The Eco-Efficiency Task Force recommends the design and establishment of a bold new performance-based environmental management system. The three essential principles of the new environmental management system would be: verifiable and enforceable performance goals; operational flexibility; and participatory decisionmaking in environmental goal setting. The new system would result in greater environmental protection than under the current system, for more people, and at a reduced cost to regulated entities. Partnerships and participation would replace the current pattern of costly litigation between adversaries.

The current regulatory system has led to substantial environmental improvement. However there is growing consensus that it is failing to maximize environmental results in the most cost-effective manner.

Current laws, regulations, and incentives focus on pollution control and clean-up. Typically, they address emissions into air, water, and land separately, and they often dictate specific technologies for treating specific waste streams.[5]

A new environmental management system would focus on prevention, would address environmental impact within a whole facility or within a whole ecosystem and would encourage better management of materials and energy flowing through product systems.

The current system focuses on achieving compliance with sometimes complicated and rigid regulatory requirements. The new system is based on the principles of sustainable development--maximizing environmental performance in a way that promotes fairness, economic growth, and competitiveness.

The new environmental management system should result in a cleaner environment, greater cost-effectiveness, and increased public participation.

A Cleaner Environment

The new environmental management system would yield superior environmental performance over the current system.

Ambitious performance goals are one mechanism to ensure superior results. The operational flexibility of the new environmental management system is another. Operational flexibility allows reallocation of limited resources into energy efficiency, resource conservation, and pollution prevention consistent with the EPA waste management hierarchy.[6] While the current system principally focuses on minimum compliance with technical standards, the new environmental management system will induce continuous environmental improvement.

Greater Cost-Effectiveness

The new environmental management system would use economic incentives and grant participants the necessary flexibility to meet long-term performance goals efficiently and cost-effectively.

Economic incentives, regulatory flexibility, and enforcement innovations will attract business participation in the new system. Tools such as emissions reduction banking and recognition of superior performance will reduce costs and promote strategic environmental thinking in government, business, and in other regulated entities.

These tools that harness the market must be designed to minimize negative impacts on health, safety, and the environment, and prevent geographic pockets of increased pollution.

More Public Participation

Improved public participation and information dissemination will make the new environmental management system more equitable than the current system.

Multistakeholder, consensus-building teams would provide active and meaningful participation for individuals and communities. Interactive processes would provide the public the opportunity to help establish environmental goals and to verify progress toward those goals over time.

Information and education will play a critical role in the new system. Collection and dissemination of relevant information, with sufficient protection for proprietary information, would ensure that consumers, businesses, and government officials fully understand the impact of their decisions and actions.

IMPLEMENTATION

Implementation of the new performance-based environmental management system would begin with demonstration projects. During this transition period a simultaneous effort will be made to increase operational flexibility and make other improvements in the existing regulation-based system. Lessons from demonstration projects would provide valuable feedback necessary to determine whether to reconcile the current and new systems or to continue administering two parallel tracks.

Establishment of the new performance-based environmental management system

Demonstration projects would be the first step in implementing the new environmental management system. These projects would be selected based on prior environmental performance; ability to implement a new system; geographic, industrial, and size diversity; and the resource constraints of the EPA and other regulatory agencies and other key stakeholders.

A balanced, multistakeholder group would have an integral role in designing, implementing, and evaluating the new system.

Lessons from the initial projects will be incorporated into the system within four years and a second generafion of projects will be identified.

Where administrative authority is insufficient to launch the demonstration projects, legislation would be drafted to authorize projects based on the new system.

Improvements to the existing regulatory system

The EPA and other regulatory agencies should work to achieve currently mandated environmental standards in a more cost-effective manner by providing greater operational flexibility to regulated entities and to state and local governments.

Other means of improving the current system should include enhanced public participation, administrative streaming, and identification of opportunities and incentives to exceed regulatory requirements. Better information for all stakeholders would be common feature of these improvements.

Changes to the current system could be reviewed by a multi-stakeholder panel. The panel could also propose better ways to achieve or exceed current regulatory requirements.

