EPA:

ELI panel discusses agency's priorities, state of current law

Can U.S. EPA solve 21st Century environmental issues using law created decades ago? During today's E&ETV Event Coverage of an Environmental Law Institute panel, EPA experts consider whether environmental law should be updated to handle new challenges. Participants include, Leslie Carothers, president of the Environmental Law Institute; Jonathan Cannon, professor of law at the University of Virginia; Linda Fisher, vice president for safety, health, and environment at DuPont; Ann Klee, vice president of corporate and environmental programs at General Electric Company; and Bob Perciasepe deputy administrator at U.S. EPA.

Transcript

Leslie Carothers: Good afternoon, I'm Leslie Carothers. I'm the president of the of Environmental Law Institute and it's wonderful to be here to serve as a moderator of a panel of distinguished past and present EPA executives.

They're going to talk about some of the challenges facing EPA at 40, middle-age. Once again, this forum is named for the late Miriam Keare, a longtime citizen activist and environmentalist and supporter of ELI.

Her son, Douglas Keare, is with us today and has taken her place in working with us in developing these programs. To be more specific about the agenda, our panelists are each going to identify some of the big issues facing EPA.

And then we'll consider whether our existing environmental laws, many not updated for decades, provide the tools the agency needs and also whether there are new directions in an environmental law and governance that should be taken in the future.

I'm going to introduce all four panelists at the beginning and then each will make brief remarks on an issue and some of the questions posed.

We'll follow with discussion among the panelists, their reactions to each other's ideas, and possibly a few questions by me. We'll then open the floor to questions from you, our audience.

On my far left here is Ann Klee. Ann is the vice president of corporate environmental programs at General Electric right now, where she's been for almost three years.

She served as general counsel of EPA for two years during the Bush administration and also has extensive other public experience, as well as private experience.

She was a counselor to the Secretary of the Interior, Gail Norton, and also chief counsel to the Senate Environmental and Public Works Committee.

So she brings a very broad background to this panel. On my far right here, no offense, Bob, Bob is EPA's current Deputy Administrator.

He served also in the Clinton administration as Assistant Administrator for Water and then Assistant Administrator for Air and Radiation. He's been chief operating officer for National Audubon and he is our ringer.

He's not a lawyer and his degrees are in natural resources and planning and public administration. On my near right is Linda Fisher.

Linda is the vice president for Safety Health and Environment and the Chief Sustainability Officer at DuPont she also served as deputy administrator of EPA and also served as an assistant administrator, in her case for Prevention, Pesticides and Toxic Substances Control Act.

She also served as chief of staff to administrator Christie Whitman. And on my near left is Jon Cannon. Jon is Professor of Law and Director of the Schools of Environmental Law and Land-Use at the University Of Virginia.

He also, like Ann, served as general counsel and also served as assistant administrator for Administration and Resources Management, as well as other activities in his career.

So, I think we're going to begin with Ann, Ann Klee, who is going to make a few remarks on topics concerning energy and climate and air regulation. Ann?

Ann Klee: Thank you Leslie. What I'd like to do is start to lay the groundwork for a discussion hopefully on climate change and EPA's Clean Air Act rule makings and it's got a lot in the pipeline.

For those of all of us who are interested in public policy and climate policy in particular, the last two years and the 111th Congress I think is a failing disappointment.

One of my colleagues, Larry Bahs, likens the climate wars to the Star Wars episodes and I think that's a pretty good analogy. The first episode really started in full in 2006.

Democrats won a significant number of seats in the midterm elections and there was great hope that there would finally be action on the legislative side to deal with our reliance on fossil fuel and the evil fossil fuel empire.

Not my characterization, but Larry's. And the USCAP coalition was formed and Linda and DuPont were founding members of that along with GE and it was a really pivotal coalition of industry and environmental NGOs getting together to call for climate change legislation.

So there was great hope in 2006. The second episode started in 2008. The Democrats picked up more seats. They won the White House. The president called for climate change legislation.

So, for the first time, we had both House and Senate and the White House presumably all lined up, ready to go with a major climate change bill and USCAP won the second major episode with their Blueprint for Action, calling for economy-wide, comprehensive climate change legislation.

And then there was great success when the Waxman-Markey bill passed in the House and then nothing. No action in the Senate. Great disappointment. Episode two ends with nothing.

The final episode has really been over the past year where politics and the economy have really taken front and center. And legislation is no longer inevitable. In fact, I would say it's dead as a door nail for this Congress.

And so that has shifted the dynamic to basically the next... or to the most imperfect of arenas, which would be the Clean Air Act. And when I say the most imperfect of arenas, it's not in any way to cast aspersions on EPA.

I think the agency is trying to do everything that it can with a statute that is clearly not intended to deal with the very complex world of major climate change.

And so they're taking a series of regulatory authority that it had and trying to manipulate it and stretch it and adapt it in such a way to address climate change as an interim measure until Congress is ready and willing and able to step up and fill the gap.

