of nonauditing facilities.

The universities initiative and the POTWs provide examples of EPA's perception of the regulated sector's attitude. Region 1's staff felt that universities would respond well to compliance assistance. Likewise, Region 4's staff felt that an auditing approach would be effective among the POTW community because a shared interest in clean water creates, a priori, a more trusting cooperative relationship between regulators and POTWs. Audit-based initiatives, e.g., minimills, may be more successful when they leverage ongoing, industry-led efforts at improved EMSs.

The use of geographic dispersion and population size of the target can be seen in the planning of the lead and POTW initiatives. These initiatives focused on compliance incentives and assistance in part because dispersion and population size made a concerted enforcement approach unlikely to be widely effective. Alternately, Region 5's enforcement staff in the minimills case believed that a 20 to 25 facility population was just the right size for their three-pronged initiative.

Difficulties of Measurement

As noted previously, the study accepted that the goal of integrated initiatives is to cost effectively achieve superior compliance outcomes, i.e., changes in rates of compliance with environmental regulations. In general, compliance rates are difficult to measure. They are based on inspections, which are costly in and of themselves. Further, accurate measurement of compliance rates requires that they be performed on statistically significant and representative samplings of a particular regulated community.

[31 ELR 11281]

Integrated initiatives tend to aggravate this basic difficulty because they represent a change in the sampling protocol. For example, most self-audit-based initiatives mean that EPA gains knowledge of a far larger portion of the regulated community than it would have, and the resulting sample is likely to be biased. Further, integrated initiatives result in more of the regulated community being reached through compliance assistance or self-audits than through inspections.

Until relatively recently, the issue of connecting compliance assurance activities to compliance or environmental outcomes was not addressed in the OECA's performance measurement framework. Performance measures, which EPA headquarters and Congress used to evaluate regions' enforcement programs, were primarily activity measures, such as the number of facilities inspected, and the number of cases settled or brought to trial. Such measures have a weak connection to the actual results seen even when applied to cases in which only traditional enforcement is used. They are inadequate for taking into account activities such as compliance assistance and self-audits, which are meant to bring companies into compliance without engaging in enforcement activities. Consequently, integrated approaches are not given full credit when success is measured through enforcement activity measures. More outcome-based measures are needed to assess the success of integrated approaches.

Metrics Must Reward Integrated Approaches

The OECA's National Performance Measures Strategy⁹⁴ represents a shift in focus toward more outcome-based measures of program performance, including the performance of integrated initiatives. EPA has published a Guide for Measuring Compliance Assistance Outcomes and made changes to the Reporting for Enforcement and Compliance Assurance Priorities report to regional officials.

However, those changes to compliance assurance metrics are relatively new. The clear message conveyed by regional program staff in our interviews was that EPA still perceives traditional enforcement activity measures, e.g., numbers of inspections, enforcement actions, and referrals to the DOJ, as the most quantifiable and "solid" measure of the performance of compliance assurance efforts. Integrated initiatives are disadvantaged if regional staff fear that headquarters will judge them based on performance measures that do not reward resources invested in integrated approaches, or do not capture the compliance outcomes of such efforts.

While EPA and the OECA are under significant pressure to quantify program results, failure to institutionalize the new measures — and to give credit to measures that are less quantifiable than are enforcement activity counts — will disadvantage integrated initiatives in the long run.

Increased Need for and Obstacles to Coordination

Because integrated initiatives draw on multiple functions within the Agency in addition to enforcement, they often demand increased efforts and resources for coordination. In almost all the cases we examined, those demands exceeded the expectations of initiative staff and managers. As detailed in Table 3, we observed three dimensions of coordination needs: within EPA, with other agencies, and with other external agencies. EPA managers responded to coordination needs in different ways. In some cases, dedicated staff were assigned on a full-time or part-time basis. In others, staffing was ad hoc and initiative-related tasks were entirely supplemental to existing responsibilities. In some cases, formal workgroups were created to manage the initiative.

Table 3: Coordination Needs in the Case Study Initiatives(TABLE)

Within EPA(NEW COLUMN)With other agencies(NEW COLUMN)With other external

(NEW COLUMN)(NEW COLUMN)agencies

Between headquarters and(NEW COLUMN)Between EPA and other(NEW COLUMN)Between EPA and industry

the regions(NEW COLUMN)federal agencies (the(NEW COLUMN)trade associations

(NEW COLUMN)DOJ, HUD)

Between the OECA and

program offices

(NEW COLUMN)Between EPA and states(NEW COLUMN)Between EPA and

(NEW COLUMN)(leadership and staff(NEW COLUMN)political figures

(NEW COLUMN)level)

Between compliance

assurance and program

staff (in regions)

(NEW COLUMN)Between EPA and local

(NEW COLUMN)agencies (Departments of

(NEW COLUMN)Health)

Between compliance

assurance and public

affairs

Between enforcement and

compliance assistance

staff

Among single-medium

programs (for multimedia

initiatives)(END TABLE)

* Regulator relations with individual regulated entities are not considered "coordination" for the purposes of this analysis.

