Recent Experience In Encouraging the Use of Pollution Prevention In Enforcement Settlements: A Handbook For EPA Regions


PxEPA
            United States ,
            Environmental Protection
            Agency
             Enforcement And
             Compliance Assurance
             (2225)
EPA 300-R-95-005
May 1995
Encouraging The Use Of
Pollution Prevention In
Enforcement Settlements
A Handbook For EPA Regions
                                   Recycled/Recyclable
                                   Printed on paper that contains
                                   at least 50% recycled fiber

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                          TABLE OF CONTENTS

I PURPOSE AND ORGANIZATION OF THE HANDBOOK	1-1

II  POLLUTION PREVENTION, TECHNOLOGY INNOVATION AND
      DIFFUSION	IM
      A.  POLLUTION PREVENTION	II-l
      B.  TECHNOLOGY DIFFUSION	II-l
      C.  TECHNOLOGY INNOVATION	II-2

III THE ROLE OF POLLUTION PREVENTION IN ENFORCEMENT	III-l

IV RECOGNIZING AND CREATING THE POTENTIAL FOR POLLUTION
      PREVENTION IN A FIRM:  TECHNICAL AND ORGANIZATIONAL
      FACTORS	V-l
      A.  TECHNICAL FACTORS	V-l
           1. Pollution Prevention Information, Knowledge and Expertise on the
                 Part of the Firm .	 . .	V-l
           2.  The Role of the Consultant  .	'..'...'	V-2
           3.  Potential to Transfer Technology Within the Company	V-3
           4.  Potential for Innovation  ..:....	V-3
           5.  Fear of Technical Failure  	V-4
      B.  ORGANIZATIONAL FACTORS	V-4
           1.  Support from Top-Level Decisionmakers  . '.	V-4.
           2.  The Role of the Firm's Legal Counsel	: .  . . V-5
           3.  Economic Considerations .	V-5

V  ELEMENTS OF A SUCCESSFUL NEGOTIATION PROCESS AND
      SETTLEMENT	VI-1
      A.  ELEMENTS RELEVANT TO BOTH INJUNCTIVE RELIEF AND SEPS  VI-1
           1.  Structuring the Negotiation Process	 VI-1
           2.  Provision of Information	VI-2
           3.  Timing and Time Allowed for Pollution Prevention Responses .... VI-2
           4.  Project Monitoring  .......		VI-2
           5.  Multi-media Approaches and Multi-Media Pay-offs	VI-2
      B.  ELEMENTS PARTICULAR TO SEPs	VI-3
           1.  The Need for, and Use of, Pollution Prevention Knowledge and
                 Expertise	VI-3
           2.  Technically difficult or risky projects -.,.'.	VI-5
           3.  Providing Adequate Incentives to Firms Without "Giving Away the
                 Store"	VI-6
      C.  ELEMENTS PARTICULAR TO INJUNCTIVE RELIEF	VI-6
           1.  Achieving Compliance	 VI-6
     -     2.  Pollution Prevention Knowledge and Expertise	VI-7
                                   11

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                    TABLE OF CONTENTS (continued)
VI CONCLUSION	VII-1
QUESTIONS TO GUIDE NEGOTIATION OF
POLLUTION PREVENTION IN SEP'S AND INJUNCTIVE RELIEF CASES
VII-2
APPENDICES

APPENDIX A
 A-l
                                in

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                                       TABLES


Table A-l.  A Tabular Summary of Individual Cases	A-3

Table A-2.  SEP Case Study Original and Final Penalties, and Project Costs  	A-29

Table A-3.  Summary of Environmental and Health Benefits of Pollution Prevention  . A-32
             Enforcement Case Studies

Table A-4.  Characterization of Pollution Prevention Technological Changes  	A-38
             Made by Case Study Firms According to Locus and Degree of Change

Table 4-5.  Time to Implement Pollution Prevention Projects	A-43



                                      FIGURES


Figure 2-1.   Locations of Technological  Change for Pollution Preventions  	   II-1

Figure 2-2.   A Model for Regulation-Induced Technological Change	   II-7
                                         IV

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ENCOURAGING THE USE OF

POLLUTION PREVENTION IN ENFORCEMENT SETTLEMENTS:

A HANDBOOK FOR EPA REGIONS

I PURPOSE AND ORGANIZATION OF THE HANDBOOK

The purpose of this handbook is to motivate interested agency personnel to broaden the use of,
pollution prevention as the means of correcting violations (i.e., injunctive relief) and as
Supplementary Environmental Projects (SEPs), i.e., pollution prevention hi exchange for some
degree* of penalty reduction.

This handbook follows a study1 conducted by the authors of the role of, and opportunities for,
the use of pollution prevention in the agency's enforcement programs. The primary objective
of the study was to evaluate the inclusion of pollution prevention hi selected enforcement
settlements. Ten specific settlements-negotiated by the EPA regions before or during FY 1992-
were analyzed.2

This handbook is organized into five sections. In Section II we review the concepts of pollution
prevention, technology innovation, and diffusion. Section III contains a discussion of the role
of pollution prevention in the agency's enforcement program. Section IV contains suggested
approaches for recognizing and creating the potential for pollution prevention in firms. Section
V presents strategies that can facilitate the inclusion of pollution prevention conditions as
injunctive relief or as SEPs. Finally, in Appendix A we present a summary of ten case studies
of enforcement settlements containing pollution prevention conditions, case study commentary
and analysis.
1 Becker, M.M., and Ashford, N.A., "Recent Experience in Encouraging the Use of Pollution
Prevention in Enforcement." Prepared for the Office of Enforcement, U.S. Environmental Protection Agency,
February 1994.

2 Summaries and analysis of the case studies are presented in Appendix A of this handbook. The
full case studies can be found in the full report cited in footnote 1.

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II POLLUTION PREVENTION, TECHNOLOGY INNOVATION AND DIFFUSION

A. POLLUTION PREVENTION

Pollution prevention, according to the Pollution Prevention Act of 1990, is:

the reduction or prevention of pollution at the source by any practice which reduces the
amount of any hazardous substance, pollutant or contaminant entering any waste stream
or otherwise released into the environment (including fugitive emissions) prior to
recycling, treatment or disposal; and which reduces the hazards to public health and the
environment associated with the release of such substances, pollutants, or contaminants.

While pollution can often be prevented by changing operating practices, the focus of this
handbook is on pollution prevention through technological change involving one or more of the
following activities: materials substitution, product reformulation, and process modification.
Based on the above definition, Figure 1 presents the possible locations of technological change
for pollution prevention.
PROCESS MODIFICATION
MATERIALS —
SUBSTITUTION
t
-^ PRODUCTION PROCESS
PRODUCT
REFORMULATION
IN-PROCESS RECYCLING
Figure 2-1. Locations of Technological Change for
Pollution Prevention.
B. TECHNOLOGY DIFFUSION

Pollution prevention technological changes may be achieved either through technology diffusion
or innovation (described below). The term diffusion is typically used to mean the widespread
adoption of existing technology, involving minor adaptation but little or no innovation. The term
technology transfer refers to diffusion between different industries or countries. A significant
array of effective pollution prevention technology exists and can be adopted with little or no
adaptation. Aqueous-based and mechanical cleaning alternatives to organic solvent-based
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systems, water-based paints and powder coating alternatives to organic solvent-based coatings,
and water or soy-based inks as an alternative to solvent-based inks are but a few examples of
pollution prevention technologies which are fairly well developed for many applications.

