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                       A NOTE TO THE READER
This  study analyzes  why the  Clean Water  Act's  section 301 HO
provision did not work.  Following the recommendations for change
in this study,  EPA wrote draft  legislation amending section 301(k)
for consideration in the Clean Water Act reauthorization process.
If you wish to obtain a copy of this proposed legislation, please
write to Jim Lund,  Director of the IPS, USEPA,  401  M Street SW
Washington, DC 20460.                                           '

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                        TABLE OF CONTENTS

EXECUTIVE SUMMARY  	   T

1    INTRODUCTION  	   5
          1.1   Purpose	   5
          1.2   Overview and Organization	   5

2    SECTIONS 301 (k) AND 307(e) OF THE CLEAN WATER ACT:
     BACKGROUND AND USE	   8
          2.1   Legislative and Regulatory History	   9
                2.1.1      Clean Water Act of 1977   	   10
                2.1.2      Advance Notice of Proposed Rulemaking,
                          September 1980  . .	   13
                2.1.3      Comments	   15
                2.1.4      Proposed Rule, September  1981   	   17
                2.1.5      Comments	,.	   18
                2.1.6      Final Rule, June 1984	   20
                2.1.7      NRDC v. EPA	   21
                2.1.8      Proposed Regulation, December 1985 ...   22
                2.1.9      Comments	  .	   23
                2.1.10     Water Quality  Act of 1987	   24
                2.1.11     Codification Rulemaking, January 1989   .   25
                2.1.12     Subsequent Actions Relating to Section
                          301 (k)	   25

          2.2   Applications Submitted under 301 (k) ,  .	   26
          2.3   Inland Steel  	;  .	   27

3    WHY FIRMS DID NOT TAKE ADVANTAGE OF THE 301 (k)
     COMPLIANCE WAIVER	   29
          3.1   Risks to Firms	 	   29
                3.1.1      Possible Failure of Innovative Technology    30
                3.1.2      Possible Lawsuits		   32
                3.1.3      Additional Costs to Train Workers   	   32
                3.1.4      Time Consuming Process	   33
                3.1.5      Additional Issues	   33
          3.2   Uncertainty of the 301 (k) Program  .	   34
                3.2.1      Rules Promulgated Slowly	   34
                3.2.2      Lack of Agency Commitment to the
                          Innovation Waiver Program   	   35
                3.2.3      Option of States not to Grant Innovation
                          Waivers	   35

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          3.3  Ambiguity of the Requirement that the Technology
               be Innovative  	     35

4    SIMILAR/ALTERNATIVE REGULATORY MECHANISMS USED TO
     PROMOTE INNOVATIVE CHANGES IN PRODUCTION
     PROCESSES, SYSTEMS OR TECHNOLOGY	   37
          4.1  Other Compliance Waiver Programs for Innovative
               Technology  	   37
               4.1.2      Illinois Toxic Pollution Prevention Act  ...   39
               4.1.3      Alternative Air Compliance Extension
                          Program  	   41
          4.2  Enforcement-Related Approaches	   42
               4.2.1      Strict Enforcement	   42
               4.2.2      Enforcement Flexibility  	   43

5    POTENTIAL FUTURE ROLE OF AN INNOVATION WAIVER  	  47
               5.1.1      A Revived 301 (k) Provision	   48
               5.1.2      Building a Structured Flexibility Format
                          into the Rules	   51

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                        EXECUTIVE SUMMARY
      Innovation waivers were incorporated in both the Clean Air Act and
the Clean Water Act as devices to promote the full development of new
technologies which promised either to exceed current environmental
standards, or to achieve those standards at substantially lower cost.  The
objective of the waivers was to provide an extended compliance period
during which companies could complete technical  development and gain the
requisite working experience to make an innovative technology fully
operational and effective.

      While utilization of the original waivers was limited, there has been
interest in whether such waivers would be useful for encouraging
implementation of innovative pollution prevention technologies, which often
involve  changes affecting both the environmental performance and overall
productivity of a facility.  Interestingly,  some industrial commenters on EPA
proposals for 301 (k) in 1980 and 1981 stressed that the major value of an
innovation  waiver was for process changes rather than end-of-pipe
technologies.

      As part of the 1977 amendments to the Clean Water Act (CWA),
Congress created an innovation waiver (or variance) provision in Section
301 (k).  Congress declared the purpose of the waiver provision was to
"encourage improved  or cost saving technologies for meeting the national
goal of  eliminating discharges  of all pollutants."  The innovation waiver in
section 301 (k) provided time extensions for compliance with Best Available
Technology Economically Achievable (BAT) effluent guideline requirements
to facilitate implementation of innovative technologies which would either
reduce  pollution to a greater extent than BAT, or would meet BAT
requirements at a significantly lower cost. In 1987, Congress extended the
applicability of 301 (k) until 1991, and added a parallel provision (307(e)) for
dischargers to POTWs.

      In the fourteen years from  the creation of 301 (k) in 1977 until  its
expiration in 1991, it was hardly ever used.  On the basis of available EPA
records, there may have been as few as five 301 (k) variance applications,
and only one variance approval.

      The section 301 (k) innovative technology compliance extension
originated as part of a broad Congressional intent to promote and diffuse
                                   1

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 new technologies to reduce toxic discharges to water. The section allowed
 for a three year compliance extension beyond the 1984 BAT compliance
 deadline stipulated in the 1977 Clean Water Act, in order to provide
 sufficient time to experiment with and fully implement an innovative
 technology. As part of the effort to promote technology diffusion, the
 legislation also  required that the technology have industry-wide applicability
 which, while undefined in the legislation, House managers of the bill
 recommended be interpreted so as not to discourage use of waivers.  The
 House managers also urged the Administrator to encourage use of 301 (k)
 innovation waivers.

      The objectives of the legislation, and the expectations of its
 proponents, were clearly not met.  Many factors contributed to industry's
 failure to use section 301 (k) innovation waivers:

 o     Regulatory uncertainty and political conflict:

      With the array of new requirements imposed by the 1977
      amendments, the proposed rules for implementation of 301 (k) were
      delayed.  An ANPRM was issued in the fall of 1980, a proposed rule
      near the end of 1981, and a final rule was delayed until  1984. During
      that period, public interest groups had become increasingly concerned
      that they could not rely on EPA to simultaneously provide regulatory
      flexibility  and ensure sufficient  protection of the environment.

      NRDC, which had supported the provision in the 1977 amendments,
      argued in response to the 1981 proposal that applicability of the
      waiver should be narrowly interpreted, and that "industry-wide" should
      require that the new technology could be used at the majority of plants
      in an industrial category.  NRDC sued  EPA over the final rule,  which
      was remanded to the Agency.  A new proposed rule issued in 1985
      was never finalized.  Although Congress reauthorized 301 (k) in 1987,
      rules interpreting  key terms of the provision were never issued before
      the provision's expiration in 1991.

o     Limitations on the time to fully  implement an innovative technology:

      Industry commenters stated during each comment period that the
      three-year extension was too short a period to bring an innovative
      technology to full operation.  The period was shortened to two years
      by the 1987 amendments.

o     Lack of certainty, and high cost, involved in an innovation waiver

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     application:

     Because of the regulatory uncertainty and the lack of enthusiasm by
     Agency staff for the program, a company proposing an innovation
     waiver could face a high probability of rejection, and the need to still
     meet the compliance deadline with a more standard technology.
     Because innovation waivers involved exceptions to otherwise
     applicable environmental rules, they would also potentially attract
     adverse  attention from the public and environmental groups.

o    Lack of a "soft landing" alternative where technologies narrowly
     missed compliance with the standard:

     Companies felt that where a good faith effort to implement an
     alternative narrowly missed the standard, they might nonetheless be
     forced to make a full investment in the standard control technology.
     After implementation of a less-polluting process that fell just short of
     compliance, for example,  companies felt  there was no assurance they
     would not be required to install a full end-of-pipe treatment system as
     well.

     Overall,  the risks of the process seemed to most companies to exceed
the benefits of the waiver.

     For EPA, the waiver had the liability of requiring substantial resources
(already overstrained) to examine the validity of an individual permit
application. In addition, some staff felt that the waiver might encourage
companies to  request extensions without a legitimate basis.  Staff would be
required not only to evaluate the potential adequacy of technologies with
which they were unfamiliar to meet environmental standards, but to
determine whether or not such  technologies were genuinely "innovative."
All of these decisions about an  exception to the rules would need to be
made in highly visible cases where staff would be risking making decisions
which could turn out to jeopardize the environment.

     The limitations which hobbled the 301 (k) waiver in the past could
prove difficult to correct.  Partial remedies might include increased technical
support for permit writers, defined progress steps for recipients  of waivers,
and some form of  "soft landing" mechanism.  The changes which would
make the  waiver more viable for industry, however,  would be likely to raise
concerns with public interest  groups and Agency personnel.  Increased

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technical resources for waiver evaluations would come from other Agency
activities. Increased time limits for waivers, without systematic criteria,
would heighten concern of public interest groups over environmental
outcomes, and over the ability of Agency staff to assess innovation waiver
proposals.

      An alternative might be to establish criteria within effluent guidelines
for additional environmental goals which would need to be included in any
permit providing alternative compliance  deadlines for implementation of
innovative technology. Such criteria could  include additional reductions in
mass and/or concentration discharge levels beyond the requirements in the
guideline, or defined additional multimedia benefits. While determining
appropriate parameters for such tradeoffs could be difficult, they would
occur in a context of overall decisions affecting all facilities covered by a
guideline, rather than in the context of a permit providing a compliance
exception for an individual facility.

      Extension of the 301 (k) process in its current form is unlikely to be
more successful in the future than it has been in the past. Its fundamental
flaw is that it requires relatively large resources to  make uncertain individual
case decisions, and makes each such decision highly visible.  All parties are
at risk, with very unsure rewards, and possibly severe penalties.  The
flexibility  is limited and, as the years since  1977 have shown, the potential
public benefits are limited.

      Encouraging companies to make innovative changes which both
improve the environment and are more cost effective, however, remains
important. An approach to innovation combining greater flexibility in day-to-
day implementation of performance standards with pre-established
parameters for compliance extension tradeoffs under the guidelines could
provide a more realistic, workable alternative than  the 301(k) program of the
past. By  placing priority on environmental  success rather than technological
judgments, such  an up-front approach to the parameters could  provide a
more predictable and congenial atmosphere both for the implementation of
technological innovations, and for the projection of environmental benefits.

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 1     INTRODUCTION

       1.1   Purpose

       The Office of Water has Initiated an Industrial Pollution Prevention
 Project (IP3) to look at how best to promote multi-media pollution prevention
 in its current and future regulatory activities.  One facet of the IPS is to
 explore the degree to which the Section 301{k) innovation waiver provision
 under the  Clean Water Act (CWA) has been, or could become, an effective
 vehicle for promoting the development and implementation of innovative
 pollution prevention technologies.  While the 301 (k) variance provision for
 direct dischargers expired in March 1991,  a parallel provision for indirect
 dischargers, 307(e), is  still in  effect.  Further, the 301 (k) provision could be
 reactivated by Congress during the current CWA reauthorization.

      The  objectives of the of the 301 (k) variance study for the Industrial
 Pollution Prevention Project are to:

      o     review legislative  and  regulatory history;

      o     examine the degree to which the 301 (k) variance has been used
            in the  past, what the results have been, and the reasons for
            those results;

      o     analyze the problems and issues associated with such a
            variance;

      o     evaluate the applicability and desirability of such a variance to
           foster  industrial pollution prevention;

      o    examine how, or whether,  such a variance could be modified to
           be more acceptable to its critics and more effective in promoting
           industrial pollution prevention.
      1.2  Overview and Organization

      In 1977, Congress created an innovation waiver provision in Section
301 (k) of the Clean Water Act (CWA). The purpose of the provision was to
"encourage improved or cost saving technologies for meeting the national

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goal of eliminating discharges of all pollutants."1  The provision in the 1977
CWA specifically  provided industry with possible time extensions for
compliance with Best Available Technology Economically Achievable (BAT)
effluent guideline requirements. The additional time would be used to
facilitate implementation of innovative technologies which would either
reduce pollution to a greater extent than BAT, or would meet BAT
requirements at a significantly lower cost. No similar compliance extensions
were provided for meeting Best Conventional Pollutant Control Technology
(BCT), for new sources subject to the effluent guidelines, or for indirect
dischargers sending  releases to publicly owned treatment works (POTWs).

