United States Environmental Protection Agency

             Office of the Chief Financial Officer

              Center for Environmental Finance
                        Meeting Summary

        Environmental Financial Advisory Board (EFAB)

                       August 10-11,2009
                   Omni San Francisco Hotel
                       San Francisco, CA
  The minutes that follow reflect a summary of what was conveyed during the course of the
meeting. The Board is not responsible for any potential inaccuracies that may appear in these
  minutes as a result of information conveyed. Moreover, the Board advises that additional
information sources be consulted in cases where any concern may exist about statistics or any
                other information contained within these minutes.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009

                    Environmental Financial Advisory Board
                                Meeting Summary

                                 August 10-11, 2009

                                Table of Contents


Opening Remarks/Meeting Overview 	1
Welcome Back to San Francisco	1
Report Out on Carbon Capture and Sequestration	2
Report Out on Financial Assurance:
   Cost Estimation	7
   Commercial Insurance	8

Day 2:

Opening Remarks	10
Environmental Finance Center Network	10
Financial Incentives for Environmental Technology	15
Report Out on Water Loss Reduction	20
Report Out on SRF Investment Options	22
Development of the Strategic Action Agenda-New Projects  	24
   Ecosystem Services Markets	24
   Carbon & Emission Credit Trading	25
   Financial Incentives for Environmental Technology	27
Public Comments	29
Wrap Up and Next Steps	29


Meeting Participants	31
Meeting Agenda	33
Jane Diamond - Bio	35
Summary of Carbon Capture  & Sequestration Workgroup Activities	38
Matrix of CC&S Risks and Financial Assurance Considerations	39
Financial Assurance Workgroup Overview and Status of Cost-Estimation Work	44
MarciaMulkey - Bio	46
Financial Incentives for Environmental Technology Presentation Slides	47
SRF Investment Options	73
Financial Incentives for Carbon Emission and Credit Trading - Project Proposal	75

               Environmental Financial Advisory Board (EFAB)
                                Meeting Summary

                                 August 10-11-2009
Monday, August 10, 2009

EFAB Board Meeting (1:30 p.m.)

Opening Remarks and Meeting Overview

Stan Meiburg, EFAB Designated Federal Official (DFO) welcomed members and guests to the
Environmental Financial Advisory Board (EFAB or the Board) semi-annual meeting in San
Francisco. DFO Meiburg commented that four members were not able to be present: Chiara
Trabucchi, Don Correll, Justin Wilson, and George Butcher.  The Board has approved the report
on the Voluntary Environmental Improvement Bonds and the report is now under review by the
Environmental Protection Agency (EPA or the Agency).

James Barnes, Chair of EFAB, and Professor of Public and Environmental Affairs, Indiana
University, welcomed Board members, Environmental Finance Center Network (EFCN)
Directors, and guests and said that he was impressed with the workgroup efforts since the last
session and the well-informed discussion in the workgroup meetings this morning.

DFO Meiburg noted the meeting was open to the public and public comment can be given at the
end of the second day.  The agenda for the first day will include a welcome by Jane Diamond,
Acting Deputy Regional Administrator for Region 9, who serves as the Chief Operating Officer
overseeing a workforce of 900 people, a regional budget of $870 million and a $2.3 billion grants
program. Ms. Diamond has worked in the Hazardous Waste  Program and the Border
Wastewater Infrastructure Program.

Welcome to  San Francisco

Jane Diamond, Acting Deputy Regional Administrator, Region 9

Ms. Diamond welcomed the EFAB Board to San Francisco.  She noted that this has been a busy
year for EPA across the country with the new administration  and other changes, including the
American Recovery and Reinvestment Act (ARRA). The Region's ARRA program has
provided 85 percent of the money to state, tribal and local recipients and to a Superfund program
to help to make improvements in the environment and revitalizing the economy.  With the
proposed 2010 President's Budget, Region 9 would receive $10 billion more in infrastructure
funding than in previous years.  In Region 9, all states have staff on furlough and many programs
are fee-based. The fees have diminished with the economic downturn.

The main concern is about operation and maintenance of facilities for small communities,
particularly the 147 Indian tribe communities.  Another concern is improving private and public
partnerships at the Federal level. EPA is working with other  federal agencies and will cooperate
with them on environmental programs. The climate change bill under discussion and carbon
capture and sequestration bill also have financial issues.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009
In Region 9, there are water infrastructure needs in the Pacific Territories, such as Guam and
American Samoa, and creative financial programs, (e.g., bond bank), are being discussed.  An
Interagency Taskforce is working on meeting the water and wastewater infrastructure needs due
to the military moving troops from the Philippines to Guam. Over a five to seven-year period,
there will be a population increase of 45,000 people or 25 percent over the present population.
Ideas from EFAB on how to finance the needed infrastructure would be welcome. Also, there
will be an increase in the energy demands and Guam would like to focus on building energy
efficient projects. The Department of Energy has $30 million dollars for these programs.

In the Southwest, there are  opportunities in developing energy programs on Indian lands.  In  San
Francisco, the delta ecosystem that provides water to 2/3 of California is in danger of collapse, so
the estuary needs to be improved. The fisheries industry, agriculture, and urban communities'
needs cannot always be met. She congratulated EFAB and their work on climate change, green
energy, renewables, and providing jobs for the green economy.


Michael Curley asked about water desalinization and solar energy. Ms. Diamond said that some
communities were working on desalinization, but that it is very expensive to get drinkable water
from salt water. Mr. Curley added that many areas are using the ARRA funds to build solar
energy programs. DFOMeiburg discussed the need for looking at the problem of leaking pipes
where water loss is significant. Jennifer Hernandez asked about carbon sequestration  program in
Region 9.

DFOMeiburg next reviewed the meeting agenda which would include report outs of projects
that are underway, plus  some potential new projects. In the transition phase of the new
Administration, more projects will probably be proposed, but for now EPA is getting  new
appointees for various programs, such as air, water, pesticides and toxic substances, and
enforcement. There is no confirmed Deputy Administrator at EPA yet.  The first report out is on
Carbon Capture and Sequestration and the next is on Financial Assurance. Tomorrow the agenda
will include an update on the EFCN, Financial Incentives for Environmental Technology, project
report outs on Water Loss Reduction, SRF Investment Options, and the proposed new projects
under the Strategic Action Agenda.

Report Out on Carbon Capture and Sequestration

Jim Tozzi, Workgroup Chair, said that Carbon Capture and Sequestration (CCS) is symbolic of a
lot of what EPA and EFAB have been involved in. Consensus may be  difficult, because
viewpoints will differ, so minority viewpoints may be needed for the report. The Workgroup
was started in December 2008 and the endpoint is not yet established. New regulations are being
drafted on Title VI wells, which the workgroup has reviewed. The workgroup has held several
meetings and many phone conferences and all committee members have been involved.

Under the first authority, EPA wants to amend their Title VI regulations and has asked EFAB
how to strengthen these regulations regarding financial assurance; however, the regulations are
limited to the statutory authority of EPA.  The workgroup felt that this constraint was too
restrictive, because the nature of CCS was broader; yet, the Workgroup is trying to bring
recommendations to the Board in December. The second authority has no time frame. The third

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009
authority is on the financial assurance mechanisms, which are vital to EFAB, and need to be
looked at from a broader point of view.

Jim Tozzi reviewed the handout, Table I. Matrix of Financial Instruments and Potential Carbon
Capture and Sequestration Risks, dated July 25, 2009.  Table 1 includes potential impacts of
CCS on Human Health and Welfare, Ecology, Damages to Property, Atmospheric Releases, and
on Water Resources.  The columns include the financial instruments that could be considered
including Private Sector Trust Funds, Public Sector Trust Funds, Letters of Credit, Escrow
Accounts, Certificates of Deposit, Surety Bonds, Insurance, Lines of Credit, Financial Tests, and
Corporate Guarantees.

The workgroup is asking EFAB to discuss whether the categories in the rows are accurate and if
the items in the columns representative of the totality of financial instruments for CCS.  Table 2
explains the potential impacts of the categories in Table 1. The explanations are very tentative
and can be re-defined after discussion. The Safe Drinking Water Act (SOWA) authorities do not
cover some of the column titles, such as  human health and welfare, ecological impacts,  and are
very limited on atmospheric releases. Board recommendations are needed to determine which of
these column entries are SDWA-specific. Once this is determined, the workgroup will
concentrate on those topics, initially. Recommendations will be made on what goes into each

Rachael Deming commented that the financial instruments were broadened beyond the RCRA
purview. The financial instruments indicate where a third party can trigger the financial
mechanism to where the responsible party is in control of providing the financial instrument.  On
property damages, there is a distinction between damages in a third party liability to individuals
vs. remediation in the longer term.  Regulations need to be made for third party liabilities
separate from remediation.  EFAB needs to give the Agency the rationale for the categories.

DFOMeiburg asked if the table is trying to show the types of risks against the types of financial
instruments and whether the instruments are appropriate in terms of risk.  Mr. Tozzi added that
some instruments are aimed at Carbon Capture only. DFO Meiburg thought the table implied
that different types of financial  instruments  may be appropriate for different phases of CCS. Mr.
Tozzi agreed and added that the legislative bills under consideration should include financial
assurance, but that the legislative drafts may not use financial assurance terminology. EFAB can
alert EPA to the regulatory regime that will  have to be put in if the legislation passes. The bills
may not give the authority to EPA, so EPA  needs to use the recommendations of EFAB to ensure
they have the authority to implement the legislation. DFOMeiburg added that financial
assurance involves many different types of activities with different risks and time horizons and
the instruments may differ.

Jim Tozzi stated that the time table for the Board's ideas on strengthening the regulations is
slated for completion in December 2009. The second task is developing a matrix of potential
CC&S risks and financial assurance considerations. The third task includes broad considerations
of basic policy issues, which are included in the draft paper:  Establishing a Liability Regime for
Carbon Capture & Sequestration: Elements of a Long-Term Stewardship Program.  The paper
was developed at a 2009 June meeting in Washington, DC.  The Agency asked the workgroup to
look at short-term impacts of SDWA fixes.  The main issue is the role of EFAB in making
recommendations on the more global liability issues of CCS. If the workgroup only works on
Agency-specific issues, some of the expertise of the Board would not be used.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009
The main issue is that a sound regulatory regime needs to be in place before regulations are put
in place.  The first element is to comply with permits and the second one is financial assurance
conditions. If liability protection is provided, then compliance is an issue.  The main liability
scheme for CCS is in the Price-Anderson Act, which included three categories for liability:
individual site or operator, collective site or operator, and governmental.

The first liability relates to the role and responsibility of an individual operator. If they are in a
pooled resource later in the game, they would not have to pay for it. The line needs to be drawn
for the individual operator. The workgroup will make recommendations to address this.  The
other item is when the individual operator liability ends and collective or federal action begins.
Some members think that the individual  should be responsible as long as possible.

Another issue is Trust Fund management. Legislative bills differ on which governmental agency
should ask for closure.  If liabilities are set by the Agency, this would be a huge job for EPA and
EFAB. Whether EPA or the Department of Energy (DOE) is in charge needs to be determined.
DOE should probably not be in charge of environmental concerns.  Senate Bill No. 1013 is a
demonstration project on liability.  The Price Anderson Act was set up 50 years ago as a
demonstration program and it still remains in place.

Another issue is the preemption of state laws. One view is that common tort laws should be
preempted. EFAB should deliberate on the extent common law should be preempted.  Pooled
funds will pay for some damages not covered by common law. The other question is whether a
government fund is needed as a bail-out  program.  No time-line has been set for the liability


Does the demonstration project get different definitions?  Jim Tozzi responded that proponents
say that there are a lot of risks and people need to get a break because of the uncertainties. The
other argument is to put a resource system in place, so that the first four or five projects could
have larger government back-ups.  Jim Tozzi was concerned that a program put in place would
never be changed.

What is a trust fund in the public and private sector? Jim Tozzi responded that the chart shows
the difference is the money source. A private trust fund is all private and not managed by the
federal government.  If the government has a trust fund, who would manage it and what findings
would get the funds released?  For the most part, the federal level would collect fees and manage
the trust fund.

Is there any discussion about the appropriate investment given the long-term risk? Jim Tozzi did
not have an answer for this question, as the workgroup had not focused on this issue.  One idea is
a continuously accruing fund over time.  Jim Tozzi said the Agency makes the determination of
how the funds are obligated, but this may not be within EPA's purview.


If the longer look is delayed and the focus is on safe drinking water, it would seem that those
ideas need to proceed simultaneously, because the recommendations on the SDWA and financial

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009
assurance would help to inform the longer range impacts. If you conclude there are only a
limited number of risks under financial assurance, then the other risks need to be dealt with in the
larger scheme and a decision made on who should pay for them. Jim Tozzi said that the longer
term look is needed, but the push is for the short-term aspects. The chart will reveal the
limitations of the term "financial assurance."  EPA needs the authority to take actions on the
short and long terms.

How far the liability should go needs to be discussed.  If we design a liability system and a
financial system that matches, this is different than a remedy-based system. The table shows a
lot of this and there are tools that can be used, but EFAB or EPA needs to determine the breadth
of the workgroup's task.

Ms. Deming said the workgroup could take the draft of the long-term liability paper and add
sections that would allow dual use for identifying options for financial assurance and options for
long-term issues. EFAB needs to inform EPA that other options are needed for financing risks.
Jim Tozzi added that if we say that financial assurance is the only option, it could be interpreted
as "that is all that is necessary."  All of the issues should be indicated, but EFAB could indicate
the key provisions and make statements on this.

DFOMeiburg said that EFAB should parse out the various elements of financial assurance
needed in the CCS process within the constraints of SDWA, and added that SDWA is not
sufficient to address all of the issues in the long-term risk.  It is unusual for the Board to make
recommendations on financial assurance when the liability scheme is uncertain. A liability has
to be assumed to recommend financial assurance. Jim Tozzi thought EFAB should be  more pro-
active in terms of prevention.

Ms. Hernandez  agreed that by commenting on the long-term financial assurance question before
the range of the liability scheme is known; it would make it difficult to  determine the  appropriate
financial assurance mechanisms. Does it make any sense to have a Board discussion of the
liability range or should the broadest liability be assumed and then recommend the appropriate
financial assurance to  cover that liability?

In response to a question about the state of the discussion in Congress on this issue, Jim Tozzi
said the most recent Senate Bill by Senators Casey and Enzi gives DOE the authority to set up  a
fund and set the limits for funding and enforcement.  A House bill by Congressman Bingham is a
demonstration program.

Ms. Patton added that the Casey Bill does not ask for consultation with EPA, but the agencies
cannot operate in isolation.  Another complexity is the highly-regulated, power industry and
financial assurance structures cannot be developed in absence of the restrictions that the entities
or communities are going to face for pass-through costs.  Another concern is whether  there is a
way to transition into a commercial mechanism.