[31 ELR 11282]

Coordination requirements and, thus, resources required scaled with the complexity of the initiatives, where complexity is driven by several factors: the technical complexity of violations; the degree of coordination necessary in any or all of the three dimensions; and the geographic distribution of regulated entities and other actors. Prior experience and skills in cross-program and other coordination, however, reduced coordination costs and difficulties.

Recommendations

Based on the conclusions and analysis presented above, we offer the following recommendations to EPA:

Continue and Expand the Use of Integrated Approaches

As noted in our conclusions, we found the integrated initiatives we studied to have been effective uses of EPA's resources. In general, integrated approaches to compliance assurance — approaches that combine enforcement, compliance assistance, and/or compliance incentives — are strongly indicated by the best current knowledge regarding sources of noncompliance. Further, EPA's stated position that integrated approaches depend for their success on a credible threat of enforcement is supported by current scholarship, our interpretation of the case studies, and, indeed, all the stakeholders interviewed for this project.

Thus, consistent with EPA's stated commitment, we recommend continued and expanded use of integrated initiatives, subject to the guidance and conditions outlined by the remainder of our recommendations. Some of the initiatives we studied were conceived and implemented opportunistically. Others represented strategic responses to compliance assurance priority sectors or issues. In general, however, we also found that advance planning for integrated initiative resource allocations within the MOA process is currently minimal. One approach to expanding use of integrated initiatives would be to formalize planning for them as part of EPA's annual process of identifying compliance assurance priorities. The OECA does note that its forthcoming FY 2002/2003 MOA guidance "will more explicitly promote the integrated strategy approach as new national priorities are selected."

The initiatives we studied do not engage EPA in the essential task of fostering and rewarding innovative approaches to compliance assurance by the states, who are responsible for the large majority of compliance assurance activity. Neither state initiatives nor the state-federal relationship were the subject of this study. However, our earlier research on the NEPPS made clear that there is significant tension between state and EPA enforcement personnel regarding what types of innovative compliance assurance approaches are appropriate. Indeed, many state personnel have the perception that EPA is not supportive of any innovative state activity in the area. EPA should clearly communicate principles for the design of integrated approaches, and reward such activity by the states.

Assure Flexibility in the Design and Implementation of Integrated Initiatives

The success of integrated initiatives depends substantially on three key factors: the appropriate selection of tools; the application of those tools to an appropriate target population; and the commitment of adequate resources. EPA must assure that essential flexibility is available in each area to those designing and implementing integrated approaches.

Choice and Adaptation of Compliance Assurance Tools

Integrated initiatives are defined by their target populations, as well as their particular choice and use of enforcement, compliance assistance, and/or compliance incentives tools. A credible enforcement threat is an essential component of those initiative, but the specific and appropriate balance and mix of tools is highly situation-dependent. We can offer no specific recommendations regarding those choices. We emphasize, however, the importance of maintaining flexibility in the design of these initiatives, allowing those with the best understanding of the compliance problem to balance issues such as the nature and complexity of the industry, nature and severity of violations, compliance history, sophistication of environmental management systems, and geographic distribution and size of the target universe.

Resources

By their nature, integrated initiatives — and particularly self-disclosure initiatives — often impose variable and unpredicted resource demands. Response to an audit initiative can be unexpectedly large, requiring more review time than expected; disclosures can occur outside the EPA region initiating the initiative, causing unexpected costs for those other regions. Alternatively, response to the initiative may be unexpectedly low, requiring more inspections of nonparticipants than anticipated. Maintaining essential credibility requires that initiatives have the resource flexibility to meet those needs; such flexibility was in fact vital to the success of several of the case study initiatives. On a national level, that may imply maintaining reserve resources to cover unexpected costs to either regions or headquarters.

The OECA's Office of Compliance notes that the need for such flexibility is met at least in part by the mid-year MOA adjustment. Though that mechanism and others, EPA must ensure that adequate flexibility to meet the resource demands of integrated initiatives exists in states' and regions' annual compliance assurance program commitments and resource allocations.

Targeting

Effective targeting is essential to the success of integrated initiatives. The basis of effective targeting is appropriate flexibility in regional implementation of national compliance assurance priorities. That implies a more consultative process of regional goal setting than has been employed historically. Targeting may be based on priority environmental issues, on sector, on characteristics of the regulated entities, on suspected violations, and on opportunity.

