National Center for Environmental Innovation
                                 2004 Report on Progress
6EBV
United States
Environmental Protection
Agency

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NCEI

NATIONAL CENTER FOR
ENVIRONMENTAL INNOVATION

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Partnering  for Better Environmental  Results
I am pleased to present the first progress report for EPA's National Center for
Environmental Innovation. The Center was established in 2003 to find new ways to
achieve better environmental results. Our efforts to modernize the United States'
environmental protection system are designed to address some of today's most pressing
environmental problems, to expand the types of environmental protection tools, and
to continue the shift from pollution control to prevention and sustainability.

As this report shows, all of our work is achieved in partnership with others. That is
why we were created as a "national center"—to engage organizations that are actively
working on innovative environmental solutions. We are particularly committed to
building our partnership with states that are on the front lines of environmental pro-
tection, and to supporting environmental  leaders in business and communities that
are not satisfied with simply meeting baseline environmental requirements.

This partnership approach also applies within EPA. While we manage a number of
unique environmental programs, the Agency's success with innovative approaches
depends just as strongly on the efforts of our colleagues in the regional offices and
national programs. They are dynamic sources of innovation in their own right, and
indeed, I would like to thank the cross-Agency  Innovation Action Council and its
staff for the leadership they provide in advancing innovative approaches for EPA. I
would also like to recognize the creativity and innovation that has  been demonstrated
by many other staff throughout the Agency.

With a multimedia perspective and a collaborative problem-solving mind set, the
Center brings new ideas, creative partnerships, and sound analysis to environmental
policy challenges. I hope this report will encourage you to learn more about our work
and to consider us a resource that can assist you in developing innovative approaches
for improving environmental results.
              L/V,o^=
Jayoenforado, Director
National Center for Environmental Innovation

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NCEI*
NATIONAL  CENTER  FOR
ENVIRONMENTAL INNOVATION
                                                                NCE
2003
   EPA opens the National Center for Environmental Innovation.
   NCEI announces environmental partnerships with 12 major business and industry sectors.
   The first investment advisory firm begins using Performance Track in its ratings.
   A Small Business Strategy is released to unify more than  100 small business activities across EPA.
   The 2003 National Awards for Smart Growth are announced at the National Building Museum.
   The first in a series of meetings is held to help states learn about the Environmental Results Program,
   Massachusetts' innovative program for improving environmental results in small business sectors.
   Six  states are  awarded  a total of $874,000 under the State Innovation Grant program to explore
   innovative approaches to permitting.
   Three innovation projects are selected under a new EPA Improving Results Competition, which pro-
   vides resources to support evaluations and performance measurement.
   Performance measurement training is offered (to winners of the Improving Results
   Competition)—represents first EPA training in this area since 2000.
   NCEI revises the EPA Public Involvement Policy for first time in more than 20 years.
   The first NCEI Environmental Policy Forum examines barriers to reducing, recycling, and reusing
   industrial wastes.
2004
   The Administrator signs EPA's first rule giving regulatory benefits to Performance Track members.
   The Strategy for Determining the Role of Environmental Management Systems in Regulatory Programs is
   released to inform future environmental  policy and program management decisions.
   A report on Performance Track shows significant environmental accomplishments by members.
   Innovating for Better Environmental Results: A Report on Progress from the Innovation Action Council high-
   lights EPA's progress under a comprehensive innovation strategy.
   The Sector Strategies Performance Report  represents the first-ever collection of environmental per-
   formance information for 12  business and industry sectors.
   The Administrator signs a Smart Growth Strategy that explains how EPA will target Agency activities
   to encourage growth that supports environmental, economic, and community interests.

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h lights
  NCEI-sponsored research on lean manufacturing wins the Shingo Prize—considered the "Nobel
  Prize" for manufacturing research.
  EPA senior leadership adopts a set of reforms for improving Agency-wide management of voluntary
  programs.
  More than 75 percent of Performance Track charter members reapply for a second term of
  membership.
  A collaborative  partnership is initiated to eliminate mercury-containing light switches from end-of-life
  vehicles before they are shredded and prepared for steel recycling.
  Six states are awarded a total of $901,000 through the State Innovation Grant competition.
  NCEI announces the first corporate membership option for Performance Track.
  An ERP Guide is released to help  states improve management of underground storage tanks.
  The Small Business Strategy Implementation Plan is approved, which brings unity and improves effec-
  tiveness of ERA's small business assistance activities.
  The Small Business Forum brings together small business owners, states, trade associations, and gov-
  ernment agencies to discuss small  business priorities.
  A joint innovation work plan is developed in cooperation with the Environmental Council of the States.
  A white paper is drafted to increase collaborative decisionmaking at EPA.
  A new contract is negotiated to provide  EPA staff with support for all phases of the innovation
  process—from startup to evaluation to diffusion.
  A second round of innovation projects is selected for evaluation and performance measurement
  assistance under ERA's Improving Results  Competition.
  The launch of a new international  innovation Web site helps users explore innovative approaches to
  environmental protection around the world.
  An Innovation Toolkit for Rulewriters is released to help EPA staff consider a broader set of options
  during regulation development.
  The 2004 National Award for Smart Growth Achievement are announced—with an additional
  category to recognize small community achievements.
  More than 385 individuals from EPA and state programs are trained on performance measurement,
  evaluation, and the innovation process.