Other issues and concerns stated by Board members include the following:

    >  Several members thought that EFAB should be pro-active.
    > Proscribing financial assurance mechanisms without understanding the risks would be
       difficult. The Workgroup's matrix did not have a concept of the risks.
    > Remediation, operational, and third-party risks are different.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009
    >  Instead of worrying about the extent of the risk, just because liability has not been
       defined, the matrix could be used to relate financial assurance mechanisms to the risks
       that can be covered to ascertain how much liability protection is needed.
    >  The workgroup intended the matrix to present opportunity to  create mechanisms related
       to the liabilities.  For example, the liability for CC>2 injections is different than liability for
       pipeline breakage.  Only a few of the financial instruments apply to pipe-line fractures,
       such as trust funds and letters of credit.
    >  The matrix basically shows different types of risks and the different financial tools for
       each type of risk.
    >  The matrix shows a base liability scheme based on existing legal and common law
       structure, but this could be made more apparent.
    >  Every industry activity does not need financial  assurance. For example, businesses that
       pollute continue to  operate without any kind of pollution insurance or financial assurance.
    >  The liability for carbon sequestration would depend on who owns the pipes.  The
       financial mechanisms would  differ whether it was a private or public entity.  Some type
       of pooled liability is needed.

Jim Tozzi said the Agency  in charge  makes the final decision, but this should be done in
consultation with EPA. There is a role for EPA, because of their background on these sites.  At
present there is no established business model, but one will emerge from the dialogue about
liability related to who gets the credit, and who is liable, etc.  The requirements for financial
assurance might determine who will  be involved. The models might include a single utility
provider who is liable or there may be many entities and a common management system,
common carrier, and common injection manager.

In regards to DOE, the workgroup had not talked to them  yet, but EPA has had discussions with
DOE, and the group had discussions with EPA.  Jim Tozzi wondered to what extent EPA is going
to spend a lot of time on this effort.  DOE will play some role, but some other agency should
make the decision on certification for closure and post-closure and financial assurance.

DFOMeiburg asked if it would it be valuable for the Board to articulate what the EPA should
consider on the longer-term financial responsibilities. The paper is descriptive on a liability
scheme, not a prescriptive one, and there is no charge from the Agency on a prescriptive set  of
principles. Dr.  Tozzi said the initial charge was to look at SDWA and then to come up with
long-term views.

Dr. Tozzi said the deadline for the guidelines on how to fix an Underground Injection Control
(UIC) regulation is December 31, 2009. Principles for what would govern the program and  the
beginning of actions beyond SDWA would be available at the Spring meeting. In relation to the
risks and impacts on business models and financial assurance, the matrix could be expanded.
The initial focus is on SDWA-related financial assurance, but this is  sub-set of broader issues.
EFAB  needs to review and discuss the analysis of the principles on preemption and common law
torts as presented by the workgroup.  Different viewpoints will need  to expressed or reconciled
in the final report.

Report Out on Financial Assurance

Mary Francoeur, Workgroup Chair, said that the two sub-groups of Cost Estimation and
Commercial Insurance have been productive.  Kelly Downardwift discuss Cost Estimation and

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009
then Lindene Patton will discuss Commercial Insurance in place of Justin Wilson, the Co-Chair,
who was unable to present.

Financial Assurance: Cost Estimation

Kelly Downard, Co-Chair, presented an overview of the Cost Estimation Project which resulted
from the Agency's discomfort with the reliance on cost estimates, because if the cost estimate is
wrong, the financial assurance is faulty. One of the major concepts was the development of a
Cost Estimation Consultative Group of 8-10 cost estimators with representation from the
Agency, states, and industry. Experts exist, but they do not always communicate with each
other. The Consultative Group would have a formal status and they would review instances of
past experiences when cost estimates did and did not work and then draw up a body of practice.
The review process would include products, such as Cost Pro software and other processes that
can be utilized by the cost-estimators. Expanded training is critical for continuation and to pick
up new knowledge from others. Training workshops in every state would result in consistent,
contemporary communication about what happens throughout the country.  Workshops could
provide advice about good practices and improve the reliability of the cost estimation process.

The next steps include developing and preparing  the next draft of the Cost-Estimation
Consultative Group Skeleton Concept paper, preparing and holding a cost-estimation
teleconference with a diversified range of private sector representatives; and beginning to work
on holding a Cost-Estimation Workshop. (See handout.)  One more consultation with state
representatives is needed after they share Workgroup information.  Industry representatives may
be able to contribute other ideas about the Concept paper. The Workshop with representatives
from the Agency,  industry, academia, and the states, will be held in conjunction with the EFAB
2010 Spring meeting, if possible. The National Remedy  Review Board under the Superfund had
a similar beginning and a workshop, so the workgroup will consult with them on the process.

The Workgroup topics are factors that affect cost estimates, such as technology or economic
changes. A  periodic review of estimates was discussed with the states, but the time frame needs
to be determined.  The methodology for performing cost  estimates, product updates, and training
are other factors.  The Consultative Group process needs to be defined.  A clearinghouse and a
website could be used the share ideas.

DFOMeiburg added that the recognition of three separate areas under cost estimation were
discussed in the workgroup and the workshop would be used to clarify these areas.  Cost
estimation remains a critical issue in corrective action. First,  the factors that affect cost estimates
include: 1) errors and omissions; 2) changes in science; 3) political changes and policy
framework;  4) changes in technology; and 5) changes in commodity costs. All of these are more
important to corrective  action than to closure and post-closure.

Secondly, what are methods and tools that people use for doing cost-estimates? Models are used
and some are good and others are wrong. After-the-fact studies can be used to see what changes
affected the  cost estimate. The third area was the possibility of process improvement for cost
estimation to make it more effective, relying on the model used by the National Remedy Review
Board in the Superfund program. This was done to conserve expenditure of funds by the U.S.
government. This would be a process to provide updates to the practice community.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009
Ms. Deming brought up the issue of how the cost estimation process is used for innovative
technology and whether it could discourage innovative technology. An example was a
technology called Low-Temperature Thermal Desorption that was done by Ciba Specialty
Chemicals at a DDT manufacturing site. The technology included a low-temperature incinerator
that processes the soil, heats it enough to destroy the chemical, and then puts the dirt back in the
ground. Ciba signed a consent decree for financial assurance of $210 million dollars for
implementing the technology.  The implementation cost $50 million, but the technology had
huge benefits.  Ms. Deming asked: If you are doing cost estimates for the innovative
technologies, how do you price them for financial assurance purposes without being a

Ms. Patton added that we were trying to find a way to assure that recommendations could
incentivize new technologies that were valuable, but not put huge risks into the portfolio of
EPA's exposure. Some proven technology would have to back up the new technology and be
included in the cost estimation. Mr. Kelly said that as new ideas are proposed, people from
industry could look at different ways to do things.

Mr. Kelly  recapped the next steps: One more phone conference with state representatives; a
discussion with industry representatives; plan and execute the workshop after discussion with the
National Remedy Review Board. Ideas from EFAB members would be helpful. Mr. Kelly with
the assistance of EFAB staff will write a draft paper to be reviewed by the workgroup, and then
get feedback from EFAB.

Financial Assurance: Commercial Insurance

Lindene Patton reported that the workgroup reviewed the previous work by Justin Wilson, Co-
Chair, and attempted to resolve difference of opinions over the last draft.  The results were as

   •   The differences between insurers, regulators, and the regulated community were clarified
       related to the function and form of commercial insurance in the context of financial
       assurance. Agreement was reached that confirming and making transparent those
       differences is a value the Board can provide to the Agency; however, EFAB cannot
       resolve the differences in all cases.
   •   More work needs to be done on the impacts of increased regulation on the availability of
       certain types of financial assurance, but there was no agreement on how that would more
   •   The workgroup recognized that a core request  from EPA was for the Board to provide an
       opinion on minimum financial strength ratings; so the current language will be reviewed
       again to ensure agreement.  Some testifier comments at the last Workshop would be
       reviewed for the factual background, if possible.

All the comments on the paper would be provided by  September  1, 2009, with the goal of
revising the report and have a workgroup report out by the end of September 2009.  DFO
Meiburg said the full Board has not seen draft No.  8, but the comments today indicate that this
draft has made a lot of progress. Ms. Patton agreed that the last few reports have clarified the
concepts and recommendations from the Board.  DFO Meiburg added that the most controversial
issues could be discussed further by the Board.  The goal would be to complete the report by the
2010  Spring meeting. He then asked for highlights about some of the difficult issues.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009
Ms. Patton responded that there was a divergence of opinion about legal conflicts when applying
financial assurance. Insurance is highly regulated in most states and environmental activities are
also highly regulated by the federal and state governments.  Financial regulators in the form of
insurance regulators do not necessarily work together with the environmental regulators;
therefore, some differences were evident.  The litigation history indicates that there is a
controversy between these regulators as related to commercial insurance. The most controversial
issue in the report states that the insured and the insurers should not enter into a contract when
each party has fundamentally different expectations. It is important to resolve those issues
before entering into a contract. This might require revising procedures on the part of the
regulators and the regulated communities.  A great deal of discussion related to defining the
differences; and they decided not to resolve the differences for the Board.

Another controversial issue has to do with financial ratings for insurance providers.  Several
documents need to be reviewed regarding the ratings and the Board will need to determine what
the best minimum rating recommendations are in light of the changing economic conditions.
The Board has made recommendations on captive insurance, but the economy has changed since
then.  The workgroup has to recognize economic cycles, so the recommendation has to be able to
incorporate those conditions.

DFOMeiburg saw a common thread among all of the workshop reports in that the Board needs
to apply its analytical ability to the complexities of these reports.  He reviewed some of the
complexities in each workshop report. Recommendations to the Agency need to clarify the
conflicts and differences.

Adjournment: The meeting was adjourned at 5:05 p.m.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 10

Tuesday August 11, 2009  (8:30 a.m.)

Opening Remarks

DFO Meiburg welcomed everyone to the full day session of the EFAB, which would consist of
two presentations, one from Joanne Throwe, President, Environmental Finance Center Network,
and the other from Mar da Mulkey, Acting Deputy Associate Administrator, EPA 's Office of
Policy, Economics, and Innovation (OPEl).  Next, EFAB workgroups would report on Water
Loss Reduction and SRF Investment Options.  Development of the Strategic Action Agenda
would include Proposed New Projects. A period of Public Comment would follow the
presentations and Board discussion.

Environmental Finance Center Network Update (EFCN)

Joanne Throwe, President, EFCN, said the year has been different because of the EPA
competition, but this forced the EFCs to plan for the next six years in relation to EPA's goals.
EFCs are the connection between the communities and EPA.  EFAB's Strategic Action agenda
for 2009-2010 was reviewed for the competition, and the EFCs are working on each of these
goals. The workload has increased tremendously from community requests for assistance.  The
focus of today's report will show how the EFCs have met some of these goals and will illuminate
the work done in tribal areas.

Heather Himmelberger discussed the EFC in Albuquerque, New Mexico, and the work done
with Native American tribes.  EPA Goal 2, Clean and Safe Water, includes tribal access to safe
drinking water by  improving infrastructure to increase the number of homes in tribal areas with
access to safe water and basic sanitation. Goal 3, Land Preservation and Restoration, includes
working with Native American tribes to ensure that the land is restored properly. Lastly, Goal 5,
Healthy Communities and Ecosystems, has an objective to improve human health and
environment in Indian Country. Stan Meiburg added that the Administrator of EPA recently
affirmed the Nation's tribal policy and the application  of government-to-government

EPA has direct responsibility in terms of safe drinking water for tribes.  Tribes can attain the
status of a state and can run their own program, but in  smaller tribes EPA runs the program.  In
New Mexico, there are 19 pueblos and 2 Apache tribes; and in Oklahoma there are 5-6 tribes that
are regulated by EPA.  There a few in Texas and Louisiana, for a total of 87 water systems in
Region 6. The activities include assistance with compliance and monitoring to make sure the
samples are taken  at the right time. Monitoring reporting violations and health-based violations
have been greatly reduced after EFC assistance. The EFC administers the tribal operator's
certification program through the application process giving tribal operators certification tests.
The EFC pre-dated the national program on operator certification, and EPA used their guidelines
with a few changes for the national program.

Under training, they try to fill needs that are not being  met, but the goal is for the tribes to do
everything for themselves.  One example was on how to change the chlorine level to reduce the
bacterial count, so the tribes could fix the pumps and set the chlorine  levels themselves. The
other big area is to explain regulations, such as the new ground water rules, for every single tribe
in Region 6 by the end of September 2009.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                  11
Sanitary surveys are also provided to EPA, and then EPA indicates the areas that need
improvement. An educational component was added to explain the deficiencies and how tribes
can change them. Some tribes have done the sanitary surveys themselves. Educational outreach
with tribes covers asset management and performance-based training, to move the tribes beyond

Ms. Throwe said that Laura Lee Barbaria would report for Sarah Diefendorf, who is visiting
with an Indian tribe in La Jolla, California.

Laura Barbaria, of the Green MBA Program at Dominican University of California, discussed
what the EFC in San Rafael, California is doing with three tribal projects.  One project is with
the Taurus Martinez Tribe in Palm Springs on land re-use and clean-up, because their land was a
dump area.  Although the site was cleaned up, dumping is still happening. The tribe is interested
in green technologies and green businesses to generate assets to clean up the land. A report has
been completed on the project.

The second project is in Northern Nevada.  The population was evaluated by Green MBA
students and the findings were that there are 8200 local populations dispersed around the City of
Reno and  rural areas. The charter was originally for recycling, but this has become less valued
because of price changes, so they are looking for other businesses as a cooperative. The first
draft of the report has been completed.

The last project is for the La Jolla Tribe near San Diego and they have put together a recycling
center.  A business plan was lacking, so Region 9 EFC will help them develop a business plan
for economic opportunities. Sarah Diefendorf is working with them now.

There is good synergy between Region 9 and Dominican MBA students, because courses are
hands-on and there only 20 students. The focus is on sustainability.  The EFC provided $25,000
for stipends for students to work on the project.

Mary Tiger, EFC, Project Director, University of North Carolina at Chapel Hill., speaking for
Jeff Hughes, Director, talked about their EFC projects that related to EPA's goals. Many of the
projects interconnect with several goals. One project is working with the School of Government
on the collaborative exploration of the  legal implications of water partnerships in a specific
region. The project uses leveraged funding from the Golden Leaf Foundation. The project helps
a community to enter into partnerships and will also provide a road map for other communities
on how to develop partnerships.

The state is interested in water partnerships. The project in Surrey County has been used to work
with the state on a broader level. In the drought of 2007-08, many communities nearly depleted
their water supplies, so this was the motivation for action.  North Carolina is interested in getting
water systems to partner and connect with each other.  The EFC was requested to determine the
location and size of existing connections to see where connections did not exist.

The EFC worked with both qualitative and quantitative data to develop an overview of water
connection systems, which includes a guide book to help communities develop a water
partnership. An interactive map shows the communities that are connected, the characteristics of
the connections, such as the capacity, the nature of their use, and the wholesale rates.  Data was
collected from secondary sources, actual interactive agreements and interviews with local utility

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 12
managers. This is a tool that the state can use to develop water resources use planning in the
near future.