The Office of Compliance states that the OECA has made significant progress toward such flexibility:

In FY 2000/2001, in close consultation with regions and states, [the] OECA dramatically reduced the number of national priorities to allow Regions the flexibility [31 ELR 11283] to pursue Regional and State areas of concern … the MOA process has [thus] been changed to allow for much more regional goal setting than has been employed historically.⁹⁵

Continue Efforts to Institutionalize the Audit Policy

The OECA issued the audit policy in 1996, and disclosures under the policy have increased since that time. While the policy is a central compliance incentive tool for EPA, it is only now being perceived — both within the Agency and without — as more than a novelty or pilot. Over the past year, EPA has taken steps toward better institutionalizing the policy by establishing a national audit policy coordinator position; holding the first national audit policy meeting; developing model protocols; and beginning to track audit disclosures on a test basis in EPA's central enforcement database. However, EPA's release of the revised audit policy in April 2000, presents the Agency with a valuable opportunity to further institutionalize and mainstream the policy. EPA must assure that regional offices are trained in the revised policy, and that policy guidance resources, including additional model protocols, are well developed.

EPA should also work to improve the regulated community's awareness of, and access to, the policy. The audit policy represents an important change in the nature of EPA's interaction with the regulated community — the principle that violations assiduously discovered and forthrightly disclosed are treated very differently than those concealed deliberately or by neglect. However, for those sectors not specifically targeted by EPA in self-disclosure initiatives, the audit policy is relatively obscure and is certainly far more obscure than compliance assistance information. While the OECA does publish an audit policy newsletter, as well as interpretive question and answer guidance, and does maintain a public document of settlements under the policy, the office should more prominently portray the policy. For example, EPA should prominently feature self-disclosure information on the OECA and EPA websites — preferably including a button or link labeled: "I want to disclose a violation."

Commit Convincingly to New Measurement Metrics

The OECA has developed revised metrics and guidance to better measure the effectiveness of compliance assurance activities — including integrated initiatives. However, those changes to compliance assurance metrics are relatively new, and regional staff still have a strong perception that headquarters is judging their performance based on traditional enforcement activity measures. While it is difficult to define outcomes quantitatively, and while EPA and the OECA are under significant pressure to quantify program results, the OECA must institutionalize these outcome-based measures. Failure to do so disadvantages integrated initiatives. In the longer term, we recommend further research into outcome measurement and compliance verification technologies to address some of the barriers to outcome measurement.

Focus on Effective Coordination and Communication

As their name implies, integrated initiatives usually require close coordination between more than one agency function, or between the agency and other actors. Initiative management must coordinate effectively among single-medium programs, between compliance assurance and program offices, between enforcement and compliance assistance programs, across EPA regions, and with states.

Coordination is facilitated within an organizational culture or structure that readily supports it (such as the closely related enforcement and media programs in Region 4 or the coordinated enforcement and compliance assistance programs in Region 1). However, our cases also illustrate several approaches that seem to effect better coordination, with or without that foundation. These include: defining in advance communication needs and protocols for a particular initiative; using dedicated initiative staff with specific communication and coordination duties; communicating "early and often" to avoid later problems (because of the experimental and public nature of many of the initiatives, this may include maintaining contact with high-level EPA staff and federal legislators); and involving individuals with public affairs skills in integrated initiatives (because communications with the regulated community must convey both a credible enforcement threat and a willingness to work with the regulated community).

Initiatives should emulate those models, or employ appropriate substitute mechanisms.

1. U.S. EPA, OFFICE OF THE CHIEF FINANCIAL OFFICER, STRATEGIC PLAN (1997) (EPA 190-R-97-002); U.S. EPA, OFFICE OF THE CHIEF FINANCIAL OFFICER, STRATEGIC PLAN (2000) (EPA 190-R-00-002).

2. In practice, EPA's OECA sometimes refers to such approaches as "integrated enforcement."

3. See, e.g., OECA, U.S. EPA, OPERATING PRINCIPLES FOR AN INTEGRATED EPA ENFORCEMENT AND COMPLIANCE ASSURANCE PROGRAM: INTERIM FINAL (1996) See also OECA, U.S. EPA, INNOVATIVE APPROACHES TO ENFORCEMENT AND COMPLIANCE ASSURANCE: ACTION PLAN FOR INNOVATION (1999) (EPA 300-K-99-003).

4. Michael Crow et al. (Tellus Institute), Toward Integrated Approaches to Compliance Assurance, in LEARNING FROM INNOVATIONS IN ENVIRONMENTAL PROTECTION (National Academy of Public Admin., Research Paper No., 16, 2000 [hereinafter LEARNING FROM INNOVATIONS IN ENVIRONMENTAL PROTECTION]).