So, it's not the right tool for addressing climate change, but it is probably the least bad nibble that we have. So the legislative process hasn't been successful.

But I think there remains very strong and a growing consensus that dealing with climate change is a critical national security issue, that it's a critical energy issue, that it is a critical jobs and economy issue.

And for a company like GE, that's really been how we've been approaching this from the beginning. For us, getting the right climate policy, the right energy policy, a strong price signal for carbon in what's going to set the foundation for the economy and a strong clean energy economy for the 21st century.

It's going to create hundreds of thousands of jobs. It's going to bring new technology to the United States. It's going to keep us as a leader. So we need that strong public policy.

So the question, I think, that we face now as companies, as NGOs, as people interested in public policy, is where do we go from here? Is there anything that can be done over the next three-month period before a new Congress comes in?

What can happen in 2011 and beyond? We think that legislation is still the best option and I think there is broad consensus on that, whether you're talking about EPA or NGOs or the industrial community.

But if we have to do something more quickly an economy wide would be a better approach, but the reality is that's not going to happen. And I don't believe it's going to happen in 2011 or 2012 either.

So then we have to look at the next best option and that's where the energy bills and other incremental approaches may come into play. So I think there could be a very positive step that's taken.

Whether you're talking about an energy bill, a utility only bill or a sectorial approach, any one of those could be a significant down payment on climate change, reduce emissions, grow the economy.

And so we have been arguing for a clean energy standard, which we think if you set it at the right levels you're dealing with 35 percent of the emissions in the United States and you are driving significant employment of clean energy technology.

CES said along the standards of what's in Senator Graham's bill would actually result in about 120 gigawatts of new clean energy by 2020. And that's compared to about 50 gigawatts with the status quo.

So even with just that one incremental measure we could have a dramatic impact. Focus then on what EPA can do, because they're clearly working to fill in the gap.

If you look at their regulatory schedule for the remainder of the year and into 2011 and beyond, the agency is moving forward with a very ambitious set of regulations.

I've heard it characterized as being the most aggressive regulatory agenda that the agency has seen in many years and that may or may not be true.

But clearly, the agency is looking forward to take steps to address greenhouse gas emissions through a multiple of rules, whether you're looking at the Boiler MACT, a utility MACT, the potential for utility NSPS.

And it really indicates that there are tools in the Clean Air Act that may be manipulated to achieve an interim set of policy objectives. There are going to be a number of issues that EPA faces as it goes forward.

Clearly, the Tailoring Rule is the first good example of how the Clean Air Act really isn't well-suited to deal with this. And whether the Tailoring Rule survives or not I think is critical to the success of the rest of the rest of EPA's regulations.

Because if they lose the Tailoring Rule, the overwhelming burden is the Clean Air Act to address greenhouse gas emissions. I think that will bring down the rest of its program, that will force Congress to step in and at least -- and I suspect, block EPA action until further legislation can be enacted.

So I think the success of the Tailoring Rule is something that's going to be critical to the agency in the short term. Beyond that, I think the agency will certainly face litigation for each one of its decisions and regulations.

So it may enact an NSPS for utilities, but how quickly it will be implemented and whether it really drives innovation is yet to be seen. And I think there's a lot of uncertainty there.

And then, finally, there will be a very interesting and necessary partnership with the states to implement whatever EPA does under the Clean Air Act.

And you're already starting to see that partnership frayed with certain states saying that they either don't have the resources to implement a new set of regulatory programs to address greenhouse gas emissions or they don't want to from a policy perspective.

That they don't have the authority, that they won't be able to get the authority from their legislatures. And you're seeing an increasing number of states stepping up and making those kinds of arguments, whether it's for resource or policy reasons.

So the agency, I think, over the next couple of years will move forward aggressively, but will have a number of challenges to address.

The outcomes will be unclear and so for companies like GE, it is critical for us to continue to engage as a legislative (inaudible). Because, at the end of the day, the decision really is going to be a legislative one.

Leslie Carothers: Thank you Ann. Bob, you're next up.

Bob Perciasepe: OK. Well, I'm going to talk a little bit about water. And I always like to go back to the fundamentals to start, thinking about where we are with water and what we might do in the future.

The Clean Water Act had two major events in Congress in the last couple of -- in the EPA's life anyway, in 1972 and 1987. And I characterize the 1972 Federal Water Pollution Control Act of 1972, which was amending previous laws which were not very effective.

It set out two things that sort of changed the dynamic of effectiveness of the law. One was a very significant grant program from municipal sources and a very forward leaning technology program for industrial sources with the FOE guideline program that's available technology that had to be placed into a permanency.

(Inaudible) say this, because I do love the Clean Air Act and we'll get back to it later. But the Clean Water Act took another choice, another path in terms of instead of waiting for a facility to be upgraded and then say you have to do the best available control technology, it basically said the next time your permit is up you have to do what the current best available technology is.

And so the Clean Water Act avoided that entire constraint or confusion factor, whatever you want to call it under the Clean Water Act, as people struggled over the years and continue to struggle when something is being upgraded, and when it isn't being upgraded.