The accessibility of technical information and assistance (e.g., through consultants and equipment
vendors) is a critical factor in diffusing pollution prevention technology, particularly where small
and medium-sized firms are concerned. In contrast to technological innovation (described
below), as a general rule diffusion of pollution prevention technologies requires little structural
or cultural change in the firm.
C. TECHNOLOGY INNOVATION

Innovation is the first commercial exploitation of a new invention and can be categorized hi
various ways.3 Major or radical innovation represents a significant shift in technology;
incremental innovation involves smaller changes or significant adaptation of existing technology.
Along another dimension, the categories termed product and process innovation refer to the
creation of a marketable new end-product and a change in production process, respectively. Still
another dimension—primary versus secondary versus ancillary process change—addresses the
locus of the technical change within the manufacturing process. A primary process is one which
yields the key functional property(s) of the product (e.g., metal casting in the case of a steel
bolt); ancillary processes are, for example, cleaning, degreasing, and defluxing operations.
Using the example of a steel bolt, the primary production process is the casting of the part. An
example of a secondary process is the metal plating of the part. Plating may provide a
functional (e.g., non-corrosive) or aesthetically-pleasing finish, but it is not primary to the
function of the product. An ancillary process is, for example, cleaning of the bolt prior to
plating.

Technological innovation is considered by many to be an important force in inducing economic
growth by increasing productivity, opening up new markets, and helping to create new firms and
jobs. Although technological innovation has, in some cases, created environmental problems,
research has shown that innovation is one important pathway to solving technology-based
environmental, health, and safety problems particularly where the adoption of existing
technology brings only limited benefit.
3 For further reading on this subject, see: Ashford, N.A., "Understanding Technological Responses
of Industrial Firms to Environmental Problems: Implications for Government Policy," hi Environmental Strategies
for Industry: International Perspectives on Research Needs and Policy Implications. K. Fischer and J.Schot (eds.)?
Washington, DC: Island Press, 1993; Ashford, N.A., Ayers, C., and Stone, R.F., "Using Regulation to Change
the Market for Innovation," Harvard Environmental Law Review. Vol. 9, No. 2, Summer 1985, pp. 419-466; and
Ashford, N.A. and Heaton, G.R., "Regulation and Technological Innovation in the Chemical Industry," Law and
Contemporary Problems. Duke University School of Law, Vol. 46, No. 3, Summer 1983, pp. 109-157.

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                                                 POLLUTION PREVENTION
                                  DIFFUSION
                                       ANCILLARY
                                       PROCESS
                                                                       PRIMARY PROCESS
           SECONDARY PROCESS

               	^  INNOVATION
      V
POLLUTION CONTROL
Traditionally, innovation designed to solve environmental problems has been both compliance-
motivated and end-of-pipe oriented. This type of innovation is quite distinct from what is termed
main-business innovation; i.e., innovation which occurs as a traditional activity of a firm, aimed
at increasing  the  firm's economic  competitiveness and  profitability.4  A firm's  pursuit  of
pollution prevention innovation,
however, may be motivated both
by  compliance concerns—over
current   and   anticipated
regulatory  standards—as well as
a desire to enhance profitability
and competitiveness  by  cutting
waste and  liability costs and/or
by opening up markets for new
processes or unproved products.
Pollution prevention  innovation
is   the    integration   of
environmental   concerns   into
main   business    innovation
activities.   This is in contrast to
pollution   control   where  the
technology    of   production
remains  essentially   unchanged
and end-of-pipe approaches are used.

Pollution prevention innovation can be directed at either reducing the environmental impact of
existing products and processes, or at creating "environmentally cleaner" substitute products and
processes.  Examples of the these two types of  innovative pollution prevention activities are
found in the case  studies.  In one .case, Casted  Metal Products Manufacturer (CMPM), the
company redesigned rinse systems for their acid cleaning, bluing, and phosphate coating areas
to reduce  water use (by approximately 100,000  gallons per day)  and wastewater generation.
These changes were significant—technically, economically and environmentally—but they did not
involve a fundamental and radical change in the product or in key manufacturing processes.„

In contrast, in the Bleached Kraft Pulp Manufacturer (BKPM) case, the company developed a
non-chlorine-based substitute  bleaching  process  to replace its  chlorine-based system.   This
process change, currently being implemented as part of an EPA consent agreement, eliminates
the generation and emission of toxic chlorinated organic compounds in the  mill's bleaching
process and the risk of chlorine exposure to workers and the public.
                                         THE DIMENSIONS OF TECHNOLOGICAL APPROACHES
       4       Ashford N.A., Heaton, G.A., "Regulation and Technological Innovation in the Chemical
Industry," in Law and Contemporary Problems. Vol. 46, No. 3., 1983.
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The willingness and capacity of the firm to undertake pollution prevention innovation can be
affected by factors internal and external to the firm. Several factors, taken from the innovation
literature, are highlighted here.5

Internal factors include:

1. Maturity of the firm and industry. Some researchers have found that the firm's capacity to
innovate decreases as it evolves from a small technology-based enterprise to a high volume
producer. In the early stages, the firm is flexible and can accommodate product and process
innovations relatively easily. In its most mature stage of development, the firm focuses on
selling a standardized product at low cost with capital-intensive mass production equipment.
Since the cost of major innovation is high, the firm tends to make only incremental changes in
products and processes aimed at reducing cost.6 The "rigidity" of the mature firm's technology
can beget a corporate structure and attitude that can act as another barrier to technical change.

An exception to this general picture of technological development are those firms, such as the
3M Company, that produce a diverse and constantly changing array of products. These firms
tend to remain technologically and
managerially flexible, resulting in
greater capacity and opportunity for
pollution prevention innovation.
2. Size of the
Factors Internal to the Firm Affecting the Potential
for Pollution Prevention Innovation:

• Maturity of the firm and industry

• Size of the firm

• Economic position of the firm and industry

• Markets for new processes and products
Ek Large firms
are often identified as the major
sources of innovation, in part
because they tend to have larger
R&D budgets and better access to
information on already existing
technology. Innovation at large
firms, however, may be hindered
by a desire to protect old
technologies, indifference to technological advances, and misdirected research. Smaller firms
may have an innovative advantage through more flexible markets, dynamic and entrepreneurial
management, and better internal communication.7
5 OECD, "Environmental Policy and Technical Change," Paris, 1985.

6 Abernathy, W.J., and Utterback, J., "Patterns of Industrial Innovation," Technology Review.
June/July 1978.

7 Karmali, A. "Stimulating Cleaner Technologies Through the Design of Pollution Prevention
Policies: An Analysis of Impediments and Incentives," Unpublished Master's Thesis, Technology and Policy
Program, MIT, May 1990.
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3. Economic position of the firm and industry. The financial capacity of the firm, i.e., cash
flow and access to financing (partly an external factor) for R&D and investment, is an important
factor affecting a firm's ability to innovate. The present economic position and future outlook
for the firm and industry are relevant factors, although they have been shown to cut both ways.
A period of growth is conducive to technical change in general and represents a window of
opportunity for addressing environmental concerns since pollution prevention can more easily
be built into a new investment than be retrofitted onto existing technology. On the other hand,
while economic recession (an external factor) or industrial decline can slow technical change
generally, research has documented increased investment in pollution prevention technologies
during such periods, motivated by a desire to cut costs.8

4. Markets for new processes and products. Innovation can be stimulated by the prospect of
developing new technology or products for the market. The existence of a marketing capacity
to exploit these opportunities is critical to the success of the innovation.
External factors affecting the willingness and capacity of the firm to undertake pollution
prevention innovation include the following:

1. Regulation and liability. Strict regulation, enforced in a stringent yet flexible way9, has been
found to stimulate innovative and efficient (with regards to energy and raw material costs)
technological changes.10 Some industry members claim that the threat of liability, for
environmental impairment (under RCRA) and cleanup (under CERCLA) has stimulated
innovation and preventive technological changes; others suggest that the cost associated with
posting performance bonds, as required by these acts, impedes innovation.11 Liability concerns
on the part of large firms have been translated into requirements on component suppliers to meet
certain environmental standards (e.g., hazardous waste reduction efforts or CFC-free
manufacturing), these requirements have given some smaller supplier firms incentives to change
their technology.