      In the Water Quality Act of  1987, Congress expanded the applicability
of innovative technology compliance extensions. It specifically added  BCT
to the scope of compliance variances for direct dischargers, and created a
new parallel provision for indirect dischargers (section 307(e)).

      Despite the renewed Congressional endorsement  of the innovation
waiver, it has not been a popular  program.  While there is no comprehensive,
centralized record of 301 (k) variance applications, it is clear that very few
firms have applied -- perhaps as few as five.  Further, only one 301 (k)
variance appears to have been granted. In that single case, the company
had already run a successful pilot project using the innovative  technology.

      Why did so few firms show any interest in the waiver?

      In order to answer this question, this report explores four principal
topics.  Section 2 presents a legislative and regulatory description  and
history of the 301 (k) and 307(e) programs.  This includes a summary  of
major issues and concerns raised by interested parties in industry,
government, and environmental groups, either in the legislative and
regulatory documents, or in public comment or legal action related to  EPA
regulatory actions; it also includes a review of the available information on
 applications submitted by industry under the 301 (k) program.  Section 3 is
 an analysis of why firms may not have taken advantage of the program,
 based both on public comments and on comments from contacts made for
this paper.  Section 4 briefly reviews other programs or approaches,
 including the variance program under the Clean Air Act, intended to promote
 the development of innovative technology to benefit the environment.
            Senate Report 95-370 (P.L. 95-217),  in 77 U.S. Code Admin. News, p.
            4375.

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Section 5 reviews the viability of a revived 301(k)/307(e) provision in
promoting technological innovation in pollution prevention, and briefly
outlines an alternative structure for an innovative technology compliance
extension which might arrive at the same objective more effectively.

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2    SECTIONS 301(k) AND 307(e) OF THE CLEAN WATER ACT:
     BACKGROUND AND USE

   Under the most recent (1987) amendments to section 301 (k) of the
Clean Water Act, an industrial direct discharger of toxic, nonconventional or
conventional pollutants required to achieve limitations reflecting BAT or BCT
under section 301 (b)(2) of the CWA could request a compliance extension
for implementation of innovative technology.  A company could be eligible
for such a compliance extension if it chose to comply with the requirements:

      ... by [replacing] existing production capacity with an innovative
      production process which will result in an effluent reduction
      significantly greater than that required by the limitation otherwise
      applicable to such facility and moves toward the national goal of
      eliminating the discharge of all pollutants, or with the installation of an
      innovative control technique that has a substantial likelihood for
      enabling the facility to comply with the applicable effluent limitation by
      achieving a significantly greater effluent reduction than that required
      by the applicable effluent limitation and moves toward the national
      goal of eliminating the discharge of all pollutants, or by achieving the
      required reduction with an innovative system that has the potential for
      significantly lower costs than the systems which have been
      determined by the Administrator to be economically achievable...[and]
      if it is also determined that such innovative system has the potential
      for industrywide application.

      Section 307(e) provides a  similar opportunity for indirect dischargers.
Existing facilities may gain a compliance extension if they choose to comply
with the pretreatment standards of section 307(b) by meeting the same
requirements as 301 (k), with the additional stipulations that the PQTW
owner/operator must  decide to accept such an alternative (with the
concurrence of the Administrator), and that the compliance extension for the
indirect discharger "will not cause the publicly owned  treatment works to be
in violation of its permit under section 402  or of section 405 or to contribute
to such a violation."

      When the 301 (k) provision for BAT standards was incorporated into
the Clean Water Act in 1977, the  original deadline for the extension was to
be no later than July  1, 1987, an extension of the July  1, 1984 BAT
deadline. The Water  Quality Act of 1987, however, extended the
compliance deadlines established for BAT limitations to no later than March

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 31, 1989, and allowed 301 (k) compliance extensions of an additional two
 years for innovative technologies - to March 31, 1991.  The Amendments
 also offered a waiver from BCT limitations to those discharging conventional
 pollutants, and introduced the parallel 307(e) compliance extension for
 indirect dischargers.

      Since the deadline for innovation compliance extensions for meeting
 the BAT and  BCT standards was  March 31,  1991, the 301(k) section has
 currently expired.  The 307(e) program, however, has not: expired; indirect
 dischargers are still subject to new pretreatment requirements.


      2.1  Legislative and Regulatory History

      The following is a brief chronology of the legislative and regulatory
 history of Section 301 (k)  and  307(e) of the Clean Water Act:
o     1977


o     September 19, 1980


o     October 20, 1980

o     September 21, 1981

o     November 20, 1981

o     June 25, 1984

o     October 5, 1984

o     April 16, 1985


o     December 5,  1985

o     January 6,  1986
      Regulations
301 (k) Provision for Innovation Waiver passed
in Clean Water Act

Advance Notice of Proposed Rulemaking
(ANPRM) for 301 (k)

Close of comment period on ANPRM

Proposed Rule for 301 (k)

Close of comment period for Proposed Rule

Final Rule for 301 (k)

Petition for Review of Final Rule filed by NRDC

EPA's motion for voluntary remand and to
propose new rulemaking on 301 (k) granted

Proposed regulation

Close of comment period on Proposed

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o    February 4, 1987
o    January 4, 1989
o     March 31, 1991
          Water Quality Act of 1987.  BAT deadlines
          extended to March 1989.  301 (k)  deadline
          extended to March 1991.  301 (k)  waiver made
          applicable to BCT limitations. Section 307(e)
          added to provide innovation waiver to indirect
          dischargers.

          Codified rulemaking.  EPA revised 301 (k)
          regulations to reflect changed compliance
          deadline and extend the waiver to direct
          dischargers with BCT limitations.

          Section 301 (k) expired.
      2.1.1
Clean Water Act of 1977
      The section 301 (k) innovative technology compliance extension
originated as part of a broad Congressional intent to promote and diffuse
new technologies to reduce toxic discharges to water.  This included altering
the scope of the BAT effluent standards for existing sources to focus
specifically on toxic pollutants.  Improved controls for conventional
pollutants were to be advanced by the new best conventional technology
requirement (BCT).

      Section 301 (k) came from the Senate bill, with no comparable
provision in the House-passed bill.  The compliance extension in the Senate
bill was for a maximum of two years beyond a proposed July 1983
compliance deadline for BAT. The Senate report  describes 301(k) as similar
to the innovative technology extension adopted by the Senate in the Clean
Air Act.  It states that it is intended to encourage  "improved  or cost-saving
technologies" but also to impose a "substantial burden of  proof" upon the
applicant to show that its waiver request is supported by a technology which
"represents a significant development for industrywide application."2

      The CWA Conference Report extended the  301 (k) waiver to three
years beyond the  1984 BAT compliance deadline agreed to by the;
Conference Committee.  Other than that, it retained the Senate provision.
The Report discussion also stressed the importance of industrywide
            Ibid.
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applicability.  While states with approved NPDES programs were to be
involved in making innovation waiver determinations, both the Conference
Committee Report and the Senate Managers' Statement on the Conference
Report emphasized the central role of EPA in assuring that such permits
were not "improvidently granted."3

     A more extensive intent for use of the variance comes through in the
House  Managers' Statement on the Conference Report.  In addition to
echoing the general expectation regarding an incentive to develop  new
processes, the House Managers point out the Administrator's  obligation to
encourage use of Section 301 (k) and to respect the confidentiality of
proprietary information regarding new processes.  The House  Managers also
instruct the Administrator to interpret "industrywide application" liberally -
i.e.,  requiring no more than two plants even if the two are part of  the same
corporation.4

     Since the Senate committee report  specifically referred to the 301 (k)
innovation waiver as fulfilling a purpose similar to the innovation waiver
provisions of the 1977 Clean Air Act (CAA)  amendments, it is useful both to
observe some of their similarities and differences:

o    One major difference between the CWA and CAA provisions is that the
     scope of coverage of the CAA waivers is far broader.  The two
     compliance extensions in the 1977  CAA (sections  111 {]) and
     113{d){4)) encompass  innovative technology for both existing and new
     sources; 301 (k) was restricted to existing sources, and was  not
     inclusive for even those sources -- excluding both BCT technologies
     and indirect dischargers.

o    With respect to existing sources covered, however, the  113(d)(4)
     provision applies to facilities "unable to comply with any requirement
     of an applicable implementation plan."5 The extended compliance
     period for such sources is specified  in a compliance order; section 113,
           CWA,  3  Legislative History, Senate Managers' Statement  (Senators
           Muskie  and Stafford), p. 452;  Conference Report, House 95-830, p.
           / y *

           CWA,  3 Legislative History, p.452.

           Section 113(d)(l) in the CAA (as amended in 1977).

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in which the provision is included, is on "federal enforcement."6
Section 301 (k), by contrast, is specifically an innovative technology
provision, not tied to an enforcement measure.

The maximum time allowed for the air waivers was longer. The
section 111 (j) waiver for NSPS extends up to seven years from the
time the waiver is granted,  and up to four years from the beginning of
operation of the innovative  technology.  For an existing source  under
113(d)(4), a compliance order could extend five years beyond the
otherwise applicable compliance  deadline. By contrast, section 301 (k)
only offered a compliance extension for up to three years beyond the
BAT compliance deadline of 1984.

The longer compliance extension in the CAA, however, was already
shorter than the proposed ten years originally in the House bill.7 The
ten year time-period had been included as a limitation on the original
Ford Administration CAA innovation waiver  proposal,  which included
no time limit.8

Another significant difference between the 111 (j) and  301 (k)
provisions is that  301 (k) avoids the oddly conflicting requirements of
111(j)(D(A) that the innovative technology both should not "have ...
been adequately demonstrated"  and should  provide certainty that it
"will operate effectively."

Both the CAA and CWA provisions have a major similarity in what they
do not do.  They  do not mandate that the states accept an innovation
      One result of this placement of the innovative technology provision
      for  existing  sources   in  the  enforcement  section   was  that
      implementation  was  assigned to the Division of Stationary  Source
      Enforcement   (DSSE),  and DSSE tended  to regard  it  as  another
      enforcement   mechanism   rather than   as  a  means  of   promoting
      innovation.  And since 113(d)(4) went to DSSE, organizational logic
      dragged lll(j)  there  as  well.  See Jay Evans, "Opportunities  for
      Innovation:  Administration of Sections lll(j) and 113 (d)(4) of  the
      Clean  Air Act  and Industry's Development  of Innovative  Control
      Technology," Volume 3 of  Incentives for Technological Innovation in
      Air Pollution  Reduction;  An ETIP  Policy Research Series  (April,
      1980), NBS-GCR-ETIP 80-88, pp.  10-12.