Another type of connection is between the local government and its citizens. The North Carolina
General Assembly has been discussing how to give local governments the authority to finance
environmental improvements and collect property taxes to pay for them. These are called
Voluntary Environmental Improvement Bonds (VEIBs), but some are called Property-Assessed
Clean Energy and other terms.  The EFC is working with communities, non-profit organizations;
state legislators, and attorneys to understand this financial mechanism.  The North Carolina
General Assembly has two bills. The first one gives cities and counties the authority to design
and use a Revolving Loan Program using federal grants. The second would allow bond
financing used in the Berkeley First Model. The power companies are interested, but some
resistance has come from local conservatives. However, this type of financing has the power to
finance many different types of environmental programs. The EFC is a resource for localities to
work through the process.

With the Georgia State Revolving Fund, the EFC has worked through a contract to provide
support to the SRF teams to work through Green Project Reserve (GPR) programs and to
facilitate the scoring of financing of water and energy efficiency, green infrastructure, and other
environmental activities.  Some of the projects funded through the GPR program include water
meter replacement, stream restoration, permeable parking lots, and water fixture retrofit
replacements for localities.

William Jarocki, Director, EFC, Boise State University, Boise, Idaho, introduced Jo Ella Hoy,
who is the Project Officer for the satellite office in Kansas City. Mr. Jarocki discussed the Plan-
to-Fund Program, reporting, the financial dashboard, and planning for Region 10's 2010 work
plan.  The Executive Prioritization Tool  developed in 2007 was designed to help watershed
groups prioritize all of the things they want to implement in their plans.  The tool utilizes a series
of decision rules that the groups use to design and score the projects to develop a priority list.
This free, web-based tool is used for other kinds of environmental finance.

The Office of Wastewater Management requested the EFC  to build a tool which is pre-loaded
with the decision-rules that funding agencies could use in funding projects.  A second project in
Region 3 is a diesel retrofit project, where a modification of the tool will be used to rank the
selection of how diesel retrofits is implemented in the Port of Baltimore. The Office of
Enforcement and Compliance  (OECA) may use this tool to prioritize their caseloads.  Within
EPA management, they may use this to do their work plans. The most surprising event was the
contact from a Canadian consultant who found the presentation on the Web and asked if the tool
could be used to help the Jamaican government prioritize their capital budget. The Jamaican
government is going to use the tool to prioritize their capital budgeting and maybe looking at
previous allocations to revise the priorities.

For reporting, Mr. Jarocki suggested going to the publications page of the Boise State EFC
Website to see how the dashboard and other tools have been used in every state and region and
by every profession and how well it works. After a presentation in June in Syracuse, there was a
large increase from June to July in the use of the financial dashboard for drinking water.

The Wastewater Financial Dashboard was released at the end of July, which is in addition to the
Drinking Water Financial Dashboard. The tool visualizes the kind of information  everyone is

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                  13
working with including the National Pollutant Discharge Elimination System (NPDES) permits.
The tool is changing the way people are using financial information. Every region can use these

In Region 10, the EFC will build a technical financial management dashboard for drinking water
programs for each state. Baseline information will be captured on all the water systems in the
state that will guide the state drinking water programs and providers.  The tool can be used in the
future to determine water usage.

Ms. Throwe noted that this was an indication of how the EFCs work as a network through
conference calls and meetings.

Dr. Sam Merrill, Director, EFC,  University of Southern Maine, Portland, Maine, mentioned
two activities, related to EPA goals that help local communities with financial problems. A
Brookings Institute Report for the State of Maine of 2006 talked about what Maine needed to do
to get out of a financial hole by building on their assets, which are natural resources. The EFC
helped to formulate an asset-based, economic development for the State vs. a needs-based
economic development. The result was that there was an executive order to develop economic
development districts similar to counties. This was called the Quality of Place Framework.
Requests from New England governments for the Framework would eventually enable a regional

The EFC had a video on consensus guidelines on how to address Smart Growth challenges to do
high-density, affordability, walkable downtown development. A Guide has been developed to
accompany the video.  Under the EPA goal of Clean Air and Climate Change, the largest focus is
another tool, called COAST or Coastal Adaptation to Sea Level Rise Tool, which is a simulation
and modeling tool for coastal communities that will have to deal with adaptation costs of sea
level rise.  A cost-risk profile can be used for the  probability of changes in the sea level.  The
input variables can be modified and the costs estimated for each activity to prevent destruction of
property, including hurricane damage.

Kevin O'Brien, Director EFC, College of Urban Affairs, Cleveland State University,
Cleveland, Ohio, said that the recession has been important for the EFCs as states and local
governments look at how to become more efficient.  In Region 5, the EFC is working on three

    1.  The Northeast Ohio Regional Sewer District has a 2.5  billion dollar CSO (Combined
       Sewer Overflow) that requires them to implement a water retention system to reduce the
       number of outflows into Lake Erie. They are reviewing strategies to reduce the potential
       construction needs to meet the CSO order. One idea was utilizing land in the Greater
       Cleveland area on 22,000 vacant properties in Cleveland and on the 20,000 empty
       properties in the greater area to help the regional sewer district by developing leisure
       space. Properties could be aggregated to create retention ponds, community gardens,
       small and medium-sized parks,  and larger central parks to improve the value of the city
       so it will not be developable. The parks would absorb water and reduce the flow into the
       sewer system.  Several goals of the EPA, such as clean water, but also land preservation
       and restoration, clean air and climate change are  involved. The goal is to reduce the
       amount of energy it takes to process water flowing through the storm system.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 14
   2.  Two projects with Michael Curley include looking at innovative projects financing and
       SRFs across the country, and a Smart Way Transport Operation to reduce diesel
       pollution. Mr. Curley added that the focus is on over 20,000 loans that have been made in
       the SRF program where the guarantee authority has only been used once. People can use
       the guarantee authority to expand their capabilities. The second focus is on the
       dislocation in the bond market due to the collapse of the financial guarantee insurance
       industry, except for the Assured Guaranty Corporation represented by Mary Francoeur,
       which has helped a lot of communities to raise money for water and sewer. Recently the
       Chesapeake Bay, under a Presidential  Order, will develop a program under a special
       section of the Clean Water Act, to do a lot of innovative things to amend that section and
       test the programs as a demonstration.  The Act may be revised when it is renewed under
       the SRF program.
   3.  The EFC has been working with wind energy trade projects for Indiana and Ohio to
       create a schematic for the wind energy supply chain to identify the opportunities for the
       development of wind energy manufacturing component.

Mary Francoeur, Managing Director, Assured Guaranty Corporation, New York, N. Y.,
discussed some basic projects.  Under the American Recovery and Reinvestment Act (ARRA),
there are many projects that were not "shovel  ready,"  including New York's Green Innovation
Program.  Other communities could not take advantage of the 20 percent, green project set-aside.
Many communities need information on what green infrastructure means. She has worked with
the National League of Cities in preparing one-half day seminars with the Leadership Training
Institute focusing on mid-level readiness  projects. In  the near future, she is planning a  basic
level seminar on "Sustainability 101, What Every Government Official Should Know," including
what is green infrastructure, such as the use of a rain garden, to help communities take  advantage
of the ARRA funds.

With funding from USDA World Development, the focus is on Lake Ontario coastal
communities on financial planning, water and wastewater system management, and teaching
students how to put in rain gardens and bio-swells.  In the City of Oswego, a large rain garden
and rain barrels are being placed on the city hall property. Local voluntary labor is being used,
such as Boy Scouts and garden club members. Community education is being done at  the sites
to explain green infrastructure.

Lauren Heberle, Director EFC, University of Louisville, reported that one of the core projects
has been to produce 24 practice guides for municipalities or others who are interested in EPA
goal-oriented projects. The EFC will also take requests for topics for the practice guides. Public
symposiums are held related to sustainable cities in Louisville and this will be broadcast in the
future. Another project includes EPA goals, 1, 3, and 4, which are very interconnected, to help
communities prioritize their goals. One is providing land use and housing quality surveys and
inventories to small  and medium communities to help them understand land use patterns and
how they are related to successful sustainable development plans, respond to climate change
initiatives, and develop efficient strategies for public investment. The surveys can be used to
prioritize spending on  energy efficiency,  land conservation, vacant property revitalization and
clean-up, the location of green space and urban agriculture, restoration of urban ecosystems, and
other greener economic development options. The surveys can also be used to leverage grant

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                  15
The second effort is a community clinic action plan in partnership with the University of
Louisville City Solutions Center, the Urban Design Studio, and the National League of Cities
Urban Institute, to work with small to medium-sized cities to develop community action plans.
These will include action plans, workshops, connections to resources, and understanding the
costs  and benefits of action plans. The EFC will help them use plans that are relevant to their
specific community. The unique economic, social, and environmental context of each
community will be the starting point of planning.  Open stakeholder processes can help to build a
stronger culture of environmental citizenship.

Ms. Throwe said that in the Chesapeake Bay area the U. of Maryland EFC has had one project in
each state connected to the Bay.  The project for the Port of Baltimore has received $3.5 million
dollars of ARRA funding to retrofit dredge trucks, cargo handling equipment, locomotives, tugs
and tows.  The work is in conjunction with the Maryland Department of Environmental Services.
Food  Trader is another program that has 600 members, including restaurants and retailers  in
Maryland, Delaware, Kentucky, and New York. The EFC also works with watershed
organizations using Mr. Jarocki's tool to help some states with proposals under the Trust Fund.

In response to a question about the use of block grant programs to support EFC programs, DFO
Meiburg said that there have not been block grants but EPA has funded about $2 million dollars
per year to all nine EFCs, which becomes seed money to leverage funding opportunities for other
projects. In the 1990s, there were some funds to apply to environmental improvements for each
of the 9 EFCs, from the Regional Geographic Initiative, which was very limited.  Funding is now
focused on specific projects.

Ms. Throwe discussed border funding for BECC and NAD/Bank, which is being reviewed by the
GAO office to ascertain its effectiveness.  Another related effort was the use of the
Environmental Finance Program's Guidebook of Financial Tools at a tribal conference.

DFO Meiburg commented that EFAB is a policy advisory board, but the EFCs bring out the
importance of implementation  and the delivery of environmental finance to projects that make a
difference in people's lives and the environment.  The variety of tools that EFCs  have used is
outstanding. EFAB receives assistance from the EFCs on a wide variety of workgroups to help
with policies. There is a great  function and value  for the Board as a convening space to connect
the EFCs with each other.   These efforts could be presented to the Environmental Council of
States (ECOS) to produce more alliances between states. Ms. Throwe said that presentations
have been made by EFCs to ECOS  in the past and will do so in the future.

DFO Meiburg introduced Marcia Mulkey, Acting Deputy Associate Administrator of the Office
of Policy, Economics,  and Innovation (OPEI), who has provided leadership and expertise for
EPA for over 20 years in the Office of the Administrator, The Office of General Counsel,  the
Office of Enforcement and Compliance Assurance, the Office of Prevention, Pesticides, and
Toxic Substance and Region Ill's Office of Regional Counsel.

Financial Incentives for Environmental Technology

Marcia Mulkey^ Acting Deputy Associate Administrator of the Office of Policy, Economics,
and Innovation (OPEI), introduced Dr. David Widow sky., an economist in the Innovation Office
who has been working on green jobs and new governmental programs.  Ms.  Mulkey used  a
PowerPoint presentation called, "Creative Approaches to Supporting the Development and

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 16
Adoption of Environmental Technology, Including Financial Mechanisms. " The Office of
Research and Development (ORD) and many experts in OPEI helped to develop the
presentation.  Ms. Mulkey listed all of the persons in various EPA offices who have helped to
develop the ideas in the presentation. The major topics covered included Introduction to
Environmental Technology, NACEPT and Environmental Technology, Environmental
Technology at EPA, Case Studies of Environmental Technology, and Discussion questions.

Environmental Technology is central to environmental protection. Environmental technologies
include those that reduce or prevent pollution, capture and safely sequester pollution, clean up
pollution, and measure contaminants/pollutants.  Green chemistry is involved in energy
efficiency, which is very important, especially on reducing pollution.

Ms. Mulkey said that financial considerations are involved in all of the technologies.  Pollution
control includes capture and management of pollutants. Clean up of pollution is largely
technology, which has used large amounts of money since the Super Fund. Technology that
enhances EPA's ability to monitor pollution is extremely important. Sustainable technologies
must be cost effective and not cause unintended consequences.

The next slides showed the trend in CleanTech spending in U.S.  Corporate Research and
Development (R&D), Worldwide Government R&D, U.S. Venture Capital (VC), and the U.S.
Market in the three years before the economic crash.  Corporate R&D shows modest growth and
heavy spending on  energy programs. Worldwide government spending is incremental and a lot
is spent on energy.  U.S. Venture Capital was spent on energy efficiency, air monitoring, water
purification, preventing pollution, and sustainable techniques,  but has increased the most on
energy in 2006, compared to the previous 10 years. A slide depicting the U.S. Market in the 70s-
80s and 80s-90s, the 90s-2000, and 2000 onward, showed it was in the 70s to 80s that had the
biggest increase in various Clean Tech technologies, although energy spending has increased
since 2000.

The technology continuum includes research, development, demonstration, verification, and
commercialization or utilization. The first four stages have areas where EPA has contributed a
lot, but when it comes to the utilization stage, EPA has not been very involved.

EPA has three major advisory groups working on environmental technology and has several
reports. The National Advisory Council on Environmental Policy and Technology (NACEPT) is
the main advisory group for EPA on technology.  Reports were received in 2006, 2007, and 2008
on technology programs. Two are focused on the marketplace and the third is related to
technology financing issues related to venture capital.   EPA's responses to the reports include
establishment of a Senior Environmental Technology Officer (SETO) and an increased role for
the Environmental Technology Council (ETC).  EPA is very active in the Environmental
Technology Verification (ETV) Program, which certifies that technology work. The second
report focused on the market place and what drives the market. Where and when EPA regulates
has a major impact on the marketplace, even though this is  a by-product of EPA regulations. In
the last few years, EPA has tried to form voluntary partnerships to produce greenhouse gas-
reducing technologies.

The Environmental Technology Initiative is  under the ORD for the implementation of
technologies, but this Office is not suited for market place oversight or financing. To try to
integrate the activities related to environmental technology, EPA has ETC Action Teams, and a

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 17
stated mission for this work.  The Initiative is Agency-wide and fairly well-established at this
point. The teams include specific items, such as pesticide application to reduce spray drift, lead
paint remediation, and detection.

DFOMeiburg interjected a question about how the Agency decides what issues will be covered
by action teams.  Dr. Widawsky said the action teams were set up by the ORD before the
NACEPT reports were received. The issues covered depended on whether someone in the
Agency wanted to focus on the particular problem.