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Introduction..
Strong Environmental Stewardship
A Performance-Based Regulatory System	16
A Culture of Creative Environmental
Problem-Solving	
.22
Closing	28

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Introduction

Take a look at America's most successful organizations, and you'll likely see a strong
investment in research and development. There is a constant search for new ideas, a
willingness to explore their potential, and ultimately, a commitment to putting
proven ideas to work. At EPA, the National Center for Environmental Innovation
(NCEI) brings a research and development approach to environmental policy.
Working with others, we investigate new approaches, evaluate their effectiveness,
and apply what we learn to strengthen environmental protection. As the figure
below shows, this innovation process sets the stage for continuous improvement and
for new ideas to realize their full potential.
                        The Innovation Process
                        Pilot
                        Test
                      Evaluate
                       Results
 Apply
Full-scale
                                             Spinoff
                                            for Other
                                            Purposes

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NCEI plays another unique role at EPA—running a set of multimedia programs that
promote environmental stewardship in business, industry, and communities. Rather
than addressing a particular environmental issue, these programs focus on the entire
environmental footprint. They do so by looking at all aspects of environmental per-
formance. An overview of each one is provided on the next page.

Through these roles, NCEI focuses on finding new ways to achieve better environ-
mental results. That is our mission as we work to achieve three long-term goals:

•  Strong environmental stewardship in all parts of society that supports sustainable
   development and pollution prevention.
•  A performance-oriented regulatory system that allows flexible strategies to
   achieve measurable environmental goals.
•  A culture of creative environmental problem-solving that has a high capacity for
   collaborative, results-oriented work and the organizational systems needed to
   support it.

This report highlights progress toward each of these goals since our launch in 2003.
It also shows how we are contributing to the transformation that EPA and many
other organizations believe is needed to sustain a strong, effective environmental
protection system.
                            "The United States must continue to transform its envi-
                            ronmental management system, not because innovation
                            is good per se, but because the present system will not
                            solve the nation's outstanding environmental problems."

                            National Academy of Public Administration
                            November 2000

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NCEI's Stewardship Programs—Taking a Multimedia Approach
to Improve Environmental Performance

National Environmental Performance Track   This first-of-its-kind voluntary
program recognizes America's top environmental performers for their com-
mitment to continuous improvement. To qualify for membership, facilities
must demonstrate a strong and sustained history of environmental compli-
ance, use an Environmental Management System that has been assessed by
an independent third party, commit to improving environmental results in
several aspects of their operations and report on performance annually, and
share information about performance with the public. The 300-plus members
represent all major industries and range  from FORTUNE 500 companies to
small independently owned businesses to government agencies.

Sector Strategies—NCEI promotes comprehensive environmental improve-
ment in 12 major business and industry sectors. For each sector, we work
with participating trade associations, EPA programs and regions, other federal
agencies, and states on environmental strategies that are tailored to each sec-
tor's specific operations. Collectively, these sectors represent more than
750,000 establishments, employ more than II million workers, and contribute
23 percent of the value of U.S. manufacturing shipments.

Small Business—Widely recognized as the backbone of the American econo-
my, small businesses represent more than 99 percent of U.S. employers and
96 percent of exporters of all goods. Compared to their larger counterparts,
however, these businesses face a variety of environmental management chal-
lenges.  NCEI plays an important role in helping America's small businesses
manage environmental performance, acting as the official Small Business
Ombudsman and providing a variety of resources that are designed to
address their special needs.

Smart Growth—Recognizing that how and where development occurs can
affect air, land, and water resources, NCEI works with states, local govern-
ments,  developers, and nonprofit organizations to  help communities minimize
the environmental impacts of development. Our partnerships focus on pro-
viding information that can inform sound development decisions and address-
ing regulatory issues that can inadvertently hinder smart growth efforts.

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Strong  Environme,
The United States has a proud heritage of environmental progress. During the past 30
years, the country has cut pollution significantly from the most egregious sources, like
smokestacks from factories and wastewater pipes spewing into lakes and streams.
Although such images are largely a relic of the past, the 21st century brings a far more
insidious set of problems, like global climate change, polluted runoff, and loss of habi-
tat and biodiversity. These challenges are a result of the combined actions and deci-
sions made by millions of individuals and organizations every day. They can not be
completely addressed with conventional regulatory controls, but rather require all parts
of society to work together on sustainable solutions for this and future  generations.

Today, many individuals and organizations are responding to this stewardship chal-
lenge, contributing to environmental progress in a variety of ways. As this section
shows, NCEI is working to bolster this trend through strategic partnerships with
businesses and communities that want the quality of life, cost savings, and other
benefits that can come through sound environmental  management. Together, we are
finding ways to refine existing environmental policies and practices while also pur-
suing new opportunities to address  a broader set of environmental challenges.

Creating Incentives for Stewardship

As the nation's primary environmental overseer, EPA  focuses significant time and
attention on assuring compliance with environmental requirements.  But EPA recog-
nizes it also has a role to play in supporting organizations that exceed requirements.
NCEI's Performance Track program does this by creating incentives to reward top
environmental performers and motivate others to achieve similar levels of high per-
formance. The incentives are based on the premise that the government should
complement existing regulatory tools with new approaches that increase environ-
mental results, reduce environmental costs, and spur technological innovations that
ultimately can lead to even greater environmental and economic benefits.

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Performance Track offers a range of incentives, including public recognition, net-
working opportunities with peers and EPA officials, and flexibility in meeting cer-
tain regulatory and administrative requirements. Members may use the distinctive
Performance Track logo in their pub-
lic relations and advertising, and
they receive official EPA recognition
through the Performance Track Web       ^^    EHVJPODITIGntaI
site, articles in trade journals, speech-     f /       PPrformSnCPTVclC
es by senior EPA officials, and an           m U.S. Environmental Protection Agency
annual Performance Track meeting.

On the regulatory front, Performance Track members are designated as a low priority
for routine environmental  inspections and are eligible for regulatory flexibility under
the Resource Conservation and Recovery Act and the Clean Air Act. A number of
other regulatory and administrative incentives are under development. The Agency
offers these benefits because the performance- and compliance-focused
Environmental Management System (EMS) that all Performance Track  members
must have—coupled with periodic auditing, regulatory site visits, and members'
proven track records of strong environmental performance—are likely to guard
against compliance problems. In addition to saving members time and resources,
Performance Track's regulatory and administrative incentives allow EPA and state
regulators to focus on higher environmental priorities.