Where administrative authority is insufficient to improve the current system, legislation would be drafted to provide the needed authority.

National Research Agenda

Implementation of the new environmental management system would be supported by a national research body. This body would conduct research and provide feedback, ensuring that lessons learned through the demonstration projects would reform and unprove the operation of the new system.

The research body would also analyze economic, environmental, and social issues on various scales (i.e., local, state, regional, national, and global). These analyses would help define and measure sustainable development and would help with design of future innovations in environmental management such as government/industry compacts. The analysis would also ensure that all efforts associated with the new environmental management system are predicated on sound science.

The Eco-Efficiency Task Force recommends that a unified system of extended product responsibility transform the present, dispersed approach to waste reduction, resource conservation, and pollution prevention. This new approach is based on the principle of shared responsibility. Through a mix of incentives, information, education, and institutional support, this new approach would motivate individuals, governments, and corporations to recognize, understand, and act on their responsibility to advance the nation's sustainable development goals.

Demonstration projects should be undertaken to implement extended responsibility for several product categories. The goal of the projects should be to reduce impact in various stages of the product life cycles including manufacture, transport, and post consumer waste.

While the past two and one-half decades have led to significant environmental improvement, further advances will remain incremental as long as progress depends on the isolated actions of a few participants involved in product design, manufacture, use, or disposal.

Extended product responsibility is an emerging practice that considers the entire life of a product, from design to disposal, to identify opportunities for resource conservation and pollution prevention. Under extended product responsibility accountability for the environmental impacts of products and waste streams is shared among manufacturers, suppliers, users (both public and private), and disposers of products.

Such a life-cycle approach captures upstream impacts associated with raw material extraction and use, effects from production and distribution, and the downstream effects associated with product use and disposal. This comprehensive analysis permits identification of the critical links in the product life-cycle where improvements could be substantial. Extended product responsibility also addresses the underlying influence of consumer needs and preferences.

A goal of extended product responsibility is to identify those actors and actions with the greatest ability to reduce the environmental and energy impact of specific products. In some cases, this may be the producer of raw materials, in other cases, the end user. Voluntary assumption of responsibility is ideal, but national legislation assigning responsibility would be drafted if sufficient progress had not occurred within four years of the program's inception.

IMPLEMENTATION

Implementation would occur in three phases:

Phase I - Prioritization

A multistakeholder advisory panel would identify and prioritize product categories for initial application of EPR policy options, taking into account lessons learned from other analyses.

The following criteria would guide the selection of product categories:

• Products that utilize non-renewable/non-recoverable resources.

• Products that pose high hazard risks and the potential for injurious exposure, or contribute significantly to environmental degradation.

• Products that contribute significantly to waste streams entering the air, land, or water.

Once product categories are selected, the panel would identify the actors and links in the chain of commerce with the greatest ability to leverage improvements. Where actors assume voluntary responsibility, the panel would work to secure sufficient protection against unjustified extension of product liability.

Concurrently, the panel would establish goals for pollution prevention, resource conservation, and waste reduction for each product category. The panel would recommend a set of policy options best suited for reaching these goals.

Phase 2 - Demonstration Projects

Demonstration projects would be undertaken in the identified product categories recognizing the need to conduct demonstrations in a variety of regions and sectors. Companion training and education programs would communicate the objectives of the demonstration project and the principles of eco-efficiency and extended product responsibility.

One initial demonstration project should include ways to reduce post consumer waste by exploring a more eco-efficient redistribution or sharing of responsibilities among actors in the products' life-cycles.

Academic or institutional researchers would monitor the demonstration projects to provide independent analysis of the projects' successes. This feedback would be utilized in developing the national and regional scale policies of Phase 3.

Phase 3 - Development of National and Regional Scale Policies

In Phase 3, the practice of extended product responsibility would begin on a larger scale. Lessons learned from the demonstration projects would shape regional and national policies. Evaluation and policy refinement would continue in Phase 3 as the practice of extended product responsibility expands to an ever broader array of product categories and waste streams.