      See proposed section lll(f)(l)(D) in Clean Air Act Amendments of
      1977, Report by the Committee on Interstate  and Foreign Commerce,
      Report #95-294, 95th Congress,  1st Session,  p. 358.
       Ibid., pp. 196-197.
                               12

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      waiver program. "The Ford Administration [CAA] bill would have
      authorized preemption of state and local standards.,  By contrast, the
      committee bill only permits a variance from Federal standards."9
      2.1.2      Advance Notice of Proposed Rulemaking, September 1980

      On September 19, 1980, three years after passage of the Clean Water
Act, the Agency put out an advance notice of proposed rulemaking
(ANPRM)10 briefly outlining the initial EPA position on implementation of
Section 301 (k) of the Clean Water Act and asking for comments from the
public.  The ANPRM explained that companies could apply for a waiver from
meeting the BAT deadline of July 1,  1984  if they could offer a plan with an
innovation  which would either reduce effluents below the BAT limits or meet
the BAT effluent limits at a lower cost than BAT.   As part of the ANPRM,
the Agency also requested public comment on the following issues:

o     the degree to which there was genuine interest in the 301 (k)
      innovation waiver, and whether it could in fact serve as an inducement
      for the development of innovative technology (specifically, "innovation
      in industrial wastewater  treatment");11
o

o
the adequacy of the three-year extension provided by 301 (k);

the appropriateness of defining the potential for "industry-wide
application" of a candidate innovative technology as meaning either
the majority of plants, or just two or more plants, in the pertinent
industrial subcategory;12

whether it would be appropriate, as EPA intended, to group the key
           Ibid., p. 196.

           45 FR 62510, 9/19/80.

           Ibid., 62510.

           "Industrywide application" was not defined in either the statute or
           the legislative reports (perhaps because it seemed intuitively clear
           to be a  significant, or  large,  proportion).   As  noted above,
           however, in the House Managers statement  on the Conference Report,
           Congressman  Roberts had stated  that  "for  the  purposes  of  this
           section industrywide  application  should be interpreted to include
           more  than  one plant  and the plants might  be a part of the  same
           corporation." House Managers statement,  op.cit., p.  341.

                                  13

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     undefined terms in 301 (k) -- "innovative production process,"
     "innovative control technique," and "innovative systems" under the
     term "innovative technology" for the purposes of the program;

o    whether to include other factors not specifically mentioned in 301 (k) in
     evaluation of whether a proposed technology was innovative -- factors
     such as by-product recovery, net energy consumption, recycling and
     reuse of wastewater, reduced abatement expenditures for other forms
     of pollution including air pollution  or hazardous  wastes;13

o    at what point a technology which is undergoing, or has undergone, a
     full-scale demonstration should be deemed "innovative" when
     distinguishing an innovative technology from one which has been
     proven;

o    the appropriate approach to duplicate technology applications;

o    whether  standards for "significantly greater effluent reduction" and
      "significantly lower cost" should be determined case-by-case, on the
     basis of national norms (e.g., target percentage effluent reduction or
      cost reduction), or on the basis of norms established for each industrial
      category;

o    the appropriate enforcement response when innovative technologies
      failed to  achieve their targets;

o     the value of requiring a verification of engineering and cost data  in an
      application by a professional engineer;

o     the benefit of a technical appendix which would include a listing  of
      technologies which the Agency considered to be possible candidates
      for designation as innovative.
            Section  lll(j)  of  the CAA  included  consideration of  "energy,
            economic, or non-air quality environmental impact[s]...."   Senator
            Muskie,  in the Senate Managers  Statement  on  the CWA Conference
            Report,  stated that "the Administrator is  expected  to approve  as
            innovative techniques those systems which provide for productive use
            of nutrients and reclaiming and recycling of water." CWA,  1977,  3
            Legislative History, p. 452.

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      2.1.3
Comments
      EPA received comments from a number of industries on the ANPRM.
 Industry respondents supported the inclusion of an innovative technology
 waiver in the Clean Water Act. Some,  however, indicated that the waiver
 would be of no use if the rules and the process were not put in place
 quickly, since the BAT deadline was approaching rapidly and no regulations
 had yet been issued.  Several argued that innovative technologies would
 take between five to seven years to develop and implement.

      In addition to the timing  issue, industrial respondents also stressed
 other factors that they felt to be essential for an effective waiver program:

 o     Emphasis on process rather than end-of-pipe innovation:

           EPA should encourage process changes rather than end-of-pipe
           technology.  Changes in the production process could reduce
           costs for the company and would be beneficial to the
           environment. End-of-pipe technology is expensive and incurs
           high energy and annual maintenance costs.  According to the
           American Iron  and  Steel Institute, "... the large capital
           investments on production units may be recovered in time,
           whereas almost none  of the costs of EPT are recoverable."

o     Protection against failure of the innovative technology:

           EPA should offer assurance  that facilities would have time to
           make corrections without penalty if the innovative technology
           failed and they needed to install demonstrated treatment or
           production-process technologies. Monsanto wrote, in a letter of
           October 20,  1980, that unless  EPA "provides some mechanism
           to avoid penalizing  failure, the risk of attempting innovative
           technology development with significant resource commitment
           more than offsets the  benefits of a three year delayed
           compliance deadline."

           EPA should offer protection  from citizen suits as well as EPA
           enforcement actions if the company made a good faith  effort to
           install an approved  innovative system.

o    Definition of "industrywide":
                                  15

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     Firms should not need to prove that their technology has the
     potential to be used in more than two facilities in an industrial
     category or more than one facility in at least two industrial
     categories.  There should be no need for firms to market the
     technology, nor requirement that they divulge proprietary
     information in applying for the waivers.  Firms could license and
     sell their innovative processes if they chose.

Definition of "innovative":

     Combinations of systems which are used in innovative ways in
     production should be included as innovative even if the separate
     technologies are not innovative.

Defined, clear procedures for waiver application and approval:

     The application process for an innovation waiver should be well
     defined.  EPA and the companies involved should be required to
     meet interim deadlines. At the same time, the process should
     not require too much paperwork and firms should not be required
     to expend undue amounts of money to apply.

      EPA should develop a plan for closely monitoring the company's
      progress in installing the approved innovation.

Scope of waiver:

      The compliance variance should be extended to  indirect
      dischargers, to conventional pollutants and to new sources.

Insulation from new requirements:

      EPA should provide a grace period from changing emissions
      requirements after an innovative technology  is installed and
      proven in the plant. In its letter of comment of  October 20,
      1980, Monsanto argued that "once a technology is defined as
      innovative, EPA should provide a protection period (e.g. 10 years
      or appropriate amortization period) during which time a
      discharger is not required to increase its control over the subject
      waste stream."
                              16

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      2.1.4
           Proposed Rule, September 1981
      EPA issued proposed regulations for the 301 (k) program on September
21, 1981, and included responses to comments received from sixteen
sources on the ANPRM.14 The Agency's proposed decisions included:

o     Retain the grouping of the terms innovative system, control, and
      production process.

o     Assess on a case-by-case basis whether a technology could achieve
      significantly greater effluent reduction (to be assessesd on a mass-
      loading rather than concentration basis) or significantly lower cost than
      BAT.

o     Define the term "industry-wide" to include innovative technologies
      which might be used at one or more facilities in any two industrial
      categories.

o     Refrain from trying to anticipate or list potential innovative
      technologies in a technical appendix.
o

o
Keep the extension deadline at July 1, 1987.

Continue to consider a technology innovative for as long as possible
with respect to additional 301 (k) applications for the same technology.

Avoid seeking penalties from dischargers with section 301 (k) permits
that could demonstrate making all possible efforts to achieve
compliance with permit limitations. Dischargers would then have to
install other technology necessary to meet BAT limitations.  EPA would
require compliance as expeditiously as possible and would initiate
enforcement actions to place permit violators on schedules toward
compliance.

Possibly allow firms whose waste streams included both conventional
and toxic pollutants and who might have treated both streams with the
same equipment a compliance waiver. Enforcement Compliance
Schedule Letters (ECSLs) would be issued on a case-by-case basis for
    14      46 FR 46597, September  21, 1981.

                                  17

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     those firms required to meet BCT (Best Conventional Treatment)
     standards. These would state that EPA, subject to certain conditions,
     could refrain from civil actions to enforce compliance with BCT
     requirements.  "The purpose of the ECSL would be to allow permittees
     proceeding in good faith to install section 301 (k) technology which will
     achieve both BCT and BAT."

o    Require certification of the engineering data and cost estimates.

o    Prohibit extension of section 301 (k) to indirect dischargers, new
     sources, or dischargers of exclusively conventional pollutants.

     In addition to these issues, EPA proposed a three phase application
process under section 301 (k):

o    In the first phase, the applicant would show how the new technology
     would meet the qualifications for innovation and would be applicable in
     at least one other facility.  The discharger was also required to include
     an evaluation of how it would meet BAT standards if the  innovation
     failed.  During this phase, the applicant and EPA or state  technical
     personnel would begin discussions about the proposed innovative
     technology.

o    After the request was prepared, it would be reviewed by  the regional
     or headquarters coordinator and then sent to a panel of EPA and state
     personnel familiar with the industrial category.  The panel would
     decide whether the technology was innovative, offered a significant
     cost savings or effluent improvement, and had the potential for
     application in another plant.

o    Once approved, a permit writer would write the permit including a
     compliance schedule  calling for implementation of the innovative
     technology no  later than July  1, 1987.  The permit would require
     regular evaluations of progress in installation and  compliance with
     limits once installed.
      2.1.5
Comments
      Comments on the proposed rules were received from industry and the
 Natural Resources Defense Council  (NRDC). Industry comments repeated
                                   18

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many of the comments made in response to the ANPRM, particularly
concerns about the shortness of the time deadlines since no regulations had
yet been promulgated, and a fourth year had passed since passage of CWA.
In addition, they noted lack of protection from citizen lawsuits, vague
interpretations of some of the issues in the proposed rule by EPA, and
burdensome procedures  such as certification by a professional engineer.

      NRDC supported section 301 (k) when it was adopted in the 1977
Clean Water Act amendments.  However, in its November 20, 1981 letter
commenting on the proposed regulations, NRDC argued that the incentive
needed to be limited in order for the program to be successful. NRDC's main
areas of disagreement with the proposed rule were that:

o     The proposed rules ignored the distinctions between innovative
      systems, production processes, and control techniques that Congress
      made when writing the section.  EPA grouped all three terms under
      the term "innovative system." NRDC wrote that "only with respect to
      innovative systems did Congress intend to provide extensions solely on
      the basis of cost savings.   Such a system can justify the extension
      even if it does not result in better effluent reduction.  By contrast, a
      production process change or a control technique cannot justify an
      extension where it results in cost savings without 'significantly
      greater' effluent reduction as well as movement toward the  elimination
      of discharge." NRDC argued that Congress did not want "to permit
      extensions when a discharger merely wishes to cut costs by
      modernizing its production capability."

o     EPA defined the term "industry-wide" too broadly.  NRDC proposed a
      definition that would require the applicant to  demonstrate that the
      technique could be applied to a majority of plants in the industrial
      category.   Even if EPA did not expand the definition, the Agency
      would need to assure that the innovation could be made commercially
      available to other firms.

o     EPA should not be permitted to grant 301 (k)  extensions in the absence
      of categorical BAT effluent limitations.  "Any case-by-case proposal to
      use a process, technique,  or system that is effective and affordable
      must be considered to be BAT for that discharger.... Where EPA has
      not made  an  industry-wide BAT determination, we believe a so-called
      innovative  technology plainly qualifies  as BAT."
                                  19

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o

o
EPA should make it clear that section 301 {k) would not be available to
"new dischargers."15

EPA should not allow the compliance deadline waivers to be extended
to BCT through the use of ECSLs.

EPA should not require the states to grant 301 (k) extensions.

EPA should not grant longer than necessary waivers to install the
innovative processes, techniques or systems.
      2.1.6
           Final Rule, June 1984
      The final rule was promulgated on June 25, 1984.16 For purposes of
the rulemaking, it was issued on July 9, 1984 and scheduled to be effective
August 8, 1984.  The rule appeared over two years  after the proposal and
only three years before expiration of the 301 (k)  provision.