Results to date show that Performance Track members are going beyond legal
requirements and achieving significant environmental results. Each year, members
submit an annual performance report documenting progress toward their goals.
Cumulative results since the program's inception are shown in the box to the right.

A number of Performance  Track companies have multiple facilities registered in the
program. To recognize top  environmental performing companies that are substantial-
ly involved, NCEI announced a new Corporate Membership designation in 2004.
This designation enables EPA to promote corporate-level environmental commit-
ment, interact more directly with corporate leaders, and encourage environmentally
sound actions that can be undertaken more effectively at a corporate level, such as
decreasing the environmental  impacts that occur in the supply chain. To be eligible,
companies must have at least five facilities  and at least 25 percent of their total
operations represented in Performance Track (or similar performance-based state

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                     Performance Track Members'
                Cumulative Achievements, 2000 - 2002

       Saved 3.1 million MMBTUs of energy
       Conserved 775 million gallons of water
       Reduced hazardous materials' use by 17996 tons
       Eliminated 176,126 tons of solid waste
       Cut 6,558 tons of hazardous waste
       Prevented 40,193 tons of greenhouse gas emissions
       Prevented 2,152 tons of nitrogen oxide and 13,621 tons of sulfur dioxide
       emissions
       Reduced toxic discharges to water by 6,834 tons
       Increased use of reused or recycled materials by 13,760 tons
       Preserved or restored 4,485  acres of habitat
programs). In addition, companies must commit to increase their participation to 50
percent within five years.

A new agreement with two chemical industry trade associations—the American
Chemical Council and the Synthetic Organic Chemical Manufacturers
Association—is also expected to increase Performance Track membership. The
agreement recognizes that the industry's premiere environmental stewardship pro-
gram—known as Responsible Care®—shares many of the same principles as
Performance Track, including an emphasis on continuous improvement, sustained
compliance, and transparency of operations. Based on these similarities, EPA com-
mitted to streamlining the Performance Track application process and coordinate
the planning of site visits and audits for Responsible Care facilities. In return, the
trade associations committed to increase participation in Performance Track and to
leverage the Responsible Care program as a vehicle for continuous environmental
improvement.

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The past year also brought Performance Track's first renewal period for the charter
members accepted in 2001. The results show that memberships are highly
valued—more than 75 percent of eligible members re-applied. Those that declined
did so mostly because of difficulty in meeting the high performance criteria or
because of a change in management or ownership.
         Performance Track Supports Growth in Green  Investing

   While recognition from EPA can translate into competitive advantage for
   Performance Track members, so can recognition from the investment advisory
   industry. Since 2003, three investment advisory firms—Calvert Group, Innovest
   Strategic Value Advisors, and  KLD Research & Analytics Inc.—have begun using
   Performance Track membership as a factor in developing the ratings they use for
   guiding investment decisions. In addition to benefitting members, these develop-
   ments could lead to much greater attention to environmental performance
   within the financial management industry.
Improving Performance Across Whole Business Sectors

How can EPA maximize environmental improvement efforts? One approach is to
look for solutions that can be effectively applied to a large number of facilities. That
is the premise behind NCEI's Sector Strategies program, which partners with select
trade associations to improve environmental performance across whole business sec-
tors. Taking a highly strategic approach, NCEI works with each sector on three pri-
orities:

•  Addressing regulatory  barriers that can inadvertently hinder performance.
•  Promoting use of EMSs that can help businesses achieve a more systematic
   approach to environmental protection.
   Developing measures that enable each sector's performance to be tracked over
   time.

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                              Sector Partners
       Agribusiness
       Cement
       Colleges & Universities
       Construction
       Forest Products
       Iron & Steel
Metal Casting
Metal Finishing
Paint & Coatings
Ports
Shipbuilding & Ship Repair
Specialty-Batch Chemicals
NCEI designates a point of contact to work directly with each sector. These individ-
uals are expected to develop expertise and understanding of the issues important to
their industry so they can effectively offer assistance. Such interaction is helping to
build more collaborative, constructive relationships between EPA and our sector
partners. Bruce Backus, chair of EPA's Colleges and Universities Sector
Coordinating Committee,  described it by saying, "What is exciting...is that this
effort has opened a truly meaningful dialogue. We are able to discuss issues that have
been a concern to  our sector for more than 20 years. These dialogues...have at their
foundation a sense of partnering, candor, and a commitment to improve environ-
mental stewardship."

The increased dialogue and interaction often reveal opportunities for improving
environmental results within the sectors. For example, in response to the specialty-
batch chemical industry's interest in EPA's growing number of voluntary programs,
NCEI worked  with the sector's trade association on a guide that helps business own-
ers and managers decide which of the more than 70 programs best suit their inter-
ests. This new tool provides information on 16 programs that are directly applicable
to specialty-batch chemical operations.

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                    The efforts to promote EMSs vary by
                    sector. In some sectors, EMS is still a rel-
                    atively new concept and so the emphasis
                    is on development. For example, in
                    2004, NCEI and the American
                    Association of Port Authorities began
                    assisting 11 ports in their EMS develop-
                    ment, all of which will serve as models
                    for other ports around the country. In
                    other sectors, EMS use has evolved to a
                    point that industry trade associations are
                    incorporating EMSs into their environ-
                    mental stewardship programs. This year,
                    both the American Meat Institute and
                    the Society of Organic Chemical Manufacturers included EMS tools, developed
                    with NCEI, into their new stewardship initiatives.
                                Looking at "Lean" As a Sound Stewardship Strategy