The Eco-Efficiency Task Force recommends using market incentives to achieve environmental goals and stimulate technological innovation whenever feasible.

Market forces offer a powerful means of affecting the decisionmaking of individuals, businesses, and governments. The use of market-based incentives to further environmental goals encourages the application of pollution control measures in the places where these controls will be most cost-effective. This is the essence of eco-efficiency: increased environmental performance at reduced cost.

Economic instruments also provide operational flexibility and account for the need of U.S. manufacturers to remain competitive in the global marketplace.

Emission Trading

Emission trading schemes are designed to allow regulated entities to meet emissions reduction obligations using reductions produced in excess of legal or other requirements or from other sources. These reductions can accrue from other sources within the environmentally relevant parameters, i.e. airshed, watershed, and time frame. By creating market structures for environmental compliance, these systems harness private entrepreneurial energies in the search for the most efficient means to achieve environmental goals.

Two existing approaches to trading are "cap and trade" and "emission reduction credit" systems. Both have produced economic and environmental benefits. The cap and trade system is exemplified by the federal Acid Rain Control Program which allows sources to trade sulfur dioxide allowances between plants.[8] The emission reduction credit system has largely been applied to the management of smog precursors in metropolitan areas. Cities failing to meet the National Ambient Air Quality Standards have used emission reduction credit trading to allow new sources to build and operate without increasing the area's overall emissions. A third approach, termed "open market trading," has been proposed by EPA. The open market system would allow emitters to acquire surplus discrete emission reduction from other sources in lieu of existing regulatory requirements. This system is still under development and awaits experience in application.

Care must be taken to match the program's design and application to the underlying physical nature of the environmental problem in spatial and temporal dimensions. Trading systems work best when all stakeholders believe that transactions involve "excess reductions" between sources to voluntarily lower and redistribute the costs of compliance while guaranteeing that the overarching environmental goal will be met.

Emissions Fees

Emissions fees use the price mechanism to provide incentives for environmental improvement by making environmentally damaging activities or products more expensive than less polluting alternatives. Firms and individuals control pollution to the level at which it is cheaper to pay the emission fee than to further reduce pollution. Emission fees can be particularly useful when pollution is due to many small sources, or where direct regulation or trading schemes may be impractical due to high transaction costs.

Information Programs

Another important market mechanism is consumer choice. Providing information to consumers about the environmental consequences of, or risks associated with, their market choices can lead to behavioral changes. Some examples of this type of program which have been used by states, localities, and other entities include radon and lead testing, seals-of-approval, and labeling programs such as required under California's Proposition 65.[9]

Another type of program relies on public disclosure of information on facilities' environmental releases and doff-site transfer of certain wastes (e.g., the Toxic Release Inventory.[10] This information encourages continuous environmental improvement and also provides industry a vehicle for enhancing public image.

IMPLEMENTATION The success of such programs as the sulfur dioxide trading market, lead phase-down banking and trading, and hundreds of pay-by-the-bag trash collection systems justifies the expanded use of market incentives to achieve environmental and economic objectives.

Economic instruments have their own "niches," but they can also be used effectively in combination. For example, trading or pricing approaches work better if supported by information programs -- communities that adopted pay-by-the-bag systems of trash disposal found fewer problems when households were given adequate information well in advance. Similarly, environmental tax systems can incorporate trading features; for example, taxes could be levied on net emissions after trades occur.

The way forward is not to debate the merits of various approaches in the abstract. The challenge is to design the most appropriate market incentives to deal with particular environmental problems. These incentives should always reflect sustainable development ideals; steady progress in reducing environmental risks, cost-effectiveness, encouragement of technological innovation, shared responsibility, fairness, and administrative simplicity.

The Eco-Efficiency Task Force recommends improving the nature and means of information collection and dissemination. Environmental, economic, and social information collected should be that which is most useful to stakeholders in reaching the goals of eco-efficiency. It should be collected and made accessible in an efficient and coordinated manner. These improvements must take place with full protection for proprietary information.