I'm only going to say those words, but ... And so that moved the whole ball ahead fairly significantly in the 70s and into the early 80s. In the mid-80s people started to say, well, we need to do some adjustments.

But the adjustments weren't all that robust in '87. They did transfer the grant program to a loan program and had that phased in, called the SRF. It now has about $80 billion in the bank with 50 branch offices.

There's about $4 billion a year rotating even if there were no new appropriations. But that bank, I think by all measures, has been relatively successful in being a source of funds for capital structure of municipal treatment works.

Because we all know that the needs far outstrip the amount of money that's available from the federal government.

But it was never envisioned that the federal government would cover all costs, although Section 101 of the Clean Air Act does say it's national policy to provide some financial assistance.

What really happened behind the scenes in these two years was that the Clean Water Act implementation process started to shift in the late 80s from the technology part to the water quality part.

Which is largely embodied in Section 303 and a few other places in the act. But it's a place where they set the water quality standards or the designated uses and then the water quality standards that would implement those.

There's still issues out there with that in terms of narrative standards and some streams and water bodies that have not had their designated uses determined.

So there is a gap still out there in that particular part of it 40 years later, almost 40 years later, it's more like 38, 38 years, ___. That (inaudible) bill is a pretty solid one and it has made a lot of progress in identifying and clarifying.

But then when we start moving into that water quality part of the act, there were these provisions for what would happen if the implementation of those technology provisions didn't work or weren't enough to meet those designated uses.

And we all know what that part of them was, it includes things like TMDLs and like water bodies that are attaining or not attaining their designated uses.

So they're impaired and not impaired, (inaudible) attaining this under Clean Air Act nomenclature. But there's a less used part of that that identifies waters that are more pristine or less impacted.

And so we've had so much attention to which waters are not meeting the designated uses and Congress had set up rules and timeframes in there that were slam dunk litigation that you couldn't lose because there was a fire in them to get the TMDLs listed.

To get the list of TMDLs going, that the part of the act that looked at waters that were in much better condition and looking at how to implement anti-degradation in those areas hasn't received the same attention that what we do about these water bodies that are impaired?

So we've been spinning around for a decade at least on doing TMDLs and trying to get them implemented. Now, one of the issues that comes up right away there is who gets to regulate the different sources? Who gets to decide?

You know, once you arbitrate who has to do what to meet the load reduction, to meet the water quality standards, you get into a situation where many of the sources we now know after the implementation of the technology standards in the 70s and the 80s, many of those sources are not regulated.

They're not reachable by some federal intervention. Now, there's been some expansion of that universe, but the Clean Water Act did sort of envision that, the (inaudible) and storm water, those were clearly beefed up in '87.

So that reach has started -- is continuing as an expanded universe. But there's still a really significant portion of the sources that have to be regulated at the state level to make that rubric work, to make that planning process work.

There are some advantages to that planning process. It can be aggregated at a watershed level, which is technically where I think we want to see a lot of this stuff done.

It is an entre to using some limited market mechanisms at the watershed level, particularly and I think maybe only exclusively, with things like nutrients and perhaps sediment.

But there is a limit to how far you can expand the federally reachable universe and so we have a situation and you see it playing out in many water bodies that are limited now by nutrients, for instance, where who sets the standard, how then do we have a numeric standard versus a narrative standard?

How can you implement a TMDL without a numeric standard? Who deals with the sources that are not reachable by a federal process of some kind?

And so I think we have a situation where we're better off than we were in the 60s, which was mostly a water quality-based statute, but we're still tangled in the same kind of discussion on how to make a work. Can that work? I think yes.

I think the existing law can work, but there are these issues that are involved with it. And let me list some of the issues clarifying, you know, that the watershed approach is clearly envisioned, that you can construct it and the EPA has and the states have.

But it would probably be improved if there was a more explicit and, of course, when I was at EPA in the Clinton administration, we did make a run at doing some work on the Clean Water Act and that got sidetracked.

You know, in a similar movie to the one that you just wrote. But I think it only had two, it's like an "Ironman 2" and then it was over. This issue of state responsibilities for sources versus federal responsibilities and how we can construct that to assure that something will move forward.

On the grant side, I still think that what we've seen over the years as we shift to SRFs is still somewhere around a quarter of a billion dollars a year, sometimes a little less, gets earmarked by Congress for grants.

So to think that we have gotten rid of the grant program and completely went to an SRF program hasn't really held true.

So there's obviously a demand out there for some special needs, particularly small communities and very difficult, very expensive things that are for the larger watershed good that require a municipal action, but the rate base or the population base or the tax base in that particular locale is not enough for even a loan.

So you need to have some kind of equalizer in those situations between a state and a federal grant. I think grants for states to operate these programs because the technology program that is driven by EPA.

It develops and does all the engineering work. EPA, you know, delivers those technological documents to the states that implement them into their permit programs.