The Technology  Continuum shows EPA activities under the various headings described above.
Commercialization does not have any EPA activities shown, so EFAB could help with the
financing questions in the private sector. The question would be how to match the money with
technology that has been developed and is  ready for use and needs to be diffused. The venture
capital community was contacted through the use of forums and roundtables in three regions.
Venture capitalists are difficult to locate, especially during an economic downturn.  The question
is: What is the role of venture capitalists in technologies that do not have a pay-off?
Under the ETC, EPA verifies that the technology works or meets regulatory standards for
monitoring, calibration or performance.  Regulatory standards sometimes create a barrier, but
this concern may not be valid. One of the challenges is that there is a barrier to being first with
an innovation, because the later entrants have lower costs. Ms. Patton said she was on the ETC
and explained that part of the reason a barrier exists is that ETC is managed by a private
contractor and the expenses have to be re-captured. The ETC has tried to get a broader group for
the first-test run to spread the costs, but it is difficult to find market-drivers.  The tension is
whether the purchaser of the technology is interested in monitoring or applying the technology in
the marketplace.

Ms. Mulkey said  the ETC has some case studies on how to market the technologies.  One ETC
case study is on ambient ammonia monitors.  There are a lot of good monitoring technologies
that are not being used because the marketplace is not interested. Animal Feeding Operations
(AFO) monitoring and sampling have been used to quantify ammonia emissions. EPA has
Voluntary Compliance Agreements with 2,000 feeding operations. Another case study is
focused on prevention of paint spray into the environment.  This technology saves money and
has had broad adoption.  The military buyers have reduced their pollution sources. Another
technology to capture natural gas, Eductor Vapor Recovery Unity, has thrived and has spread

Different market traits, such as demand, growth rate, competitive dominance, and the nature of
purchasing decisions affect financing approaches.  The market  traits include fast growing
markets, large markets with medium growth, and shrinking markets. A chart showing market
growth and market size indicated that energy technology was the fastest and largest.  Wastewater
treatment is large in size, but not as fast growing.

The ways that the government acts as a facilitator of technology financing include such programs
as U.S. Army Venture Fund, CIA Venture  Fund, Department of Energy Loan Guarantee
Program, Small Business Innovative Research Grants, and state governments. States are in the
development  business, but not as much in CleanTech, and some offices have closed due to
budget cuts.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                  18
Six discussion questions are listed in the PowerPoint including the topics of financing
challenges, informing private fmancers, leveraging of government mechanisms, more effective
verification processes related to marketing, and government purchasing. Ms. Mulkey challenged
the Board to use the questions in their further deliberations. The last slide showed a bibliography
and some websites for further information. The role of EFAB needs to be investigated further,
according to Ms. Mulkey.

Questions  and Comments

Ms. Hernandez talked about a large environmental technology, capital venture in the early 90s
when Vice-President Gore was the primary leader. There were problems because venture capital
was going into dot.com ventures, drugs, and bio-tech, which was a big loser.  The cost of selling
technology to each consultant, site, regulator, and customer individually was an impossible
barrier, not because  of regulations or conservatism, but because making that many points of sale
was too difficult.  Another major concern of both regulators and the regulated was who bears the
cost if something goes wrong. A big debate was about whether verification should be certified,
and whether there should be a governmental form of guarantee.  If it was just verification,
industry felt that they would be responsible for what didn't work and the marginal profits were
not worth it. She said it was difficult to sell environmental technology in the California market
at that time.

Now the focus is on energy and climate and these projects have a large perceived  interest, but
when the price of oil went down in December, those who invested in energy technology  lost
money. It is easy to access venture capitalists at conferences. Climate ventures would be
acceptable, but development of measuring and monitoring tools would not be of interest, because
of the small market for the tools; and most companies would not want to make the changes.
Contacting a few VC players would be helpful. EPA has a choice about whether to get involved
in the energy field. EPA could help build a bridge between DOE and VCs, if they start on
climate change first.  The California Department of Toxic Substances Control (DTFC) is
starting a large green chemistry,  regulatory program, and they are turning to the private market.
EPA could discuss ideas with that group.

Ms. Patton commented that EPA should focus its support on new environmental technology
related to EPA's goals, because the VCs need regulatory certainty.  Stability creates willingness
to invest. EPA needs to spend more time on the economics and business issues. EPA should
verify  commercial-ready technology.  If they do, then by definition, EPA would not support R &
D.  EPA needs to review its policy goals and look at the economic externalities EPA is trying to
capture, and turn them into business models. Businesses must include within their models
pollution control or sustainability activities related to EPA goals that would not otherwise be
addressed.  EPA should do economic analysis linked up with science. The group  could be
divided into four areas, as follows:

    1.  EPA interests in supporting R&D for new technology.
    2.  The type of group that needs help in proving R&D is different than those who have done
       the R&D and need proof of concept and application.
    3.  Groups that can actually employ the applicability for potential commercialization.
    4.  Projects that would be forever dependent on subsidies or those that will become
       independent  of governmental subsidies. The challenge is to determine the long-term goal
       that enables the technology to be economically independent of governmental subsidies.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 19
Most investors want economic stability and are concerned about the requirements, which have
not yet been determined. In the climate area, there is no answer about the type of credit for
structures or whether there will be a long-term commitment to convert base-load delivery either
nationally or regionally.  In dealing with power, public power policies are important to elected
officials and administrators. EPA should look at how the ETV process is structured, because it is
not constructed to look at R&D, it is structured for commercial deployment.  EPA is science-
driven and has a framework that could be expanded to include business models.

Ms. Mulkey responded that EFAB's advice could help determine what piece of this large
problem EPA could focus on.  The solution may be to infuse the technology verification process
with other parts that relate to economic sustainability or increased certainty. Ms. Patton
responded that EPA has programs that require new technologies and new regulations and needs
to decide which ones support.  Those in the RFD proposals have a level of certainty and Agency
commitment and would be the most viable.  Ms. Mulkey added that new technology could be
required for  some programs or could benefit established regulatory  schemes.

Several suggestions were made to assist EPA into developing and moving new technologies into
commercialization, as follows:

    >  The Interstate Technology Research Council (ITRC), which is an arm of the
       Environmental Council of the States (ECOS) that is made up of state employees that
       review and verify new technologies  similar to EPA Action Teams. The Oversight Board
       meets at each meeting of ECOS. They could invite Ms. Mulkey to come to their meeting
       to share ideas.
    >  Federally-funded R&D Centers are under the DOE or DOD, such as the Rand Institute,
       create public goods that in turn create commercial technology, such as the Global
       Positioning System.  EPA could contract with one of DOE's FFRD Centers to pursue
       new technologies and adopt their model.
    >  Within the framework of the SBIR program there are 22 agencies that can fund small
       businesses at $500,000, which avoids the problem of the need for large payoffs.  The
       SBR program is tailored to move products from the verification process toward the
    >  A paradigm is needed for the already existing tools and programs.
    >  EPA programs, such as the Energy Star and Smart Growth, where products are rated in
       accordance with performance criteria, help with the marketing of the products.  The
       problem is the uncertainty of what the best standard might be and avoidance of harmful
       consequences of new materials. EPA's scientific work complemented by life cycle
       science could lead to potential products.  There is a lot of potential innovation in the
       building sector, especially in materials and chemicals.
    >  The purchase of technology by EPA includes taking on some of the risk.  Developing and
       disseminating environmental product declarations based on life cycle science would bring
       in new technologies for EPA, DOE,  and DOD.
    >  Private entities such as underwriter laboratories are looking  at developing life cycle-
       based protocols for rating  equipment and products. The building industry would be
       accepting of standardization that would get the technologies into the marketplace more

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 20
Ms. Patton stated that Government funds only should be involved where private firms cannot be
used. There needs to be a transition to private funding or public funding will go on forever. The
decision needs to be made as to whether the goal is R & D, proof of concept, commercial
verification or actual market aggregation.  The governmental role is very different for each of
those goals, whether the idea is to support start-up or continual funding. If a company is already
getting an economic benefit, then the governmental role is questionable. If you need to protect a
natural resource and need to force a technology that otherwise would not exist, such as protection
of an ecosystem, there is no market system today that prices that in the absence of regulation.
This gets back to the idea that certainty of regulations drives private investment.

Ms. Mulkey asked whether regulatory certainty is stability of the regulatory scheme or
enforcement. Ms. Patton responded that if there is a law on the books, then enforcement is
present, and people will comply.  Enforcement is one of the ways to implement a public policy

Ms. Himmelberger said that in the New Mexico region they are more involved in the application
of the new technologies in areas, such as arsenic, water treatment, leak detection assessment, and
Sandia Labs products.  Sometimes it is in the application of products where things go wrong,
because the applicator does not do what they say they will do or not at the  same price.  If the
economics of applications do not meet expectations, funding them would not make any
difference. An  educational piece on application might be helpful.

Mathilde McLean suggested developing the technologies that are not market-ready at universities
where there are engineers.  Engineers at Columbia University are working on waste technology,
for example.  Venture capitalists are headquartered near universities so business-oriented people
can interact with the engineers. If the engineers could get the technology to a point where VCs
could invest in projects that have a five-to-seven year investment, they might be successful.
Policy needs to be in place before the investment is made.

Peter Meyer said that energy is important because of the rising energy costs and the chance of
private return. The government may not want to subsidize the private return, but the issue is
access to capital to use  the innovation. Start-up funds could be helpful even with a private

DFO Meiburg thanked Ms. Mulkey for her presentation and summarized the discussion by
stating that the Financial Incentives for Environmental Technology encompasses a vast
complexity of phases of financing, types of technologies, and the place for public or private
investment in relationship to the types of tools derived from the technology.  Secondly, the
financing brings up the issue of how to incorporate failures in the financial assurance
requirements. Thirdly, EPA has wanted to promote environmental technololgy, but they have
not wanted to be the guarantor of performance of any particular type of technology and have not
been involved in the marketplace competitions.  EPA wants to set standards and let the private
sector work out how to use the new technology.

Report Out on Water Loss Reduction

Terry Agriss, Chair, said that since the March meeting a research assistant has been employed to
assist the workgroup. The first project was to review information provided by Scott Raskins and
the American Water Works Association (AWWA). In the initial work, water loss reduction is

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 21
limited to drinking water, but wastewater could be looked at in the future. Background
information compiled by the Assistant revealed some interesting statistics including: spending on
drinking water infrastructure is underfunded by $160 to $325 billion dollars; 53,000 public water
systems in the U.S. serve at least 25 people or 15 connections; estimated expenditures are $30-40
billion dollars a year; and 83 percent of the systems are serving only nine percent of the
population. Generally, for the very small systems they are privately-owned, but most of the
systems are publically-owned.

One focus of the workgroup would be on energy efficiency, because water and wastewater
treatment utilize about three percent of the electricity used in the U.S.; and water treatment alone
comprises about 33 percent of municipalities' energy consumption. Another focus is on the use
of water audits. Generally, the workgroup identified that the AWWA's water audit techniques
are very useful. One recommendation might be that governmental funding-agencies of water
loss reduction projects require some type of water audit and a follow-up management plan as a
pre-requisite to obtaining funding.

Another issue was asset management programs and how they relate to water loss. Several ideas
were discussed, such as using the EFCs for training, cost-benefit analyses, and life  cycle
processes.  Although not high-tech, funding the use of tools already accessible and established
programs could be useful.  The recommendations may differ for large and small systems.  For
the small systems, there has been some innovative financing already done and these could be
used as examples  for others. The workgroup reviewed funds that are currently available, such as
SRF funds for drinking water projects, grants, the ARRA funds, and some of the DOE funds for
energy efficiency. Finally, the benefits of cooperative agreements between municipalities to help
reduce costs and improve management would be reviewed by the workgroup

The workgroup will review the abstracts written by the research assistant and make necessary
changes. Then, a  detailed outline for the paper would be  developed for  the Agency report. The
goal is to complete the outline by mid-September and then have a draft report for the workgroup
to review by mid-November. The final report would be ready for the Board in March. Ms.
Agriss thanked the workgroup members and asked them to add their comments.

John Boland added that the audit is the process of finding out how much water goes to metered
connections, how  much unmetered water goes to customers, how much  is used, but not
measured, and how much is being lost. Apparent and real water losses can only be determined
by estimation. In  the absence of these precise numbers, there is no basis for the water companies
to reduce their losses.  There is no real incentive for water companies to act, on meter
registration even though the meter is working slowly, because the cost of meter repair or
replacement exceeds the revenue produced. Issues of analyses and issues of incentives have to
be considered. Benefit-cost analysis requires knowledge  of where the losses are and then
determination of how to address the losses.

Mr. Marsh added  that the group discussed whether water loss fixes are operating or capital costs,
because that can have a significant effect on the availability of SRF and other capital funds.  Mr.
Haskins focused on the need to clarify the problems that need to be solved and proper local level,
investment decisions.  Some major investments are being made where water loss and
conservation would be better options over the life cycle.  The report would need to define the
problem and the importance of guidance, policies, and financial mechanisms to solve the
problem and change behaviors and practices at the local and private level.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                  22
Ms. Francoeur commented that the credit analysis community—rating agencies and bond
insurers—need to know about water loss in terms of management, which is really a cost-benefit
analysis of the respective utility.

Mr. Thompson added that the cost of treatment needs to be considered.  Small communities that
have made investment in reverse osmosis are much more interested in saving water than if
people have an aquifer that only requires chlorine to treat the water.

Ms. Tobias asked if sediment and erosion control are involved in looking at cost-effectiveness.
Ms. Agriss said the workgroup would not focus on this for drinking water, but might later under

Mr. Hinds suggested everyone read the paper, because water loss is a neglected issue at the local
level, and then decide whether EFAB should take on an issue that does not have an audience.
Ms. Agriss responded that the  analysis showed that small communities could save money on
capital expenditures and staffing,  if awareness was increased. The report to EPA will include
how to use the EFCs and develop some guidelines that communities can follow.

Ms. Himmelberger thought that the water footprint would change the equation where there is
drought and keeping water supply intact is more important.  People have focused on re-cycling
because there are funds available  and it is a public good. Water loss reduction may be
expensive, but could be a good effort beyond cost savings. DFO Meiburg agreed that the
availability of supply could be an incentive for action.  Ms. Peay noted that this is about getting
the kind of information people need in order to define the need and the resources available,
especially for states.

Report Out on SRF Investment Options

Jim Gebhardt, reporting for George Butcher, Chair., said the SRF Investment Workgroup was
formed after the  SRF Leveraging  Workgroup.  With the various SRF models that have been used
over the last few years; the investment function has a more important role in the future.
Investments are either short-term, basically dollars that are idle in terms of program support, or
long-term that work in relation to financial assistance liabilities, such as the subsidy payments
that are scheduled to be paid out over 20-30 years.  The weaker model is a direct loan program
that does zero percent loans, so there is a trade-off between the loan  and the monetary returns
that would be received when the dollars are returned.  The stronger form of the  model is a robust
financing program, where funds are de-coupled outside of the bond function.

When SRF dollars are pledged to  actions, the return on the dollars is limited to the cost of funds.
From an investment return standpoint, the weaker model is underachieving and not maximizing
funding.  In the stronger model, some long-term investments almost 30-40 percent can be
invested at an unrestricted rate, which has added robust monetary returns.  Basically, the returns
are turned into environmental  returns, because the leveraging factor is being boosted by the
increase in the return rate.