      There were few changes from the proposed regulations.  The most
significant revisions were:

o     A technology would be considered "innovative" until it had been
      successfully operated at full scale in a commercial plant for a full cycle
      of the plant's operation.

o     The requirement for engineering data from a certified engineer could be
      waived  on  a case-by-case basis, and would in any case be limited to
      an assertion that the estimates in the application  were made in
      accordance with good engineering practices, rather than (as in the
      proposal) a certification that the project-life cost estimates in the
      application were accurate within 15%.

o     Administrative Orders, instead of ECSLs, could be issued for firms with
     15
     16
      A  "new discharger,"  unlike a  "new  source," is a facility which,
      although it existed, "did not commence discharging before August 13,
      1979, which is not a new source, and which has never received  a
      finally effective  NPDES  permit."   If a  facility was  constructed
      after issuance of  NSPS for its industrial  category,  it is a "new
      source."  50 FR 49907.

      49 FR 25978, June 25, 1984.

                              20

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      the waiver who also needed to meet BCT limitations with the same
      innovative technology.

o     Applicants could apply for the innovative waiver program even after
      the public hearing period for their permit was over, if permission was
      granted by the Regional Administrator.

o     Proprietary information would be protected.

      EPA noted in its discussion of the final rule that the Agency had
"already received applications for 301 (k) extensions which contend that
savings of over eight million dollars will result, and that improved effluent
treatment will occur."
      2.1.7
NRDC v. EPA
      On October 5, 1984, NRDC filed a petition for review of the final rule
in the United States Court of Appeals for the District of Columbia (NRDC v.
EPA, D.C. Circuit No. 84-1 500). The basis for the suit was that EPA had
not addressed certain comments submitted by NRDC in response to the
proposed rule (September 21, 1981) in the final rulemaking of June 25,
1984.

      EPA filed a motion for voluntary remand of the case on January 15,
1985 in order to propose a new rulemaking under 301 (k), and to reopen the
entire section 301 (k) rule for reconsideration and public comment. NRDC
opposed the voluntary remand on the grounds that it was less interested in
the technical failure of EPA to respond to its comments than it was in
obtaining judgment on the substantive issues in which it felt EPA's -rule
violated the CWA. The issues raised were primarily  those previously raised
in comments on the proposed rule.17 EPA's motion was  granted on April
16, 1985.
           Response of  Natural Resources  Defense  Council in Opposition  to
           Respondent's Motion for Voluntary Remand, January 25, 1985, NRDC v.
           EPA,  U.S. Circuit Court  of  Appeals for the District of Columbia
           Circuit, No. 84-1500.

                                  21

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     2.1.8      Proposed Regulation, December 1985

     EPA published a new proposed rule on December 5, 1985.18  This
notice responded to three main issues raised by NRDC, and proposed minor
revisions to the 301 (k) rule.  The entire section 301 (k) was opened to
reconsideration and public comment.

     What may have been more important in some respects than the
substance of the issues raised or resolved in this proposal were two crucial
factors which had been recognized since the passage of 301 (k) and the
beginning of the rulemaking process as having central importance:

o    the problem of adequate time -- the re-proposal was taking place only
     one-and-a-half years before the final expiration deadline for any
     compliance extensions; and

o    the problem of uncertainty - the NRDC suit had succeeded in making
     an already dubious  process even more uncertain for any prospective
     (or even current) applicants.

     The specific issues raised in the proposal included the following:

o     NRDC contended that  Congress did not intend for the three undefined
     terms - innovative "production processes," "control techniques," and
      "systems" - to be placed under the umbrella  term  "innovative
     technology," and that  lower  costs were only  eligible for a waiver with
      respect to "systems."  EPA argued that NRDC's effort to construe an
      innovative treatment "system" as being something conceptually
      separate from a production process, a control technique, or some
      combination of the two, made little substantive or  legislative sense.
      The Agency reaffirmed its approach, with minor clarification of the
      definition of "innovative technology."

 o    NRDC argued that  "industrywide" should require broad applicability in
      an industry sector. EPA used the statement  of Congressman Roberts
      (above)  as adequate evidence that the only specific reference to the
      issue in the legislative history supported its position of applicability to
      at least two plants.
     18      50 FR 49904,  December 5, 1985.

                                   22

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     Finally, EPA proposed to retain the availability of section 301 (k)
     extensions for permittees with BAT limitations based upon Best
     Professional Judgment (BPJ) where BAT effluent guidelines had not
     been developed.  The Agency rejected as too narrow NRDC's
     interpretation that, in the absence of a guideline, any innovative
     technology proposed by a discharger who planned to install and
     operate the technology should be considered BAT for that discharger.

     EPA also addressed NRDC's concerns on a few other issues. The
     Agency amended its rules on the length of time a technology is
     considered "innovative" by requiring the Administrator to make a
     judgment of "no commercial demonstration" each time a 301 (k)
     compliance extension was to be granted.  It changed the rules to make
     clear states were free not to offer section 301 (k) extensions.  Finally,
     it clarified the fact that extensions would only be available for the
     amount of time necessary to install and start-up the innovative
     technology,  but in any case would not extend beyond July 1, 1987.
     2.1.9
Comments
     Both the general apathy about the program and the extremely short
remaining time period for use of the 301 (k) provision were reflected in the
fact that only four comments were submitted in response to the 1985
proposed rules. Two were from industry, and the others were from the
Department of Energy and NRDC.  One industry respondent argued that
innovation waivers should be allowed for dischargers of conventional
pollutants.  The other supported EPA's proposed rules with some minor
exceptions.

      DOE supported EPA's interpretation of "industrywide," and argued that
while a recipient of an innovation waiver should make information available
concerning its process, it should not be required to market it.  NRDC
restated its points on the length of time a technology should be considered
innovative, that innovative technology should be made available to other
firms, and that new dischargers should not be eligible for the extension.
                                   23

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       2.1.10     Water Quality Act of 1987

       Congress revised section 301 (k) in the Water Quality Act of 1987
 (WQA)   before the final rules were promulgated.  Under these
 amendments, direct dischargers of conventional pollutants were allowed to
 apply for an extension from BCT limitations and the maximum compliance
 extension from both BAT and BCT limitations was limited to two years
 beyond the otherwise applicable date. The WQA amendments changed the
 BAT and BCT compliance dates for direct dischargers from July 1  1987 to
 no later than March 31, 1989. This allowed innovation waivers for direct
 dischargers to be available until March 31, 1991.

       In addition to expanding the applicability of 301 (k) to innovative
 technological alternatives to BCT, Congress opened the innovation waiver
 program to indirect dischargers. A new section, 307(e), was created which
 references 301 (k), and  allows POTWS, with concurrence of EPA, to grant
 two year compliance extensions for indirect dischargers utilizing innovative
 technologies to meet applicable pretreatment standards.  Since
 establishment of pretreatment standards is on-going, the 307(e) provision
 has not expired.

      The extension of the time for the technology waiver in the Water
 Quality Act of 1987 originated in the House version of the 1986 bill; it had
 been incorporated into the Water Quality Act of 1986 (which passed the
 Congress but was vetoed). In extending the availability of the waiver  the
 House Report recognized that use of Section 301 (k) had been hampered by
 delays in publication of effluent guidelines  and stated a belief that "[t]here is
 still potential for the kinds of innovative processes contemplated by the
 1977 Amendments."20

      The Conference Report on the 1987 amendments also clarified the
 meaning  of "industrywide application." The phrase required only "technical
feasibility" of use, but required that such feasibility apply to a "significant
portion of the facilities in an industrial category or subcategory," and that
the technology "be made commercially available by the applicant, unless the
    19


    20
Pub.  L. 100-4, section 305,  101 Stat.  7, 34-35 (1987).

Water Quality Renewal Act of 1986, House Report No. 99-189,  July 2,
1985, p. 24.


                       24

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applicant is the only facility in the subcategory.
                                            H 21
      2.1.11      Codification Rulemaking, January 1989

      On January 4, 1989, as part of a rulemaking codifying legislative and
court-specified changes to NPDES regulations, EPA revised the 301 (k)
regulations to reflect the changed compliance deadline and the extension of
the waiver to direct dischargers with BCT limitations.22 The Agency did
not, however, formulate or propose changes to other regulatory provisions
relevant to innovation waivers - such as the interpretation of
"industrywide," the interpretation of the  components of "innovative
technology,"  definition of the term "significantly greater effluent reduction"
for purposes  of BCT, or the application of the 301 (k) provisions to indirect
dischargers under 307(e). It stated that these revisions and other issues
would be considered in subsequent notice and comment rulemaking.
      2.1.12     Subsequent Actions Relating to Section 301{k)

      Although EPA developed  draft regulatory language for 301 (k) and other
NPDES permit issues, these changes were never formally proposed.  Since
the last possible date for a 301 (k) compliance extension was March 31,
1991, direct dischargers could  no longer take advantage of the provisions.
But proposals for the interpretation of the remaining issues under 301 (k)
were still being considered, since they would provide the basis for innovation
waivers for indirect dischargers under section 307(e).

      Subsequent to the remand of the 1984 301 (k) regulations to EPA by
the Appeals Court, EPA had been required to report periodically to the Court
on progress on revision of the regulations.  In 1993, EPA and NRDC jointly
requested the Court to vacate the 301 (k) regulations.

      Continuation of the 301 (k)  innovation waiver is included in the "Water
Pollution  Prevention and Control Act of 1993" (S. 1114) -- the clean water
reauthorization bill introduced by Senators Baucus and Chafee. Section
            Conference Report for the Water Quality Act of  1987, reprinted in
            Legislative History 2 U.S. Code Cong, and Admin. News (1987), pp.
            21-22.
            54 FR 246, 1/4/89.
                                   25

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502(h) of the bill amends and extends the applicability of 301{k) - instituting
a range of requirements to ensure innovativeness and compliance with
alternative limits during the period of the waiver. The bill also limits the time
extension under the waiver to 90 days, with the possibility of granting an
additional 90-day period.
      2.2  Applications Submitted under 301 (k)

      Current information indicates that only five companies applied for
compliance extensions under Section 301 (k).  Four of the five were Inland
Steel, LTV (Republic) Steel - Cleveland, USX - Lorain, and Great Lakes
(National) Steel - Zug Island.  No information is available at EPA headquarters
on any of these  applications. EPA Region 5 has a partial file on Inland Steel,
which received a 301 (k) compliance extension.  The Regional Office does
not have information on whether any other extensions were granted,  or the
specific nature of the applications of the other steel companies. Most
government officials contacted (federal and state) indicated that their files on
301 (k) are nonexistent or do not go back that far.

      The June 25, 1984 Final Rule stated that  "all applications approved by
the State Director or Regional Administrator shall be submitted to the
[technical] review panel for technical evaluation.  The Panel members (to be
appointed by the Director of the Office of Water Enforcement and  Permits)
will consist of Headquarters, Regional, and State personnel familiar with the
industrial category in question.  They will review all applications which the
State Director or Regional Administrator believe  are worthy of
consideration."  This type of organizational approach to 301 (k) application
reviews was also called for in the September  21, 1981  proposed rules.
Officials in EPA's Office of  Wastewater Enforcement and Compliance  in the
Office of Water,  however, indicated that no applications received by EPA
were ever reviewed by such a Panel. Further, these officials were unsure if
a Panel was ever assembled.