Stringent regulation can stimulate technical change either within the regulated firm, on the part
of equipment or chemical suppliers to the regulated firm, and/or can motivate a non-regulated
8 OECD cited an example of this phenomenon. In France, during the period 1974-1977, the
adoption of "cleaner technologies" was greatest in industries where there was a relative decline in investment (except
food production). (OECD, 1985. op.cit.)

9 Flexibility may take several forms, including: varying length of time to comply with regulations
to permit R&D, varying strictness according to special industry circumstances, and temporary exemptions tied to
a "contract" between the industry and the agency to carry out an R&D program in new technologies. (OECD,
1985. op.cit.)
10-
OECD, 1985. op.cit..

Karmali, 1990. op.cit..
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Factors External to the Firm Affecting the
Potential for Pollution Prevention Innovation:

• Regulation and liability

• Public and market pressure

• Technical expertise
firm to enter the market with a
substitute product. An example of the
first response is the Bleached Kraft Pulp
Manufacturer (BKPM) case
(summarized in Appendix A). This
regulated mill changed its manufacturing
technology to meet effluent toxicity
standards. The second type of response
characterizes the development of
aqueous degreasing technology--
developed by equipment and chemical
vendors—to replace chlorinated organic
solvent-based degreasing systems at regulated firms. Finally, the third type of response--
innovation by a new market entrant-occurred when EPA phased-out the production and use of
PCBs. Monsanto, the sole manufacturer of PCB transformer fluid, sought to find a replacement!
for PCBs, but could not.12 Dow-Silicone replaced PCBs with silicone-based fluid which was
developed originally for other purposes but recognized by Dow-Silicone as having suitable
dielectric properties. Silicone has since become one of the principal transformer dielectrics on
the market today. Figure 2-2 presents this model for regulation-induced technological change
in schematic form.

2 Public and market pressure. Armed with data from the SARA Toxics Release Inventory and
other sources of information on emissions and impacts, the public is exerting pressure on firms
to change their technology to less polluting modes of production. In addition, a growing demand
for lower-impact products has stimulated product and process change within existing firms and
has created new "green product" market entrants. These developments are slowly creating a
new arena of competition around environmental performance, resulting hi an incentive for
technical change. ;

In conclusion, pollution prevention innovation holds great promise for solving environmental
problems and for realizing increased efficiencies or expanding markets. However, uncertainty
associated with innovative technical change can be a significant barrier to industry's willingness
to undertake it. The firm may face technological uncertainty concerning the success or failure
of the technical change, financial uncertainty over the full cost of developing and implementing
the innovation, and market uncertainty regarding the ability of the firm to market a new product
or process along with changing market conditions. Furthermore, there may be regulatory
uncertainty, particularly for firms acting in anticipation of future regulatory standards.13
12 The company's inability to find a suitable substitute may be attributable to its attempts to develop another
fluid based on the basic molecular structure of PCB (i.e., the biphenyl ring). Monsanto's former PCB dielectric
business can be described as mature, large-scale, and automated. According to the framework described in Section
C.l. above, a firm with this technology profile is an unlikely candidate for innovation.
13
OECD, 1985. op.cit..
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Innovation is risky, but larger returns (measured both in dollars and environmental improvement)
over diffusion-driven pollution prevention can be realized only with some risk taking.

3.  Technical expertise.  Technical change for both main business and environmental purposes
requires that the "problem space" of the engineer and scientist expand to include environmental
concerns along with performance and cost considerations.14  This mode of thinking has not yet
been widely embraced by universities, treating environmental concerns as a design problem that
is separate from the manufacturing process itself.
        STIMULUS
                      RESPONDENTS
                       EQUIPMENT/CHEMICAL
                       SUPPLIER
       REGULATION
                       REGULATED FIRM
                       NON-REGULATED
                       NEW MARKET ENTRANT
                                                     TECHNOLOGICAL RESPONSE
                                                      POLLUTION CONTROL
POLLUTION PREVENTION:
                                                       materials (input)
                                                       substitution
  process modification


  in-process recycling

  product reformulation
  new products
 Figure 2-2.   A Model  of  Regulation-Induced Technological  Change
    14
       In an analogous fashion, managers must be held accountable for environmental performance as well as
product quality and production cost.
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          Ill THE ROLE OF POLLUTION PREVENTION IN ENFORCEMENT

 Pollution prevention is one of the major priorities of the United States Environmental Protection
 Agency (EPA).   In June 1989, the Office of Enforcement issued  its Pollution Prevention
 Strategy.  The strategy identified several methods by which enforcement could be used  to
 promote the agency's pollution prevention goals.  The primary tool is  through the settlement
 process.  While the agency has relatively little statutory or regulatory  authority  to  require
 violators to implement pollution prevention technology, the settlement process provides a mutual
 opportunity for both the agency's negotiators and the violators to consider pollution prevention
 as part of the overall settlement process.

 By early 1991, the Office of Enforcement (OE) had issued  an Interim Policy on the Use of
 Pollution Prevention Conditions in Enforcement Settlements and  a Policy on the Use of
 Supplemental Environmental Projects (SEPs) in Enforcement Settlements (called the "Pollution
 Prevention Enforcement Policy" and "SEP Policy", respectively, for short). Together, these two
 policies provided formal guidance and  criteria for negotiating pollution prevention  conditions
 either as injunctive relief (i.e., the actual steps taken to correct the violation), or as supplemental
 conditions incidental to the correction of the  violation.

 Pollution prevention injunctive relief offers  the opportunity  for both the agency and firm to
 reduce  or eliminate an  environmental problem at the source,  without cross-media transfer of
 pollutants. Pollution prevention SEPs, and injunctive relief in some cases, offer the possibility
 of  reducing  environmental  impacts  in  excess  of that which is  required by  regulation.
 Furthermore, a prevention remedy or SEP may also reduce  impacts to media other than that
 which is targeted by the enforcement action,  if the technology is chosen or designed to deliver
 multi-media  environmental pay-offs.  Taken together, these benefits can enhance the firm's
 prospects for future environmental compliance.

 Significant "indirect" environmental, health, and economic benefits can be achieved through the
 transfer of pollution prevention technology to other  processes in the subject  plant or to other
plants owned by the firm; organizational changes that lead to improved environmental practices;
 and further implementation of other pollution prevention technology. Furthermore, particularly
 in the case of SEPs (where penalty relief is granted), the option to include a pollution prevention
project  creates an opportunity to turn a  negative situation into a better or positive  situation for
the firm and  to improve the relationship between the firm and the agency.

By including pollution prevention in enforcement settlements,  the agency can translate its stated
preference for pollution prevention into action—within the context of enforcement.   Pollution
prevention knowledge and skill-gained  by agency negotiators-can help to build the agency's
overall base of prevention expertise which can be leveraged in standard setting, permitting, and
inspection activities as well as in industry outreach programs.
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Enforcement activities can serve as a vehicle by which the agency encourages or partially
underwrites technological risk-taking in pursuit of innovative pollution prevention solutions to
challenging environmental problems. This strategy can be targeted toward certain industries,
technologies, or high-risk chemicals (e.g., 33/50 chemicals) that have been assigned top priority
for risk reduction, and/or where no or few cleaner technological alternatives are available.
Although the enforcement setting, with its adversarial backdrop and somewhat rigid legalistic
framework, is a challenging setting within which to facilitate innovation, evidence from the cases
demonstrates that the enforcement context has two distinct advantages. First, firms can be
motivated to innovate, i.e., to overcome the barriers to pollution prevention innovation that often
exist hi firms, through penalty reduction, improved relations with the agency, and unproved
public relations (via publicity through press releases). Second, since the firm has committed to
implement the innovative project in its consent agreement with the agency (or to pay stipulated
penalties), there is a strong incentive to stick with the project even when technical difficulties
arise. Enforcement thus creates a "window of opportunity" in which options for technological
change receive more serious consideration than usual.