5. Established in 1967, the National Academy of Public Administration is an independent, nonprofit organization chartered by Congress to improve governance at all levels: local, regional, state, national, and international. The "Learning From Innovations in Environmental Protection" project was undertaken at the request of Congress, which requested the academy to conduct an independent evaluation of some of the most promising innovations in environmental management. The academy panel convened for the project commissioned a set of independent studies for use to inform its own report and recommendations to Congress and EPA. The views expressed and conclusions reached in this Article are the views of the authors, and may not reflect and are not endorsed by the academy. The academy's report was released in November 2000. See NATIONAL ACADEMY OF PUBLIC ADMINISTRATION, ENVIRONMENT.GOV: TRANSFORMING ENVIRONMENTAL PROTECTION FOR THE 21ST CENTURY (2000).

6. For a discussion of the mission, goals, and functions of regulatory agencies — particularly as distinguished from nonregulatory functions of government — see MALCOLM K. SPARROW, THE REGULATORY CRAFT: CONTROLLING RISKS, SOLVING PROBLEMS, AND MANAGING COMPLIANCE (2000).

7. Other enforcement tools include: inspections, investigations, announcement and conduct of accelerated/targeted inspections, education (investing in the development and dissemination of staff expertise), administrative enforcement actions, and civil and criminal enforcement actions.

8. Other approaches to compliance assistance include: drafting of "plain-language regulations; provision of expert advice; compliance or audit checklists conveyed to the regulated community in any of several ways: via trade associations; via direct communication (phone, mail, or visit); via compliance workshops; and via compliance assistance centers, on-line resources, or hotlines.

9. Compliance incentive tools include: self-disclosure, solicited by the agency under the audit policy, small business policy, or protocol established for a particular initiative or situation; penalty waivers, including those associated with self-disclosure; liability and penalty caps or reductions, including those associated with self-disclosure; other penalty/enforcement flexibility; deadlines for self-disclosure or opt-in to reduced penalty or other enforcement flexibility schemes; and extended compliance schedules.

10. For a description of EPA Region 1's efforts in this regard, see Jodi Perras, Reinventing EPA New England: An EPA Regional Office Tests Innovative Approaches to Environmental Protection, in LEARNING FROM INNOVATIONS IN ENVIRONMENTAL PROTECTION, supra note 4.

11. A senior OECA manager characterized EPA's understanding of integrated approaches as follows: "[the integrated approach] concept means tying the tools together in a way that provides clear information to the regulated community, some incentive to get ahead of the curve, and the prospect of sanctions for those who lag behind." Interview with Eric Schaeffer, Director, Office of Regulatory Enforcement, OECA, U.S. EPA, in Washington, D.C. (Jan. 2000).

12. See infra section entitled Theoretical and Empirical Basis for Integrated Approaches and note 18 and accompanying text.

13. The issue of environmental enforcement and the state-federal relationship has been discussed in a number of studies, especially in the context of NEPPS. See JEANNE HERB ET AL., NATIONAL ACADEMY OF PUBLIC ADMINISTRATION, THE NATIONAL ENVIRONMENTAL PERFORMANCE PARTNERSHIP SYSTEM: MAKING GOOD ON ITS PROMISE? (2000); see also David L. Markell, The Role of Deterrence-Based Enforcement in a "Reinvented" State/Federal Relationship: The Divide Between Theory and Reality, 24 HARV. ENVTL. L. REV. 1 (2000); Robert R. Kuehn, The Limits of Devolving Enforcement of Federal Environmental Laws, 70 TUL. L. REV. 2373 (1996); Mark Stoughton & Jennifer Sullivan, Mixed Results, ENVTL. F., May/June 2001, at 44; and Clifford Rechtschaffen, Competing Visions: EPA and the States Battle for the Future of Environmental Enforcement, 30 ELR 10803 (Oct. 2000).

14. A fourth contentious instrumental issue in the area of integrated approaches, and one particularly embroiled in issues of federalism, is the degree to which audit immunity creates an incentive to comply — or fails to do so. Many states have attempted to promulgate policies offering businesses immunity from prosecution and penalties for compliance violations discovered during self-audits, ostensibly to persuade greater self-audit implementation in the regulated community. That is based on the perception that businesses fail to self-audit because of a fear of audit materials being used against them. EPA leadership, on the other hand, asserts that wholesale protection of audit information would greatly undermine enforcement efforts, and possibly citizens' ability to sue as well. To that end, EPA policy carefully limits the protection for facilities discovering violations during audits — and requires that those facilities reveal their violations in order to benefit from protection. Because this study examines only initiatives under the EPA's audit policy, rather than conducting a comparative examination of self-disclosures under alternative audit regimes, the issue of audit immunity cannot be addressed. But see NATIONAL COUNCIL OF STATE LEGISLATURES, ENVIRONMENT, ENERGY AND TRANSPORTATION PROGRAM, STATE ENVIRONMENTAL AUDIT LAWS AND POLICIES: AN EVALUATION (1999).