                       In recent years, use of lean manufacturing has taken off in the United States as
                       organizations look for ways to cut costs, reduce waste, and improve product
                       quality. This business model focuses on continuous improvement, and although
                       most adopters use lean manufacturing to gain competitive business advantages,
                       the  more efficient practices can also help with environmental stewardship goals.
                       Recognizing that lean techniques could be helpful for improving environmental
                       results in a number of industries, NCEI is studying its use in private companies as
                       well as the U.S. military. The findings to date  show that lean techniques produce
                       a robust waste elimination culture and create strong financial incentives for
                       resource conservation and pollution prevention. In 2004, NCEI-sponsored
                       research earned the Shingo Prize for Research that Fosters Excellence in
                       Manufacturing Business.  Dubbed the "Nobel  Prize for Manufacturing," this award
                       recognizes and promotes awareness of research on lean manufacturing processes
                       in the United States, Canada, and Mexico.
10

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To track performance trends in each industry, in 2004, NCEI released the first
Sector Strategies Performance Report. The report provides a profile on each indus-
try's operations, highlights environmental performance trends during the last 10
years, and identifies the best opportunities for improving environmental perform-
ance in  each sector in the near-term. It represents the first time EPA has assembled
such a comprehensive portrait of environmental performance on business and indus-
try sectors, and reveals the data gaps that need attention in order to improve per-
formance reporting in the future.

Focusing on the Needs of Small Business

As EPA's leading advocate for small business, NCEI works to understand and address
the many issues that can improve environmental stewardship in small businesses.
For example, several times a year, NCEI organizes a meeting among EPA's Deputy
Administrator and trade associations that represent millions of small businesses.
This forum gives the small business community a unique opportunity to raise issues
that are important to them. Recognizing that the bulk of assistance is provided by
others, NCEI also sponsors a yearly conference for state small business assistance
providers, trade association representatives, small business owners, and other small
business stakeholders to learn and share information about helping the small busi-
ness community. This event is key in helping to better coordinate small business
assistance delivery mechanisms.

In 2004, NCEI worked with others to create more comprehensive environmental
assistance programs for small businesses. Currently, the bulk of government-spon-
sored environmental assistance comes from State Small Business Assistance
Programs. But because these programs are authorized under the Clean Air Act, they
tend to  focus mostly on air issues. Recognizing the need for help in a range of areas,
NCEI, the national air program, and EPA small business advisory groups agreed to
work toward multimedia services. As a first step, we are researching state programs
to identify those that already incorporate other media to some degree. The goal is to
identify existing models that can demonstrate the value and viability of multimedia
assistance programs and to then work with states to build support for these programs
nationally.

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In 2003, NCEI released a strategy to unify and improve the effectiveness of more
than 100 EPA small business initiatives. The EPA Small Business Strategy focuses
on strengthening advocacy for small businesses within EPA, expanding small busi-
ness involvement in the regulatory development process, providing environmental
assistance tools and resources, and promoting small business participation in envi-
ronmental leadership programs, such as Performance Track. To follow through on
those commitments, NCEI led the Agency in planning implementation activities.
Priorities include identifying opportunities to involve small businesses early in the
rulemaking process, considering small business needs and limitations in e-govern-
ment developments, and establishing full time small business contacts in each EPA
regional office. Together the strategy and implementation plan provide EPA with a
comprehensive framework for improving assistance to small businesses. During a
Small Business Forum in 2004, small business stakeholders were asked to reaffirm
the commitments EPA made in these products, to test their effectiveness and to
continuously provide feedback on how well services are working.
                       "On Call" for Small  Business

   One of the many ways NCEI assists small businesses is through a toll-free hot-
   line. Each month, the hotline responds to more than 1,000 calls. From air quality
   to pesticides to underground storage tanks, small business owners and managers
   receive the guidance they need to address a range of environmental challenges.
Supporting Smart Growth

NCEI is working with a variety of stakehold-
ers on smart growth strategies that support
environmental stewardship in communities.
These strategies are designed to protect the
environment by preserving open space and
parklands, protecting critical habitat, improv-
ing transportation choices to reduce automo-
bile emissions, cleaning up and revitalizing
brownfields, and reducing paved surfaces to
decrease polluted runoff into waterways.

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In cooperation with the Smart Growth Leadership Institute, the University of
Southern California, and the University of Colorado, NCEI is assisting nine com'
munities around the country with smart growth initiatives. A team of experts is
helping each one assess development codes and ordinances to ensure that they pro-
vide for a variety of housing and transportation choices, preserve parks  and other
critical environmental areas, and locally enhance sense of community. They are also
helping create design standards and review protocols that can increase certainty and
predictability in each community's development process. The lessons learned from
these communities will be incorporated into a national Smart Growth
Implementation Kit that will provide guidance to many more communities that
want the development, tax, transportation, and open space benefits that smart
growth strategies can provide.

Participation in the national Smart Growth Network provides another  important
partnering opportunity, enabling NCEI to leverage the expertise and resources of
more than 30 other organizations that share smart growth interests.  As  part of the
Network, NCEI hosts a Smart Growth Forum in cooperation with the National
Building Museum in Washington, D.C. Recognized as a leading venue for discussion
on development issues, this monthly event presents a variety of approaches and
tools for encouraging development that serves the economy, community, and envi-
ronment. Previous speakers have discussed transportation choices, best  development
practices, energy and resource efficiency, architecture and design, local  activism, and
many other topics.

NCEI also develops guides and other resources to pro-
mote understanding of smart growth principles. For
example, based on the strong response to Getting to
Smart Growth: Policies for Implementation, which was
developed in cooperation with the International
City/County Management Association, NCEI and the
association collaborated on a second edition. The  lat-
est guide Protecting Water Resources with Smart Growth,
which was released in 2004, provides information on
100 additional smart growth policy tools. Demand has
been similarly strong for this new document, which
provides information on 75 innovative approaches,
such as growing rooftop gardens and creating shared parking spaces, that can help
communities achieve smart growth and water quality goals. More than  40,000 copies
were distributed in the first month alone.
Protecting Water Resources with
Smart Growth

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2004 Winners of the
National Award for Smart Growth Achievement

Built Projects: The  city of Greensboro, North Carolina, capitalized on a rich
stock of historic buildings and public spaces to create a new development that
is revitalizing the  downtown neighborhood. Located just one-and-a-half blocks
from the city's historic main street, the new development has transformed this
blighted area into a thriving, attractive district. Once complete, tax revenues
are expected to  be 25 times higher than revenues prior to  redevelopment.