Accurate and relevant information is essential to reaching the goal of sustainable development. It assists individuals, communities, governments, and businesses to understand how their actions affect the environment. It increase their sense of shared responsibility. Good information allows verification of progress toward long-term goals and enables public accountability. High quality information about product life-cycles is necessary to make sound environmental management decisions, especially within corporations. It also influences the purchasing decisions of individual consumers and organizations.

Once information is collected, it must also be made available in a form most useful and appropriate. Examples of such forms include environmental labeling, material flow reporting, full cost accounting, and integrated indicators.

IMPLEMENTATION

In order to ensure that information is useful and relevant for its intended audience, and developed in the most cost-effective manner, the following actions should occur:

• Review all data required by regulatory agencies for duplicative or unnecessary information, and where identified, eliminate such information.

• Consolidate useful, relevant data into single, standardized formats.

• Use inter-agency common identifiers for companies, locations, and regulated chemicals to facilitate analysis of economic and environmental trends.

• Provide data necessary to evaluate environmental and economic progress without compromising confidential or proprietary business information.

• Make data widely available to the public and other users, including government policymakers, business managers, local communities, and investors.

Establish and implement a system of national accounting to measure sustainable development through integrated tracking of the environment, economy, and natural resource base.

One of the most common measures of our nation's economic health is the gross domestic product (GDP), an indicator that accounts for the dollar value of all goods and services produced in our economy. However, GDP is an incomplete and imperfect measure of sustainable development because it does not adequately account for environmental quality and natural resource depletion. Therefore, we need to develop a better national accounting system which reflects environmental concerns as well as traditional economic indicators.

The U.S. Department of Commerce, Economics and Statistics Administration, Bureau of Economic Analysis, has designed a new set of economic accounts for analysis of the interaction of the economy and the environment. The Integrated Economic and Environmental Satellite Accounts (EESA) will include measures of economic growth, natural resource use, and environmental quality. The satellite accounts will not interfere with the continued tracking of the GDP and other agreed-upon indicators.[11]

By recording the "stock" of natural resources, these satellite accounts can, in theory, provide a better measure of sustainable product than traditional accounts. Fully implemented, the accounts could also provide an improved basis for analyzing the interaction between the economy and the environment in a number of ways -- by type of resource, industry, product, and region.

However, it is important to note that the development of the integrated accounts is a difficult and challenging task. It requires methodologies and data that are not yet available. Also, to the extent that the concept of sustainability is considered to include a wider range of social issues, indicators of change in these areas are more appropriately tracked within the proposed framework of "sustainable development indicators than in the national economic accounts.

IMPLEMENTATION

• The Bureau of Economic Analysis has already completed the first phase of the accounts. The overall framework and prototype estimates focus on mineral resources, including oil and gas, coal, metals, and other minerals with a scarcity value.

• Pending completion of a National Academy of Sciences study of the IEESAs -- which was requested by Congress -- the Bureau will move forward with the second phase to extend the accounts to encompass renewable natural resource assets, such as timberland, fish stocks, and water resources. Development of these estimates will be more difficult than for mineral resources because they will be based on less refined concepts and less data.

• The third phase will involve issues associated with a broader range of environmental assets, including the economic value of the degradation of clean air and water and the value of recreational assets, such as lakes and national forests. To accomplish these objectives, significant advances will be required in the underlying environmental and economic data, as well as in concepts and method.

• The Bureau of Economic Analysis will move forward in its work with international agencies -- and all other interested private and public sector parties -- to research, develop, and implement economic accounting concepts that more fully reflect the interaction of the economy, the environment, and the natural resource base.

• Progress in this work will depend upon resource availability and close, continuing cooperation with the scientific, statistical, economic, and environmental communities.

The Eco-Efficiency Task Force recommends developing a full set of national sustainable development indicators to highlight economic, environmental, and social trends. This collaborative effort will entail developing an information access system, developing analytical techniques for constructing indicators, providing regular reports on progress toward national sustainable development goals, and encouraging the development of indicators at regional, local, and industry levels.