The option to promote pollution prevention within the enforcement context permits the agency
to pursue a settlement that optimizes environmental performance, rather than a settlement aimed
only at achieving compliance.
Other Reports and Guidance on Pollution Prevention in Enforcement

At least three other studies have been conducted on the agency's experience in including
pollution prevention in enforcement. They are: "Investigation of Environmentally Beneficial
Expenditures for Settlement Agreements," by IT Environmental Programs, Inc. for U.S. EPA
Off ice of Compliance Monitoring, Toxics Enforcement Branch, May 1992; "Pollution Prevention
Through Compliance and Enforcement: A Review of OPTS Accomplishments", U.S. EPA
Office of Compliance Monitoring, January 1992; and "Innovations in Compliance and
Enforcement: Supplemental Environmental Projects in EPA's Toxics and Pesticides Program",
U.S. EPA Office of Compliance Monitoring, Office of Prevention, Pesticides, and Toxic
Substances, November 1992. Our study has benefitted greatly from, and builds on, this
previous work.

In addition, we refer the reader to a November 1993 memo from the Region I Administrator's
office that contains practical guidance on negotiating SEPs.
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       IV  RECOGNIZING AND CREATING THE POTENTIAL FOR POLLUTION
     PREVENTION IN A FIRM:  TECHNICAL AND ORGANIZATIONAL FACTORS

 The success of the agency's efforts to include pollution prevention in an enforcement settlement
 is contingent upon the firm's willingness and capacity to change its production systems.  This
 section addresses both technical and organizational factors that affect the willingness and capacity
 of the firm, and ways in which agency negotiators can help to create conditions that are
 favorable to pollution prevention injunctive  relief and SEPs.
         The success of the agency's efforts to include pollution prevention in an
         enforcement settlement  is contingent upon the firm's -willingness  and
         capacity to change its production systems.
 A. TECHNICAL FACTORS

 1. Pollution Prevention Information. Knowledge and Expertise on the Part of the Firm

 Firms come to the negotiation table  with vastly different levels of pollution prevention
 knowledge, expertise, and general technological sophistication.  Larger companies tend to have
 greater in-house technical, regulatory, and R&D resources and therefore are more likely than
 smaller companies to have prior knowledge of, and expertise in, pollution prevention.  With
 respect to SEPs, larger companies may have one or more pollution prevention projects "in the
 wings" at  the time of the violation, making the task  of proposing an SEP to the agency
 negotiators somewhat simpler. For companies with little or no prior knowledge and experience
 in pollution prevention (typically smaller firms), the pollution prevention SEP process presents
 many  challenges,  including:   learning  the
 pollution prevention  concept and how  the
 techniques can be integrated into their existing
 manufacturing processes, developing an SEP
 proposal that is acceptable to the regional
 negotiators, and instilling confidence in the
 agency that  they  are able  to  execute  the
 project.

 The  process  of  encouraging  a  pollution
prevention  outcome within the firm could be
facilitated by the involving so-called "change
agents" and  "technical gate-keepers" within
the firm in the negotiation process.  A change
agent may be  a  technical or non-technical
person that  sees,  and can  champion,  the
Technical Factors

•  Pollution prevention information,
knowledge and expertise on the part of
the firm

•  Consultants

•  Potential to transfer technology within
the company

•  Potential for innovation
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benefits of pollution prevention within the firm. A technical gate-keeper is an individual that
effectively brings into the firm, and disseminates within the firm, the technical information
needed [to change technology or] to fuel the research and development processes that are key
to the creation and implementation of new technical ideas.15 Production line staff are often the
source of important information on the sources of waste and ideas on how to reduce it; and
union representatives are becoming increasingly aware of the sources of, and remedies for,
environmental problems in industrial operations.

If the subject plant is one of several owned by the firm, other plants may be a source of ideas
or pollution prevention technologies that can be transferred to the subject facility. Furthermore,
if the plant is a subsidiary of a foreign corporation, the foreign owner may be a source of new
manufacturing technologies.

2. The Role of the Consultant

Many firms, particularly smaller firms, choose to rely on outside technical consultants to
supplement in-house technical capabilities. Outside consultants not only fill a need for additional
technical expertise, as we heard in several company interviews, they also help to build
confidence for the SEP proposal in the regional negotiators (whether the technical ideas
originated from within the firm or the consultant). Therefore, some firms may face a barrier
to SEP inclusion if they do not use a technical consultant. ,

The choice of consultant will, in part, determine the type of project proposed. If the company
hires a consultant to assist in correcting a violation, it is likely that the consultant will be
retained to develop a pollution prevention SEP proposal.16 Few environmental consulting firms,
i.e., those firms that have traditionally focused on compliance audits, design and implementation
of pollution control systems, and other regulatory services, have experience in assisting firms
to implement pollution prevention. , -:

With respect to injunctive relief, many environmental consulting firms have strong incentives
to recommend capital intensive pollution control projects to solve environmental problems, since
these firms derive a large share of their income from pollution control system design and
construction (not from recommending that firms redesign their production processes or to switch
to a new process chemical).17 In addition, these consulting firms (particularly the larger firms)
prefer to recommend and install the same pollution control system as often as possible since it
is cost effective to duplicate plans and specifications (e.g., recommending a cyanide chlorination
15 See for example, "Chakrabarti, A.K. and Hauschildt, J., The Division of Labour in Innovation Management."
R&D Management. Vol. 19, No. 2, 1989, pp. 161-171. and Allen, T., Managing the Flow of Technology;
Cambridge, Mass.: MIT Press, 1977.

16 See Metal Filing Furniture Manufacturing (MFFM) and Casted Metal Products Manufacturer (CMPM) cases.

17 See the Casted Metal Products Manufacturer (CMPM) case. ..,
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  system  rather  than cyanide  elimination).18  Consulting  departments/divisions of  equipment
  vendors have great incentive to sell their equipment or chemicals and will tend to solve problems
  accordingly (see for example, the Metal Machining Company (MC) case).19 20

  Increasingly,  environmental  consulting  firms  are  upgrading  their  services  to  include
  recommendations and design services for "off-the-shelf" waste minimization techniques; though
  the tailor-made changes that would be optimal for a given production situation are unlikely to
  be suggested from sources outside the firm.  These changes  are  generally  too risky  for  the
  average environmental  consultant to recommend and undertake.

 3. Potential to Transfer Technology Within the Company

 Firms with more than one production line and/or plant often test a  new technology on a single
 line an'd, if successful,  transfer the technology to  their other lines or plants.21  This strategy
 offers great potential to multiply the impact of a single pollution prevention project  where  the
 technical change implemented as an SEP or injunctive relief is made to one of several  similar
 processes operated by  the firm.  While there  is theoretical potential  to license  or sell new
 technologies to other firms, firms tend to regard their technologies  as proprietary-giving them
 competitive advantage.

