The risks and the advantages of agency discretion: evidence from EPA's Project XL.

AuthorSusskind, Lawrence E.

I.

INTRODUCTION

Academic criticism of the administrative state has increased exponentially over the past several years, particularly with regard to environmental regulation. Many commentators insist that the command and control approach to enforcement is no longer useful Further, they contend that this approach likely will discourage innovation and create a disincentive to continuous environmental improvement. They also assert that many prevailing environmental regulations are economically inefficient, violate free market principles, and are undemocratic.(1) Most commentators urge some form of "regulatory reinvention." Agreement ends, however, when it comes to determining which reforms to adopt.

Since 1995, the U.S. Environmental Protection Agency ("EPA" or the "Agency") has tried to implement some reforms of its own, including Project XL (which stands for "Excellence in Leadership"). Through Project XL, EPA is exploring more flexible approaches to encourage collaborative performance-oriented compliance with federal and state standards. Much of what EPA has attempted is based on "adaptive management" theory. However, this theory is very much at odds with the enforcement philosophy upon which EPA was founded.(2)

In implementing Project XL, EPA has faced intellectual, legal and cultural obstacles of many kinds. This paper analyzes a number of ways these obstacles have impeded Agency efforts to adopt a more flexible approach to regulation that relies more on "market mechanics."

Part I reviews the strategic considerations behind the founding of EPA, as well as its institutional structure and operation. EPA's history and structure make it a problematic setting in which to apply adaptive management techniques. EPA was designed to carry out a quasi-military mission, featuring vertical review of all decisions taken at lower levels. In addition, a more flexible and decentralized approach to decision making would require the Agency to alter its mission. Since the Agency's focus remains result-oriented and its management style almost entirely reactive, a clash between philosophies of adaptive management and command and control is inevitable.

Part II reviews the doctrine of administrative discretion, noting that the dominant perspective in administrative law has been "to fear discretion, reluctantly accept its presence, and attempt to control it."(3) According to this view, Congress chronically delegates broad authority to administrative agencies. Thus, agencies are relatively unsupervised in their exercise of regulatory discretion. Part II concludes by arguing that this view is incorrect; Congress does not habitually abdicate its lawmaking responsibilities to agencies. In fact, Congress retains more oversight of agencies like EPA than most commentators presume.(4) There is a surprising amount of discretion built into the administrative system. Unfortunately, most of it is not the kind that will encourage EPA or the private sector to pursue innovation.

Part III outlines several related attempts to move EPA toward more collaborative and "performance-based" approaches to achieving compliance under the Bush and Clinton administrations. These initiatives were actually the precursors to Project XL. Significantly, building on adaptive management principles, XL sought to incorporate the results of these experiments into EPA's existing institutional framework. Part III also describes the first group of proposed XL projects.

Part IV analyzes the political reactions to Project XL and reviews intra-agency disagreements over the appropriate exercise or discretion in specific XL projects. In addition, Part IV considers the strong reactions of the public and regulated community to this move toward more flexible and performance-based regulation are analyzed.

Part V suggests ways in which the Agency and the regulated community might work together to overcome obstacles to an increased reliance on administrative discretion, which is critical to the ultimate success of Project XL and similar reform efforts.

II.

EPA'S ORGANIZATIONAL STRUCTURE AND HISTORY

Throughout its history, EPA has failed to articulate a mission that has survived beyond a single administration. This failure explains, in large part, EPA's enormous political vulnerability and institutionally reactive posture. Indeed, this is an unpromising context into which to introduce a new philosophy of environmental regulation. A brief review of EPA's history explains why.

Major EPA programs include air and water quality, drinking water, hazardous waste, Superfund, pesticides, radiation, toxic substances, enforcement and compliance assurance, pollution prevention, oil spills, and leakage of underground storage tanks. In addition, EPA provides assistance in the design and construction of wastewater treatment, drinking water, and other water infrastructure projects. The Agency is responsible for conducting research; establishing environmental standards; monitoring levels of pollution; enforcing compliance; managing audits and investigations; and, providing technical assistance and financial support to states and tribes to which the Agency has delegated authority for program implementation. Finally, the Agency participates in a narrow range of international activities.

EPA's regulatory operations are, with the exception of Superfund, centered around issuing permits. The Agency can allow facilities to discharge specific levels of certain pollutants within prescribed limits. Permits sometimes (but not always) mandate specific technologies that must be used to achieve specified limits. Permit holders are required to file regular reports indicating their emission levels. These reports are screened for compliance with permit conditions and periodic site visits are made to confirm the accuracy of self-reporting. Violations are referred to an enforcement division, which files suit against entities that exceed their permit conditions.

EPA's approach to duties other than enforcement tends to be passive. For example, in issuing permits, the applicant must prepare and file the necessary studies and forms. EPA processes these forms, comments on the material provided, returns the application for further study, when necessary, and requests appropriate revisions. EPA personnel understand that it is not their job to work with an applicant to ensure a mutually acceptable set of permit conditions.

Practically all environmental statutes provide for delegation of certain powers to the states or tribes so that they can issue permits, screen for violations and enforce compliance. For this to happen, a state must apply to EPA for permission to operate a program and EPA must certify the adequacy of the state's proposed efforts. If the program is delegated, EPA remains involved in an oversight capacity. If a state presents no program for authorization, EPA remains the permitter of last resort.

The Agency's oversight function is intended to ensure that the permitting activities it has delegated to the states are being carried out as EPA expects. In some cases, EPA has rescinded state programs and resumed enforcement and permitting functions itself.(5)

EPA's regional structure follows the ten region model created during the Nixon administration. This was designed to encourage devolution of responsibility, although a great deal of decision making is not decentralized. The broad division of labor between EPA headquarters and regions is as follows: headquarters writes regulations, standards and policy, funds research and development, and oversees the regions to assure national consistency in the enforcement of statutory mandates; regions implement enforcement, authorization, and oversight programs.

Congress did not create EPA, nor did it ever give the Agency a clear mandate or efficient long-term priorities.(6) Further, Congress provided EPA no means to allocate resources among different environmental statutes in a balanced way. For this reason alone, it is difficult for the Agency to set priorities. Finally, in reaction to Reagan-era environmental policies, Congress compounded the Agency's problems by including in key pieces of environmental legislation deadlines for the promulgation of regulations, detailed instructions, and "hammer" clauses threatening penalties for missed deadlines.(7)

The scope of scientific information that EPA, industry and the public must integrate from medical, economic, engineering, legal, and other sources before reaching decisions is enormous. At the same time, laws and regulations governing how certain decisions should be made are often internally inconsistent with regard to the kinds of information that should be taken into account.

There is also a significant and growing discrepancy between the responsibilities assigned to EPA via statute and the resources Congress provides the Agency to carry them out. Congress has charged EPA with the implementation of a complex set of functions. To carry these out, the Agency must administer a collection of laws specifying how pollution is to be managed within specific "media" or programs. The Agency's task is to design, implement and enforce an enormous number of regulations. This requires substantial institutional capacity. Yet, EPA's institutional capacity is actually shrinking. EPA had 7000 employees and a budget of $3.3 billion in 1971; at the time, twelve percent ($512 million) of this money was spent on program administration. The remainder was used to fund state and local grants. By 1980, the Agency's employee base had increased to 12,000 and its budget to $5 billion, $1.5 billion was spent on program administration. The 1989 budget totaled only $4.8 billion, with $1.6 billion set aside for program administration--a drop in real terms of fifteen percent over the decade. Congress has never restored the resources it cut.(8)

EPA's organizational structure has created an imposing barrier to technological innovation. Despite...

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