      Representatives of the steel companies  (above) which had submitted
301 (k) applications, with the exception of Inland Steel,  were unable to find
any records relating to  301 (k). An official at Great Lakes National Steel
indicated that he might have heard of the variance years ago, but was
unable to find the records in the company's archives. A former EPA analyst
who worked on the Inland Steel application remembers  that other steel
companies initially showed  some interest  in the waiver and the innovative
                                  26

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process to be used by Inland Steel, but that the demand for steel was
declining so fast in the early 1980's that production was reduced to the
point that plants were being closed.  Permit limits could generally be met at
those operations remaining open.23

      No record has been found to date at the Agency of any applications for
307(e) compliance extensions.
      2.3  Inland Steel

      In August of 1982, Inland Steel inquired about a compliance extension
for an innovative blast furnace recycle system blowdowh treatment facility
which would service 5 furnaces.  This technology was based on a pilot
project conducted at the facility and was projected to result in effluent
quality equal to the applicable BAT effluent limitations for arnmonia-N, lead,
and zinc, and about half of the BAT limitation for total cyanide. The
technology was also projected to be cheaper than the applicable BAT; Inland
Steel  estimated it would save $2.6 million in investment and $600,000 in
annual chemical costs.24

      At the time of Inland Steel's inquiry in 1982, final rules for section
301(k) had not been promulgated. At the request of EPA Region 5, Inland
Steel  sent the application to the Indiana State Board df Health (ISBH). EPA
offered to assist ISBH in assessing the compliance extension request. It
appears that subsequently EPA approved an extension, although not through
July 1, 1987 as requested, but rather through January of 1985.25  A draft
permit was issued in September of 1983.

      Ultimately, the innovative process for which Inland  Steel received the
301 (k) waiver was utilized for only a few months.  It was designed to
service six furnaces. Two of the furnaces were located about two miles
away, thus requiring construction of a three million dollar pipeline.  Before
     23
    25
Gary Amendola, former Senior Iron and Steel Specialist,
EPA Region 5.

The relevant excerpt  from  Inland Steel'a permit  is attached  in
Appendix A.

Letter  from Gary Amendola, EPA - Region 5, to Larry Kane, Division
of Water Pollution Control,  Indiana State Board of Health, November
15, 1982.

                        27

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                                                       \
the process became operational, two of the other four furnaces were shut
down because they were old and unneeded. It was decided that effluent
limits for the two furnaces located two miles away could be mej by
quenching their slag with the wastewater from the scrubbers instead of
building the costly pipeline. After the innovative process, installed at a cost
of $12 million, had been in operation for a short period of time, Inland Steel
concluded the process was not needed to meet effluent limits.  During that
period it did not generate enough ammonia to work effectively with the two
remaining furnaces, and Inland found that the wastewater from these
furnaces could meet the permit effluent requirements without further
processing. It is not known whether the system would have performed had
it been given a longer testing period and had it  been servicing all six of the
furnaces for which it was originally designed. 26
     26      Information from Bob Johnston, Staff Engineer, Inland Steel.

                                   28

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3     WHY FIRMS DID NOT TAKE ADVANTAGE OF THE 301 (k)
      COMPLIANCE WAIVER

      Even if more firms showed interest in the 301(k) innovation waiver
than the available EPA historical records show, it is clear that the waiver
was not a popular option for companies.  It certainly did not succeed in its
mission of spurring innovative technology.

      In discussions with industry and government officials about why so
few companies took advantage of the 301(k) compliance extension, three
basic barriers have been suggested:

o     The risks to the firm for attempting to use innovative technology
      outweighed any potential benefits in most cases.  These risks included:
      1) the expenditure of substantial amounts  of capital on technologies
      which ultimately might fail,  while tried solutions were available at
      known costs; 2) failure to meet BAT guidelines with the innovative
      technology, which could result in compliance actions or civil suits, and
      further expenditure of funds on a conventional solution;  3) the
      potential need for specially trained workers and/or sensitive machinery
      for innovative technology which could add costs ; and 4} time
      consuming procedures which could delay implementation of the
      innovative process.

o     The interpretation of section 301 (k) was unclear to industry.  Much of
      the uncertainty had to do with the fact that the rules were
      promulgated slowly, key terms in the section were undefined and
      controversial, and corporate confidence that the Agency was favorably
      disposed to granting the waivers was limited.  In addition, states had
      the option to refuse to grant innovation waivers.

o     Lastly, the requirement that the technology be innovative remained
      ambiguous.  The height of the hurdle, from imaginative engineering
      application to fundamentally new concept, remained unclear, either
      regulatorily or in administrative application.
     3.1   Risks to Firms

     The largest number of comments received in response to the 301 (k)
Federal Register notices, and the most frequent observation from industry

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and government officials contacted for this study, focus on perceived risks
to the firms applying for a 301 (k) extension as the main deterrent to
pursuing a compliance waiver.
      3.1.1
     Possible Failure of Innovative Technology
      Utilizing untried technology can be risky for firms.  Changing a
production process or installing an innovative treatment system often
requires large capital costs, time expenditure,  and  research and
development. Many companies do not have large  sums of capital for
research and development nor the staff to undertake development projects.
These firms would be more likely to use conventional means to meet their
permitted effluent limits.  The 301 (k) program provided no monetary or
technical assistance to help these companies develop innovative solutions, or
to offset the risks of failure.  For  small, undercapitalized firms, a failure of an
expensive innovative system could put them out of business.  In addition,
the risk of injury or adverse health effects which could result from a failed
technology must be considered as disincentives to innovate.27

      In addition, a firm with an approved waiver request might find that its
innovative technology fails to meet the criteria for the waiver, although the
technology might not be a total failure. The system might fail to perform
quite at the expected level, and thus  fall short of the BAT/BCT standard, or
the system might take longer than expected to meet the standard, leaving
the plant out of compliance at the expiration of the variance.  In either case,
the 301 (k) waiver would  require the facility to install  standard engineering
systems to come into compliance with BAT/BCT.  For plants undertaking an
innovative process technology just barely missing  the BAT target, this could
mean investing  in the treatment system the plant  had been trying to avoid in
the first place.  Where an innovative  treatment system fails, there is the
potential additional cost of standard technology.

      The case  of time-related problems may  be most significant as a
deterrent for using a 301 (k) waiver for innovative  process technology. One
of the uncertainties about any new technology, even when it involves
imaginative application in a specific plant of a technology which is in use in
     27
See comments by American Paper Institute/National Forest  Products
Association, November 20 1981;  Scott Paper  Company, October 16,
1980; American Iron and Steel Institute, October 17, 1980; Monsanto,
October 20, 1980;  Olin Corporation, October 17, 1980.

                        30

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some form elsewhere, is how long it will take, even if successful, to reach
the originally projected level of performance  either with respect to product
or environmental parameters.  A metal-plating plant in Massachusetts
(visited as part of a related project) replaced its nickel-chrome plating
process with an alkaline-zinc plating process for shopping carts.28  The
changed chemistry affected not only the plating line  but the wastewater
treatment system design. When the new system was originally installed,  the
company found unexpected spikes in zinc levels in effluents.  Initially these
spikes were well out of the compliance range.  It required four years, and  a
significant number of ad hoc improvisations, to understand the process
sufficiently to reduce the spikes to compliance level. At that point, the
company still found unacceptable (from an operating perspective) variations
(although now within compliance limits) that staff could not predict and did
not understand.

      While this particular case did not involve a 301 (k) or 307(e) waiver,  it
does illustrate the type of potential technical problem which could make
such a waiver unappealing.  The technology, in this case, did not "fail" either
in terms of environmental benefit (considering what it replaced) or
production.  But it might have "failed"  in meeting a waiver deadline.

      Several companies specifically indicated that the limited time of the
301 (k) waiver was too short to implement and successfully  use the
technology, thus increasing the probability of failure.29  An article in
Chemical Engineering News (November 2, 1981) entitled "'Project Selection
in the 1980's" by J.B. Weaver was submitted by one of the commenters.
The study (not specific to environmental  issues) shows that, in most cases,
the time elapsed from project proposal to operation of the technology can be
anywhere from 5 to 6 years. The commenter noted that this would not
leave sufficient time under the permit for implementation of an innovative
technology before mandatory deadlines for compliance were reached.
           See draft report, prepared for IP3 by Kerr & Associates, "Incentives
           and Disincentives  for  Adoption, of Pollution Prevention  Measures
           under the Clean Water Program."

           Comments  by Air Products and Chemicals,  Inc.,  October 22, 1981;
           Washington   Legal   Foundation,   November  20,,   1981;   Chemical
           Manufacturers Association,  November 20, 1981.

                                  31

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      3.1.2
Possible Lawsuits
      One of the potential costs of failure -- whether marginal, major or time-
related -- was the absence of any legal assurance from EPA that the
permittee would not be subject to enforcement action and citizen suits
immediately after the expiration of the waiver.  Assurance by the Agency
that it would try to provide a reasonable framework for subsequent
compliance was not considered sufficient by some companies because of the
potential for litigation by citizen groups. For many firms, the possibility of
immediate court action in the event of technical inadequacy  - regardless of
the extent of the failure or of the effort made -- outweighed  any potential
economic benefits from experimenting with a new and unproven
technique.30
      3.1.3
Additional Costs to Train Workers
      For smaller firms, not only the capital expenditures for the equipment
necessary to implement the new technology but the costs to train existing
staff or hire skilled employees may pose barriers to innovation.  Small firms
may often have difficulty in finding employees with the necessary experience
or training, and re-training can be a lengthy and costly process.  If such a
firm believes there is a significant risk that the new technology might have
to be entirely replaced because of  a failure, even a marginal failure, to meet
environmental standards, these barriers are likely to become insurmountable.

      One of the commenters on the proposed 301 (k) regulations, an owner
of a metal finishing plant, stated that he had actively pursued innovative
solutions to the plant's pollution problems, and reported that he was "scared
to death to go on vacation, for fear that something might happen to  the
equipment and endanger it or the welfare  of his staff."  He noted that the
plant has been used by EPA as an example of successful innovation.31
     30
            By contrast, section 111(j)(2)(A) of the Clean Air Act specifically
            provided that EPA could grant  the  permittee up to a  three year
            additional extension to come  into  compliance  if  the  innovative
            technology failed.

            Comments by Gary Trehy,  Rampard Industries.

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      3.1.4      Time Consuming Process

   The firm may also face the risk that EPA's application process might be
time consuming and costly, and that the application would ultimately be
rejected. This situation could cause a problem in meeting compliance
deadlines.  Even if EPA ultimately granted the applicant a waiver, the delay
could leave little time for implementation of the innovative technology before
the deadlines expired.32
      3.1.5
Additional Issues
   The structure of many large corporations might also affect the decision
as to whether to try an innovative solution to a pollution problem.   In many
cases, the person in charge of company pollution controls or safety is mid-
level.  He may not be willing to put his job on the line by pursuing a risky
policy.

   In addition, some of the industries contacted about the 301 (k) innovation
waivers program expressed concern over the possibility of bad press
associated with  the program.  In essence, the program allows a facility to
abide by less strict pollution guidelines than other facilities in the industry
category until the innovative technology is in place and working or until a
specified time limit (3 year maximum). The public, including environmental
groups, are perceived as focusing less on  potential long-term benefits of a
successful application of the innovation waiver  and more on the immediate
pollution problem.  Many companies fear that the "bad press" generated by
these groups will affect the marketability of their products and, therefore,
are not interested in attempting an innovation waiver.

      Some of those perceiving this as a problem suggested solutions to
alleviate it might include working  with environmental and public interest
groups to help them fully understand the program and its repercussions.
Also, constant communication between EPA, the facility, and the public
while the facility is implementing and  monitoring the  innovative technology
     32
           Comments  by Union Camp,  November 19, 1981; Monsanto, October 20,
           1980.

                                   33

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could eliminate some confusion or apprehension about the program.33
     3.2   Uncertainty of the 301 (k) Program
     3.2.1
     Rules Promulgated Slowly
   Congress added Section 301 (k) as part of the CWA in 1977. The
process of implementing the section by EPA began in 1980 with the
Advance Notice of Proposed Rulemaking. A proposed rule and final rule
were put out by EPA in 1981 and 1984, respectively.  After the subsequent
litigation by NRDC, EPA again proposed 301 (k) rules in 1985.  By the time
of the re-proposal Congress was already well along in the process of
reauthorizing the CWA.  Before a new final rule was promulgated, Congress
amended the CWA with the  Water Quality Act of 1987.  While final rules
changing the dates of availability of the 301 (k) waiver and including BCT
within the scope of 301 (k) were made final in 1989, final rules on the
controversial remaining issues, and on the expansion of the innovation
waiver to include indirect dischargers under 307(e), have never been
promulgated.