 4. Potential for Innovation

 Section II C contains  an enumeration of several factors-internal and external to the  firm-that
 affect its willingness and capacity to innovate. While these factors do not, and cannot,  constitute
 hard-and-fast rules  to determine the  potential of a particular  firm to  innovate for pollution
 prevention,  they can serve to illuminate favorable conditions. From the narrative in  Section II
 C, the presence of the following factors may be indicative of a climate conducive to innovation:
     1ft
        Personal conversation with Daryl Beardsly, pollution prevention consultant, August 4, 1993.

        Alternatively, a firm that hires a consultant with pollution prevention expertise may constrain the
consultant's ability to propose certain projects either by giving them a fairly narrow compliance problem to solve,
requiring a quick-fix solution, a low-risk solution, or a "low maintenance" solution (e.g., a metals precipitation system
as opposed to a recommendation that the plant optimize their production process to reduce metals dragout which may
require operator education and training and may at times affect product quality), (personal conversation with Joseph
Conzano, Case Officer, EPA Region I.

        The small consulting firm, or the one or two-person operation, with pollution prevention knowledge and
experience (of which there are a few) are less likely to be encumbered by the issues raised in this paragraph.

    21   This was evident in several of the case  studies, notably Lid Manufacturer, Medical Device Manufacturer,
and Metal Machining Company.
                                             V-3

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      •      production units that are relatively small-scale and flexible, as opposed to large-
      scale, highly automated, mass production systems

      •      production units that produce a diverse and constantly changing array of products

      •      firms that have engineering and R&D departments               ......

      •      firms that have significant positive cash flow

      •      firms that are expanding, or are part of a growing industry

      •      firms that have a prospect of developing new  technology or products for the
      market, and marketing capacity to exploit these opportunities

      •      firms anticipating stringent future environmental and/or occupational safety and
      health regulation

      •      firms experiencing  public and/or market pressure to reduce the environmental
      and/or public health impacts of their processes or products

5. Fear of Technical Failure

When considering technology options for injunctive relief, the firm has great incentive to pick
a option that is perceived to have a low risk of failure  since, if the project fails to meet the
regulatory requirement, the firm  will incur:  additional cost  in developing and implementing
another technical option, additional legal and administrative  costs, as well as prolonging the
uncertainty associated with a pending enforcement case.  Therefore, where pollution control and
prevention options exist,  if a pollution control option appears  to have a lower risk of failure, it
will have greater appeal to the firm.

Fear of technical failure is also a consideration in the context of an SEP;  if the SEP fails, the
company may have to pay the mitigated portion of the penalty in addition to the administrative
costs associated with SEP progress reporting and the project  development and implementation
costs.
 B. ORGANIZATIONAL FACTORS

 1. Support from Top-Level Decisionmakers

 For pollution prevention SEPs to be included in negotiated settlements, firm owners, CEOs, or
 senior managers must be supportive of the SEP concept and must approve the use of resources-
 in-house staff  technical and legal consultants,  and other development  and implementation
 expenditures-to support the SEP process.  We found that a decision, by these actors, to pursue


                                           V-4

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  a pollution prevention SEP is typically based on some combination of a desire to mitigate the
  penalty and  recognition of the benefits  of the  pollution prevention project to the firm.   In
  competition with these two incentives is the desire to settle the case quickly to avoid a prolonged
  negotiation or "contractual relationship" with the agency (and the accompanying added legal and
  financial uncertainty) as well as the perceived risk of project failure.  Therefore, the desire to
  mitigate the  penalty plus the perceived value of the pollution prevention project will have to
  outweigh the desire for a quick settlement plus  perceived risk.
Organizational Factors

•  Support from top-level decisionmakers

•  The firm's legal counsel

•  Economic considerations
 With   regard   to   pollution   prevention
 injunctive relief, the preceding narrative on
 the firm's fear of technical failure is relevant
 here as well.

 Beyond conferring approval for the project,
 the commitment and involvement of top-level
 firm   decisionmakers  in  choosing   and
 implementing a  pollution prevention  course
 can improve the prospects of success  for the
 project  itself  (by   ensuring   a   steady
 commitment of resources and high priority status), facilitate top-level learning about the merits
 of pollution prevention, and promote organizational change toward a more environmentally
 responsible company.  Numerous business executives and studies have stressed the importance
 of top-level commitment to the success of corporate environmental initiatives.22

 2.  The Role of  the Firm's Legal Counsel

 Many of the case studies demonstrated the importance of the role of the firm's legal counsel in
 negotiating pollution  prevention  SEPs, specifically  with  regard  to  helping to  establish
 implementation schedules, milestones, and stipulated penalties. The cases suggest that attorneys
 with experience  in environmental  settlements, and, more  specifically, with  experience  in
 negotiating SEPs may facilitate the  inclusion of pollution prevention SEPs, particularly where
 the nature of the technological change or the firm requires complex settlement terms.

 3.  Economic Considerations

 Pollution prevention  investments often carry with them both "hard" economic benefits (e.g.,
 material, energy, water, and waste disposal cost reductions) and "softer" economic benefits
 (e.g.,  improved  future  compliance/liability position, improved rapport with agency, public
 image, etc.). So-called hard economic benefits are directly linked to investment choices and are
 quantifiable;  whereas  softer benefits  are less direct, difficult to trace and to quantify (e.g.,
    22  See, for example, Schmidheiny, S. with the Business Council for Sustainable Development," "Changing
Course:  A Global Business Perspective on Development and the Environment." Cambridge:  MIT Press, 1992.
                                           V-5

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longer-term benefits such as avoided future liability). Firms are motivated by both types of
economic factors in making investment decisions, to different degrees and in different fashions.
For example, harder costs are typically quantified and included in the calculation of profitability
indicators (e.g., payback and return-on-investment (ROI)); softer costs are considered
qualitatively and not included in profitability calculations. For smaller firms, with shorter
planning horizons, hard cost factors tend to drive investment decisions.23

With respect to SEPs, where the capital cost of the project is high, the financial payback of the
project is low, and the penalty reduction is relatively small (as a percentage of capital cost), the
firm may see little financial incentive to implement a pollution prevention SEP or may have
difficulty raising the necessary capital (particularly hi the case of small firms). In these cases,
it is especially important that the firm be cognizant of the indirect [softer] economic and other
benefits that can accrue from undertaking pollution prevention. These benefits may well be
more significant than the more direct economic savings.24 ,
23 For further reading on the subject of financial analysis of pollution prevention investments, see: White,
A., Becker, M. and Goldstein, J. "Total Cost Assessment: Accelerating Industrial Pollution Prevention through
innovative Project Financial Analysis, with Applications to the Pulp and Paper Industry." A report to the U.S.
Environmental Protection Agency, Office of Pollution Prevention and Toxics. May 1992.

24 None of the case study firms faced these barrier as such; however, several EPA case officers and attorneys
interviewed stated that their inability to reduce the economic benefit portion of the penalty has constrained their
ability to leverage pollution prevention SEPs. The full report suggested that agency negotiators should be less
generous with penalty mitigation when economic benefits of the project are direct and quantifiable, and more
generous where benefits are indirect and difficult to estimate.
V-6

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  V  ELEMENTS  OF A SUCCESSFUL NEGOTIATION PROCESS AND SETTLEMENT

This section covers a number of elements that emerged from the case studies  (and other
research)  as important determinants of success, both in realizing  opportunities for pollution
prevention hi SEP  and  injunctive relief negotiations, as well as in crafting the terms of the
settlement. The elements are organized into three sections: elements relevant for both pollution
prevention injunctive relief and SEPs; elements particularly relevant to SEPs; and finally,
elements particularly relevant to injunctive relief.
A.  ELEMENTS RELEVANT TO BOTH INJUNCTIVE RELIEF AND SEPS

1.  Structuring the Negotiation Process

The negotiation process itself should be specifically designed to encourage and accommodate
pollution prevention SEPs and injunctive relief in the context of the particular situation facing
the parties, rather than letting an ad hoc process evolve. For example, when violators have little
or no familiarity or experience with pollution prevention, pollution prevention audits should be
encouraged  and the cost  of these audits should be considered  in the determination  of the
appropriate level of penalty mitigation (particularly for smaller  firms).