In New York, for example, the cost of funds was about three percent in the last  few transactions
and the investment returns have been closer to five percent.  The return on investment can be
converted into additional environmental projects that can be  funded in the same time frame.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                  23
Looking at efficiency of dollars utilized and the funding gap, the investment function becomes
very important in lining up long-term investments.  This was the reason to focus on the
investment function, which is tethered to the financing side of the model. The other idea is that
being able to de-couple the long-term investments actually encourages the opportunity to more
fully utilize the SRF funds.

The workgroup had some conference calls and reviewed investment policies. Also, they worked
with Council of Infrastructure Finance Authority and developed a questionnaire for their
members, many of whom have responded to date. Many of the states are working on the weak
form of the model, but some are progressing to the stronger form.  Where the investment
function resides is critical. In many states, the investment function resides with the state
treasurer, and in some the SRF financing also resides there. The question arises if this is a more
passive relationship between the treasurer and the SRF manager in terms of how the money is
managed, and does it create statutory barriers to SRF investigator influence on how the funds are
spent.  This area needs further investigation.

The questionnaire covers the investment location; the extent of the investment authority in states
based on enabling statutes; information on negative investment performance; and the effect that
would have on investment in those states.  Information would be obtained to support a more
active investment role in the management of SRFs from the standpoint of the states and EPA.

Yesterday morning many issues were discussed such as how SRFs are organized, the resources
that SRFs have in each state, and the level  of awareness.  The next steps are gathering more data
on states, exploring the investment function from the standpoint of interface between state
treasurers and SRF administrators, developing an outline for the first draft of the working group
paper,  and then developing a draft for the March 10, 2010 meeting.

Lastly, there was a consensus of the group that the investment function should be a more
important aspect of SRF funding.  The idea of the SRF as an endowment would provide a wider
range of investments. The federal statute permits interest-bearing obligations and states have
added investment quality requirements. The question with endowments is looking  at liabilities
related to equities, even though this is not a good environment now, but it would be a small
piece.  Currently, we are going to work on fixed income investments.

Ms. Deming added that this would represent a cultural change for SRFs.  Certainly, sustainability
comes into this discussion, and having some guidelines is very important.

Ms. Francoeur asked if the report was going to discuss the disruption in the market. Mr.
Gebhardt said many states are looking for the new investment paradigm that takes  them beyond
reliance on commercial providers. The market problems are linked to the financing models.
While the market downturn is not the driver of the report, it will probably influence some of the

Mr. Tozzi asked if the operating doctrine is to treat SRFs  as endowments. Mr. Gebhardt said that
they are similar to endowments in that they are made in perpetuity, the funds promote the
nation's good, and it is designed to work 10, 20 or 30 years from now. Mr. Tozzi wanted to see
this as a long-term goal, so the group might want to address this as an operating doctrine to see
what the operating procedures should be for SRFs.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                  24
Ms. Agriss added that the workgroup discussed the fact that by having more robust investments
larger returns were generated than the SRFs historically have don. This goes beyond the
problems of SRF funding reductions. Mr. Gebhardt responded that the Leveraging Report did
discuss the endowment effect.

Mr. Swartz said the workgroup was not advocating buying equities in companies, but in the vast
majority of SRFs there is very little attention paid to investments and often the funds sit in an
account to cover short-term needs rather than in investments. The SRFs should be encouraged to
invest the money in the trust fund into better paying investments compared to no investments.

Development of the Strategic Action Agenda: Proposed New Projects

DFO Meiburg opened the afternoon session by stating that a potential new project will be
proposed by Michael Curley and London Marsh and a review of environmental technology.
Other new ideas  could be brought forward.

Ecosystem Services Markets

Langdon Marsh reported on a proposal from DavidPrimozich from the Willamette Partnership, a
non-profit organization, which is developing an ecosystem market-base for the Willamette River
basin in Oregon. In terms of innovative finance, there are markets for ecosystem  services that
result from restored wetlands and riparian areas.  The entities that might be able to purchase
those services are governments, developers, and other public and private parties.  Over the past
four years, the partnership has developed a system of metrics to measure the services that can be
attributable to these riparian lands.  The system converts the metrics into standardized units that
are acceptable to regulators and markets.  The system includes accounting support for
transactions.  They have achieved consensus among state and federal governments, and
representatives of potential participants as to the general framework and specifics of how these
ecosystem outcomes can be measured, verified, and used as trading units.

This project implies a new and constructive role for government agencies in terms of leveraging
their regulatory role by participating in the development of these markets, the verification of the
outcomes, and oversight of the inspection of the services. The more immediate benefit is that the
process can be used to avoid making poor investments in infrastructure by providing ecosystem
services to the same watershed. For example, one agency tried to require a sewage treatment
system in the basin to install technology to cool off discharge water to protect the salmon. A
very innovative utility worked with the agency to use  funds allocated for chillers and expensive
equipment to pay farmers and other land owners upstream to restore riparian areas that resulted
in cooling of the river at a fraction of the cost.

The challenge is  how to start this  market to enable entrepreneurs to compete and develop the best
set of ecosystem services, and to be able to sell them to developers who would need to buy
credits. A capitalization fund would help jumpstart the market. The returns from the investment
would enable additional investments to be made to become a true revolving fund. The markets
the Willamette Partnership are proposing would save  millions of dollars by avoiding projects that
don't make ecological sense.

DFO Meiburg said that in the Southeastern states, such as the Florida Everglades, nutrient
loading is a big problem.  The debate revolves around making stream water treatment areas use

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 25
natural systems to filter out the nutrients to achieve an adequate level of water quality as opposed
to chemical treatments that are very expensive.  EPA has been criticized on the time required to
set up large-scale programs and the uncertainty of maintaining all of the ecosystem services.  The
challenge is how to deal with ecosystem services over time, including buying of rights upstream
and preventing the upstream  users from changing their methods.

DavidPrimozich said that a basic agreement reached last week is that every natural resource
agency in the state will use a functions-based accounting methodology. The problem is that the
metrics for measuring impacts has underperformed over time. The public is skeptical of the
reality of the mitigation and offset programs.  The programs that are being used to offset impacts
that have already occurred are performing their services. The basic system being developed is
function-based, so the metrics take more time investment, but they will be able to set up
indicators that can be tracked over time.

The Willamette Partnership intends for the services to continue over time. Annual third-party
verification needs to be done, because a credit does not get sold unless it has third-party
verification. The outcome of having measurable metrics in  a function-based system is that any
third-party should be able to  measure the service performance over time.  Also,  a credit cannot
be sold in the system until a third-party registry has occurred that tracks individual credits over
the life of the credit from creation to retirement. The registration is essential. In each market,
the credit will  operate differently.  Mitigation credits are permanent, so an in-perpetuity
easement is necessary on the ground.  Offset markets are driven by permitted, on-going activities
that fluctuate over time as technology changes.  The life of a credit is matched by the market, so
some have to have an easement. For temperature credits it is 20 years, so the land has to be
under protection.

Gregory Mason asked if their system has easements or some other agreement from users or the
land lessees. Mr. Primozich responded that it depends on whoever owns the mitigation bank.  For
wetlands to get an instrument from a bank that enable the credits to be sold, two things are
required. First, the ability to manage the system over time is required.  Second, if the property is
transferred to a land trust, there is a requirement for a non-wasting endowment that goes with the
transfer and pays for in-perpetuity and maintenance costs.

Carbon & Emission Credit Trading

Mr. Curley reported that the Innovative Financing Tools workgroup  discussed cap and trade
programs and the Waxman marketing legislation. About 70 percent of energy consumption goes
into buildings, so you can't have an effective climate change or carbon program without
including buildings.  Since a cap and trade program is a market-based program,  if you inject a
financial incentive here, then one of the players has been favored.  Cap and trade programs are
useful in limited situations. One example was the Port of Baltimore where the Mayor or
Governor of Maryland did not want cap and trade because they want to get rid of or abate the
pollution. Pennsylvania has been struggling with a non-point source pollutant for a long time
and the problem is how to aggregate the pollution from small farms and finance them over a long
period of time. The workgroup has called experts to  ask under  what circumstances financial
incentives are  valid in a market-based system, such as cap and trade.

Mr. Curley said two items were on the horizon: 1) the Cap and  Trade Program for Carbon; and
2) Cap and Trade for Non-Point Pollution.  In response to the President's Executive Order for a

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                  26
multi-agency task force for the Chesapeake Bay to remediate the Bay, one of the ideas would be
a nutrient cap and trade program. Virginia has a point-to-point program, which is easier to do
because of the large entities involved. Point-to-Nonpoint is more difficult.  There is a need for
innovative financing if the nutrient trading programs are going to work. Innovative financing
incentives are needed for cap and trade programs to combat pollution. The work group is
looking for what other incentives would be valid in a cap and trade program, and how to create
non-point source nutrient-trading programs for water pollution.

DFOMeiburg said that the issue is whether this is a project for the Board to undertake. The
usual criteria for assessment are  whether there is a specific client in the Agency, a specific
outcome, and is it worthwhile for the Board to pursue the issue.  This project would be an issue
of great interest and controversy. Mr. Curley added that because of the President's Executive
Order, the Chesapeake Bay has its own section of the Clean Water Act—Section 117. This
means that it can be changed and used in different ways.  The Clean Water SRF can be used in a
national estuary program. An amendment could be added to Section 117 related to the Clean
Water SRF in Title 6, to establish the Chesapeake Bay as a national estuary, so new innovative
ways can be tested without affecting the entire country.  This is a chance to clean up the Bay and
to do some interesting experimentation,  such as a laboratory or a demonstration programs that
could have impacts on the country over time.

Douglas Scott seconded both of  the ideas of Mr. Curley's. In relation to the Chesapeake nutrient
bill, the Agency is also interested in nutrient pollution in the Mississippi River, because
traditional methods do not work  and innovative ideas will be needed. On the cap and trade side,
he sees the similarity to the VEIB discussions. Small generators of solar and geothermal energy
cannot get short-term dollars, so an innovative framework tied in with energy efficiency and
retrofits is required. The Clinton Foundation and other groups are doing some major projects,
such as for the former Sears Tower.

Ms. Peay added the State of Connecticut has created a cap and trade program for the Long Island
Sound.  The issues of non-point  source and private financing are very important. Pennsylvania
has been struggling with the same issues that would need to be reviewed by EFAB.

Mr. Jarocki added that they have an office in Seattle that is working on the same issues of how to
trade, including point and non-point pollution. The Board and the EFCs could both be involved
in developing innovative financing incentives. The Maryland EFC was created just to work on
the Chesapeake Bay problems. One of the EFAB criteria for projects is whether the EFC
network could be involved.  Ms.  Throwe agreed that the topic is currently under discussion on
the Bay. The Bay Banks, the Chesapeake Fund, the Red Barn and others are involved.  Any new
effort should be coordinated with what is already being done and brought back to EPA. The
EFCs would want to be accessed for this effort.

Ms. Patton agreed that it was an  interesting idea to pursue an innovative finance mechanism to
deal with the more intransigent challenges.  She suggested reviewing innovative finance for new
technology deployment that has  been tried in other countries. A value could be placed on natural
resource commodities or common goods in the same way that countries put values on
technology.  If you want to funnel or prioritize the type of trading, you could look at feeding
tariffs that have been used in the context of deploying or incentivizing or prioritizing the
selection of one power source over another as a public policy priority. Giving a legal right or

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 27
requirement to priority purchases has a history in the U.S. using tracked cash, such as in methane
capture and long-term power agreements.

Ms. Patton added that a public policy mechanism is needed for funneling a prioritized choice
through financial incentives for improvements on wetlands trading where the nutrient load has
already been exceeded.  Then, either a mandatory buy-first or invest-first in a particular
offsetting, pollution control technology is needed.  This would be a very regional-specific
framework recognizing the differences between regions. Solutions proposed by EFAB could be
transferred to other areas.

DFO Meiburg thought that the Board was supportive of adding this proj ect to the existing
Innovative Financing Tools Workgroup, and that the project would be in agreement with the
EFAB criteria for new projects. Mr. Curley agreed that some things are not known yet, such as
the Cap and Trade Bill. The project would need to be better defined in the future, so setting a
time-line would be difficult. Mr. Curley asked for a list of current members  of the Workgroup.
Vanessa Bowie pointed out that the EFAB folder contained a list of the workgroups and the
members of each group.

Financial Incentives for Environmental Technology

DFO Meiburg asked Ms. Mulkey to address the issues. Ms. Mulkey did not have a specific
charge, but said the project would need a design phase to determine what makes sense for
EFAB's experience.  She will not be in her present position for very  long, but OPEI, ORD, and
other parts of EPA would be supportive of the Board. DFO Meiburg said that there was Board
interest, but better definition is needed of financial incentives for environmental technology.  It
would be helpful to have an EPA contact to help clarify the project.  Ms. Mulkey was certain that
EPA would identify a responsible person to work with the  Board.

In response to a member's request to narrow down the project, Ms. Mulkey responded that it
would depend on who is contacted in EPA.  She thought it would be useful for EFAB to help the
Agency understand where it could productively facilitate the matching up of money sources and
developing technology, not necessarily for new R&D projects or those fully-ready for
commercialization. The financing could include many types of financing entities for technology
that show promise. VCs may not be the best sources. The question is how the Agency can
invest money or human capital in facilitating or promoting the capacity of a technology to
become commercialized.

One member questioned the government's role in financing technology for the market. Ms.
Mulkey said the answer may be that there is no role for government.  The Agency  is interested
because technology can solve some of the current problems. If there is a form of information
that is useful to financial markets, it would be important to EPA.

Mr. Tozzi said that one criterion for government intervention was if there is a market failure. This
needs to be determined first.  Very few of the research programs in the government would meet
that performance standard.  One of the largest market failures was for clean coal technology,
which was very expensive. There is no explicit program statement that identifies market failures.
The second issue is to what extent and how would government resources be marshaled.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 28
Ms. Deming worked on a previous OPEI initiative where people were asking why we were trying
to talk about market value for environmental management system; and whether that is a role for
the Board.  The project brought together people from different market sources to inform them
about the systems and to share information. She would endorse the issue once it is better

Ms. Pesek said that at Syracuse University's Center of Excellence (COE) was created by the
Governor of New York for creating jobs and focusing on R&D in three areas: environmental
quality, water resources, and clean and renewable energy.  Several million dollars a year came
from EPA to support  research that was happening in the New York State university system.  The
COE granted funds to researchers to take projects from R&D to commercialization.  To focus the
project, EPA programs that include commercialization as an endpoint should be reviewed. For
example, one program has succeeded in developing small technologies, like sensors, at a low

Mr. Jarocki said when the EFC was created in Idaho; the main idea was how to get technologies
into the marketplace.  There is a body of knowledge from Region 9, even though some projects
have failed. Sarah Diefendorf could provide information from her experience and could
contribute to the workgroup.

Ms. Hernandez suggested talking to John Wise, who was involved in environmental technology
in the 90s.  The breadth of the topics raised was interesting.  The  truth is that different
technologies will interact with the marketplace in different ways. If EPA can formalize entrance
into building certification, their stamp of approval would go much further than certification by
DOE. Unless someone from EPA says the project is approved, it is not going to work at the VC
level. There is a bridge role that EPA can play with DOE, because EPA has worked well with
the states. Carbon sequestration and cap and trade are starting in the absence of a framework, so
this topic could be pursued in the absence of a framework.