15. See HERB ET AL., supra note 13.

16. Id.; see also Stoughton & Sullivan, supra note 13.

17. HERB, ET AL., supra note 13.

18. We did not undertake a comprehensive literature review. Rather, we conducted a focused survey of the literature to identify a set of key ideas of clear relevance to integrated approaches. A far more comprehensive review was produced by EPA's Compliance Information Project, which generated an extensive list of compliance-related literature, and provides summaries of a select group. See U.S. EPA, COMPLIANCE INFORMATION PROJECT: LITERATURE SUMMARIES (1999) (EPA 300-R-99-002). See also Mark A. Cohen Monitoring and Enforcement of Environmental Policy, in INTERNATIONAL YEARBOOK OF ENVIRONMENTAL AND RESOURCE ECONOMICS (Tom Tietenberg & Henk Folmer eds. 1999) (providing an extensive review of the theoretical and empirical literature).

19. It should be noted that normative economic models also exist regarding the broader objectives or goals of regulatory agencies, and of compliance assurance and enforcement activity in particular. Broadly speaking, such normative economic perspectives assume that the goal of a regulatory agency should be to maximize social welfare/minimize social costs, i.e., that the marginal benefits of an additional unit of environmental protection should equal the marginal costs. That implies the existence of an optimal level of noncompliance, determined both by the cost of compliance and the costs of assurance activity. For an office such as the OECA whose mission is defined as compliance assurance, the optimal level of compliance is not a relevant question. In essence, the goal of such an office is best stated as maximizing environmentally meaningful compliance within available resources. In effect, that assumes that the weighting of environmental benefits and costs has already occurred, in the legislative process producing the enabling statute, in the process of promulgating the specific regulation, or in the allocation of resources to the compliance assurance function, all of which are processes that allow for public input. Note also that strict economic reasoning suggests that the economically optimal level of compliance would vary across firms; firms with high costs of compliance would comply less than firms with low costs of compliance. From the perspective of a regulatory agency, pursuing economically optimal compliance outside a cap-and-trade framework would likely be seen as rewarding bad actors, to the detriment of deterrence.

20. Anthony G. Heyes, Making Things Stick: Enforcement and Compliance, in OXFORD REVIEW OF ECONOMIC POLICY 50-63 (1998). See also Cohen, supra note 18.

21. Refinements to the basic economic model include, for example, accounting for multiple interactions with a regulatory agency over time, accounting for reputational and other extended costs of noncompliance, and incorporating misjudgments regarding the probability of violations being detected.

22. See OECA, U.S. EPA, EPA/CMA ROOT CAUSE ANALYSIS PROJECT: AN INDUSTRY SURVEY (1999) (EPA 305-R-99001) (typifying institutional or organizational perspectives).

23. Heyes, supra note 20 (summarizing the "excess compliance" result).

24. For a comparison of compliance in the Canadian and the American pulp and paper sectors, see Kathryn Harrison, Is Cooperation the Answer?; Cooperative Approaches to Environmental Protection, 14 J. POL'Y ANALYSIS & MGMT. 221-44 (1995). In Canada, noncompliance has typically been addressed by negotiations between the regulatory agency and the regulated entity designed to achieve a schedule for returning to compliance. Id. Punitive enforcement actions were almost never resorted to. Harrison argues that Canada's approach results in lower compliance rates than does the more adversarial American approach. Id.

25. For a summary of current research on voluntary approaches, see MARK STOUGHTON ET AL. (TELLUS INSTITUTE), DO VOLUNTARY MECHANISMS WORK? AN EVALUATION OF CURRENT AND FUTURE PROGRAM PERFORMANCE (2000) (the Tellus Institute prepared a report for the Michigan Great Lakes Protection Fund). Kathryn Harrison (Tellus Institute), Talking With the Donkey: Cooperate Approaches to Environmental Protection, in JOURNAL OF INDUSTRIAL ECOLOGY (Reid Lifset et al. eds. 1999). Thomas Lyon & John Maxwell, "Voluntary" Approaches to Environmental Regulation: A Survey, in ENVIRONMENTAL ECONOMICS: PAST, PRESENT, AND FUTURE (M. Franzini & A. Nicita eds. 1999). Note that this literature is largely devoted to efforts to achieve beyond-compliance actions from economic entities. Some results, however, are specifically applicable to compliance by regulated entities.

