Carrots to green up the environment

In today's tangled world of complex environmental laws and regulations, companies face increasingly difficult business decisions when it comes to implementing effective measures for improving environmental performance. Investments in new environmental technologies and processes must be integrated with business and economic issues.

Compared with conventional business and technological approaches, the cost of voluntarily installing new technologies or implementing process changes may not be feasible when weighed against the projected return. In addition, the risks and associated costs of noncompliance cause many companies — both large corporations and small businesses — to be wary of experimenting with new technological or policy approaches. These factors often curtail innovation and discourage companies from proactively researching and implementing new technology or seeking alternative ways to protect the environment.

Effective incentives are necessary to encourage companies to go beyond compliance to help address our nation's environmental problems. Incentives that serve the needs of regulators, communities and businesses can be used effectively to improve the current system of environmental regulation.

Incentive options for businesses

Last year, the Global Environmental Management Initiative (GEMI), a non-profit organization of leading companies dedicated to environmental, health and safety (EHS) excellence worldwide, released a 40-page report addressing the issue of business incentives. Environmental Improvement Through Business Incentives lists many environmental incentive options1 and the objectives that can be achieved using them within the business community. The report outlines five broad categories of environmental incentive options:

Permit incentives. Examples include automatic permit extensions for companies meeting key environmental criteria, commitments from regulatory agencies to complete the permit process within a specified time frame, certification in lieu of environmental permits and more flexibility related to emissions caps and business changes requiring permit renewals.

Product review and approval incentives. These include expedited reviews of new products by the appropriate agencies, expedited review under the U.S. Environmental Protection Agency's (EPA) Significant New Alternatives Policy (SNAP) program and small business assistance through state or regional trade associations.

Other regulatory incentives. These include consolidated or streamlined reporting options, reduced agency inspection schedules and extension of compliance deadlines.

Tax incentives. Some incentive approaches include improved depreciation allowances for environmental expenditures, improved tax treatment of remedial expenses, corporate income tax credits for environmental projects, corporate income tax credit for hiring EHS employees, waiver of sales tax for environmental purchases and tax abatements for property dedicated to pollution prevention.

Capital incentives. Examples include low interest loans to finance pollution control equipment or projects, credits to offset future environmental payments and grants for equipment purchases, pollution prevention projects and environmental training.

Business incentive examples

During the past few years, EPA has been experimenting with new ways to achieve environmental protection and reform its current environmental management system. An outgrowth of this effort is Project XL, a national pilot program promoting excellence and leadership in the pursuit of compliance with EPA regulations and policies. Project XL tests innovative ways of achieving better and more cost-effective environmental protection and encourages the development of cleaner, cheaper and smarter ideas for attaining superior environmental results. Seven projects that have been in place for more than a year have documented environmental benefits as well as benefits for participating companies. An additional seven projects in various stages of implementation also showed promising preliminary results. 2

One Project XL example is Lucent Technologies in Murray Hill, N.J, which began its project in August 1998. The company's microelectronics group is testing a comprehensive environmental management system (EMS). The EMSs goal is to achieve superior environmental performance "in a more efficient, transparent, understandable and flexible manner."3 Lucent's EMS approach consolidates its federal and state permit requirements under one comprehensive permit. Regulatory agency representatives have helped to establish environmental goals and track performance. Environmental organizations and community groups also have provided input at various stages of this process. The project is currently being implemented at Lucent facilities in Orlando, Fla. and in Allentown and Reading, Penn.

Since 1997, Merck & Co. has been working to reduce sulfur dioxide and nitrogen oxide emissions at its Elkton, Va., pharmaceutical facility. This Project XL effort is designed to protect visibility and reduce acid rain at nearby Shenandoah National Park. EPA and the state of Virginia allowed the plant to have a facility-wide air pollution cap designed to limit Merck's emissions to at least 20 percent (300 tons per year). The cap eliminates the need for permit reviews for each process change. In return, Merck is spending $10 million to convert its coal-fired powerhouse to natural gas, a cleaner burning alternative. The conversion is not a regulatory requirement.

During the summer of 1998, Molex Inc. began to focus on an innovative Project XL program to manage its waste sludge and improve the recovery of metals used in the electroplating process. The company upgraded the wastewater treatment facility at its Lincoln, Neb. electroplating plant to separate previously mixed sludges for nickel, copper and tin/lead. The new treatment facility was installed at a higher operational cost. However, it should reduce metal loadings to Lincoln's wastewater treatment plant by 50 percent and enable Molex to sell the separated sludges directly to recyclers. The state of Nebraska has granted the company a temporary hazardous waste storage, handling and shipment exemption.