Ms. Tobias raised the question of venture and seed capital as related to public goods. Improving
the environment is something everyone wants, but no one is willing to fund.  To the degree that
there are promising technologies that could use seed money, it is  a classic role of a governmental
entity to provide that  kind of capital, particularly in  the current difficult economic environment.
Technologies that would not attract private investment probably will fail, but there is a history of
government feeding new technologies with seed money. The most promising of those
technologies were picked up by the private sector.

Mr. Curley said financial incentives can bring in technology that is not readily marketable.  An
example of a New York area project was an investment of $6,000 in a geothermal system that
saved $1200 dollars a year and had a five-year payback. If the county had a VEIB program
where the money could be paid back over 20 years,  the payments would have been $450 a year.

Other ideas expressed by members and EPA staff include the following:

   >  Discipline is needed in areas of R&D, commercial-ready technology, and unproven
   >  The Agency needs to decide what it wants that is currently not being served by the
       private market, and if not, why not.
   >  The Agency could assist for a short time or permanently.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 29
    >  Advice from EFAB could be an analytical process, rather than applying it to certain
       circumstances. A paradigm for analysis might be a better place to start.
    >  Talking to VCs is not the best place to start. VC investors are interested in large global
       problems. Their interests need to be determined.
    >  A meeting with Agency stakeholders and EFAB members is needed.
    >  The investigation of what has already been done is a good idea, as many states have
       projects underway.
    >  Certainty of regulation is the most important in terms of promoting new technology.
    >  EFAB should  develop a preliminary framework before meeting with the Agency.
    >  For EPA, the impact of environmental technology may be low on the scale of importance.
    >  EFAB could develop 3-4 questions related to EPA goals in the Strategic Plan, where
       innovative technology would help achieve the goal.
    >  A market failure or a regulatory opening could be identified, where the approach did not
       work to incentivize market involvement.
    >  The impact  of EPA policies and regulations should be considered.
DFO Meiburg agreed that this was a good approach and that he was hearing that there was
interest, but the definition was amorphous.  He offered that he would meet with stakeholders in
the Agency to determine what they would be doing. Members who would be interested in
working on this are: Cherie Rice, Jennifer Hernandez, Lindene Patton, Michael Cur ley, Leanne
Tobias, Rachael Deming, BillJarocki, Terry Agriss, Mathilde McLean, Greg Mason,  and
Sharon Peay.

Ms. Hernandez thought it would be better to ask the questions in the form of a matrix related to
technology groups. For example, what are the financial incentives for measurement technology?
EPA could determine five areas of technology of interest to them.  Even regulatory certainty or
predictability is not that difficult, because the Agency is moving in that direction in terms of
performance standards. Percentage reductions off of targets could be set beyond today's
baseline. Questions should be framed around the technologies that the Agency is most interested
in promoting.

DFO Meiburg suggested that a three-point structure be developed by Ms. Patton and Ms.
Hernandez and sent to members noted above, by email. After review, this would be used in a
meeting with the Agency.  Ms. Mulkey was satisfied that EFAB would be able to develop ideas
prior to meeting with the Agency. Since there were no other projects mentioned by members,
DFO Meiburg asked for public comments.

Public Comment: No public comments were made.

Next Steps

DFO Meiburg reviewed the status of the work group papers.  The SRF Investment Options and
the Water Loss Reduction position papers are nearing completion and could be acted on at the
Spring EFAB Meeting. The Innovative Financing Tools workgroup has picked up a new project.
Under Financial Assurance for Cost Estimation, the next step is to develop a framework for a
workshop to be held some time in the late winter or early spring, as more discussion is needed  on
this project. On Commercial Insurance there should be an issue paper circulated to the Board
based on Draft # 8. He commended the workgroup members who have served the Agency in
framing some different perspectives, which demonstrates the value of EFAB to the Agency.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                30

Finally, Under Carbon Capture and Sequestration, the workgroup would move to get
recommendations on the SDWA provisions very quickly and then continue to work on the
longer-term framework. In addition, EFAB members will work on the framework of questions
for the Agency on environmental technology.

After a brief discussion on changing the venue for the EFAB August meeting, it was decided to
keep San Francisco as the location. The next meeting will  be on Tuesday, March 16 and
Wednesday, March 17, 2010, in Washington, DC. The idea of a workshop will also be explored.
Mr. Barnes commented on the extraordinary talent on the Board and was the best Board in terms
of the value brought to the Agency to serve the public interest.

DFOMeiburg thanked the Board for their time and talents.

Adjournment:  The meeting was adjourned at 4:09 p.m.

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 31


EFAB Members Present:

   •   A. James Barnes, Chair, Professor of Public and Environmental Affairs, Indiana State
       University, Bloomington, IN
   •   Terry Agriss, President, TAgriss Advisory Services, New York, NY
   •   John Boland, Professor Emeritus, The Johns Hopkins University, Department of
       Geography and Engineering, Baltimore, MD
   •   Michael Curley, Executive Director, The International Center for Environmental Finance,
       Towson University, Towson, MD
   •   Rachel E. Deming, Partner, Scarola Ellis LLP, New York, NY
   •   Kelly Downard, Chairman, Louisville Metro City Council, Louisville, KY
   •   Mary Francoeur, Managing Director, Assured Guaranty Corp. New York, NY.
   •   James Gebhardt, Chief Financial Officer, NY State Environmental Port Facilities
       Corporation, Albany, NY.
   •   Scott Haskins, Vice President, Global Water Business Group, Bellevue, WA
   •   Jennifer Hernandez, Partner/Co-Chair, National Environmental Team, Holland and
       Knight, LLP, San Francisco, CA
   •   Keith Hinds, Financial Advisory, Merrill Lynch,  Albuquerque, NM
   •   Mathilde O. McLean,  Assistant Vice-President, Citi-Municipal Securities Division, New
       York, NY
   •   Langdon Marsh, Fellow, National Policy Consensus Center, Portland State University,
       Portland, OR
   •   Gregory Mason, Chief Operating Officer, Georgia Environmental Facilities Authority,
       Atlanta, GA
   •   Karen Massey, Deputy Director, Missouri Environmental Improvement and Energy
       Resource Authority, Jefferson City, MO
   •   Lindene E. Patton, Chief Climate Product Officer, Zurich North America, Great Falls,
   •   Sharon Dixon Peay, Financial Administrator, Office of the State Treasurer, Hartford, CT
   •   Cherie Collier Rice, Treasurer and Vice President of Finance, Waste Management, Inc.,
       Houston, TX
   •   Leanne Tobias, Principal, Malachite, LLC, Bethesda,  MD
   •   Dr. Andrew Sawyers,  Program Administrator, Maryland Water Quality, Financing
       Administration, MD Department of the Environment, Baltimore, MD
   •   Douglas P. Scott, Director, Illinois Environmental Protection Agency, Springfield, IL
   •   Greg Swartz, Vice President, Piper Jaffray & Co., Phoenix, AZ
   •   Steve Thompson, Executive Director, Oklahoma Department of Environmental Quality,
       Oklahoma City, OK
   •   Jim J. Tozzi, Director, Multinational Business Services, Inc., Washington , DC
EFCN Directors or Representatives:
   •   Laura Barbaria, Director of the Green MBA Program at Dominican University of

EPA, Environmental Financial Advisory Board Meeting, August 10-11, 2009                 32
   •   Lauren Heberle, Director, EFC, U. of Louisville, Louisville, KY
   •   Heather Himmelberger, Director, EFC, NM Institute for Engineering Research and
       Applications, Albuquerque, NM
   •   William Jarocki, Director, EFC, Boise State University, Boise ID
   •   Kevin O'Brien, Executive Director, Great Lakes EFCN, Cleveland State University,
       Cleveland, OH
   •   Sam B. Merrill, Director, EFC, U. of Southern Maine, Portland, ME
   •   Sara Jade Pesek, Director, EFC, Syracuse Center of Excellence in Environmental and
       Energy Systems, Syracuse University, NY
   •   Mary Tiger, EFC, Project Director, University of North Carolina at Chapel Hill,
   •   Joanne Throwe, Associate Director, EFC, National Center for Smart Growth, U. of
       Maryland, College Park

   •   Stanley Meiburg, EFAB Designated Federal Official (DFO), Deputy Regional
       Administrator, U.S. Environmental Protection Agency, Atlanta, GA
   •   Vanessa Bowie, Director, Center for Environmental Finance, Washington, DC
   •   Timothy McProuty, Program Analyst, Center for Environmental Finance, Washington,
   •   Pamela Scott, Environmental Finance Specialist, Center for Environmental Finance,
       Washington, DC
   •   Alecia Crichlow, Program Analyst,  Center for Environmental Finance, Washington, DC
   •   Sandra Keys, Program Analyst, Center for Environmental Finance, Washington, DC

Expert Witness:
   • Peter B. Meyer, Director, E.P. Systems Group, Covington, KY

USEPA Presenters: Jane Diamond, Acting Deputy Administrator, EPA, Region 9; Marcia
Mulkey, Acting Deputy Associate Administrator, Office of Policy, Economics, and Innovation.

USEPA Guests:  Ann Codrington, Joseph Dillon, Shana Harbour, Jo Ella Hoye, Terri Johnson,
Kelly Kunert, Bob Maxey, Patricia Pfeiffer, Dale Ruhter, Tracey Sheppard, Ryan Smith, Raffael
Stein, Bob Stewart, Joseph Tiago, Mary Tiger, Bruce Kulpan, Amanda Aldridge, George Faison,
and David Widawsky.

Other  Guests: Scott Anderson,  Environmental Defense Fund, Climate and Air Program; Sue
Briggum, Waste Management; Shellie McClary, Oklahoma Dept. of Environmental Quality,
Oklahoma City, OK; David Primozich; and Gabrielle Wong-Parodi, Resources for the Future.

               SAN FRANCISCO, CA -AUGUST 10-11, 2009

AUGUST 10. 2009

12:30 PM

12:30 PM   LUNCH

 1:00 PM   REGISTRATION (continued)
 1:30 PM   Opening Remarks and Introductions	Jim Barnes, Chair
                                                    Stan Meiburg, DFO
 1:45 PM   Welcome Back to San Francisco	Jane Diamond
                                      Acting Deputy Regional Administrator
                                                        EPA, Region 9

          Carbon Capture & Sequestration	Jim Tozzi
 3:30 PM   BREAK
          Financial Assurance	Mary Francoeur
                Cost Estimation	Kelly Downard
                Commercial Insurance	Lindene Patton
 5:00 PM   First Day Summary	Jim Barnes/Stan Meiburg

 5:15 PM   ADJOURN


                SAN FRANCISCO, CA -AUGUST 10-11, 2009

AUGUST 11, 2009

 8:30 AM   Opening Remarks	Jim Barnes/Stan Meiburg
 8:45 AM   Environmental Finance Center Network Update	Joanne Throwe
                                                         President, EFCN

 9:45 AM   BREAK
 10:00 AM   Financial Incentives for Environmental Technology	Marcia Mulkey
                                       Acting Deputy Associate Administrator
                                    Office of Policy, Economics, and Innovation

           Water Loss Reduction	Terry Agriss
           SRF Investment Options	George Butcher
12:30 PM   LUNCH
 2:00 PM   Development of the Strategic Action Agenda	Full Board

           Carbon & Emission Credit Trading	Michael Curley and Lang Marsh
           Financial Incentives for Environmental Technology	Full Board
           Other Proposed Projects	 Full Board
 3:30 PM   BREAK

 3:45 PM   Public Comment	Stan Meiburg, Facilitator

 4:00 PM   Wrap-Up and Next Steps	Jim Barnes/Stan Meiburg

 4:15 PM   ADJOURN

                              Jane Diamond
                   Acting Deputy Regional Administrator
Jane Diamond is currently the Acting Deputy Regional Administrator of EPA's
Pacific Southwest Office (Region 9). She serves as the Region's Chief Operating
Officer overseeing a workforce of 900, a regional budget of $870 million and a
$2.3 billion grants program.

Jane will mark her 30 year anniversary of federal service in 2009.  She has
previously served as Region 9's Assistant Regional Administrator where she was
responsible for strategic planning, financial management, grants and contracts,
information resources and technology, human resources, regional science
coordination, quality assurance and the Regional Laboratory.  Jane has also been
Acting Director and Deputy Director for the Superfund Hazardous Waste Cleanup
Program. Since becoming a manager in 1988, Jane has held leadership positions in
three of EPA's environmental divisions, including the U.S./Mexico Border Water
and Wastewater Infrastructure Program, Southern California Watershed Protection
Program, Federal Facilities Cleanups, and Hazardous Waste Compliance and

Jane received B.A. degrees in economics and social welfare from the University of
California Berkeley.