26. For example, analysis supports claims of efficacy for voluntary programs based on subsidizing information regarding environmental technologies. See R.D. MORGANSTERN & S. AL-JURF, RESOURCES FOR THE FUTURE, DO INFORMATION SUBSIDIES ACCELERATE THE DIFFUSION OF NEW TECHNOLOGIES? (1997).

27. See PETER G. KRAHN, ENFORCEMENT VS. VOLUNTARY COMPLIANCE: AN EXAMINATION OF THE STRATEGIC ENFORCEMENT INITIATIVES IMPLEMENTED BY THE PACIFIC AND YUKON REGIONAL OFFICE OF ENVIRONMENT CANADA 1983 TO 1998 (1998) (DOE FRAP 1998-3) for a case study of integrated compliance assurance efforts. See also Jodi Perras, National Academy of Public Administration, Reinventing EPA New England: An EPA Regional Office Tests Innovative Approaches to Environmental Protection, in LEARNING FROM INNOVATIONS IN ENVIRONMENTAL PROTECTION, supra note 4.

28. Environmental Enforcement and Compliance Assurance Activities, 64 Fed. Reg. 10144 (Mar. 2, 1999).

29. See OECA, U.S. EPA, PROTECTING YOUR HEALTH AND THE ENVIRONMENT THROUGH INNOVATIVE APPROACHES TO COMPLIANCE: HIGHLIGHTS FROM THE PAST 5 YEARS (1999) (EPA 300-K-99-001) [hereinafter INNVOVATIVE APPROACHES TO COMPLIANCE: HIGHLIGHTS FROM THE PAST 5 YEARS] (detailing the OECA's presentation of those activities).

30. Pub. L. No. 103-62, 107 Stat. 285 (1993).

31. Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, 60 Fed. Reg. 66706 (Dec. 22, 1995).

32. The terms of the audit policy, as revised in April 2000 follows. Up to 100% of the gravity-based penalties can be waived if the regulated entity satisfies all of the following conditions: the violation must be discovered systematically, if not systematically discovered, the entity is eligible for 75% mitigation in gravity-based penalties; discovery must be voluntary — not the result of inspection, monitoring, or auditing required by law, order, or consent agreement; violations must be disclosed within 21 days of discovery; violations must be discovered independently — not because the entity has reason to believe it will soon be the subject of regulatory inspection or investigation; violations must be expeditiously corrected and remediated; steps must be taken to prevent recurrence of the violation; a similar violation cannot have occurred within the past three years; violations resulting in serious environmental harm or endangerment of public health are excluded; and the entity must cooperate with EPA in ascertaining that these conditions are met. Gravity-based penalties are those based on the nature and severity of the violation. Penalties based on the company's economic benefit from the violation still apply.

33. Interim Policy on Compliance for Small Business, 61 Fed. Reg. 27983 (June 3, 1996).

34. Executive Memorandum on Regulatory Reform, 60 Fed. Reg. 20621 (Apr. 26, 1995).

35. Pub. L. No. 104-121, tit. II, § 323, 110 Stat. 857 (codified in 5 U.S.C. §§ 601-612).

36. 61 Fed. Reg. at 27983.

37. Small Business Compliance Policy, 65 Fed. Reg. 19629 (Apr. 11, 2000).

38. See supra note 3.

39. Id.

40. Memorandum from Steve Herman, EPA Assistant Administrator for Enforcement and Compliance on Operating Principles for an Integrated Enforcement and Compliance Assurance Program (Nov. 27, 1996).

41. See supra note 3, Innovative Approaches to Enforcement and Compliance Assurance: Action Plan for Innovation 7 (1999) (EPA 300-K-99-003).

42. Id. at 12-13.

43. Id. at 14.

44. Id. at 15.

45. Id. at 17.

46. Id. at 19.

47. See OECA, U.S. EPA, MEASURING THE PERFORMANCE OF EPA'S ENFORCEMENT AND COMPLIANCE ASSURANCE PROGRAM: FINAL REPORT OF THE NATIONAL PERFORMANCE MEASURES STRATEGY (1997). A summary of the National Performance Measures Strategy process is contained in OECA, U.S. EPA, GUIDE FOR MEASURING COMPLIANCE ASSISTANCE OUTCOMES (1999) (EPA-300-B-99-002).

48. Id.

49. Memorandum (with attachments) from Steve Herman, EPA Assistant Administrator for Enforcement and Compliance to Regional Administrators, Deputy Regional Administrators, and Regional Enforcement Division Directors and Coordinators on Implementing the National Performance Measures Strategy — First Phase (Mar. 3, 1999).