     A primary reason for the slow and lengthy rules process was that the
EPA staff was overtaxed.  During the late 1970's, EPA was working on the
basic rules of the NPDES  permitting system, which were not made final until
1979.  According to a former EPA official, it was not until 1980 that the
staff had the opportunity to start drafting the rules for the 301 (k) provision.
During the rulemaking period there were also several office reorganizations
which may have slowed their progress.  Other factors contributing to slow
promulgation was the perception within  EPA that the Congressional intent of
the legislation  was unclear and that there was not overwhelming demand by
industry for the program.34
     33
     34
Comments, op.cit.  on ANPR and proposed  rules; Mark Mahohey, EPA,
Region  I,  and  by  Frederick Moore,  Union Carbide,  Danbury, Conn.
(personal communications).

Tom Laverty, formerly EPA Permits Division (personal communication).

                       34

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      3.2.2      Lack of Agency Commitment to the Innovation Waiver
                 Program

      Some industry representatives doubted EPA's commitment to the
waiver. They believed that the Agency was interested in enforcement rather
than in finding innovative solutions to pollution problems. Some Regional
enforcement personnel also indicated that interest in innovation among
enforcement personnel was limited; they sought compliance.  For them,
waivers often were seen merely as a way firms might postpone compliance.

      As a practical matter, it would have been difficult for EPA permit
writers to encourage use of the waiver.  The lack  of a defined process for
reviewing applications and the ambiguity in the definitions would have made
it extremely time consuming to process the applications.  A former Region 5
EPA official who worked on the waiver application for Inland Steel said that
processing it "chewed up an extreme amount of [his] time".  In his opinion,
waivers are an inefficient way of trying to promote innovation.35
      3.2.3       Option of States not to Grant Innovation Waivers

   Federal regulations are merely guidelines for the states,  States have the
option to regulate more stringently than the federal guidelines outline.  This
option thus allows states not to grant innovation waivers, since not granting
them is  more stringent than federal guidelines. Many industries felt the
states did not want to bother with the paperwork and time required to
proceed with an innovation waiver.36
      3.3   Ambiguity of the Requirement that the Technology be Innovative

      Congress never defined what was meant by "innovative."   The issue
was raised by EPA in the various Federal Register notices, and in the NRDC
suit.  The  issues were defined in terms of "duplicative" proposals, the length
of time a technology would still be considered "innovative," and the
    35
    36
Gary Amendola,  former Senior  Iron and Steel Specialist,
EPA Region 5 (personal communication).


Michael  Hayes,  Illinois  State Environmental  Protection  Agency
(personal communication).

                       35

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relevance of imaginative engineering adaptations to specific situations of
technologies which, in some generic form, were already in use. Even the
distinction in the law between the terms "innovative system, techniques or
production process" became an issue of contention, with NRDC arguing that
only an innovative "system" (somehow distinguishable from either a
technique or production process) could qualify for the waiver based on cost
considerations.  Innovative  production processes and control technologies
would need to reduce effluent below categorical limits.

      Obviously the varying definitions of "industrywide applicability" were
also relevant to this dispute.  If "industrywide" could mean two plants, then
innovative engineering adaptations might pass the test. If "industrywide"
required applicability to the majority of plants in an industry sector, then the
technology involved would  have to be more of a fundamental breakthrough.
The definition of "industrywide" was finally resolved by Congress in 1987 as
referring to a  "significant proportion" of the facilities in an industry  sector or
subsector, thus leaning towards a concept of innovative technology
involving a more fundamental change.

      The lack of final determinations on all of these issues  related  to the
concept of "innovativeness" would have made it difficult for companies to
apply for a waiver, or for regulators to determine whether particular
applications were appropriate.37
            Comments by Dow Chemical, November 11,  1981; NRDC, November 20, 1981
            and February  13,  1987; American Iron  and Steel Institute, October
            17, 1980;  American Textile Manufacturers Institute,  Inc., October
            20, 1980;  Hunton and Williams on behalf of Utility Water Act Group,
            Edison  Electric  Institute,  American Public Power  Association,
            National Rural Electric Cooperative Association,  January  6, 1986;
            Michael Hayes,  Illinois EPA (personal communication).
                                    36

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 4    SIMILAR/ALTERNATIVE REGULATORY MECHANISMS USED TO
      PROMOTE INNOVATIVE CHANGES IN PRODUCTION  PROCESSES
      SYSTEMS OR TECHNOLOGY

      The federal, state and local governments have offered other ways of
 promoting innovative changes in pollution prevention and control
 technologies.  Among those are other waivers for innovative technology,
 encouragement of pollution prevention in enforcement settlements,  and '
 flexibility in compliance deadlines on a case-by-case basis.  Another major
 incentive for both pollution prevention  and innovation can be the imposition
 of more stringent water quality standards in permits.


      4.1   Other Compliance Waiver Programs for Innovative Technology

      In addition to the innovation waivers available under section 301 (k) of
 the Clean Water Act, there are other compliance waiver programs for
 innovative technology at both the federal and state levels.  Examples include
 the innovation waivers under the Clean Air Act, the Illinois Toxic Pollution
 Prevention Act and a former waiver from air standards in Massachusetts
 which gave companies time to reformulate their processes to emit fewer
 VOC's to the air.
      4.1.1  Innovation Waivers under the Clean Air Act

      The Clean Air Act amendments of 1977 contained provisions
(discussed in section  2.1.1 above) providing waivers for the development
and implementation of innovative technological control systems. Innovative
technology waivers for new major sources of air pollution were authorized
under Section 111 (j), and delayed compliance orders for existing major
stationary sources  using "new means of emission limitation" were  authorized
under Section 113  (d)(4).

   Under the section 111 (j) provision, the waiver could be granted if the
technology had not been previously demonstrated, but it was nonetheless
known that it would operate effectively, and that it would be likely to either
reduce emissions below the level required by NSPS or achieve a reduction
equivalent to NSPS "at lower cost in terms of energy, economic or non-air
quality environmental impact".
                                 37

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      While more successful than the CWA waiver provision, relatively few
firms have applied for innovation waivers under the Clean Air Act.  The
assignment of the program to the Division of Stationary Source Enforcement,
the lack (similar to 301 (k)) of  a clear definition of "innovation,"  and the
somewhat contradictory requirements for known effective operation in the
absence of any demonstration may have contributed to its lack of use, as
well as the general reluctance to enter an uncertain process. The time
period, while potentially longer than under 301 (k),  is still regarded by
industry as short.38

    Despite the difficulties, at least ten waivers have been granted to
assembly plants for automobile and light duty truck surface coating
operations. EPA had established a standard of 1.47 kg VOC/liter of applied
coating solid for topcoat operations. This was based on the use of water-
borne coatings for solid-color  top-coatings (or could alternatively be met with
incineration or carbon adsorption units for solvent-based coatings).  Foreign
manufacturers,  however, had developed a coating  which involved a base
coat covered by a clear coat (BC/CC), which gave the car a glossier look and
a presumed competitive advantage. BC/CC coating operations  in Japan,
however, were operating at emissions level over twice the U.S. standard.
The plants requested the waivers in order to have the time to experiment
with and  develop BC/CC coating systems  which could comply with the EPA
standard.  The waiver temporarily raised the emissions limit for VOC's per
liter of applied coating solids in order to  provide time to get the new system
operating properly to meet the standard.39

      Two additional waivers were granted to a mine-mouth coal utility in
Homer City, Pennsylvania, and to a kraft pulp  mill plant in Georgia.40
     39
38      See  Jay Evans, "Opportunities  for  Innovation:   Administration of
       Sections lll(j) and 113 (d)(4)  of the Clean Air Act and Industry's
       Development  of   Innovative  Control   Technology,"   Volume  3  of
       Incentives for Technological Innovation in Air Pollution  Reduction;
       An ETIP Policy Research Series (April,  1980), NBS-GCR-ETIP  80-88,
       pp.  10-12.

       See  47 FR 34342,  8/9/82; 49 FR 5452,  2/4/84, 50 FR 36830,  9/9/85,
       and  JoAnn McNally Muir,  "Pollution Prevention Regulatory  Review:
       Part III: The Air Program,"  New Jersey Department of Environmental
       Protection, Division of Science and  Research and Office of Pollution
       Prevention, pp.  14, 28.

*      See  40 CFR 60.47; 50 FR 6316,  2/14/85.

                               38

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      4.1.2
Illinois Toxic Pollution Prevention Act
   On September 11,1989, the Illinois General Assembly approved the
 Illinois Toxic Pollution Prevention Act. The purpose of this Act is to reduce
 the disposal and release  of toxic substances to the environment, to promote
 toxic pollution prevention, to establish State programs that provide high-level
 attention to toxic pollution prevention policy initiatives, to integrate existing
 regulatory programs to promote toxic pollution prevention, and to stimulate
 toxic pollution prevention strategies by industry.

   The Act defines toxic pollution prevention as "in-plant practices that
 reduce, avoid or eliminate:  (i) the use of toxic substances, (ii) the generation
 of toxic constituents  in wastes, (iii) the disposal or release of toxic
 substances into the environment, or (iv) the development or manufacture of
 products with toxic constituents through input substitution; product
 reformulation; production process redesign or modification; production
 process modernization; improved operation and maintenance of existing
 production process equipment and methods; or recycling, reuse or extended
 use of toxic substances by using equipment or methods which become an
 integral part of the production process."

      Under section 6(c)  of the Act, companies which submit acceptable
Toxic Pollution  Prevention Innovation Plans after January 1, 1990 are eligible
for regulatory incentives.  A Toxic Pollution Prevention Innovation Plan would
propose reduction of toxics  "through the use of an innovative  production
process involving a new application of technology or a combination of
existing technologies  that have not  previously  been implemented together."
If Illinois EPA concurs with the plan submitted by a company, the
environmental incentives for which  the company could be eligible are stated
in the Act as including:

      (1) expedited coordination and processing of any applicable permit
      applications;
      (2) cooperation, as appropriate, with any request for an applicable
      variance,  adjusted standard or site-specific standard pursuant to the
      Environmental Protection Act; and
      (3) appropriate technical assistance to avoid or eliminate any potential
                                  39

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     compliance problems resulting from the proposed process.41

     The first company to submit a proposed innovation plan under this Act
was LaClede Steel in Spring 1990. LaClede generates high volume waste
containing lead and zinc during its operating process. This waste is
classified  as RCRA waste K061 (emission control dust/sludge from the
primary production of steel in electric furnaces). A baghouse collects the
emission dust which has been stored onsite.

    In its innovation plan application, LaClede proposed to change its process
by adding a step in which the dust would be separated into a nonhazardous
stream which could be landfilled  and a hazardous stream which would be
remelted and recycled back into the process.  This  process change would be
an in-line, onsite, closed loop recycle step which would eliminate the need
for landfilling a hazardous waste. LaClede felt that the economics of the
process, however, would be significantly affected by whether existing stores
of the hazardous emission control dust (RCRA hazardous waste K061) could
be retained on-site until the process was on-line, and then gradually reduced
by being utilized in the process.  The innovative technology instituted was
being developed with a Norwegian company.  Both U.S. EPA and other
companies have indicated  interest in this hew system.

     In filing an innovation plan, LaClede hoped to get assistance with  its
air permitting,  and technical assistance with any compliance  problems which
might arise due to implementation of processes and practices proposed  in
the application.  One specific objective was to obtain the state's assistance
in obtaining a variance to store the emission control dust (which had become
subject to the  land ban provisions of RCRA on August 8, 1988) until it could
be used by the new system, which was under construction at the time.