                      Summary of Workgroup Activities
                                August 2009
December 2008:
January 2009:
February 2009:
March 2009:
Developed CC&S Project Charge

   •  Identified Project Chair
   •  Met with OW and OAR staff

CC&S Workgroup Conference Call

   •  Reviewed and refined CC&S Project Charge/Agenda
   •  Reviewed and discussed available resources on financial
      responsibility and long-term liability for CC&S

      CC&S Initial Project Work

   •  Established EFAB Network (secure Internet site)
   •  Assigned working papers to Workgroup members

Spring CC&S Workgroup and EFAB Meetings

   •  Discussed and refined Workgroup activities/assignments
   •  Reviewed and discussed Working paper #1:  The
      Price Anderson Act Paradigm as a Model for CC&S
June 2009:
Washington DC CC&S Workgroup Meeting
(Discussion Areas)

   •  Financial Assurance for Class VI Wells
            Lessons learned from RCRA
            Non-RCRA Options
   •  Long-Term Stewardship
            Price Anderson papers
            State Actions papers
   •  Peer Review

August 2009:              Summer CC&S Workgroup and EFAB Meetings

                          CC&S Workgroup Discussion Topics

                             •   Financial Instruments and Potential Carbon Capture and
                                 Sequestration Risks
                             •   Elements of a Long-Term Stewardship Program

CC&S Project Working Papers

Financial Assurance for Class VI Wells: Lessons Learned from Prior EFAB Work

Overview of Financial Assurance Mechanisms by Federal Statute

Chiara Trabucci Congressional Testimony on CC&S before the Senate Committee on Energy
and Natural Resources — May 14, 2009

Chiara Trabucci Responses to CC&S Questions received from the Senate Committee on Energy
and Natural Resources - June 1, 2009

The Oil Spill Liability Trust Fund

The Price Anderson Act Paradigm as a Model for Regulation of carbon Capture & Sequestration
The Price Anderson Act: A Basic Primer

Comparison of State CCS Programs in terms of the Price Anderson Analytic Metric by
Regulatory  Standards and Legislation

What Type  of Outreach Should the CC&S Workgroup Use to Vent its Work to Ensure

         Draft Matrix of Potential
  Carbon Capture & Sequestration Risks
  and Financial Assurance Considerations
Carbon Capture & Sequestration Working Paper
               August 10-11, 2009

Table 1. Matrix of Financial Instruments and Potential Carbon Capture and Sequestration Risks
Financial Instruments
Sector Trust
Sector Trust
Letter of
of Deposit
Line of
Potential Human Health and Welfare Impacts
Catastrophic weather
events resulting in supply
chain interruption or
demand surges for energy
Technological failure
leading to bodily injury
Changes in quality of or
access to recreational
Human health effects (e.g.
illness days, asthma
incidents, mortality)

Potential Ecological Impacts
Adverse impacts to
ecological receptors (e.g.,
reduced vegetation,
endangered species issues)


^ •
— ^ 	


S(C1 J^ |
	 1 ^
• •
C, S(0)
C, S(0)


C, S(0)
S(S), S(C)
C, S(0)
S(S), S(C)


Potential Damages to Property
Surface /subsurface
Asset infringement or
restrictions to land use or
subsurface activities
Induced seismic activity
Damage resulting from
geologic exploration or
ground heave
Corrective action issues








Deliberative: Draft / Working Group Discussion Purposes Only

VERY, VERY DRAFT -  7/25/2009
Table 1. Matrix of Financial Instruments and Potential Carbon Capture and Sequestration Risks
Financial Instruments
Sector Trust
Sector Trust
Letter of
of Deposit
Line of
Potential Atmospheric Releases
Improper Venting of CO2
Financial exposure if
allowances are exceeded
Pipeline fractures
Business interruption
Legal liability arising from
failure to permanently
sequester carbon (e.g.,
invalidation of carbon
Loss of tax benefits /site

Potential Impacts to Water Resources
Drinking water or




f /








C = Capture
S(O) = Sequestration, Operation
T = Transport
S(C) = Sequestration, Closure and Post-Closure
S(S) = Sequestration, Siting
S(L) = Sequestration, Long-Term Stewardship
Deliberative: Draft / Working Group Discussion Purposes Only

Table 2.  Summary of Preliminary Rationale
Potential Human Health and Welfare Impacts
Catastrophic weather
events resulting in supply
chain interruption or
demand surges for energy
Technological failure
leading to bodily injury
Changes in quality of or
access to recreational
Human health effects (e.g.
illness days, asthma
incidents, mortality)
• In the event of catastrophic events, the company likely would finance activities using cash on hand or through the use of a short-term credit
facility (e.g., line of credit).
• Depending on the nature of the catastrophic event, the company may have transferred the risk to a surety or insurer (e.g., through the use
of flood insurance, etc.).
• Risks are generally short-term (i.e., only through the capture or injection period).
• Likely are retained by the company (e.g., financial test or corporate guarantee) or managed with a risk transfer mechanism (e.g., bond or
insurance policy).
• Access changes likely would occur during the siting phase, and generally would be one-time expenses. The company likely would finance
activities using cash on hand or through the use of short-term mechanisms like a line of credit or certificate of deposit.
• Changes to the quality of recreational activities may occur during the closure/post-closure or long-term stewardship phase.
• During a defined closure/post-closure period where companies may continue to operate, risk could be managed using either third-party or
self-insurance mechanisms.
• During long-term stewardship, the company may no longer be operating. Given the long time horizon and the potential magnitude of
damages, it is unlikely that a private, third-party mechanism would be sufficient to manage the risk.
• These are human health effects likely occurring as a result of long-term carbon dioxide exposure, rather than catastrophic release. Could
occur either during the closure/post-closure or long-term stewardship phase.
• During a defined closure/post-closure period where companies may continue to operate, risk could be managed using either third-party or
self-insurance mechanisms.
• During long-term stewardship, the company may no longer be operating. Given the long time horizon and the potential magnitude of
damages, it is unlikely that a private, third-party mechanism would be sufficient to manage the risk.
Potential Ecological Impacts
Adverse impacts to
ecological receptors (e.g.,
reduced vegetation,
endangered species issues)
• These are impacts likely occurring as a result of long-term carbon dioxide exposure, and could occur either during the closure/post-closure
or long-term stewardship phase.
• During a defined closure/post-closure period where companies may continue to operate, risk could be managed using either third-party or
self-insurance mechanisms.
• During long-term stewardship, the company may no longer be operating. Given the long time horizon and the potential magnitude of
damages, it is unlikely that a private, third-party mechanism would be sufficient to manage the risk.
Potential Ecological Impacts
Surface /subsurface
Asset infringement or
restrictions to land use or
• Risk probably would be identified during the siting phase.
• Because the risk is short-term and resulting costs would probably be one-time, risk could be retained by the company (e.g., financial test or
corporate guarantee) or managed with a risk transfer mechanism (e.g., bond or insurance policy).
• Risk probably would be identified during the siting phase.
• Because the risk is short-term and resulting costs would probably be one-time, risk could be retained by the company (e.g., financial test or
Deliberative: Draft / Working Group Discussion Purposes Only

Table 2.  Summary of Preliminary Rationale
subsurface activities
Induced seismic activity
Damage resulting from
geologic exploration or
ground heave
Corrective action issues
corporate guarantee) or managed with a risk transfer mechanism (e.g., bond or insurance policy).
• Seismic activity represents a low probability but highly damaging event. Risk greatest during the active injection period.
• The low probability of risk combined with the potentially large magnitude of damages makes it unlikely the company could sufficiently fund
a third-party financial instrument like a trust fund or letter of credit.
• The company probably would not want to retain the risk itself, and would choose to manage it using a risk transfer mechanism (e.g., bond
or insurance policy).
• Similar to seismic activity, this represents a low probability but highly damaging event. Risk greatest during the active injection period.
• The low probability of risk combined with the potentially large magnitude of damages makes it unlikely the company could sufficiently fund
a third-party financial instrument like a trust fund or letter of credit.
• The company probably would not want to retain the risk itself, and would choose to manage it using a risk transfer mechanism (e.g., bond
or insurance policy).
• Corrective action activities would not be identified until the closure/post-closure or long-term stewardship phases.
• During a defined closure/post-closure period where companies may continue to operate, risk could be managed using either third-party or
self -insurance mechanisms
• During long-term stewardship, the company may no longer be operating. Given the long time horizon and the potential magnitude of
damages, it is unlikely that a private, third-party mechanism would be sufficient to manage the risk.
Potential Atmospheric Releases
Improper Venting of CO2
Financial exposure if
allowances are exceeded
Pipeline fractures
Business interruption
Legal liability arising from
failure to permanently
sequester carbon (e.g.,
• Risks are generally short-term (i.e., only during the capture period).
• It is likely that risks are retained by the company (e.g., financial test or corporate guarantee) or managed with a risk transfer mechanism
(e.g., bond or insurance policy).
• Risk is not to the public, but rather to the company undertaking sequestration. The company likely would cover any expenses using cash on
hand or through the use of short-term financial mechanisms like a certificate of deposit or line of credit.
• Because the company should be able to manage risk entirely on its own (e.g. through systematic recording of carbon emissions), it seems
unlikely that the company would seek to transfer the risk to a third-party.
• Risks are generally short-term (i.e., only during transport).
• It is likely that risks are retained by the company (e.g., financial test or corporate guarantee) or managed with a risk transfer mechanism
(e.g., bond or insurance policy).
• Risk is not to the public, but rather to the company undertaking sequestration.
• If the company remains operational during the long-terms stewardship phase, the company likely would finance activities during a business
interruption using cash on hand or through the use of a short-term credit facility (e.g., line of credit). It also may choose to hedge against
the risk using a risk transfer mechanism (e.g., surety bond, or insurance).
• Given the long-time horizon, it seems unlikely the company would set aside cash in advance using a third-party mechanism.
• Risk is not to the public, but rather to the company undertaking sequestration.
• If the company remains operational during the long-terms stewardship phase, the company likely would pay any legal penalties using cash
on hand or through the use of a short-term credit facility (e.g., line of credit). It also may choose to hedge against the risk using a risk
Deliberative: Draft / Working Group Discussion Purposes Only

VERY, VERY DRAFT - 7/25/2009
Table 2. Summary of Preliminary Rationale
invalidation of carbon
Loss of tax benefits /site
transfer mechanism (e.g., surety bond, or insurance).
• Given the level of uncertainty about potential future liability, it seems unlikely the company would set aside cash in advance using a third-
party mechanism.
• Risk is not to the public, but rather to the company undertaking sequestration.
• If the company remains operational during the long-terms stewardship phase, the company likely would retain the risk itself. It also may
choose to hedge against the risk using a risk transfer mechanism (e.g., surety bond, or insurance).
• Given that the risk is the loss of future benefits, it seems unlikely the company would set aside cash in advance using a third-party
Potential Impacts to Water Resources
Drinking water or
• Drinking water or groundwater contamination could occur over a long time horizon, and may not be identified until the closure/post-closure
or long-term stewardship phase.
• During a defined closure/post-closure period where companies may continue to operate, risk could be managed using either third-party or
self -insurance mechanisms. This would be similar to managing risk under the current UIC framework.
• During long-term stewardship, the company may no longer be operating. Given the long time horizon and the potential magnitude of
damages, it is unlikely that a private, third-party mechanism would be sufficient to manage the risk.
Deliberative: Draft / Working Group Discussion Purposes Only


               Overview and Status of Cost-Estimation Work
                             August 2009 Update
Overview of Project Activities
   1.  Draft Cost-Estimation Consultative Group Skeleton Concept outline and send to
      the Workgroup for review - - Completed March 2009

   2.  Flesh out the outline and develop a Workgroup-approved draft Cost-Estimation
      Consultative Group Skeleton Concept paper - - Ongoing

   3.  Identify and pull together a group of State environmental representatives - -
      Completed June 2009

   4.  Send Draft Cost-Estimation Consultative Group Skeleton Concept paper to the
      State representatives group for review - - Completed July 2009

   5.  Hold cost-estimation discussion with Zurich's cost-estimation expert(s) - - To Be

   6.  Hold a teleconference call with the group of State representatives to discuss the
      draft Cost-Estimation Consultative Group Skeleton Concept paper - - Completed
      July 2009

   1.  Identify and pull together a group of industry representatives - - Underway

   8.  Send draft Cost-Estimation Consultative Group Skeleton Concept paper to the
      group of industry representatives for review - - To Be Done

   9.   Hold a teleconference call with the group of industry representatives to discuss
      the draft Cost-Estimation Consultative Group Skeleton Concept - -  To Be Done

   10. Schedule, prepare and hold an EFAB Cost-Estimation Workshop including a wide
      range of participants from the States, industry, academia, and other interested
      parties - -To Be Done

Current Activities
       Review and discuss the staff summary of_the July 2009 cost-estimation
       teleconference call held with a group of State representatives

       Discuss the draft Cost-Estimation Consultative Group Skeleton Concept outline
       and obtain detailed Workgroup member comments/revisions
Next Steps
       Develop and prepare the next draft of the Cost-Estimation Consultative Group
       Skeleton Concept outline incorporating Workgroup feedback

       Prepare for and hold a cost-estimation teleconference call with a diversified range
       of private sector representatives, including Zurich's cost-estimation expert(s)

       Begin work on holding a Cost-Estimation Workshop - need to set a date, decide
       on and obtain a meeting venue, etc.

                              Marcia E. Mulkey

Marcia E. Mulkey serves as Acting Deputy Associate Administrator of the
Environmental Protection Agency's Office of Policy, Economics, and Innovation
(OPEI). Marcia has over 20 years of scientific and policy experience. She has
provided leadership and expertise to EPA in the Office of the Administrator, the
Office of the General Counsel, the Office of Enforcement and Compliance
Assurance, the Office of Prevention, Pesticides, and Toxic Substances and Region III.
Prior to her interim appointment as Deputy Associate Administrator, she served as
Acting Associate Administrator of OPEI. Prior to this, she directed the Office of Site
Remediation Enforcement.  Her service to EPA includes leadership of Region Ill's
Office of Regional Counsel from 1988 to 1998, with an interlude serving as Acting
Principal Deputy Counsel.  From 1998 - 2003, Ms. Mulkey directed the  Office of
Pesticides Programs during key phases of the effort to successfully implement the
landmark Food Quality Protection Act. She has served in teaching positions at home
and abroad. She was twice recognized with Presidential Rank awards as  a senior EPA
executive. Ms. Mulkey is a cum laude graduate of Harvard Law School and a
member of the District of Columbia Bar.

Creative Approaches to
Supporting the Development and
Adoption of Environmental
Technology, Including
Financial Mechanisms
          A Presentation for the
     Environmental Financial Advisory Board
           August 11, 2009


Presentation Overview

•  Introduction to Environmental Technology
•  NACEPT and Environmental Technology
•  Environmental Technology at EPA
•  Case Studies of Environmental Technologies
•  Financing & Environmental Technology
•  Discussion

Environmental Technology:
What do we mean? Why is it important?

Environmental Technologies are...
   Environmental technologies include those
    - Reduce or prevent pollution (includes energy
    - Capture and safely sequester pollution
    - Clean up pollution
    - Measure contaminants/pollutants
   Sustainable technologies must...
    - Be cost effective
    - Not cause unintended impacts that outweigh their

  CleanTech Spending:  US Corporate R&D
 Fig, 2.3.3: Energy dominates the cleantech corporate R&D spending
        Value of spending
         (US$ billions)
 Source: Lux Research Inc.
                            Energy • Sustainability  D Waste • Water D Air
• Air accounts for 6% of spending but has shown consistent growth. Clean air technologies accounted for the smallest share of corporate
 R&D in 2006 at $1 .2 billion worldwide - however, growth rates have held consistently at 6% per year since 2004.
                                  ^t° SB,.
                                   A *

  CleanTech Spending: Worldwide
  Government R&D
Fig. 2.2.1: Increase in cleantech government funding barely beats inflation
      Value of spending
       (US$ billions)
Source: Lux Research Inc.
$23.4 billion
                                              $24.4 billion


   CleanTech  Spending: US Venture Capital
Fig, 2,4.5: Cieantech VC deals span five key sectors
VC investment value   VC investment value
 1995 to 2005        2006
Emerging technologies that improve the efficiency of energy generation,
storage, and distribution
Emerging technologies for air monitoring, air purification, and energy-efficient
air conditioning
Emerging technologies for monitoring and purifying water, including novel
desalination techniques
Emerging technologies to stop pollution from entering the environment, or
convert it to useful byproducts
Catclvall category for emerging technologies that employ novel techniques
for reducing environmental impact
$2.37 billion
$45.0 million
$175 million
$249 million
$1.18 billion
$1.46 billion
$6.29 million
$97.6 million
$80.1 million
$394 million
Source: Lux Research Inc.