When we get into the water quality approach part of the act or the water quality question, a lot more transaction costs at the state level, a lot more complication, many more sources. And so you need more funding I think at the state level for that to have an effective plan and program.

And, of course, it's just similar to what you can do with climate change when you see the situation where states are really in a trying time for their environmental budgets. It's a part of their discretionary spending and in a lot of states that has been significantly reduced.

And so we have proposed in the President's budget for 2011 that's awaiting action in Congress to a significant increase in state funding for some of these categorical grants, probably the most in the last 20 years, since I think a big boost when the Clean Air Act passed in 1990.

So I think I'll stop there. Those are some of the issues I think are out there, but I do feel, and this is probably paradoxical for many people in the audience, but I do feel that that basic construction has a great deal of logic to it.

But the resource issues and deciding who gets to do what with some of the sources is still a difficult discussion from time to time, which we currently haven't really (inaudible).

Leslie Carothers: Thank you, thank you, Bob. Linda Fisher is now going to comment on some of the issues presented by products.

Linda Fisher: Now, I was going to cover kind of where we stand around product regulation, on the chemical regulation and I was thinking as Ann and Bob were talking, you know, TSCA was passed in 1976 and hasn't been touched. So there is no movie that anyone will ever write or we're waiting for a sequel like --

Bob Perciasepe: That's in black and white, I think.

Linda Fisher: And I think it's the only environmental law that hasn't been amended since its original passage through Congress. That is not to say that the industry hasn't changed significantly.

And perhaps more importantly, the rest of the world is changing. And so when I think of the challenges for EPA, it really lies in the fact that the rest of the world is marching ahead and the U.S. is a little bit standing still.

And by that I mean we have major, major regulatory, chemical regulatory programs being stood up in Europe with the REACH program that passed. Canada has, a few years back, passed a chemical substance regulation program.

We have chemical regulation programs coming down all over Asia, in Turkey, and in many parts of the globe that for a company like DuPont that is global and well over half of our revenue comes from an XQS, we are spending tens of millions of dollars to meet product regulatory, chemical regulatory requirements ex-U.S.

When I say the challenge for EPA, the first big deadline under the European program, under the REACH program hits in December.

Although it's not completely true, but thousands of chemical companies will hit the send button and our data will go flying into Europe dossiers. About 5000 products I think they're currently predicting.

But all of the sudden you will have the U.S. regulatory agency kind of behind in terms of the amount of data that other governments might have. And some of that data will be available publicly.

Not all of it will be, but you'll start to have I think a growing disconnect between where the U.S. regulatory system is and some of these programs globally are.

And as I have said to some of my colleagues in the industry, if you worry about EPA decision making, at least you understand it and you can get reasonable access into it.

We're not quite sure how Europe is going to use this data and how the data will be available to the public. Secondly, we also see a tremendous amount of what people have referred to as private regulation in the chemical world.

And by that I mean you have companies, you have a value chain choosing which chemistry they want to accept in their products or reject or deselect in their products.

And so you have an industry stepping in where they see a vacuum that given the fact that TSCA hasn't been looked at and tuned up to meet maybe modern day challenges, you know, the private sector regulating.

And, again, I think looking back over the history of EPA, there were many industries or many companies that said, gee, if they just let the private sector regulate itself everything would be fine.

Well, in the product world we now have the private sector regulating itself and that is not a good place to be, because you have different companies liking certain chemistries, not liking other chemistries.

You have surveys that we get from all sorts of folks that we sell to in the value chain, do you use this product, do you not use this product and in what amounts?

So there's a huge amount of inconsistency, duplication that's coming kind of back up the value chain. And, again, I think it's because there's a vacuum here.

And lastly, although I would say this was more before the recession, we saw a lot of states that (inaudible) and like to regulate at the state level.

I'm not sure I see that as big a threat now because of some of the issues that Bob talked about, which is the declining resource base in the regions or in the states.

But the upshot of all this I think maybe it is a positive one in that it had the American Chemical Council and many of us in the industry call on Congress with a plan to upgrade to a crude TSCA to strengthen the tools that EPA has to regulate chemicals.

Members of Congress among the House and Senate introduced legislation not quite to our liking, but at least I think there's a pretty good discussion, agreement that the statute needs to be upgraded, that the tools EPA has need to be enhanced, that the rest of the world is marching on in chemical registration -- chemical regulation.

And we really want the U.S. EPA to be a part of that, not behind it. And I think that's constructive. I think the big question is given the political environment that we'll find ourselves in over the next two years, is it possible that the Congress can actually enact legislation to amend TSCA?

In the meantime, I think EPA is using some creative ways to try to enhance their ability to regulate. But, at the end of the day, like climate and some of the other things, I think we need new legislation that is more modern, that's reflective of the global role, the global marketplace that we live in.

And I think you will see industry working hopefully in a pretty constructive way to get the Congress to improve TSCA and bring it into the current century.

Leslie Carothers: Thank you Linda. Jon, you get to clean up here.