     LaClede  received a draft letter of response for approval from the State
on June 21, 1990. Section 6(d) of the  Illinois Toxic Pollution Prevention Act
states that "the Agency shall make a final determination within 120 days
after receiving a proposed plan."  In addition, 35 Illinois Administrative Code
181.302  states that "if the Agency does not concur with the proposed plan,
the Agency shall provide the owner or operator with a written statement of
the reasons for its refusal to concur, and the owner or operator may modify
           Illinois Toxic Pollution Prevention Act (Public Act 86-914, approved
           September  11,  1989, as amended Illinois Revised Statutes, Chapter
           111 1/2, section 7951  et seq,  section 6(c).

                                   40

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 the plan, submit a new plan for review, or appeal the decision."  Although
 LaClede received neither final approval nor denial of the innovation plan, it
 proceeded with installation of the new technology.

      One  of the difficulties involved in LaClede's plan was that what it
 proposed to do with the  hazardous waste it was currently generating would
 have required the agreement not only of IEPA, but also of Region 5 of U.S.
 EPA, since the storage of its electric arc furnace dust would constitute a
 violation of RCRA.  The company was sued by the U.S. Environmental
 Protection  Agency in August, 1990 for violating RCRA provisions. The case
 appears to provide an example of the difficulty posed by the relationships of
 state and federal legislative and regulatory requirements in efforts to
 promote innovation waivers at the state level.
      4.1.3      Alternative Air Compliance Extension Program

      In the late 1970's, Massachusetts instituted regulations which
prompted the development of what was a pollution prevention approach to
meeting RACT requirements.  Compliance extensions were encouraged for
paper and fabric and miscellaneous Metal Parts Coatings categories
implementing CTG's for VOC's. The regulation required the firms to reduce
their VOC emissions below 4.786 pounds per gallon of solids by December
31, 1982, unless they could prove both that they could not do so, and that
they had a plan to study and develop alternative coating processes.  They
needed to implement alternative low/no VOC coating conversions as
expeditiously as practical but in no case later than January 1, 1987.  While
other states in Region I also provided some form of compliiance extension,
Massachusetts seems to have both taken the measure further in terms of'the
extent of the variance than other states in the Region, and to have promoted
it more aggressively.

   The main purpose of the regulation was to alleviate the economic burden
on the smaller companies in the industry caused by the standard.  The RACT
standard  applied to all sources, no matter how many or few VOC's they
emitted.  The CTG recommended use of afterburners to control the VOCs.
This was too expensive for many of the smaller emitters and would have
forced  them to go out of business rather than comply.

   The benefit of the waiver was that  it resulted in  innovation and pollution
prevention.  Firms reformulated their coatings to reduce VOC's.  The

                                  41

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program was successful for several reasons: the Massachusetts Department
of the Environment (MDEP) worked closely with the coating shops, offering
them technical information, providing them with information on possible
sources, and sharing experience of other coaters; the coatings industry
association promoted low VOC coatings and showed the shops how to use
them; and paper/fabric coating firms often have chemists on staff who do a
lot of their own research and development,42
      4.2  Enforcement-Related Approaches

      Innovation waivers were designed to provide incentives to promote
innovation in the permit-writing of the regulatory process.  An alternative
would be to structure incentives for innovation into the enforcement
component of regulatory activities.
      4.2.1
Strict Enforcement
      Stringent standards combined with strict enforcement of the standards
 have historically provided much of the impetus for development of new
 environmental technologies.  Assured rigorous enforcement puts pressure on
 companies to find ways to comply with requirements; meeting stringent
 standards provides a motive for looking for more cost-effective alternatives.

      The question is whether strict enforcement provides by itself a
 sufficient impetus to innovation.  There can be little doubt of the importance
 of stringent environmental standards  in promoting innovation, either with
 respect to industrial production or new products.  One example among many
 of a stringent regulation which led to product and process innovation was
 the ban on fully halogenated chlorofluorocarbons ("CFCs")  from aerosol
 applications.  Industry responded by producing a non-fluorocarbon propellent
 using C02 and by developing a cheaper pumping system not dependent on
 propellants.43

       Without strict enforcement, companies will lack motivation to make
           Mass Reg.  Ref.: 310 CMR 718 14(a)  and  15(a); and information  from
            Jeannie Watters, Massachusetts DEP.

      43  Ashford, Nicholas, "Regulation and Innovation".  Harvard Environmental
  Law   Review, Volume 9. p. 419-466

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 the changes necessary to meet the new standards.  The issue for advocates
 of innovation waivers and enforcement flexibility, however, is not whether
 strict enforcement is a necessary component of the elements needed to
 promote innovation.  It is whether strict enforcement is sufficient to
 encourage innovation, or whether it primarily promotes compliance by
 companies with standard methods least likely to raise questions from
 regulators.
      4.2.2
Enforcement Flexibility
      One way in which innovation and pollution prevention is being
 encouraged is in compliance enforcement.  In February of 1991  EPA issued
 an Interim Policy on the Inclusion of Pollution Prevention and Recycling
 Provisions in Enforcement Settlements. This policy encourages "the use of
 pollution prevention and recycling conditions in enforcement settlements
 either as mjunctive relief or as 'supplemental environmental projects'
 incidental to the  correction of the violation itself."  Under this policy
 pollution prevention conditions  can be considered as part of a consent order
 or decree.  "Agency negotiators are strongly encouraged to try to
 incorporate pollution prevention conditions in single and multi-media
 settlements when feasible."

      In recognition of the fact  that changes in production processes and
 innovative techniques may take longer to implement than proven technology
 EPA is encouraging flexibility in the negotiations  on implementation
 schedules.  However, additional implementation time can be allowed only if
 the pollution prevention settlement  condition corrects the violation  In
 deciding whether to extend  a compliance schedule, the settlement team is
 directed to consider the seriousness of the  violation, the net permanent
 reduction in pollution resulting from the proposed corrective pollution
 prevention activity, the  reliability of the technology, whether the technology
 is applicable to other firms, and whether the pollution prevention option
 offers the best long term solution to the pollution problem.

      Normally a compliance action ends in the assessment of a fine  The
fine is based on the gravity of the offense and on the economic  benefit the
firm has derived from polluting.   If the respondent is willing to correct a
violation via a pollution prevention project, the new policy allows the gravity
portion of the penalty to be adjusted downward.  The economic benefit
portion of the penalty is normally based on the length of time the firm is  out

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of compliance.  This might deter firms from solving their violation with a
pollution prevention activity  if that activity would require more time to
institute than a conventional solution. In order to eliminate a possible
disincentive, the penalty will be assessed based on the solution that would
require the shortest length of time to implement, rather than on the longer-
term pollution prevention solution actually agreed to under the compliance
action.

      A disincentive for the  firm to use innovative technologies remains in
the policy. If the pollution prevention activity fails to correct the violation,
then the traditional solution  must be instituted. The policy states:

      In order to make sure  that the violation is corrected (as well as
      minimize any additional liabilities which may accrue to the
      defendant/respondent) the consent order or decree will state that any
      pollution prevention project which is used to achieve compliance with
      a legal standard must have a "fall-back" schedule requiring the use of a
      proven technology agreed to by all parties to the settlement  and which
      will be implemented, if necessary, by a time certain.

 Penalties in this case would only be assessed if the economic benefit from
 non-compliance exceeded the money spent on the pollution prevention
 activity, but the added cost of implementing the "fall-back" might be
 substantial.

 o    A case in Massachusetts  provides an example of how innovation
      issues can be raised in the context of enforcement actions.  EPA and a
      POTW are working with local industry to solve a compliance problem.
      As a result of industrial discharge with high copper content, the
      sewage treatment facility was out of compliance with new NPDES
      limits.  The major facilities discharging the copper included fiber/fabric
      dyers; the colors of blue, green and turquoise all contain copper.  The
      firms estimated that  installation of the necessary pretreatment
      capabilities could cost them one million dollars each ~ potentially
      crippling to the companies and resulting in severe hardship on the
      community. As part of a compliance action, EPA issued an
       administrative order requiring the firms to do pollution prevention
       audits to identify ways to reduce the copper discharges through source
       reduction and process changes.  The POTW and Massachusetts'  Office
       of Technology Assessment (OTA) worked with the firms to provide
       guidance as to how they might achieve the goals.  In addition, the

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      firms talked to the dye manufacturers about possible reformulations of
      the dyes.  Even if a control/pretreatment solution is finally required, the
      enforcement process has been used in an effort to encourage
      technology innovation.

      In addition to the federal initiative, some state and local authorities are
also showing flexibility in compliance actions when pollution prevention and
innovative techniques are proposed  as solutions to compliance problems.  In
a case in California, for example, a POTW allowed a plant violating BOD
limits time to study and implement pollution prevention processes as an
alternative to requiring add-on  controls.

o     As part of an enforcement action against a non-compliant company,
      the Orange County Sanitation  Districts in southern California requires
      companies to conduct a waste minimization assessment and submit a
      report to the Districts. A company is required  to implement those
      techniques that are found to be technically and economically feasible.

      One company,  Beatrice/Hunt Wesson was discharging large amounts
      of BOD into the system.  On February 14, 1989, the Districts sent the
      company  a new industrial wastewater discharge  permit for their
      cannery which  specified new interim and final  limits. Beatrice objected
      to the interim conditions  and appealed the decision to the Districts'
      Board of Directors.  The Board denied the appeal and ordered the
      permit issued.

      The company challenged the decision in California Superior Court and
      initiated two  suits against the  Districts, challenging both the permits
      and the Districts' ordinance. The Superior Court determined that the
      Districts properly imposed the  BOD discharge limits.  A Settlement
      Agreement was signed between the Districts and Beatrice on April  17,
      1991 which included  provisions for the installation of pretreatment
      equipment and  compliance with the daily maximum limits effective
      February 1, 1992. An interim  permit was issued for the period before
      February 1, 1992, which provided an intermediary step to restrict the
      BOD discharges.

     After the Settlement  Agreement was executed, Beatrice requested a
     one-year extension in meeting  the final BOD limits in order to
     investigate the  feasibility of adopting several waste minimization
     strategies, including an innovative approach involving installation of an

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     Italian tomato peeling process which vacuums off the skins and a
     solids separating system which was being tested at the Beatrice
     Fullerton plant.

     The Districts granted Beatrice the 12-month extension in order to give
     the company time to study the environmentally-preferable pollution
     prevention options,  as opposed to forcing the construction a
     pretreatment facility (as agreed to in the Settlement).  During the
     interim the company would have to meet somewhat reduced maximum
     and average loadings. The Amendment to the Settlement Agreement
     also contained a provision that stated that if the waste minimization
     techniques were insufficient to bring the company's discharge  into
     compliance,  it would have to use pretreatment equipment adequate to
     ensure that its effluent discharge would comply with the final BOD
     limits by February 1, 1993.

     On November 14, 1991, the company  asked for another extension
     because it was  concerned that its waste minimization  reduction
     estimates were too optimistic, and that it might be necessary to design
     a pretreatment facility as well.  Beatrice wanted to evaluate the 1992
     canning season, to  determine what type of pretreatment to install.
     The company's further request for an extension is being evaluated by
     staff and Districts'  legal counsel. 44
     While flexibility in enforcement actions provides a valuable and
necessary mechanism for encouraging innovation, it does not constitute a
complete solution to promoting innovative technology.  The principal
drawback is the obvious one; it provides a solution only in the context of a
violation.  There is no guarantee that the  relevant agency will in fact provide
flexibility for innovation, and the process  carries significant risks of fines.
     44
Letter  (December  5,  1991)  from  Margaret Nellor,  Source  Control
Manager, County Sanitation Districts of Orange County, California.
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5     POTENTIAL FUTURE ROLE OF AN INNOVATION WAIVER

      The innovation waivers in federal legislation are one possible vehicle
for providing flexibility to encourage innovation.  Few would argue that the
waiver is a prerequisite for either flexibility or innovation.  Rather, it is one
mechanism which can be used to promote the  objective of innovation. The
question is whether the particular role an innovation waiver potentially plays
can be adequately met through some other alternative or alternatives, or
whether the waiver is in fact capable, with some re-designing, of meeting
the need its supporters originally envisaged.