Community Outreach and Education: The Sacramento Area Council of
Governments involved private business, 30 government agencies, and more
than than 5,000 individuals in the development of a blueprint for managing
regional growth.  During the course of two years, participants debated various
land use, housing, and transportation  choices, then evaluated and voted  on
four proposed scenarios. The winning selection is now  the basis of a regional
plan that will guide  development through 2050.

Policies and Regulations: To provide  seniors, students,  and other residents
with more affordable housing choices, Santa Cruz, California, revised its  regula-
tions to make it easier for homeowners to build "accessory units" on their
property. These new residences are created by converting all or part of a
garage  into housing, or by building new structures  on a homeowners property.
They provide homeowners with an additional source of income and provide
additional options to people who need smaller, more affordable housing
choices.

Small Communities: The San Juan Pueblo developed the first smart growth
model  for Indian  tribes. Their master plan reflects the same commitment to
community, environmentally sound designs, and pedestrian-oriented villages
that have long been a part of the tribe's 700-year heritage.

Overall Excellence: Davidson, a small North Carolina community, is setting
the standard for  creating historic, healthy, vibrant neighborhoods. A land plan,
innovative planning  ordinance, and smart growth policies are reinforcing
Davidson's goal of creating connected, walkable neighborhoods that maintain
its traditional, small  town legacy.

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NCEI's annual National Award for Smart Growth Achievement provides another
important mechanism for promoting smart growth. Now in its third year, this award
program has recognized an impressive array of projects, policies, and programs that
promote healthy, vibrant communities. Each recipient has used smart growth princi-
ples to create places that celebrate community culture, protect the environment,
foster economic development, and enhance quality of life. The 2004 award winners,
highlighted on page 14, provide national smart growth models for other communi-
ties around the country.

Recognizing the many ways EPA can help address development issues, the
Administrator signed  EPA's first Smart Growth Strategy in 2004.  Developed with a
cross-Agency team, the strategy lays outs how EPA will target existing efforts to
reduce environmental impacts of development while enhancing economic and com-
munity benefits. It focuses on promoting infill and redevelopment, developing smart
transportation solutions, partnering on innovative development and building regula-
tions, supporting smart growth initiatives in states, and ensuring EPA's own policies
recognize smart growth benefits.

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A  Performance-Based  Regulatory  System
The United States is widely recognized as having one of the strongest environmen'
tal regulatory systems in the world. Indeed, our regulations provide the first line of
environmental protection defense and help ensure a level economic playing field
among competitors. Nevertheless, there are opportunities to achieve better results
from regulations, while also adding more flexibility and reducing regulatory burden.

Within EPA, NCEI acts as a catalyst for new regulatory approaches. As the follow'
ing examples show, we are committed to developing incentives, alternative compli-
ance options, and other enhancements that can help businesses and other organiza-
tions achieve their environmental goals as efficiently and effectively as possible.
                 A Strategy for Determining the Role of
                      EMSs in Regulatory Programs

  As the previous section showed, EMSs are a key component of many steward-
  ship programs,  providing organizations with a way to integrate environmental
  goals into everyday operations. EPA formally stated its support of EMSs in  1999.
  Since then, EPA's support for voluntary use of EMSs has grown, as is evident in
  numerous voluntary programs and policies with EMS components. Although EPA
  will continue to promote voluntary adoption of these important management
  tools, the surge in use is raising questions about how they might also be helpful
  in regulatory programs. In 2004, NCEI developed an EPA policy research strategy
  that will help answer that important question. The Strategy for Determining the
  Role of EMSs in Regulatory Programs is designed to  assess how EMSs might be
  used in regulations to increase environmental results, reduce costs, improve com-
  pliance, maximize government resources, and enhance public involvement.

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Improving Permitting

Ask businesses and other organizations how to improve
environmental regulation, and first responses are likely
to focus on permits—the legal instruments by which
states and EPA implement environmental laws. From
the start, NCEI has focused on permitting improve-
ments that get better results for regulated facilities as
well as regulatory agencies. For example, nearly a
decade of testing more flexible permits under the Clean
Air Act has shown they can lead companies to make
production improvements that significantly reduce emissions. As a result, NCEI is
now working with the national air program on a rule to increase use of flexible per-
mits. In addition, we are working together on a plan that would provide this option
for facilities that have already shown a commitment to continuous improvement:
members of Performance Track. Flexible permits are already under development for
three  Performance Track members—a 3M facility in Texas, another 3M facility in
Missouri, and a Baxter Healthcare facility in Arkansas. When completed, these
facilities will be able to make operational changes more quickly than under tradi-
tional permits, a critical need in their dynamic business environments.

NCEI has also been instrumental in helping states learn  about an alternative per-
mitting program that has proven highly successful in Massachusetts. The
Environmental Results Program (ERP) focuses on improving environmental per-
formance in sectors that are comprised mostly of small businesses. In these sectors,
the sheer number of facilities can make it difficult for regulators to track and oversee
each business's performance. Rather than issuing permits to each business,
Massachusetts developed an alternative approach that requires the small business
owner to check for and self-certify environmental compliance. The state also devel-
oped compliance assistance materials that help owners understand their legal
requirements and statistically based measures that allow environmental performance
to be  tracked over time. Enforcement and inspections are also an integral part of the
ERP process.