Jonathan Cannon: Cleanup, well, my topic is waste, which is probably appropriate coming at this point in the program, that is last. So I'm going to try to do some reuse and recycling here and see if I can come up with some useful comments.

And, in a way, the topics that I'll raise here are less dramatic than some of the topics that we've already heard. And they're topics that have been around for some time in the waste programs.

Both the Resource Conservation and Recovery Act and Superfund and now brownfields are mature programs. They've been relatively stable from a legal and policy standpoint over time, that doesn't mean there aren't current issues.

But the basic frameworks have been settled and the basic policy issues that the statutes are meant to confront are pretty clear to most people.

Under RCRA I would say that the two key challenges are two key challenges, not the only ones, are the tension between hazard reduction and recovery of the materials that may be valuable is the Resource Conservation and Recovery Act after all, and that is a policy component of the statute, along with the health and safety concerns that motivated the statute.

RCRA doesn't resolve that tension. It doesn't give much guidance to EPA about how to resolve that tension. But I think the statute provides an appropriate forum for that tension to be addressed and resolved on an issue-by-issue basis by EPA.

And you see EPA continuing to do that in settings like the conditional exemption rule for some reclamation processes that was adopted by the previous administration, the existing administration has called back and is doing a review of it.

I don't know what the outcome will be, but that, obviously, continues to be a major issue. And I think the statute provides an appropriate forum for the agency to address and resolve it.

Congress could be more specific. I'm not sure whether Congress has any interest in being -- and EPA has the space to make policy in that area.

Another key challenge though that I think is more inherent or more a part of the statute itself is a flexibility to tailor rules or regulatory approaches to particular circumstances of a waste or a process.

Some question under RCRA whether that flexibility exists in sufficient measure. We have this sort of on/off switch of solid waste or not, solid waste or hazardous waste, regulation under Subtitle C or Subtitle D.

All those are pretty stark categories and suggest the kind of rigidity that I think has been bonding in the past. But EPA seems to be finding more ways to mix and match so to speak in tailoring particular approaches to particular circumstances.

The military conditions rule is a good example of that, and this, although the fate of it is ultimately uncertain, this conditional exemption rule for reclamation of certain materials is also another example.

So my sense is that the statute has perhaps more flexibility in it than we might have imagined and that EPA is in a position to take advantage of.

I think we still have a lot of work to do in terms of reducing hazardous materials in our processes, in our products. And, thereby, reducing hazardous waste. But that is as much a function of other statutes I think like TSCA, as it is of RCRA.

And I would encourage the agency, maybe it's already done so, I would encourage the agency to think about a cross-statutory program, maybe deem chemistry as part of this for reducing hazardous or toxic materials in the entire production and waste management scheme.

On Superfund and brownfields, I think there the challenges are to clean up sites and that is partly a function of funding, given that there aren't enough potentially responsible parties with money to go around for all these sites.

So funding is an issue, the Superfund tax has not been renewed. I don't have any sense that it will be renewed any time soon certainly.

And even if it is renewed, the agency is still subject to appropriation. So funding remains an issue.

There may be opportunities to look for sources of revenue, new sources of revenue that can be established or put in a Superfund specific fund for use by the agency for cleanup. But I'm not sure that that's a likelihood.

The other piece of this I think that's important is to focus attention now, and this is kind of a second-generation concern of Superfund, focus attention not only on cleaning up sites, but putting sites back into productive reuse.

The agency has picked up that theme brownfield, that's a central theme in brownfields. But the agency has also picked it up in the RCRA corrective action program and in the Superfund MPL program.

And I think that's a theme that needs to be continually looked at. Congress has done some things to aid the willingness of investors to step in and redevelop contaminated properties. We had the Lender Liability Rule.

We've got the innocent landowner defense. We now have the bona fide prospective purchase as a defense. But I wonder whether even those lenders are enough to reduce the level of uncertainty and risk to investors to bring them into this market as robustly as they should be.

You know, a lot of these sites still are not developed. A lot of these sites are still sitting vacant, often in troubled urban areas where the redevelopment could be a significant economic benefit and also take the pressure off of greenfield development. So there's an area that needs additional work.

Leslie Carothers: Well, thank you, those were four excellent introductory statements. I guess my first question is does any of you wish to pose a question to any of your colleagues on the panel as a bottom line to something that they said? And, if so, signify it by raising your hand. Bob.

Bob Perciasepe: Jon opened the door to (inaudible), Jon opened the door to the lengthy (inaudible) and toxic (inaudible) and certainly there is a discussion going on about the task force (inaudible) talking about getting upstream in (inaudible).

You know, so geared to what you do in the end. You know, you've got this stuff and you recycle it. You've got this stuff you've got to dispose of it or treat it or store it, something, I think those were actual words (inaudible).

Anyway, the idea of getting upstream and this gets into (inaudible) chemistry also have a link to some stuff pretty good. What do you guys see there?

Linda Fisher: Well, I'm kind of encouraged in the discussions we had around legislation that if people are worried about exposure to particular substances, they should look beyond just the exposure that you might get in a product.