For both the agency and the company, the
different roles of the technical  and legal
participants must be carefully delineated.
It may be difficult to have a constructive
technical   discussion   in  a   charged
atmosphere characteristic of the adversary
process.   Preparing  ahead  of  time and
charting the evolving  roles of the various
players    would   be   worthwhile.
Furthermore, because the interactions of
the parties will  continue  over a year or
more, continuity of personnel assigned to
a  particular  negotiated  settlement  is
important.
 Elements Relevant to Both Injunctive Relief
                and SEPs

•  The negotiation process design and
structure

•  Information

•  Tuning and time allowed for pollution
prevention responses

•  Project monitoring
Where  innovation rather than  diffusion-driven technological  solutions  offer  the greatest
environmental  benefit,  if necessary,  the  pollution prevention agreement should  contain
appropriately flexible terms and conditions to permit some  experimentation and technology
development.  The Medical Device Manufacturer (MDM) settlement contained such terms.  In
this case project milestones and stipulated penalties where structured to allow the firm to test and
develop the deionized water degreasing system before committing to purchase the equipment.
These types of settlements should be reserved for those firms that have demonstrated good faith
                                         VI-1

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and could be encouraged where the new technology addresses a particularly problematic
environmental problem and/or where few "cleaner" technology alternatives currently exist.

2. Provision of Information

It is important that the agency give pollution prevention/enforcement policy and SEP policy
information to the company early on in the process and to stress that pollution prevention
responses are at the top of the EPA hierarchy. Policy information can be delivered, as done by
several attorneys, by giving the violator copies of the actual agency policies.

The agency negotiators can also serve a useful role in steering those firms with little pollution
prevention knowledge and expertise to sources of technical information. Furthermore, where
the firm is seeking a technical consultant, the agency can suggest that the firm look for a
consultant that has a proven record in facilitating pollution prevention for their client firms.

Ideally, industry should be provided with a handbook on pollution prevention in general, relevant
portions of the agency's enforcement policy, sources of technical information and suggested
guidelines for choosing a technical consultant.

3. Timing and Time Allowed for Pollution Prevention Responses

The timing of the agency's recommendation that the violator pursue pollution prevention for
compliance or the timing of the agency's "offering" of an SEP option may be particularly
important. The suggestion or offer should occur early enough in the agency-company dialogue
to receive serious consideration by the firm and not too far along such that the interaction
becomes too adversarial. The firm should be granted adequate time for proposal development
and implementation.

4. Project Monitoring

Adequate monitoring of project progress is essential for a variety of purposes: to keep sufficient
pressure on company to pursue and complete the project, to ensure continuing agency interest
and support, and to promote both agency and firm learning in the implementation process.
Settlements with pollution prevention conditions generally have more milestones than the usual
settlements. Regions are beginning to implement Local Area Network-based computer tracking
systems (e.g., Region 1) to follow compliance milestones-these systems can ease somewhat the
additional monitoring burden associated with increased monitoring requirements.

5. Multi-media Approaches and Multi-Media Pav-offs ,

The adoption of pollution prevention technologies with multi-media pay-offs will be facilitated
by a shift, wherever possible, from single-medium enforcement strategies to a multimedia
approach.' Through multi-media inspection, the firm may listen with a "number of ears" and
be prompted to think of more comprehensive solutions to their pollution problems. Multi-media

VI-2

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 inspection and enforcement can provide an opportunity for  single-medium technical  experts
 within the agency to pool their pollution prevention know-how to create multi-media pollution
 prevention expertise within the agency.25 Particularly in the context of injunctive relief, where
 a  multi-media pollution prevention  response can be  identified, the  firm may  be more
 economically attracted to this option-than to a single-medium pollution prevention project or
 pollution  control-because  a  single  production  change  may  solve  several  problems
 simultaneously.
 B.  ELEMENTS PARTICULAR TO SEPs

 !•  The Need for, and Use of. Pollution Prevention Knowledge and Expertise

 There are five major activities within the pollution prevention SEP process where a case officer's
 knowledge of, and expertise in, pollution prevention can be an asset.  The five activities are:
        1.
        2.
        3.
        4.
        5.
encouraging the firm to propose a pollution prevention SEP;
facilitating the development of an SEP proposal;
evaluating the SEP proposal;
monitoring the implementation phase; and
evaluating the success of the SEP.
 Three types of pollution prevention knowledge and expertise seem to be important for supporting
 and enhancing these five activities: (1) a clear general understanding of the concept and benefits
 of pollution prevention, (2) a case officer's ability to ask exploratory questions that generate
 "pollution prevention'thinking" on the part of the firm, and (3) a  case officer's knowledge of
 pollution prevention techniques.
           Elements Particular to SEPs

           •  Pollution prevention knowledge and expertise:

              - a clear understanding of the concept and benefits of pollution
              prevention

              - a case officer's ability to ask exploratory questions that generate
              "pollution prevention thinking" on the part of the firm

              - a case officer's knowledge of pollution prevention techniques

           •  Technically difficult or risky  projects

           •  Adequate incentives to firms  without  "giving away the store"
                                           VI-3
    25
       EPA's "Multi-Media Screening Inspection Program Guidance 'and National Checklist" (May 1993) is a
useful tool for planning, coordinating and conducting multi-media inspections.

-------
In order to encourage  a firm to propose a pollution prevention SEP, arid to elicit a suitable
project proposal, it is important for the case officer and attorney to clearly convey the concept
and benefits of pollution prevention as well as the oft-mentioned list of pollution prevention
strategies—process  modifications, reformulation or redesign of products, substitution of raw
materials, good housekeeping practices,  etc..                                     ,

Beyond a general understanding  of the pollution prevention concept and general prevention
strategies,  the case officer may be  able  to stimulate and direct a firm's  "pollution prevention
thinking" when the firm is beginning to consider a SEP proposal.  Using even a limited amount
of information on the firm's technology-gathered during the inspection26 or during subsequent
discussions—a case officer can ask open-ended questions which may prompt the firm to recognize
pollution prevention opportunities.  Examples of open-ended questions are as follows:  "why are
you using'a solvent in mis process?" and "do you know the source of this contarninant?" Broad
familiarity and experience with pollution prevention approaches is necessary to effectively Use
this approach, though this  tact does not require specific expertise in the subject technology.27
In cases where the firm is unwilling to engage region negotiators in a discussion  about their
manufacturing processes (possibly  fearing further incrimination), this approach  may not be
feasible.

Knowledge of specific  pollution prevention techniques can be an  asset in negotiating pollution
prevention  SEPs or, more  likely,  in fully  exploiting the "pollution prevention potential"
associated  with a particular  settlement.   For this  discussion,  the  definition of "pollution
prevention  techniques" is important.   Used here,   the  term includes  both "general" ;arid*
"particularized"  pollution prevention  techniques.  General techniques can be thought of as
universal pollution prevention techniques that apply to many industries; examples are: switching
from organic solvent to aqueous-based cleaners, solvent distillation systems,  and closed-loop
cooling. The term particularized refers to those techniques that apply to a given manufacturing
process; examples are:  replacing solvent-based coatings with powder coatings in the coatings
industry and switching from hexavalent to trivalent chromium in metal finishing.   General and
particularized knowledge are important for all five activities listed above.  At minimum, case
officers  should be able to determine whether the project is  environmentally beneficial  and
whether there is unreasonable risk of failure (i.e.,  whether or  not the project is on  sound
technical footing). Ideally, the case officer should be able to provide guidance; general ideas
(if the company is open and receptive), constructive feedback on project shortcomings;  and
suggestions for project improvements during  the SEP proposal  development, evaluation and
implementation stages  (i.e., activities 2, 3, and 4 above).  The post-implementation evaluation
    26 The case officer can increase his or her knowledge of the facility (and potentially opportunities for pollution
prevention) by conducting the inspection with pollution prevention as well as regulatory compliance in mind. This
strategy was used by the case officer in the CMPM case.