Massachusetts and other states' results show this approach can be highly effective.
For example, the Massachusetts photo processing industry's compliance with one
water quality requirement rose from 60 percent to 98 percent under ERP. Similarly,
in Florida, the average number of environmental violations at auto  body repair
shops dropped by 42 percent.
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NCEI's role in ERP is to help other interested states adopt similar programs.
Thirteen states and the District of Columbia are now applying this innovative
approach across 15 business sectors. After experiencing success with an initial sector,
some states have decided to expand ERP to other sectors. As use increases, so does
the nature of problems being addressed. For example, a number of states are consid-
ering ERP as a sound approach for addressing a widespread challenge—reducing
leaks to underground storage tanks. With more than 700,000 tanks still in use,
NCEI developed an ERP workbook that will help states interested in using this
approach.

The growth of ERP is an excellent example of how an innovative idea can take
hold. Massachusetts pilot tested a novel approach to permitting, and based on the
results, other states are now adapting this approach to better address their own envi-
ronmental challenges.

Permitting improvements have also been the priority under an NCEI State
Innovation Grant program. Since inception, NCEI has awarded 15 states more than
$2 million to explore a variety of permitting innovations—from watershed-based
permits  to electronic  systems that streamline the application process to the ERP
model described above. These investments represent a strategic approach to permit-
ting reform; we consult with states to determine the permitting improvement priori-
ties, set  up a competition to select the best ideas, and then provide resources so the
testing can begin. The results are beneficial to the states participating in the pilot
projects and to other states that stand to learn from the results.
                      Supporting Innovation in the States

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For example, many states are interested in more efficient ways of handling storm-wa-
ter permits. Under the Clean Water Act, these permits are required for millions of
sources, including many small businesses. With support from the State Innovation
Grant program, Arizona created a Web-based system that streamlines the stormwa-
ter permitting process. The new system, which screens potential applicants and
directs those that require permits to the appropriate application, reduces the time
required to obtain a permit from 30 days to four days. Likewise, it reduces the num-
ber of state agency staff required to run the program from 30 individuals to less than
five. In addition to saving state resources, Arizona expects this simplified approach
will lead more businesses to obtain permits and achieve compliance.

In Colorado, a new permitting approach led the state to change its law. In 2003,
Colorado received a State Innovation Grant to test multimedia, EMS-based permits.
These permits give companies the option of developing a single EMS that includes
all applicable pollution limits rather than operating with multiple air, water, and
waste permits. In addition to streamlining the permitting  process, this approach
encourages companies to look at the full range of environmental impacts and the
best solutions for reducing them.

Rewarding Environmental Excellence

In 2004, NCEI took an unprecedented step toward creating a more  performance-
based regulatory system by issuing a rule that—for the first time in EPA's
history—treats environmental leaders differently. The rule reduces regulatory over-
sight in several areas for the distinguished members of Performance  Track.
Specifically, it reduces reporting required  under the Maximum Achievable Control
Technology provisions of the Clean Air Act and extends  onsite storage times
required under the Resource Conservation and Recovery Act for certain hazardous
wastes. These benefits are expected to net a $700,000 savings for members during
the next three years. While these savings are modest,
they represent a down payment on a larger set of benefits
that we expect to increase over time.

With this in mind, NCEI is now working with
Performance Track members and other stakeholders to
identify additional regulatory benefits.  In September
2004, for example, NCEI and EPA's national water pro-
gram convened stakeholders for a discussion of possible
incentives that could be offered under the Clean Water
Act. The discussion focused on expediting permitting,

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                    reducing monitoring and reporting requirements, allowing voluntary actions in lieu
                    of regulatory standards, and other options. NCEI is now taking this input into
                    account, as work continues on additional incentives for Performance Track facilities.

                    Finding Regulatory Alternatives

                    Historically, EPA has dealt with some of the nation's most serious environmental
                    problems, such as air and water pollution, by requiring the best performing pollution
                    control technologies. In some cases, this approach is required under federal environ-
                    mental laws. But in others, there is flexibility to consider alternatives.  Such is the
                    case with regard to controlling hazardous air pollutants from "area sources" under
                    the Clean Air Act. The 1990 amendments require EPA to develop a national strate-
                    gy to control emissions of 30 hazardous air pollutants from 70 area sources. Because
                    the majority of these sources are small businesses, the  regulatory burden created by
                    the new requirements could be significant for many small business sectors. To lessen
                    the potential burden, NCEI is working with the national air program and external
                    stakeholders to identify cost-effective strategies for reducing emissions  from the vari-
                    ous sources.

                    Our work with the iron and steel sector has led
                    us to investigate an alternative approach for
                    addressing emissions from electric arc furnaces,
                    the devices used at mini-steel mills for steel
                    recycling. These furnaces consume recycled
                    steel from shredded automobiles and other
                    sources, and they are the fourth leading source
                    of mercury air emissions in the United States.
                    Requiring emission control technology is one
                    option for addressing them. Recognizing a
                    potentially better way, however, NCEI launched
                    a collaborative partnership that  engages
                    automakers, automobile dismantlers, shredders,
                    and steel makers, as well as states and environ-
                    mental groups in devising an alternative approach. Their efforts are focused on the
                    very root of the problem—mercury-containing convenience light switches.  While
                    these switches are no longer used in domestic manufacturing, they are  still found in
Source: Institute of Scrap Recycling Industries, Inc.
20

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vehicles manufactured before 2003 and can contaminate recycled steel if they are
not removed before the vehicles are shredded. The affected stakeholders are working
to create a program to ensure switch removal in a safe, cost-effective manner, know-
ing the results could have significant influence on the new area source rule.

NCEI's sector strategy with the forest and paper industry
also focuses on regulatory alternatives. In this case, the
alternative would not be for a single rule, but for a suite
of air pollution requirements that are  expected for the
industry during the next 15 to 20 years.  EPA has begun a
stakeholder dialogue to consider alternative environmen-
tal protection approaches that take into consideration
the future evolution of industry operations from a tech-
nological, economic,  and environmental perspective.
Stakeholders will work collaboratively to define a com-
mon future vision of industry trends. This task will
involve assessing emerging multi-pollutant, air-shed, and
market-based regulatory models, as well as innovative approaches outside the cur-
rent regulatory framework. The sector-based effort has the potential to define more
effective  performance models that will provide better coordination of existing and
future industry requirements, increased flexibility to achieve requirements,  incen-
tives for continuous improvement, and a stronger focus on environmental results.