50. See, e.g., Memorandum from Diane Thompson, NEPPS National Program Manager, and Michael Ryan, U.S. EPA Acting Chief Financial Officer on Crosswalk of GPRA National Performance Measures and NEPPS Core Performance Measures (Mar. 13, 2000). Measures of enforcement activity contained in the CPMs have proven controversial to some state environmental agencies, whose management generally adopts the position that enforcement is simply a means to an end (compliance), and thus that under a "true" performance-based management regime, CPMs should not include measures of enforcement activity

51. OECA, U.S. EPA, FY 2000/2001 OECA MEMORANDIUM OF AGREEMENT GUIDANCE (1999).

52. INNVOVATIVE APPROACHES TO COMPLIANCE: HIGHLIGHTS FROM THE PAST 5 YEARS, supra note 29.

53. Description of compliance assistance centers can be found on the OECA's website. OECA, U.S. EPA, Compliance Assistance Centers, at http://es.epa.gov/oeca/main/compasst/compcenters.html (last visited Aug. 21, 2001).

54. See INNVOVATIVE APPROACHES TO COMPLIANCE: HIGHLIGHTS FROM THE PAST 5 YEARS, supra note 29. See also U.S. EPA, EPA Sector Notebooks, at http://es.epa.gov/oeca/sector (last modified Aug. 8, 2001).

55. Id.

56. See U.S. EPA, Enforcement Alert, at http://es.epa.gov/oeca/ore/enfalert/ (last modified Jan. 22, 2001). The Agency's future compliance assistance plans are documented in OECA, U.S. EPA, COMPLIANCE ASSISTANCE ACTION PLAN 2001 (EPA 305-R-01-002).

57. See HERB ET AL., supra note 13, for a fuller description of the case study initiatives.

58. 42 U.S.C. §§ 4852d.

59. Id. Lead-based paint was phased out of residential applications in 1978.

60. Lead: Requirements for Disclosure of Known Lead-Based Paint and/or Lead-Based Paint Hazards in Housing; Final Rule, 61 Fed. Reg. 9063 (Mar. 6, 1996); 24 C.F.R. § 35, 40 C.F.R. § 745.f.

61. 40 C.F.R. §§ 745.107 to .113.

62. Id. § 745.115.

63. OFFICE OF REGULATORY ENFORCEMENT, U.S. EPA, TITLE X: RESIDENTIAL LEAD-BASED PAINT HAZARD REDUCTION ACT OF 1992 — INTERIM ENFORCEMENT RESPONSE POLICY (1998).

64. OFFICE OF REGULATORY ENFORCEMENT, U.S. EPA, SECTION 1018 DISCLOSURE RULE — ENFORCEMENT RESPONSE POLICY (1999).

65. Section 1018(b)(5) of the Residential Lead-Based Paint Hazard Reduction Act of 1992 specifies that failure or refusal to comply with § 1018 or its implementing regulations is a violation of the Toxic Substances Control Act (TSCA) § 409, making violators subject to TSCA § 16 penalties, up to $ 10,000 per civil violation. Knowing and willful violation, per TSCA § 16b, may engender criminal penalties of $ 10,000 per violation. 42 U.S.C. § 4852d(b)(5).

66. The minimills are also known as electric arc furnace-based steelmaking facilities, which frequently have more than one electric arc furnace.

67. Based upon an estimate by an EPA iron and steel expert of approximately 85 minimills nationwide. This information was gathered from confidential interviews with EPA staff.

68. E.g., Letter from Tinka Hyde, U.S. EPA Region 5 Enforcement and Compliance Assurance Coordinator, to Jay Smith, General Foreman of Beta Steel Corporation, Portage, Indiana (Nov. 8, 1996).

69. 42 U.S.C. §§ 7401-7671q, ELR STAT. CAA §§ 101-618.

70. 33 U.S.C. §§ 1251-1387, ELR STAT. FWPCA §§ 101-607.

71. 42 U.S.C. §§ 6901-6992k, ELR STAT. RCRA §§ 1001-11011.

72. Id. §§ 11001-11050, ELR STAT. EPCRA §§ 301-330.

73. From undated internal document, entitled "Summary of Self-Disclosed Violations Found," provided by EPA Region 5 staff in early 2000 showing the number and characteristics of self-disclosed violations.

74. The source for the above figures is a confidential Region 5 document entitled Mini-Mill Status for Inspections and Cases. REGION 5, U.S. EPA, MINI-MILL STATUS FOR INSPECTIONS AND CASES (2000).

75. Id.

76. See U.S. EPA, What Is Infrastructure MOM?, at http://www.epa.gov/region4/water/wpeb/momproject/index.html (last visited Aug. 21, 2001).

77. U.S. EPA, SUMMARY OF PETROLEUM REFINING SECTOR STRATEGY (internal EPA document provided by Mario Jorquera of EPA. The date of the document is unavailable.).