    27     Greiner, T.J., Richard, P.H., and Dillard, L.A., "Facility Inspections-Obstacles and Opportunities."
in Pollution Prevention Integration. A Practical Guide for State and Local Government. Boca Raton, FL: Lewis
Publishers.  Forthcoming,  1994.
                                            VI-4

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(activity 5) may require less technical expertise but can provide an excellent opportunity for case
officers to learn about pollution prevention, and to critically evaluate the technological changes
made and their associated environmental benefits.

The case studies revealed that some firms are already well versed in pollution prevention, are
technologically sophisticated/have retained a skillful pollution prevention technical consultant,
and have a good "ready-waiting" pollution prevention project. Several of the more innovative
or technically complex pollution prevention SEPs, and the sole injunctive relief project in the
case study sample, were negotiated by case officers with little or no prior knowledge or
experience in pollution prevention.28 . The companies involved in these cases were quite
technologically sophisticated and/or had good technical consultants. In these cases, the technical
challenge for the case officer was to apply good engineering judgement to determine whether
the project seemed technically feasible and implementable within a given time period. However,
there may have been missed, better opportunities stemming from the case officers' lack of
pollution prevention expertise. Unfortunately, this type of missed opportunity is difficult to
uncover in retrospective case study research.

Pollution prevention technical expertise-either general or particularized~is gained primarily "by
doing", by verbal information sharing/pooling among technical colleagues,29 and can probably
be supplemented by effective training. As more and more case officers have the opportunity to
negotiate pollution prevention into enforcement settlements, the expertise base will grow. This
process could be supported by encouraging and providing opportunities—formally and informally-
-for case officers to share knowledge and experience.

2. technically difficult or risky projects

Technically difficult pollution prevention projects, projects that require R&D, and innovative
projects may require relatively long implementation periods, require fairly complex settlement
terms (e.g., a complex schedule of stipulated penalties where R&D is required), and carry a
higher risk of failure. However, these projects may generate environmental benefits in excess
of low risk, diffusion-based pollution prevention projects at the subject plant. These projects
may require longer implementation periods,30 "creative" or somewhat flexible settlement terms,
28 Industrial Coater, Metal Finishing Company, Medical Device Manufacturer and Bleached Kraft Pulp
Manufacturer.

29 According to one EPCRA case officer actively involved in pollution prevention SEPs, the group works
effectively as a team, discussing projects and pooling their technical resources. This group is relatively small and
this facilitates information sharing.
30
Implementation periods over a year are generally considered long.
VI-5

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 and risk-taking and risk-sharing.31

 Clearly,  not all technically difficult projects should be accepted as SEPs.  There are many
 concerns that need to be considered in a SEP decisionmaking process (e.g., if the company has
 not sufficiently demonstrated technical feasibility (i.e., is going on a "fishing expedition"), or
 if the time needed for implementation is so long  that it creates a  risk of either company
 personnel or EPA personnel changing). (The latter concern was cited by several case officers
 and attorneys as a reason why they prefer not to extend the implementation schedule beyond one
 year.)

 3-  Providing Adequate Incentives to Firms Without  "Giving Away the Store"

 Even though the agency should ensure that the penalty mitigation conferred does not exceed the
 direct economic benefits to the firm, the  agency should exploit and leverage the substantial
 indirect economic and other benefits that accrue to firms undertaking a significant technological
 transformation.  Firms are motivated by hard economic factors (e.g., material, energy, water, and
 waste  disposal  cost  reductions)   and   soft   economic  factors   (e.g.,  improved   future
 compliance/liability position,  improved rapport with agency,  public  image,  etc.).   Where
 economic benefits are direct, traceable, and quantifiable, agency negotiators should not, and tend
 not to, confer significant credit in penalty reduction.   Where benefits are indirect, difficult to
 trace,  and  to quantify (e.g., longer-term  benefits such as avoided future liability), agency
 negotiators should be willing to accord these benefits to the firm through penalty mitigation.

 Providing penalty mitigation for a pollution prevention project can be used to  "reward" those.
 firms that have a history of compliance, employ good environmental practices, have shown good
 faith in coming into compliance and in settlement negotiations, and in cases where the violation
 or its impact are not egregious (e.g., failure to submit a Form R under EPCRA).
C.  ELEMENTS PARTICULAR TO INJUNCTIVE RELIEF

1.  Achieving Compliance

Unlike SEPs, the question  of whether  pollution  prevention is included in  a settlement as
    31  "Risk-taking" in this context implies a strategy where the agency would agree to a pollution prevention SEP
that involves a higher than average level of technical uncertainty if the short and long-term potential benefit
associated with the project is great.  "Risk-sharing" implies that the agency is sharing the risk (and very likely the
cost) of developing and implementing a technically difficult/potentially high payoff project with the firm.  In Section
VII we suggest that this  strategy requires the agency to take a "portfolio approach" to pollution prevention SEPs by
allowing or expecting some technical failures, thereby encouraging some risk-taking as described here. Since
pollution prevention SEPs are, by  definition, supplemental and not designed to bring the company into compliance,'
there is less  environmental and political risk associated with a SEP that fails as a result of technical reasons as
compared to pollution prevention-based injunction relief.  Therefore, within reasonable bounds, SEPs may be an ideal
context for risk-sharing where a firm is a willing participant and has shown good faith.

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injunctive relief is typically a question of whether pollution prevention will be used instead of
pollution  control to bring the company back into compliance.   The stakes for the agency
negotiators tend to be higher in this context—as compared to the SEP context—because the agency
has a duty to the immediate and larger community to bring the violator into compliance and keep
it there.  (In the case of SEPs, the inclusion of pollution prevention represents an extra benefit,
albeit at the price of a reduced penalty.)  Therefore, where a firm is in violation of an emissions
limit and must effectuate a technology-based remedy (rather than, for example, a paperwork filing
response), the technological response must have a low risk of failure and must bring the plant into
compliance quickly.

To the degree that an effective, established, and familiar end-of-pipe technology will achieve this
objective, it will be an attractive choice.   If a pollution prevention alternative  appears to have a
higher risk of failure, or will take longer to  effectuate, it will be perceived as a less desirable
option. The Pollution Prevention in Enforcement Policy seeks to address this issue by "granting"
agency negotiators the flexibility to extend the average timeline for resolving the violation with
a pollution prevention remedy, if:  (a) the prevention  option will produce an  aggregate gain in
pollution reduction over the pollution control option, (b) the prevention technology is reliable and
available, (c) the prevention technology  is applicable to other facilities, and (d) the prevention
approach offers the best prospects for permanent return to compliance.  The agency negotiators
must make this determination.