And you really should look at what are the exposures that are coming out of the manufacturing process. Not everything is regulated under Clean Air or Clean Water Act.

And there's a lot of opportunity, perhaps, to get the most cost effective redemption of certain chemical exposures really from the manufacturing and processing.

As opposed to just saying get it out of the product, which is in some places where some folks, not all, but some in the environmental community want to go.

They'll ban it in certain products, when really the exposure to the public is going to be at different places in the production chain. So whether you do that under TSCA or another statute, I haven't really focused on.

But I think the question is what's the most effective way and then the most cost-effective way to get reductions down. And that might look at a ... statute approach.

Jonathan Cannon: Yes, I think you're almost talking about a lifecycle risk assessment for chemicals that are involved in various production processes and either are part of products or a part of some sort of secondary material screen.

I know TSCA, as it's currently structured, isn't equipped to deal with that and I'm not sure whether their current thinking about that kind of bill would go quite that far. And maybe it requires some sort of amount of statutory authorities that the agency would orchestrate.

Linda Fisher: Well, I think differently in the legislative constructs they have talked about exposures in addition to those that might come through products. So there is some contemplation, which I think is the right thing.

But I do think that then poses challenges to EPA. So which office helps you set the standard for something, emissions, say into the air, into the water if it's not under the hazardous air pollutant.

So I think there are some challenges, but I think it's something that should get looked at.

Ann Klee: You see a little bit of that in the (inaudible), like how much do you allow in a paper context versus a classic context? So there's some thinking that's been done on it.

Jonathan Cannon: We certainly have done a matchup with the (inaudible) candidate was (inaudible) under the Safe Drinking Water Act.

And stuff that we're seeing occur in South Bend we're looking at TSCA and FIFRA as places, you know, for the synthetic organic compounds where we might be able to start getting more information and looking at how the product -- how the chemicals are used in commerce, where that has a relationship to it showing up in very low levels right now, but in drinking water.

So there is some innovative field plowing going on, on how to make the -- you know, do some cross referencing of the chemical issues. But it's only the human mind as we (inaudible).

I would agree with your statement that there's opportunity in TSCA that we don't (inaudible), we're so focused just on wanting to do that to keep the (inaudible) together under the statute.

Linda Fisher: I think the EPA has had a statute, Jon, you can correct me, since 1990, the Pollution Prevention Act or something like that.

Jonathan Cannon: Right, right.

Linda Fisher: You know, I'm not completely familiar with it, but I do have the sense and the conviction from my experience in industry that the hazardous waste law and the rules under the Resource Recovery Conservation Act, RCRA, the hazardous waste law, coupled with the cost of disposal.

But the hazardous waste law and extremely detailed and picky regulations under that law, plus the cost of disposal together created a huge incentive for industry to reduce the generation of hazardous waste.

Are there other ways to do that other than coming up with the most cumbersome regulatory relief you can imagine and jacking the price of disposal to the sky?

The issue gets into I think one that's always bedeviled the field, and that is how far can the public sector appropriately go in sort of getting involved in trying to tell industry how to modify its processes?

You know, they talk about performance standards are better, not design standards, but we're now at the point where most of the heavy lifting needs to be done in the process and in what comes out in the product.

And I'm not sure that we do have the tools that allow us to make that accommodation in the best possible way.

Ann Klee: Well, you're assuming that regulatory agency is the most effective decisionmaker in that context.

Linda Fisher: No, I'm not, but if we've got to --

Ann Klee: (Inaudible) kind of the way that, you know, do we have the right tools?

And I would argue exactly what you said, that whether it's because of the expense of managing hazardous or other waste or toxic tort litigation or other regulatory regimes, companies are already changing their processes in a way that makes the most sense for the manufacturing process.

And the agency, I would argue, is uniquely poorly equipped to tell a company how to manufacture a piece of plastic or (inaudible).

Linda Fisher: Well, I wouldn't disagree with that statement, except the issue is whether there are ways, either by disclosure or rewards or voluntary programs, that would help to tip the scale where there is doubt about whether a particular process can be made greener or cleaner.

I don't disagree that our current statutes and our whole philosophy has been not to interfere with the production process, except by (inaudible) really hard on the disposal end, so that finally something happens upstream.

But that's exactly what the good kind of points that I think this discussion should raise, Ann. What are the other governance mechanisms that are maybe not traditional regulations that can help push the production processes in the direction that you would want to go in terms of maximizing potentially (inaudible) public health?

Ann Klee: I would argue that most of them are already there. I think the one area where there's a gap would be (inaudible) and certainly that's what REACH was intended -- one of the fundamental purposes of REACH in Europe was intended, through disclosure, through the registration process to encourage or provide the mechanism for the company to change what they're using.

What we're seeing in the first states of regionalization is actually the opposite. It is creating some real disincentives to change your processes, because if you want to change it to a more benign process or article or substance, it may be really difficult to do that.