The assessment of progress toward sustainable development is difficult because the concept integrates three complex and dynamic systems; the social, economic, and environmental. Assessment is further complicated by multiple scales and various time frames over which development occurs. Ethics and values must also be considered. These requirements go beyond the assessment provided by national accounts. Therefore, new indicators are needed.

IMPLEMENTATION

Significant work on environmental policy indicators has been done by the Organization for Economic Cooperation and Development, the United Nations Commission on Sustainable Development, and the Dutch government.[12]

The Dutch have developed indicators for distinct environmental issues (climate change, stratospheric ozone depletion, acidification, eutrophication, dispersion of toxic substances, disposal of solid waste, and disturbance of local environments) and for target sectors (agriculture, traffic and transport, industry, energy, refineries, building trade, and consumers).[13]

The Eco-Efficiency Task Force recommends building on this work and expanding the scope of indicators to include economic and social dimensions as well as environmental factors. This may require establishment of an institutional mechanism to unify the efforts of a variety of federal agencies working collaboratively with international agencies, nongovernmental organizations, academic institutions, industry, and the public.

The Eco-Efficiency Task Force recommends developing innovative financing programs to improve access to capital for small businesses and communities so they may more easily invest in technologies and practices that will use resources more efficiently, product less waste, and add value to local economies.

Small businesses and communities face a variety of barriers which prevent straightforward investment in environmental improvements. Without some intervention, the capital market is unlikely to drive the transformation to a sustainable economy. At the same time, the threat of environmental liability prevents some lending institutions from supporting projects perceived to be high-risk. Addressing these access and liability barriers will speed the infusion of capital for eco-efficiency gains. It will free up capital for eco-efficient investments and it will facilitate investors' access to such capital.

IMPLEMENTATION

Below are three innovative techniques to improve access to capital and reduce the financial risk of environmental investments. These techniques, and others, need to be further developed and brought into use.

Initially, government may be involved to demonstrate and support methods to increase access to capital; but the use of public funds should be limited. Eventually, it is expected that the market will come to value the economic benefits of investments in sustainable development and respond accordingly.

Stimulating and Leveraging Eco-Efficient Investments in Small Business

At present, leaders evaluating the creditworthiness of environmental investments typically rely on a fixed set of qualifying ratios that are a function of the percentages of assets, inventory, and receivables held by the applicant. As a result, high-return investments that cost-effectively improve resource utilization and reduce emissions often do not quality for funding because their potential benefits are undervalued.

The creditworthiness of cost-effective, environmentally-driven investments, and the inherent value of "avoided costs" (e.g. reduced energy and material use) need to be demonstrated to the lending community. Market incentives should be used to internalize these real, but currently unrecognized attributes. The federal government could help reduce risk by providing loan guarantees for qualifying small business projects. On a pilot basis, the federal government should also develop alternative underwriting standards for eco-efficient investments for small businesses.

EPA-SBA Partnership

The EPA an SBA should identify exiting funds that could be made available for small business eco-efficiency investment. The amount of assistance should depend on the expected level of environmental improvement resulting from the project, and the extent to which the project would meet the needs of certain target groups.

During the development of the EPA-SBA "environmental bank," the SBA should also review its existing ranking system to identify opportunities for incorporating sustainable development criteria into its granting and lending equations.

Community Environmental Investment Boards

Community boards should be established to facilitate market-based environmental trades in the private sector and help identify nontraditional sources of capital. Trade receipts could be used in a number of ways to promote community economic development.

The innovative trade package described below resulted in a win-win-win outcome for the environment, the community, and the private companies.

In 1992, the Procter and Gamble company purchased $1.5 million in pollution credits from Minnesota Mining and Manufacturing, Inc. (3M). 3M then donated these proceeds -- earning a tax write-off -- to Ventura County Community Foundation. With the money, Ventura County established a permanent revolving loan to fund pollution prevention programs in small industry and government.[14]

Innovative financing and trading programs have the potential to become self-financing. Until that time, funding could be drawn from existing public sources or from savings from the elimination of subsidies, as described in Policy Recommendation 8: Subsidy Reform. Donations from private sector trades could also be used.