2. Pollution Prevention Knowledge and Expertise

Where both pollution prevention and control remedies exist, the pollution prevention option will
be implemented only if the benefits associated with this choice are perceived to be superior, by
the firm and the agency, to the pollution control strategy.  Pollution prevention knowledge and
expertise within the agency are important to
encourage  and guide a  firm to consider
pollution prevention, as well as to evaluate
the merits of the firm's pollution prevention
injunctive relief proposal.
Elements Particular to Iniunctive Relief
•  The need to achieve compliance

•  Pollution prevention knowledge and
expertise:  advantages over pollution
control
                                           VI-7

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                                   VI CONCLUSION
The, benefits of negotiating pollution in enforcement agreements are realized directly through
changes in firm technology and associated environmental and human health benefits, as well as
through many tangible and highly valuable indirect environmental, health, and economic benefits
from:  the transfer of SEP technology to other processes in the subject plant or to other plants
owned by the firm;  organizational changes that can lead firms to view and address .pollution
sources in a more holistic fashion; further implementation of other pollution prevention projects;
and  changes in vendor/consultant relations  that will facilitate future adoption of preventative
rather than control strategies.  Furthermore, firms tend to see the  opportunity to implement
pollution prevention—either as an SEP or as injunctive relief—as a way to rum a negative situation
into  a better or positive situation for themselves, for their firm, and for their relationship with the
agency.

Enforcement settlements can be  structured to facilitate the adoption of innovative pollution
prevention technology,  and by doing  so, push the "technological frontier" to help overcome
challenging environmental problems.  Although the enforcement setting, with its adversarial
backdrop  and somewhat rigid  legalistic framework, is a challenging.setting  within which to,
facilitate  innovation, the  cases demonstrate  that the enforcement  context  has  two distinct
advantages. First, firms can be motivated to innovate, i.e., to overcome the barriers to pollution
prevention innovation that often exist in firms, through penalty reduction, improved relations with
the agency, and improved public relations (via publicity through press releases). Second-, since
the firm has committed to implement  the innovative project in its consent agreement with the
agency (or to pay stipulated penalties), there is a strong incentive  to stick with the project even
when technical difficulties  arise.  Enforcement thus creates a "window of opportunity" in which
options for technological change receive more serious consideration than usual.
                                          VIM

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QUESTIONS TO GUIDE NEGOTIATION OF
POLLUTION PREVENTION IN SEP'S AND INJUNCTIVE RELIEF CASES
There are a number of technical and organizational factors that affect a firm's willingness and
capacity to adopt pollution prevention in an enforcement context. To assist agency negotiators
in evaluating the potential for pollution prevention during the negotiation process, these factors
have been reformulated into a series of questions. The questions are structured so that a positive
response indicates potential for pollution prevention.
Evaluating Technical Factors:

Q. Is pollution prevention likely to decrease the firm's costs of pollution control, save material,
energy or water costs, or increase productivity?

Q. Is the firm, its consultants, suppliers or other technical assistance providers familiar with the
concept and techniques of pollution prevention?

Q. Are the firm's consultants likely to recommend or entertain pollution prevention projects, if
they are feasible and attractive?

Q. Does the firm have one or more appropriate pollution prevention projects that it had
considered prior to violation?

Q. Are important "technical gate-keepers" (including the firm's engineering and R&D
departments or consultants) and/or potential "change-agents" participating in the negotiation?
If not, and they exist in the firm, can they be brought in?

Q, Is the subject plant one of several owned by the firm or foreign-owned? Can the plant obtain
information or technical assistance from other plants or its owner?

Q. Is the pollution prevention project proposed likely to be transferred to other production lines
or to another plant owned by the firm?

Q. Is the firm in a good cash flow position, a promising or growing market, or dependent on
innovation to prosper?

Q. Is the firm's technology characterized by relatively small-scale and flexible production units
rather than large-scale, highly automated, mass-production systems?
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Evaluating Organizational Factors:

Q. Are senior-level officers/managers of the firm supportive of pollution prevention approaches
and the opportunity to undertake the project in exchange for penalty mitigation or for other
strategic reasons?

Q. Is the firm's legal counsel experienced in environmental matters? in negotiating SEPs?

Q. Is the firm willing to take technical risks?

Q. Are there indirect economic benefits (i.e., reducing current and/or future regulatory costs,
potential future liability), as well as direct economic benefits that are highly valued by the firm?

Q. Is the firm concerned about their "environmental image"?
A set of organizational factors, concerning EPA regional offices, can enhance the ability of case
officers and attorneys to successfully negotiate pollution prevention conditions. These factors are
embodied in the next set of questions.

Evaluating Agency Factors:

Q. Are the case officer and attorney sufficiently knowledgeable about pollution prevention and
negotiating pollution prevention settlements? .' .

Q. Is the Regional Office philosophically supportive of these projects?

Q. Are the case officer and the attorney in agreement on the necessary elements for approving
or encouraging a pollution prevention SEP or injunctive relief settlement?

Q. Have the case officer and attorney agreed upon their respective roles in encouraging such
settlements?

Q. Is there potential for cooperation between the agency and the firm, i.e. is there a proper
atmosphere for negotiating pollution prevention agreements?

Q. Is the agency willing to dedicate resources to monitoring and shepherding the project?

Q. Has the idea of a pollution prevention project come up relatively early on in the
negotiation process?

Q. Is the time allocated for the project to be completed realistic and acceptable to the
agency?

Q. Is there appropriate "risk sharing" between the agency and the firm in case of technical
failure?

Q. Has the agency provided reasonable incentives to the firm without "giving away the store"
or compromising the deterrence effect of inspection?

VII-3

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                                  APPENDIX A
                   CASE STUDY SUMMARIES AND ANALYSIS*
A.  Supplemental Environmental Projects

Casted Metal Products Manufacturer (CMPM)

Industrial Coater (1C)

Lid Manufacturer (LM)

Medical Device Manufacturer (MDM)

Metal Filing Furniture Manufacturer (MFFM)

Metal Finishing Company (MFC)

Metal Machining Company (MMC)

Powder Metallurgy Manufacturing Company (PMMC)

Pump Service and Sales Company (PSSC)


B.  Injunctive Relief

Bleached Kraft Pulp Manufacturer (BKPM)


*  Note: Full case studies can be found in the report:  Becker, M.M., Ashford, N.A., "Recent
Experience in Encouraging the Use of Pollution Prevention in Enforcement." Prepared for the
Office of Enforcement, U.S. EPA, May 1994.

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                                    APPENDIX A

                     CASE STUDY SUMMARIES AND ANALYSIS

This Appendix contains descriptions often case studies of pollution prevention in enforcement
settlements case study analysis and commentary.  Subsections A and B present a tabular and text
summary of the full cases, respectively.  Subsection C contains case commentary and analysis
Finally, subsections D and E contain commentary on the impact of pollution prevention on the
agency s enforcement programs and on the firms, respectively.


A.  A TABULAR SUMMARY OF INDIVIDUAL CASES

The next five pages contain a tabularized summary of the individual cases.  SEPs are presented
first, in alphabetical order (by pseudonym), followed by the injunctive relief case.
                                       A-2

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B. A BRIEF TEXT DESCRIPTION OF INDIVIDUAL CASES

1. Supplemental Environmental Projects

a. Casted Metal Products Manufacturer (CMPM)

CMPM produces casted ferrous metal products using a variety of operations, including: wax
pattern and sand/plaster mold production; mold dewaxing with heat; acid and caustic cleaning,
degreasing, bluing, phosphate coating, and tumbling of metal parts. CMPM has approximately
1,200 employees and 3 buildings at the subject facility. The company owns two other plants; one
plant makes similar products, another produces only aluminum products.

The company was cited with two violations under the Clean Water Act: failure to file a Baseline
Monitoring Report (Section 403.12) and exceeding the chromium discharge limits and effluent
pH. The company was originally fined $95,000. In consideration of their willingness to include
a SEP in their settlement, EPA reduced the fine to $30,000.