And so I think we've seen some real lessons learned from REACH in the scope of trying to register 5000 chemicals all at once without regard to risk or prioritization. It's not achieving what it's intended to do, but I think there's a fundamental good purpose there.

Linda Fisher: Well, I think it's a little too soon to figure out whether REACH is going to have some of its desired effects. Right now Ann is right. It's an administrative nightmare and a huge process that we're all going through.

I think the question is when you kind of come up for air after you make all these (inaudible), are you going to start doing things differently and are you going to see some shifting from certain chemistry or certain uses or some emission reductions taken so you can get to more acceptable levels?

And we will wait to see that. At DuPont there are some that we know the Europeans are going to ask questions about and we are already taking steps to reduce our use of them or think about getting out of them altogether.

One of the challenges with REACH is how and when or if European agencies are going to make decisions on chemicals is the total question.

But it is a data generating, data gathering tool right now. And kind of the "then what" is yet to be seen. But I think you are going to start to see some behavior change.

But maybe not the volume that people expect that it does, because the volume of dossiers, the number of dossiers, the volume of data is going to be just so enormous that it's pushed into the system. Whether anybody can absorb it and act on it is kind of still the question.

Bob Perciasepe: I would agree, simply the disclosure properly managed, you know, it will help a little to incentivize an action.

Leslie Carothers: I want to follow-up on one of Bob's points just about the volume of work that there is. I noticed in EPA's 2009 Performance Report they pointed out that when the Clean Water Act was passed their initial permit inventory for plain sources was about 100,000 in the country.

And now they estimate that with all of the agricultural and feedlot sources and storm water, that inventory is looking more like a million sources. Well, clearly, that's not manageable by any system that we have at this point.

And I wondered if any of you could enlighten me as to what are the possibilities and what is being done to try to set priorities within that kind of inventory and to decide who should do what and which things should be attacked.

I mean the theory has always been everybody gets regulated. It's evenhanded if everyone is subject to the requirements. But, clearly, it's not practical with that kind of inventory to do everything all once.

How can EPA and the states attack that set of issues in a rational way?

Jonathan Cannon: Well, there's a number of approaches that are being used and that are available and that we put them on record to set priorities and I sort of made one out at the beginning, which is to identify (inaudible) look at those.

Even though there's some reason for us to try to get those impaired waters to be not impaired. You know, the other side of that coin is identifying the waters that are still in good shape and making sure that you're being careful on how -- what increments are used up of whatever a similar capacity might be there.

The tools that are being used for many of these expanded sources, like (inaudible) and storm water permits. The larger municipalities are getting down to specific permits, but the smaller sources, including offshore drilling rigs, you know, all operate under general permits.

And the general permit is a pretty useful tool. It provides some basic operating parameters that if you operate within those parameters, that you are achieving a certain level of protection of the water.

I don't think we've perfected how to make that tool work and I think we need more automation if we all make it more effective for the permitees, as well as for the -- you know, keeping track of that so that we can use a priority targeting system of some kind where you have to put your scarce resources, telling me what I want to do with the permits in this particular watershed or that particular watershed.

So I think there are a number of tools out there. I think partly because of this increased inventory and the increased work between the states and EPA, that has to go on here.

And obviously the state budget situation is one of the reasons we've suggested such a large increase in state grant functions under the basic fundamental categorical grants which are the key operating grants under the Clean Water Act.

And that's an active discussion now for the next budget year as well. Of course, we're currently operating under a temporary resolution until December, when we'll hopefully get back to some kind of a larger conversation about this.

But I would suspect that there will be support on the Hill for increased state grants. And we've been able to figure out how to make it work in the budget. So I think it's the most stable (inaudible) on all possibilities involved.

Bob Perciasepe: Well, say, you know one thing that we haven't addressed and this is not realistic in some settings, more realistic in others, is alternatives to regulation, that is things we've been discussing in.

And Ann, when she spoke about climate and talked about the importance of pricing and all, which is considered by Congress to be a very important mechanism, particularly where you have diffused sources and you're trying to get an aggregate -- accomplish an aggregate production, imposing a price on emissions that reflects the social cost of those emissions, the externalities of those emissions, at least as an economist's worldview is the right way to go about it.

And it allows for market forces to sort out who are the most cost-effective reducers and so forth. We don't often think about the application of that approach in other more subtle regulatory areas, like the water area, but it's at least theoretically possible to think about that.

And when you're thinking about a lot of diffused sources where permitting becomes difficult as a matter of administrative feasibility, it's at least an option that folks might want to have on the table and it's politically problematic.

Leslie Carothers: In light of the failure of cap and trade, according to --

Bob Perciasepe: You mean cap and tax.

Leslie Carothers: (Inaudible) distraction --

Bob Perciasepe: There goes the acid rain program.

Leslie Carothers: Notwithstanding the clear success of the acid rain program and the market mechanisms, what do all of you think is the future for trying that strategy in some other area where it might work? Is it salable? Is it comprehensible to the public?

Ann Klee: You mean outside the context of minor change?