78. E.g., the Petroleum Refinery Workgroup in Region 5. The region's Air and Radiation Division formed the workgroup in 1991 to develop expertise in refinery processes with significant air emissions and to ensure that those processes were in compliance. It was composed only of Region 5 enforcement staff within that division.

79. Telephone Interviews with Jim Jackson, U.S. EPA (2000).

80. Id.

81. Only two complaints had been filed at the time of the writing of the Article.

82. One interviewee noted that EPA enforcement staff frequently sends weak referrals to the DOJ at the end of the year, in order to increase referral numbers for their performance evaluations.

83. See OECA & ORE, U.S. EPA, 10 Telecommunications Companies Disclose, Correct Violations Under Audit Policy, 4 Audit Policy Update (Spring 1999) (EPA 300-N-99-001).

84. The GTE Corporation merged with Bell Atlantic to form Verizon Communications.

85. GTE Corrects 600 Violations Through EPA's Self-Disclosure Policy, 3 Audit Policy Update (Mar. 1998) (EPA 300-N-98-003); see also Press Release, U.S. EPA, GTE Corrects 600 Violations Through EPA's Self-Disclosure Policy (Oct. 15, 1997) (EPA Press Release R-146).

86. Interview with Philip Milton, U.S. EPA, Multimedia Enforcement Division/Office of Regulatory Enforcement (Jan. 27, 2000).

87. Id.

88. Id.

89. Most EPA staff we interviewed judge the initiatives with which they were involved increased compliance substantially. For example, agency personnel involved with the telecommunications initiative believe a large portion of the industry has come into compliance with the targeted regulations. Interviewees from other programs likewise believe compliance levels are improving. Representatives from the minimills and POTW MOM programs believe their programs have increased compliance not just among participants, but also among nonself-disclosers. Often the results cited by program staff are changes in attitude or understanding on the part of the regulated community. For example, Region 4 staff say that facilities' audits indicate an increased willingness to acknowledge compliance problems and correct them. In Region 1, interviewees cite results such as increased calls from universities regarding compliance issues, as well as interest from consultants in starting university compliance-based services. Refineries staff note that, although the number of referrals for refineries has not increased, the cases being pursued now address more significant compliance problems. In all the cases, although they have not observed quantifiable improvements in compliance rates, staff believe the results indicate success for their programs. See LEARNING FROM INNOVATIONS IN ENVIRONMENTAL PROTECTION, supra note 4.

90. Cost-effectiveness is a largely subjective and qualitative judgment, but one that was endorsed by the large majority of federal and state project staff and managers interviewed. Most of these individuals believe that integrated approaches are using resources more effectively than either (1) traditional enforcement alone, or (2) compliance assistance employed without a regulatory "hammer." Increased cost-effectiveness, i.e., more compliance improvement per agency dollar spent, is a major goal of integrated compliance assurance in general. Traditional enforcement activities, such as inspections and court cases, tend to be very resource-intensive, and as a result can be used to target only a limited number of facilities each year. Integrated approaches attempt to use resources more effectively by: (1) reaching more facilities each year through the use of self-audit incentives; (2) reaching more facilities each year through compliance assistance; (3) targeting priority sectors or issues in inspections; and (4) addressing less significant violations through less expensive means. Positive evidence was found for each in the case study initiatives. Id.

91. The OECA's position is a source of some misgivings in the regulated community. Members of the regulated community expressed concern that "voluntary" actions should indeed be voluntary. However, our interpretation of the case studies generally supports the OECA's view: a credible enforcement threat seems important to achieving a meaningful incidence of self-disclosure. Beyond self-disclosure, a sense of jeopardy is essential in creating a business atmosphere in which compliance is a priority. Further, entities participating in self-disclosure initiatives (and thus incurring penalties) may well feel cheated if those who do not participate are not subject to increased regulatory scrutiny.

92. The refineries initiative, for example, was, in large part, targeted at building such expertise with the Agency.

93. In responses to this point, the OECA's Office of Compliance notes that the FY 2002/2003 MOA guidance to the regions addresses the need for resource flexibility. "[The guidance] will more explicitly promote the integrated strategy approach as new national priorities are selected." OECA, U.S. EPA, Comments on Draft Report of Toward Integrated Approaches to Compliance Assurance (unpublished; on file with authors). The office also notes the existence of a mid-year MOA adjustment process, which is intended to allow resources to be moved to cover unanticipated costs. The Refineries Initiative is an example of an initiative in which MOA commitments were revisited and adjusted to accommodate resource needs.

94. See discussion of the National Performance Measures Strategy, supra note 47 and accompanying text.

95. See supra note 93 for information on unpublished draft report on integrated approaches.

31 ELR 11266 | Environmental Law Reporter | copyright © 2001 | All rights reserved