Addressing Regulatory Barriers

NCEI's work with business and community stakeholders provides many insights into
how well environmental programs and rules are working or where a requirement
inadvertently hinders environmental improvements. NCEI works to eliminate these
regulatory barriers in a number of ways; for example, many industries today are
interested in reducing, reusing, and recycling materials that are considered  waste
under the Resource Conservation and Recovery Act (RCRA). In November 2003,
NCEI held the first NCEI Environmental Policy Forum to examine barriers to these
environmentally beneficial practices and devise recommendations for addressing
them. The recommendations were later presented to EPA's national waste program
to help inform RCRA policy decisions.
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                    Although innovative solutions can occur in a moment of quick, brilliant insight,
                    most evolve in a far less dramatic fashion. They are a result of many factors, includ-
                    ing creative thinking, a willingness to try new ideas and, in the case of organiza-
                    tions, support from the top leadership. This section shows how NCEI is working to
                    create a culture of creative environmental problem-solving within EPA and within
                    other organizations that share our interests in improving environmental results.

                    Transcending Organizational  Barriers

                    While EPA's individual programs and regions often pursue innovative approaches for
                    improving results in a particular area, some concepts may be relevant for many or
                    even all parts  of the Agency. With its multimedia perspective, NCEI is uniquely
                    positioned to recognize these cross-cutting opportunities and to bring together EPA's
                    senior leadership to address them. This is accomplished through the EPA
                    Innovation Action Council (IAC) that is made up of EPA's Deputy Assistant
                    Administrators and Deputy Regional Administrators.

                    Working in cooperation with NCEI, the I AC sets the Agency's overall innovation
                    strategy and brings extensive experience to bear in addressing policy and manage-
                    ment issues related to innovative approaches. In the past year, the IAC has been
                    instrumental in addressing an increasingly important issue for EPA—improving
                    Agency management of a growing set of voluntary stewardship programs, such as
                    ENERGY STAR® and Waste Wise. During a six-month period, the I AC inventoried
                    and evaluated voluntary programs and instituted a number of reforms to improve the
                    quality of program design and coordination among programs within the Agency.
                    These reforms will simplify participation for external customers and help ensure that
                    EPA's investments in voluntary programs are  achieving the best possible results.
22

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The IAC has also been engaged in the development of several multimedia strategies
for EPA. The Small Business, EMS Research, and Smart Growth strategies described
earlier in this report have all been crafted with IAC input. In addition, the IAC has
played a key role in making innovation investment decisions. Part of its job is to
look across the spectrum of initiatives and decide which ones merit use on a larger
scale.  For example, EPA's decision to promote Massachusetts' ERP program to other
states  was based in large part on IAC endorsement. More recently, the IAC has
focused  on expanding Performance Track. This expansion will be accomplished by
working on additional incentives and by promoting the program to states that have
considerable influence on how those incentives are applied.
                         Sharing Innovation Results

   In 2004, NCEI released Innovating for Better Environmental
   Results: A Report on Progress from the Innovation Action Council.
   The report highlights EPA's progress under a comprehensive
   innovation strategy released in 2002. It describes innovative
   approaches being used to  address priority environmental
   problems and a variety of tools and approaches that are
   enhancing environmental problem-solving. It also describes
   how EPA is strengthening its innovation efforts with states and tribes and foster-
   ing innovation internally through the Agency's culture and organizational systems.
   These descriptions provide numerous insights into how environmental programs
   are evolving to meet the demands of today's world, and highlights how impor-
   tant innovation is for sustaining environmental progress.
Supporting Evaluation

Although routinely tracking results and periodically evaluating overall performance
are important for all programs, these actions are especially important when dealing
with relatively new concepts.  To assess how well innovations and other programs are
working and to support the transformation to a more performance-based environ-
mental protection system, NCEI teamed up with EPA's Office of the Chief Financial
Officer to provide resources for programs to conduct evaluations and develop per-
formance measures. Contractor expertise and financial assistance are provided
through an annual Improving Results Competition.
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                    Evaluation of innovative projects is one of the
                    competition's main focus areas. For example,
                    the national waste program received support
                    in 2003 to evaluate rules that are designed to
                    increase flexibility in the management of cer-
                    tain hazardous wastes under RCRA,  and ulti-
                    mately, increase hazardous waste recycling.
                    The evaluation revealed key factors that influ-
                    ence hazardous waste recycling decisions and
                    led to recommendations that could help the
                    program increase recycling opportunities in the future. Another recipient is focusing
                    on the effectiveness of the Hospitals for a Healthy Environment Program—a volun-
                    tary initiative that encourages members to prevent healthcare waste and targets the
                    virtual elimination of mercury-containing waste from the healthcare sector by 2006.
                    The results will help EPA make program improvements and identify successful
                    approaches that can be shared throughout the healthcare sector. Although these and
                    other evaluation efforts will help improve results of the select programs, they will
                    also build critical skills that will help improve many more environmental initiatives
                    in the future.
                                            Guiding Innovation Analysis

                       To help innovators inside and outside of EPA, NCEI released a Guide to
                       Analyzing Environmental Innovations in 2004. Based on innovation theory and the
                       experiences of EPA's own innovation practitioners, this new resource provides
                       analytical guidance on  all phases of the innovation process—from startup to
                       testing to diffusion. Now out for public comment, it consists of six modules that
                       can help users think critically about how to:

                       •  Describe their innovation
                       •  Assess environmental results
                       •  Determine cost-effectiveness
                       •  Assess the practical enforceability
                       •  Evaluate the effectiveness of public involvement
                       •  Determine transferability
24

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Building evaluative skills is also the driver behind NCEI's new performance meas-
urement training. Recognizing that performance measures are the building blocks for
the evaluation process, NCEI developed a training course to help EPA and state
staff develop and apply these important management tools. More than 385 individu-
als received training this past year.