Leslie Carothers: Yeah. Or even in the context of minor change, but that does -- I agree with your initial comment that we're not going back there for a couple of (inaudible).

Ann Klee: No, although I think there's still a potential for a utility vote that could include (inaudible).

Linda Fisher: When I think about climate and one of my concerns about using the Clean Air Act is to me the current Clean Air Act was structured to deal with a certain kind of air pollution problem. And to me climate, greenhouse gases are very different.

And to be successful in the long run in dealing with greenhouse gases we've really got to do things that are transformative. And I don't see the Clean Air Act being able to bring about that transformation in the economy and in how we make and use energy that I think is going to be necessary.

I mean Ann's point earlier, you know, those of us in USCAP thought cap and trade was going to be the right answer. There were others that didn't think that and they seem to have prevailed at this point.

But I still think that we've really got to let, and maybe it is through price signals and maybe it is through a tax, but we've really got to change how we make and use energy in this country.

And I don't -- I think the Clean Air Act can help reduce emissions and, therefore, perhaps drive up the cost of energy. But it's a long way to get to, what we need to do in terms of transforming our energy sources and how we use that energy.

So I think the price signal, maybe not through a cap-and-trade program unless it's more tailored, it's highly unlikely that's going to pass. But to deal with climate it's got to be long-term.

It's got to be sustained. It's got to be something that really does change behavior and give industry the right incentives to invest. GE is investing a lot in alternative energy.

DuPont is investing a lot in the materials that go into some of these new sources, as well as biofuels. And the signals to get the economy to change, those are going to be important.

And I think, again, like the Clean Air Act is kind of what we know and it may be all we have, but I'm not sure it's really going to give us the (inaudible) direction we need.

And those market programs, market-based programs, whether it's an economywide cap and trade or not, I think those deployments are going to tank.

Ann Klee: Is watershed trading is really another market (inaudible)?

Bob Perciasepe: Yes. I think looking at ecosystem services in that regard and creating those, I think the answer generally is that in addition to settling for nonregulatory programs, you know, a market-based approach is definitely (inaudible) and I think something that is important for almost all sources of pollution.

At some point you want market signals, you want economic signals out there that do it, but we shouldn't mistake that there's a nonregulatory approach.

You know, the (inaudible) program, you know, as many of them that creates flexibilities, but it's regulated, just like the stock market is.

You know, the stock market is the most robust, pure marketplace we have in the country, the floor of the stock exchange. It's a very regulated set of activities over there and going to be a little bit more, so in terms of setting the tools and some of the products that are created to accumulate capital.

So I think watershed approaches where you have a tightly constructed and science-based DNDL and you know what the reductions are and you can keep track of what's happening on the landscape or with the different sources.

There's certainly absolutely and there has been, you know, transactions made already and this is certainly an area that the agency has been exploring for a long time, even in the Clinton administration, you know, when I was the assistant administrator of water we prepared some papers on that.

So I think that that's a way to go. I think the problem with climate and greenhouse gases is that, you know, unless we have some market mechanisms, it's going to be too costly.

It's almost like somebody's trying to develop a self-fulfilling prophecy that is being too costly if you can't implement the tools that would actually let it be less costly.

Linda Fisher: That depends, again, on what we're seeing.

Bob Perciasepe: And that's another underlying level of frustration is the way the debate unfolded as it did.

However, I would take some minor exception that you can't build market mechanisms into some parts of the existing Clean Air Act, particularly with performance standards on a sector basis.

It won't be economy wide, but you can really look for efficiency standards that could have a substantial near-term clean greenhouse gas benefit while we wait for Congress to do the more comprehensive approach.

And so I think Lisa and I, the president, we've all been clear that a comprehensive piece of legislation is the way to go. It might be other approaches that you have laid out here, Ann, that you're building slowly but surely, in terms of sectors and whatnot.

But in the meantime, we definitely can achieve some of those efficiencies in the systems on a sector basis in the Clean Air Act as well. You know, transportation being one of them for instance. I don't know whether the Clean Air Act actually talks about (inaudible).

Ann Klee: So first, because the mobile sources is different, transportation is different, and there is an argument that you can use Section 111 to do some kind of market-based approach.

But the question is, with consideration of cost and technology, are you really driving innovation? And is it going to be in the short term or is it longer-term? What are you really getting through a Section 111 course?

Bob Perciasepe: That's why it has to be carefully crafted, so that it's compatible with the long-term view.

Ann Klee: Well, in the short-term view, if you really want to drive the transformation, we're losing our technological capability to countries that have strong renewable energy standards, that are under the ETS, that are driving the investment in the technology.

So, you know, we recently -- so I did a facility to build wind turbines in Norway, because they've got the right market or the right policy signals to drive technology.

We're going to lose that capability in the United States if we're not going to (inaudible). And that's the concern with something that -- the 2020, 2050 standards, if you don't drive it in the next five years, you're not going to have the infrastructure built.

Leslie Carothers: Well, with that cheery...

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