The Sustainable Communities Task Force Report contains more detailed descriptions of techniques to increase access to capital for communities.

The Eco-Efficiency Task Force recommends redesigning or eliminating federal subsidies that fail to incorporate the economic value of natural, environmental, and social resources into the marketplace and into governmental policies. This will help achieve the broader national goals of minimizing subsidies, reducing the deficit, and moving private investment into sustainable processes, products, and practices.

Any federal subsidy program should provide a reasonable return to taxpayers. Many federal subsidy programs, however, no longer effectively serve valid public policy goals. Many are economically unjustified, no longer benefiting the target groups or activities that originally needed federal assistance. Many directly conflict with other federal policies and objectives including that of deficit reduction, but continue to exist because of the political efforts of well-organized interest groups. At times these subsidies promote excessive,, inefficient, and environmentally damaging use of natural resources.

Eliminating subsidy programs or significantly redesigning them to more accurately target beneficiaries could reduce economic waste and environmental damage. In addition, the federal government could achieve billions of dollars of annual savings. These savings could be used to finance higher priority objectives, such as deficit reduction and tax relief.

Economically inefficient and environmentally damaging federal subsidy programs include: agricultural commodity support programs; various energy research and development programs; various energy research and development programs; investment and operating programs; many road and water public works program; irrigation subsidies; below-cost timber sales and timber road construction expenditures; underpriced mining, grazing, and recreational activities on federal lands; and subsidized flood, crop, and disaster insurance programs. Most of these programs have been the subject of repeated critiques, reform recommendations, and proposals for change by both the Congress and the Executive Branch.

IMPLEMENTATION

• Establish a National Commission to review all major federal subsidy programs to determine whether there is a national need to continue the subsidy. Within 18 months of its charter, the Commission would present to the President a list of subsidies which are no longer necessary. The President would submit the list to Congress and Congress would have 45 legislative days to reject the list. If the list is not rejected, all listed subsidies would be eliminated over a 3-5 year time frame.

• For those subsidies determined to still meet a national need, the Commission would set criteria to be used by the administering agency to bring the program into line with the goals of sustainable development.

• In addition, the validity of these remaining subsidies would be subject to a review every 5 years.

The Eco-Efficiency Task Force recommends shifting taxes away from activities that promote economic progress -- such as work, savings, and investment -- toward activities that lead to excessive environmental damage. Such a shift, designed to minimize adverse impacts on vulnerable segments of the population, would promote sustainable development by stimulating economic growth and protecting the environment.

Government exerts tremendous influence over the direction of economic activity through the tax code. Currently, federal and state governments raise a significant portion of their revenue through taxes on individual and business incomes -- payroll taxes further add to federal revenues.[15] Such taxes discourage work and savings, thereby reducing national income. This, in turn, reduces the ability of the economy to create new jobs, invest in new technologies, and remain competitive in the global market. Therefore, the need exists to change the tax code to advance sustainable economic goals.

It is also recognized that the free market sometimes fails to incorporate the environmental costs of economic activities. This reduces efficiency and may allow excessive levels of environmental damage. Where such activities are dispersed among millions of households and enterprises, the price mechanism may influence behavior more effectively than direct regulation.

At sufficient levels, taxes offer one way of affecting prices in order to discourage activities damaging to the environment. They are an effective way of influencing the behavior of hundreds of millions of citizens: motorists, water and energy uses, trash generators, and users of lawn and farm chemicals, whose activities result in significant environmental problems.

IMPLEMENTATION

Federal, state, and local governments should begin designing and implementing tax policies that better reflect environmental costs and help achieve sustainable development goals.

Although environmental taxes are not, in principle, more regressive than the existing tax structure, they should be designed to minimize adverse impacts on vulnerable segments of the population, and part of the revenue generated should also serve equity considerations. Other revenue should be used to reduce burdensome income, capital, and employment taxes.