  CleanTech Spending:  US Market
                    (Dollars in billions)

Environmental Industry Segment 1970 1980

Growth 1990


Growth 2000 Growth 2010


Analytical Services
Wastewater Treatment Works
Solid Waste Management
Hazardous Waste Management
Remediation/Industrial Services
Consulting and Engineering
Water Equipment and Chemicals
Instruments and Information Systems
Air Pollution Control Equipment
Waste Management Equipment
Process and Prevention Technology
Water Utilities
Resource Recovery (Recycling)
Environmental Energy Sources
U.S. Totals:
Source: Environmental Business Journal

     Technology  Continuum
           Proof of
         Basic R&D
Development  Demonstration
Diffusion, Utilization
                  Small Business

                  Research and

                                 trade financing

NACEPT Environmental Technology
Subcommittee Reports

•  EPA Technology Programs and Intra-Agency
  Coordination (May 2006)
•  EPA Technology Programs: Engaging the
  Marketplace (May 2007)
•  EPA and the Venture Capital Community: Building
  Bridges to Commercialize Technology (April 2008)


NACEPT Report: EPA Technology Programs
and Intra-Agency Coordination (2006)
     Create and broadly publish the Environmental Technology
     Development Continuum
     Enhance Internal EPA Technology Program Effectiveness
     Improve the Environmental Technology Council (ETC)
     Expand the Environmental Technology Verification program (ETV)

EPA's Response:
     Senior Environmental Technology Officer (SETO)
     Increased role of Environmental Technology Council (ETC)
     Regional Environmental Technology Advocacy Network (RETAN)
     Environmental Technology Assessment and Verification Staff

 NACEPT Report: EPA  Technology Programs:
 Engaging the Marketplace (2007)
     Create new and diverse partnerships
     Encourage market demand
     Engage in international issues
     Address global climate change
     Expand the Environmental Technology Verification program (ETV)

EPA's Response:
   - Progress continues with SETO, RETAN, ETC, and ETV
     EPA Science Adviser charged with identifying additional technology
     support opportunities
     EPA partnerships to promote greenhouse gas-reducing technologies

The Environmental Technology
  Newly created effort in the Office of the Science Advisor, largely in response to NACEPT
  recommendations includes:

  •Senior Environmental Technology Officer (SETO)
        Focal point for environmental technology in EPA
        Chairs EPA's Environmental Technology Council

  •Environmental Technology Council (ETC)
        Originally established in 2004
        Cross-Agency representation
         •  Network of technology contacts
        Action Teams
         •  Multimedia problems with tech solutions
        Goal is to:
         •  Facilitate innovative technological solutions to the Agency's priority
           environmental problems and to collaborate with other Federal Agencies and £ ^^J^, \
           States to leverage funding and resources.

On Going EPA Environmental Technology Activities:
                  ETC Action Teams
Remote Sensing of Pollutants

Recovering the Value of Waste
for Environmental and Energy

Technologies Promoting the
Sustainable Use of
Contaminated Sediments and
the Beneficial Reuse of Waste-
Related Materials

Lead Paint:

   Remediation in Dwellings

   Development of more
   accurate lead paint and dust
   test kits
Continuous Fine Particulate

Improved Pesticide Application
Equipment to Reduce Spray

Rapid Detection of Microbial
Contamination of Water:
Application of Molecular
Technologies to Source and
Potable Water Monitoring

  EPA's  "Technology  Continuum"
 Research/Proof of Concept
3. ORDIn-Housa Technology
  tall Business Innovation Research
 (SBIR) Program
5. Clean Auto motive Technology
                            Competition (NETQ
                                                       by Private Sector
15. Green Engineering Program
16. Green Chemistry Progiam
Figure 1. EPA's Environmental Technology
Development Continuum
Note: Lighter shades of color indicate * minor or secondary
  emphasis for the listed program.

• ^ All Media Technologies
• = Water Technologies • = Hazardous Waste Technologies
• = Air Technologies   = Energy Conservation

NACEPT Report: EPA and the Venture Capital         62
Community: Building Bridges to Commercialize
Technology (2008)	

 •   Set long-term greenhouse gas standards
 •   Create and maintain communication with investment community
 •   Strengthen financial support and reduce regulatory risk for
 •   Streamline permitting for new technology commercialization
 •   Enforce environmental regulations consistently
 •   Use metrics and monitor new technologies
 •   Expand the Environmental Technology Verification program (ETV)

 EPA's Response:
 •   Regions 5 and 6 have hosted venture capital forums
 •   Region 1 will host a venture capital forum that focuses on energy
    efficiencies in the fall
 •   Region 5 is conducting a roundtable Emerging Drivers for Cleantech
    Investments: An EPA Investor Roundtable  in September          ^^

Environmental Technology
                                  U.S. Environmental Protection Agency
                                  Environmental Technology Verification
EPA houses the Environmental Technology
Verification Program (ETV)
ETV provides a mechanism for third party
verification of environmental technology
Development of test protocols and
verifications are generally paid by the
technology developer/vendor
Costs are generally highest for the first
technologies tested - discouraging the first
        ^                   & &         ^
verifications.                           / o

ETV Case Study: Ambient Ammonia

•  Largest source of ammonia in US is Animal
  Feeding Operations (AFOs)
•  Current sampling is time consuming labor
  intensive and not continuous
•  New ammonia monitors better and more
  easily quantify emissions
•  EPA have Voluntary Compliance Agreement
  (VGA)  with AFOs to use technology
•  2,000 AFOs agreed to VGA in 37 states

ETV Case Study : Laser Touch Spray

 Paint spray targeting device developed by the
 University of Iowa.
 Helps spray painters reduce paint overspray.
 Less paint is used which reduces overall paint
 cost, reduces VOCs and HAPs emitted and solid
 waste produced.
 Technology is inexpensive and has been widely
 adopted by auto part manufacturers, auto
 collision repair shops and the military.       /jj

ETV Case Study: Eductor Vapor
Recovery Unity (EVRU)
Technology designed to recover gas from storage tank vents for
utilization or sale.
Reduces emissions of HAPs, VOCs and methane.
Low tech, non-mechanical with no moving parts to maintain.
Up to 3,170 facilities (out of an estimated potential market of
12,670) could voluntarily install the EVRU, in part because of the
technology's economic benefits.
The estimated economic value of the recovered natural gas
could equal $41 million to $120 million per year.
Because of the EVRU manufacturer has become a global leader
in vent gas recovery and reduction and has installed units on 4

Market Traits Affect Financing Approaches
    Different market traits - demand, growth rate, competitive dominance,
    nature of purchasing decisions - call for different financing considerations

        Fast Growing Markets (Group A): Clean energy and instruments
        offer much higher growth  rates (>20% per year) allowing recovery of
        equity investments Larger markets, like water treatment and
        resource recovery with steadier growth rates, that match the
        economy and demographic trends, ajlow for some debt funding and
        project finance, often with some public finance

        Large markets growing approximately at the rate of the
        economy (Group B): Municipal ownership is high in these sectors
        precluding venture capital. Tax exempt bonds, international lending
        are more typical.

        Shrinking markets (Group C). Declining  markets, like remediation
        and  consulting, must rely  on asset conversion, e.g. brownfield
        development or facility turnaround, to generate returns since losses
        on operations are common

    For international markets, project debt financing is a paramount factor
    since markets and enforcement mechanisms are not well-developed.

                                                    Source: Based partly on EBI

U.S.  Enviro Markets 2010 Forecast: Growth vs.


   . A) Small markets growing faster: Process Technology, Instruments, Energy, Water
    B) Large markets growing basically with the economy: Infrastructure, Services
    C) Shrinking markets: Traditional backend Cleanup and Remediation
                    U.S. Environmental Markets 2010: Growth vs. Size
      o \


         Process Tech


                                       Waste water

                               Market Size in 2010 ($Billion)
                                                                Source: EBI

Examples  of Technology Financing
Supported by Government
    US Army Venture Fund (OnPoint Technologies)
       Authorized by 2002 Defense Appropriation Act
    CIA Venture Fund (In-Q-Tel)
       Launched in 1999
    Australian and UK Government Venture Funds
       UK initial budget $150M
       Australia 2008 budget $400+M
    Department of Energy Loan Guarantee Program
       Authorized by Energy Policy Act of 2005
       Up to $30B under Obama Administration
    Small Business Innovative Research Grants
       EPA's current mechanism for funding private technology development and other
       innovative commercial research
       Budget is a fixed percentage of Federal Agency R&D appropriations
       2009 EPA budget ~$4.8M
    State Government
       Michigan is providing GE with $74 million in tax incentives to build a $100 million
       advanced-manufacturing center to develop renewable-energy technologies near Detroit
       Many State technology development offices are closing due to budget constraints
    Export-Import Bank - Environmental Exports Program

Discussion  Questions
  Are finance challenges a significant limitation in commercializing
  environmental technologies?  If so, what actions could EPA take
  to overcome the limitations? How does that vary with types

  What kind of EPA information about current environmental
  technology needs and knowledge about future needs can be
  conveyed to potential public (e. g. DOE) and private financers
  and how?

  The venture capital community has expressed an interest in
  learning more about what EPA views as the  upcoming
  environmental "grand challenges" that will likely require
  technology breakthroughs. How can EPA best develop and
  convey this type of insight to investors?                    t

Discussion  Questions  Cont.
  How could EPA leverage Government Mechanisms? Are there
  modest "boosters" to capital availability that EPA could consider
  (e.g. inducement prizes, business incubators)? Are there other
  financing mechanisms that EPA can better match to technology

  Is government funded technology verification (e.g. ETV reports)
  important to catalyze private financing? What would make
  verification more effective in aiding technology

  To what extent can government purchasing be a factor in
  promoting the advancement of environmental technology?

   http://www.epa.gov/ocem/nacept/reports/pdf/epa technology programs engagin
   g the  marketplace.pdf
   http://www.epa.gov/ocem/nacept/reports/pdf/2008 04 28 venture capital  report
   National Advisory Council for Environmental Policy and Technology (NACEPT).
   "EPA Technology Programs and Intra-Agency Coordination." Washington,  DC.
   May 2006.
   National Advisory Council for Environmental Policy and Technology (NACEPT).
   "EPA Technology Programs: Engaging the Marketplace." Washington, DC. May
   U.S. Environmental Protection Agency. "Venture Capital Support for
   Environmental Technology: A Resource Guide. Prepared by The Scientific
   Consulting Group, Inc., under EPA Contract No. EP-C-05-015, December 2007
   U.S. Department of Commerce, International Trade Administration.
   "Environmental Industries Facts." Washington, DC. 2007.

                       U.S. EPA Financial Advisory Board
                         SRF Investment Working Group

                                  Status Report
       EFAB's August 2008 "Report on the Relative Benefits of the Direct Loan and
Leveraged Loan Approaches for Structuring State Revolving Loan Funds," recommended
that EPA explore the role of investment returns in promoting the long term health and
success of state administered SRF programs.  The Council of Infrastructure Financing
Authorities ("GIFA") is currently polling its members regarding current investment
practices.  The purpose of the inquiry is to make an assessment of (a) the legal,
institutional and operating constraints (including USEPA Operating Agreements) that
directly impact the investment function; (b) the relative importance assigned by state
SRF administrators to the investment function; (c )  the investment approaches used by
state's and the impact any investment loss experience may have had in shaping it; and (d)
gauge support for EPA taking a more active role in linking investment practices to  SRF
specific program goals.

       CIFA has agreed to share these results with  the SRF Investment Options
Workgroup.  The Workgroup plans to assess the findings and prepare a report based on
the findings. The goal of the report is to assess current investment practices and make
recommendations to USEPA with respect to steps that the federal government might
consider taking to promote the role of the investment function in SRF administration.
Specific questions to be answered include:

          •   How critical is the location of the investment function within state
              government to the investment approach and importance assigned to  SRF
              investment returns?
          •   How do current legal and operating constraints shape the investment
          •   Is SRF staff expertise sufficient to support a more active investment
          •   Consistent with achieving desired program returns, would requiring state's
              to develop best investment management practices result in better overall
              SRF program performance?
          •   Should federal legislation be modified to allow an endowment approach to
              SRF investment management?

                Questions for SRF Program Managers Regarding Investment Practices
1.   Where does the investment function reside?
        a.   SRF manager
        b.   SRF financing entity
        c.   State treasurer
        d.   Other (please specify)
2.   Does the entity responsible for managing SRF monies have staff that is knowledgeable or can be trained to
    manage investments? If not, can you retain investment services via a contract?
3.  How does the state's governing statute direct the investment of SRF monies?
4.  Given where the investment function resides and any statutory considerations:

        a.   Are investment decisions made with a view to the SRF's specific program goals such as building
            Funds capacity?	;	

        b.   How do you view the purpose of the investment authority under the CW and DW SRF federal

        c.   Given current investment authority, in what ways is the management approach directed toward
            protection of principal versus growing the capital base of the program?
        d.  How would you describe the investment management approach? Is the approach driven by a
            philosophy that is conservative, moderately conservative, balanced, moderately aggressive, or

5.  Has your program or State ever experienced a negative outcome on investments? If so, please describe
    what impact it had, if any, on the investment decision making process
6.  Does your program have written investment guidelines/policies/procedures and are they regularly reviewed
    and updated to allow for new investment options?
7.  Now that the program has matured, do you see any value in amending governing statutes and allow the
    SRF to pursue broader investment options to grow the capacity of the Funds?
8.  Does your USEPA Operating Agreement contain any restrictions regarding investment practices? If so,
    please explain 	

9.  Has your Regional EPA staff ever rejected a request to modify your investment guidelines or not accepted >
    change regarding investment practices in your Operating Agreement?

10. Would it be beneficial if EPA required that investment practices be based on achieving SRF-specific
    program goals?	

                                 Proposed New Project:

                Financial Incentives for Carbon Emission and Credit Trading

I am proposing that the Innovative Financing Tools Workgroup focus on financial incentives for
carbon and other emission credit trading (except carbon sequestration) as well as nutrient trading.
I think both will be major issues that the Agency will be dealing with over the coming years.
The Board should have a ready audience.

I believe that the Agency's report pursuant to the recent Executive Order on the Chesapeake Bay
will deal heavily with nutrient trading.  Virginia already has a system which is only point-to-
point. Maryland is working on coming up with one.  Pennsylvania has come up with a highly
innovative concept that involves the use of CWSRF money and has already been approved by
the CWSRF Office in Washington, D.C. Unfortunately, they haven't gotten it off the ground yet
in Pennsylvania because of the risks associated with it. As it turns out, our VEIB concept is just
what they  need to mitigate such risks.  This, alone, would be a very innovative concept to report
on. We can also find out what the other states are doing, if anything. We have an offer from the
Evergreen/Red Barn group, who are trying to organize the Pennsylvania program, to give us a
briefing. I recommend that we take them up on their offer.

As you also know, both the Agency and House Energy & Commerce Committee Chair, Henry
Waxman,  are working on  carbon trading concepts as part of the overall emphasis on climate
change. In addition, the CWSRF  has already promulgated a rule approving use of their funds to
reduce airborne mercury deposition. We should write this up; especially since a mercury trading
program already  exists. In addition, I think the CWSRF is also poised to approve funding of air
deposition reduction programs in  the Chesapeake states, because of the well-documented impact
on the Bay. Finally, our 2008 report on diesel emissions discussed the sale of carbon credits that
Region 9 approved for the City of San Diego.  We should revisit this issue and see where this is

In  short, financial incentives can have a major positive impact on trading programs. We should
begin documenting how this can occur and make recommendations wherever appropriate.