      Interest in the innovation waiver has not  vanished. The water
reauthorization  bill introduced in the Senate by Senators Baucus and Chafee
in  June, 1993 (S. 1114) includes a revised section 301 (k). The new
provision, however, does little to solve the  problems which have resulted in
limited use of 301 (k). The provision moves even further away from  one of
the most crucial requirements identified by  industrial cornmenters - adequate
time.  The waiver proposed in S. 1114 is limited to 90 days,  with a possible
additional 90-day extension.  The constricted time period reflects the
continuing concern of those yvho feel that the real environmental benefits or
losses from innovative waivers are difficult to evaluate, and that resulting
compliance extensions may simply provide  an extended license for
uncontrolled pollution. Companies which found two year waivers
inadequate, however, are unlikely to have much interest in so short a limit.

      In the absence of an innovation waiver, there still are sources of
increased flexibility in the development of permits for dischargers.  One area
of potentially greater flexibility could come  in the day-to-day implementation
of the NPDES permitting program.  Most  requirements under the effluent
guidelines are in the form of technology-based  performance standards. In
many individual permit-development situations, however, the technology
basis  for the performance standard becomes a  de facto technology standard.
Such  a result may comprise the lowest-risk approach for both the permit
writer (sometimes lacking in adequate technical expertise or experience to
evaluate complex or non-standard alternatives) and the permittee (concerned
with being assured the facility is in compliance).

      To encourage greater flexibility entirely within the current  framework
of standards, permit writers could be trained to recognize the benefits of
pollution prevention approaches as a means of achieving compliance. They
could also be informed regularly of alternative technologies or technical
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approaches which have been used to meet performance standards
elsewhere, perhaps through frequent technical updates to the background
and materials provided to them.  Such an approach would serve at least to
increase the dissemination -- carefully implemented to preclude any liability
for permit writers  of technological innovations, even if it would not serve
to facilitate implementation of other more fundamentally new innovations.

      For some larger or more complex facilities, the need for formal
mechanisms to allow trials  with innovative alternatives may be more limited
than in smaller or less diverse facilities.  In some cases, such facilities may
be able  to experiment with  a single line or process and still meet the overall
limitations on discharges from the plant's treatment system. Under these
circumstances, plants may  be able to effectively create the needed flexibility
internally.

      The flexibility for innovation either already inherent in, or potentially
achievable under, current rules may be substantial. Nonetheless, there may
still be innovations which can not be readily accommodated - for example,
some innovative approaches which comprise a significant component of the
production process, which  are more important for substantial multimedia
benefits than for the margin of compliance with NPDES requirements, or
which potentially have lengthy shakedown periods. That is, there still may
be a potential need for the  flexibility which 301 (k) was intended to provide.
      5.1.1   A Revived 301 (k) Provision

      Were Congress to reauthorize the 301 (k) innovation waiver provision,
there are measures which could be taken to try to make the waiver more
effective. Whether measures acceptable to all parties would be sufficient to
make the waiver truly useful for industry is more doubtful. The most
important changes would include:

      o    Meaningful organizational support within EPA, at both the
           Regional and headquarters levels, for technical review of
           innovative technologies for which innovation waivers are
           requested.  Such support would need to include access to legal
           experts (e.g., in OGC) and to technical experts (e.g., in  ORD) in
           key industrial categories. Permit writers would need this kind of
           support in order to be able to make the necessary evaluations of
           the appropriateness and technical adequacy of the proposal.
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      o    Defined progress steps and schedules toward implementation of
           the innovative technological alternative during the period of the
           waiver. These steps could include a variety of factors, such as
           financial, research  and environmental measures.

      o    Some form of alternative compliance mechanism, where feasible,
           for innovations which fail marginally to meet the required
           standard, rather than an automatic requirement to install the
           technology for which the innovative approach was supposed to
           be a substitute. Such "soft landings"  could be available where a
           facility made a good-faith effort (perhaps defined in terms of
           progress steps) to  implement the innovative approach, and
           should be designed to achieve a net environmental benefit.
           Acceptable measures should be defined in the permit
           incorporating the innovation waiver.

      o    Greater flexibility with respect to the allowed time period of a
           compliance extension, depending on the extent to which the
           technology for which the waiver is sought is a  fundamental
           change, and the degree to which meaningful progress steps can
           be defined.

      It is questionable,  however,  whether adequate agreements could be
reached to make and effectively implement these changes.  The fundamental
difficulty of the 301 (k)  innovation waiver is that it provides for an exceptions
process under which all  parties are subject to intense scrutiny.

      o    For companies proposing an innovation waiver, there are the
           risks of:

                a prolonged,  costly evaluation and negotiation  process,
                with highly uncertain  results, possibly leaving inadequate
                time to come into compliance and avoid fines if rejected;

                the financial  risk inherent in an innovative technology of at
                least partial failure, with the potential need to make a
                substantial subsequent investment to achieve compliance;

                the public relations risk of appearing to be trying to avoid
                environmental compliance; and
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                more intense scrutiny by EPA and state agencies of all
                aspects of plant operations.

     o    For EPA and state agencies which must review proposals for
          innovation waivers, the difficulties include:

                limited technical  resources for review of complex technical
                proposals, and the risk of making a decision which
                inadequately protects, or is perceived to inadequately
                protect, the environment; and

                expenditure of unusual resources to review a single permit
                at one facility, at the same time that overall compliance
                and enforcement resources may  be inadequate to meet
                basic needs.

     o    For public interest groups, skepticism is based on concerns that:

                EPA or state agencies may not have, or should not expend,
                the technical  resources to adequately evaluate the
                adequacy and appropriateness of an innovative technology
                proposal  by a single firm;

                companies may use an innovative waiver as a  means to
                extend compliance without creating a significant longer-
                term environmental benefit, particularly if compliance
                schedules are extended  to the degree that industry argues
                is necessary to make the waiver useful;

                a particular decision on a single innovation waiver,
                inadequately  scrutinized, may create a precedent for
                further decisions which  could create substantial aggregate
                environmental damage;  and

                if the innovation waiver provision were widely used, the
                resources of the public interest groups would not be
                sufficient to review the  proposals adequately to ensure
                that appropriate decisions were  made by the agencies.

      Because the innovation waiver is an exceptions process, it generates
focused attention on all the parties involved.  Each is likely to feel increased

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vulnerability in the decision process.  The result has been clearly apparent in
the fourteen year history of the 301 (k) provision.  Public interest groups and
agency personnel have generally been opposed to the process, agency
personnel have been unwilling to encourage applications for the waiver, and
companies have either preferred to look for other mechanisms under which
to promote innovations, or to avoid the risks  altogether.


      5.1.2      Building a Structured Flexibility Format iinto the Rules

      A possible alternative to an exceptions  process involving individual
waivers for individual facilities would  be to establish basic rules involving
compliance extensions for innovative  pollution prevention technologies in the
promulgation of the effluent guidelines.  There are several potential
advantages to such an approach.  First, it would move much of the
substantial expenditure of time and resources involved from the approval of
one company's individual  application to a  more general determination which
could potentially affect all facilities. Second, it would involve an up-front
determination  by all parties of the value of the tradeoffs involved in
implementing an innovative technology which might require delayed
compliance.

      Examples of the kinds of tradeoffs which might be stipulated in the
guidelines include:

      o    provisions allowing  a longer time  to achieve compliance with the
           requirements of the guideline if the facility would then achieve
           substantially greater reductions in pollutant discharges  within
           some established  longer timeframe; or

      o    a longer timeframe for  meeting the effluent guideline
           requirements if some predetermined additional multimedia
           environmental benefits could be achieved during that same  time
           period.

      These decisions would not be easy to make. The advantages,
however, are that:

      o    tradeoffs would be faced in a general format, rather than without
           guidelines in the context of an individual permit decision;
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     o    resources for making the decisions would be expended on issues
          affecting more than one facility; and

     o    the existence  of pre-defined general conditions and goals for an
          innovation waiver, in place of case-specific determination of
          basic parameters, would provide companies more certainty in
          assessing whether to implement a potential innovative
          technology.

     Such an up-front approach is not without challenges:

     o    Less would be known  at the time of the decisions about the
          nature of,  and appropriate limits for, potentially innovative
          technologies.

     o    Explicit risk tradeoffs between media, beyond their inherent
          difficulties, involve site-specific elements which might prove
          difficult to anticipate in structuring a guideline.

     o    Individual  waiver applications would still require careful individual
          evaluation. It would remain necessary to determine  whether an
          individual technology seemed a reasonable candidate to meet the
           parameters in the guideline,  and to specify progress  steps to be
           met by the company.

     These  difficulties are not insurmountable. Goals in the guidelines could
be set in terms of desirable environmental outcomes, rather than in terms of
the current state of knowledge about possible forthcoming technologies.  So
long as the environmental objectives remain primary, forecasting would be of
limited concern.

      While  risk tradeoffs may be conceptually problematic, both of the
options suggested above involve surpassing current environmental
requirements.   What would  be established initially would only be the level of
additional environmental  improvement required for a compliance extension,
not a lessening of the ultimate performance standard for discharge. Site
specific concerns might be dealt with by alternatives such as establishing
interim standards during  the period  of the waiver (perhaps depending on
whether the water body  impacted is particularly sensitive, or is  severely
environmentally impacted relative to its intended use). It would be
important, in any case, to establish (as  part of the permit) a timeline of steps

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 to be taken to demonstrate adequate progress toward the ultimate
 compliance objectives.

      The determination of "innovativeness" could still be an important issue
 for a specific permit.  Evaluation of the technical adequacy of the technology
 might be made less resource-intensive, however, by placing more emphasis
 on performance, and thus  more of the burden on the applicant.  For example,
 criteria could be established under the guidelines under which soft-landings
 or a range of penalties could depend on how close the technology came to
 meeting the  compliance goals.

      Extension of the 301 (k) process in its current form is unlikely  to be
 more successful in the future than it has been in the past.  Its fundamental
 flaw is that it requires relatively large resources to make uncertain individual
 case decisions, and makes each such decision highly visible.  All parties are
 at risk, with  very unsure rewards, and possibly severe penalties (e.g.,
 unforeseen environmental impacts, financial losses, loss of public trust,
 adverse  performance evaluations). The flexibility is limited and, as the'years
 since 1977 have shown, the potential public benefits are limited.

      Nonetheless, a system which encourages flexible, innovative individual
 responses to environmental goals can have significant benefits. Such a
 concept is central to the acid rain program under the Clean Air Act -- a
 program which is predominately results-oriented.  While most individual
 decisions by  utilities on how to meet SO2 reduction  objectives will not
 involve use of innovative technologies, the system provides rewards for
 those who develop innovative alternatives.

      Clearly there are substantial differences between a jprogram addressing
 a nationwide total pollutant loading problem, and an effluent guideline
 addressing individual plants impacting specific water bodies.  The objective
 of trying to encourage companies to make changes which both improve the
 environment  and are more cost effective, however, remains important.

     An approach to innovation combining greater flexibility in day-to-day
 implementation of performance standards with pre-established parameters
for compliance extension tradeoffs under the guidelines could provide a more
realistic, workable alternative than the 301 (k) program of the  past.  It would
substitute a general program with specific goals for environmental
improvement for a plant-specific exceptions process with no defined
environmental parameters.  By placing priority on environmental success

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rather than technological judgments, such an up-front approach to the
parameters could provide a more predictable and congenial atmosphere both
for the implementation of technological innovations, and for the projection of
environmental benefits.
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