Improving Public Involvement

Involving the public in the development of innovative approaches can be another
useful way of obtaining information to improve environmental programs. Indeed,
outside parties can provide EPA and other regulatory agencies with valuable insights
that help inform environmental decisionmaking.
Given its importance, NCEI issued a new public
involvement policy for EPA in 2003. The new policy
provides EPA with guidance on effective means of
involving outside stakeholders in environmental deci-
sionmaking. The first revision in more than 20 years, it
reflects the experiences EPA has gained with public
involvement during the last two decades and some pro-
found changes that have occurred in that timeframe.
For instance, the previous policy had no references to
what is now a powerful and commonly used tool for
communicating with stakeholders—the World Wide
Web.
Along with providing policy leadership, NCEI also acts as a clearinghouse for public
involvement information. Guidance is offered on a range of topics, such as how to
involve the public in siting a hazardous waste landfill, how to run a negotiated rule-
making, and how to engage effectively with Indian tribes.

Fostering Collaborative Problem-Solving

Although EPA has a long and successful history of working with outside parties to
address environmental priorities, in 2004, the Administrator challenged EPA to
raise this concept to a new level. Recognizing the importance of involving others in
efforts to address an increasingly complex set of challenges, the Administrator
directed a team from NCEI and the Innovation Action Council to explore ways of
improving collaborative problem-solving within the Agency. As a result, several
                                                                                              25

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                    capacity-building efforts are underway. For example, EPA managers in the Senior
                    Executive Service have received training on how to use collaborative approaches in
                    their programs and regions. In addition, NCEI led the development of a first-ever
                    EPA policy to guide collaborative decisionmaking processes. The policy recognizes
                    collaboration as one of many tools EPA can use to achieve environmental results,
                    and that when used effectively, it can be a powerful means of achieving environ-
                    mental goals. Through its multimedia performance programs like Smart Growth and
                    Sector Strategies, NCEI also works on the ground to demonstrate the effectiveness
                    of collaborative problem-solving in tackling challenging environmental problems.

                    Main stream ing Innovation

                    To maximize the value of proven approaches, NCEI strives to share information and
                    results  that can be helpful to others. For example, in 2004, we developed an
                    "Innovation Toolkit for Rulewriters." This new resource gives EPA staff information
                    about alternative regulatory approaches so they can consider options before making
                    important regulatory decisions.

                    Another example is a new inter-
                    national innovation Web site.
                    This online resource allows users
                    inside and outside the Agency to
                    explore numerous innovative
                    initiatives being undertaken
                    around the world to address
                    challenging environmental prob-
                    lems. It provides access to envi-
                    ronmental policies and best
                    practices; links to journals and
                    databases; case studies involving
                    innovations in air, toxics, waste,
                    and water issues; as well as multimedia approaches, such as EMS, sustainable trans-
                    port, and smart growth. Information is also available on state and local initiatives
                    with international partners that have resulted in creative environmental  solutions,
                    such as constructed wetlands to treat wastewater, green buildings and renewable
                    energy to address climate change and air pollution, and industrial ecology to achieve
                    pollution prevention in the United States. Users  can also  find information about
                    international fellowships as well as evaluations of innovation programs.
www.epa/gov/innovation/international
26

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Supporting State-Led Innovation

Because much of the on-the-ground work associated with environmental programs
happens at the state level, states are arguably in the best position to see how well
various programs are working and to develop innovative strategies for improving
them. NCEI invests considerable effort in supporting this critical aspect of state
work. For example, NCEI launched the State Innovation Grant Competition,
described earlier, to provide states extra resources for  innovative pursuits. NCEI has
also invited states to be part of the I AC meetings so their views about policy  issues
related to innovative approaches can be raised at EPA. Helping states learn about
innovations, like ERP, is yet another way. All of these efforts are contributing to a
stronger relationship between states and EPA, and building more capacity for inno-
vative environmental problem-solving.

One sign of this is a joint innovation work
plan between states and EPA that focuses on
a set of priority issues. These include the
development of Community Actions for a
Renewed Environment, or CARE, a volun-
tary program for reducing exposure to toxic
pollutants at the community level. Another
priority focuses on increasing the number of
pollution budgets (known technically as
"total maximum daily loads" or TMDLs)
that are required under the Clean Water
Act for rivers, lakes, and other water bodies
that are not meeting water quality goals.
These budgets can be very time-consuming and resource-intensive to prepare, and so
NCEI is working with states to identify innovative approaches for completing them
faster and cost-effectively.
Photo courtesy of USDA NRCS
                                                                                               27

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                    Closing

                    Since our launch, NCEI has made steady progress toward goals that are important
                    for achieving the next generation of environmental progress. The Center has put
                    mechanisms in place to support innovation in many aspects of EPA's work, and we
                    continue building strong partnerships—inside and outside the Agency—with others
                    that share an interest in improving environmental results.

                    Previous experience has shown us that the kinds of changes we are working to bring
                    about can take time. Indeed, the Environmental Results Program described in this
                    report, which is now being replicated in other states, began as a pilot project in the
                    late 1990s. Likewise, some of the current proposals for improving environmental
                    regulation reflect learning from pilot projects that have been underway for several
                    years.

                    Looking ahead, NCEI will continue to explore innovative approaches to environ-
                    mental protection. In doing so, we expect to gain new information, insights, and
                    models that are needed to transform our environmental protection system and to
                    assure continued progress.
28

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For More Information

Learn more about NCEI and innovation at EPA by visiting
             
Address:    National Center for Environmental Innovation
           U.S. EPA
           MC I808T
           1200 Pennsylvania Ave., NW
           Washington DC 20460

Telephone:  (202) 566-2119

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