Georgia-Pacific has been working cooperatively with the EPA's Project XL to obtain regulatory flexibility for installing an innovative gasifier project at its Big Island, Va., containerboard mill. Under maximum achievable control technology standards for air quality (MACT II) regulations proposed by the EPA, the smelters at the Big Island mill will have to meet significantly-reduced air emission levels three years after the rule is finalized. Technology exists that could replace the smelters, but Big Island's Project XL proposes to use a new process known as steam-reforming gasification.

Simply put, this process breaks down organic materials using indirect heat and steam, forming a combustible gas product. This project will replace the mill's existing recovery units and provide the entire chemical recovery capacity for the Big Island mill. It also will greatly reduce air emissions and produce financial savings for the mill.

This gasification process has never been used in a full-scale, commercial application. As a result, the Big Island's Project XL represents a unique opportunity to demonstrate the capabilities and applicability of this technology for chemical recovery in the pulp and paper industry. If successfully implemented at Big Island, steam-reforming gasification technology could have industry-wide implications. Georgia-Pacific, EPA, the Virginia Department of Environmental Quality (DEQ), the U.S. Forest Service and a number of interested private citizens from the local communities have developed a Final Project Agreement (FPA). The FPA, while not a legal document, details the specifics of the project, including the degree of flexibility, deadlines and stakeholder participation.

State incentive programs

EPA's Project XL represents only one opportunity to combine incentives and environmental performance. According to an article by the Environmental Council of the States (ECOS)4, a collection of state environmental commissioners who operate state environmental agencies, state spending on the environment increased about 140 percent from 1986 to 1996, while total EPA funding to the states decreased about 17 percent. During the same 10-year period, state agencies consistently conducted about 75 percent of the enforcement actions taken. Therefore, it is not surprising that many innovative business incentive programs are being implemented by state environmental agencies.

The Colorado Environmental Leadership Program, enacted in the 1997-98 legislative session, is a prime example of using incentives to promote ongoing environmental progress. Companies that go the extra mile to protect the environment can receive a variety of incentives under this Colorado Department of Public Health and Environment (CDPHE) program. These incentives include a single point of contact at CDPHE, permit fee waivers, the potential for reduced inspections and extended permit life. The program also offers a low-interest revolving loan fund to help finance environmental activities related to energy efficiency, resource recovery, pollution prevention and environmental technologies. One of the program's incentives involves the state awarding credits to participating organizations or businesses that can be used to offset any future obligations to the state environmental agency, excluding fines and penalties. The credit amount is based on a percentage of the amount a company spends on various elective p rograms.

Another capital incentive program was initiated by the state of Maryland in 1998. The Linked Deposit Program is a way of encouraging private property owners to address on-site water problems resulting from non-point source pollution. This public/private partnership provides low-interest financing for water quality capital improvements. The loan program uses existing commercial lending institutions to provide accessibility for property owners.

Adopted in 1997, Michigan's Clean Corporate Citizen Program uses permit incentives to enhance company participation. These incentives are designed to encourage companies to identify pollution prevention opportunities, establish pollution prevention goals, report on accomplishments and participate in information and technical exchange programs. Companies that take these actions through established state programs and accomplish other environmental objectives are eligible for more flexible air permits and expedited permit reviews.

At Georgia-Pacific's Kalamazoo, Mich. recycled paper mill, the Michigan Department of Environmental Quality (MDEQ), local businesses and agricultural interests partnered in the Kalamazoo River water quality trading program. The MDEQ partnership — funded with $500,000 of foundation, agency and corporate support — created a pilot trading program to provide incentives for environmental projects. Georgia Pacific employees took advantage of the voluntary program to assist in stabilizing more than 300 feet of river frontage on plant property to keep sediment from entering the river. A $5,000 grant was awarded to Georgia-Pacific for this project, which the company then donated to the city of Kalamazoo to use as seed money for its Kalamazoo River erosion control/water quality trading project.

Whether the program is based at the federal or state level, a successful program emphasizes the use of meaningful incentives as a key aspect to encourage voluntary action.

Characteristics of meaningful incentives

Characteristics of effective incentives include regulatory flexibility and the ability to meet individual business needs rather than a one-size-fits-all approach. No single incentive or group of incentives will appeal to all companies or organizations. Company size, type of product or service and scope of operations are factors that influence the appeal of various incentive approaches. For example, smaller businesses may be motivated by tax incentives or access to capital at a reduced rate. Technology companies and other manufacturers requiring fast time to market production want increased permit flexibility and the ability to modify production processes without permit delays. Companies that manufacture or handle highly regulated products, such as chemicals and pharmaceuticals, may respond more to incentives that reduce reporting requirements or expedite the product review process. Multinational companies will look for incentives that can be applied to their non-U.S. facilities.

Perhaps the best way to use incentives is to offer companies a menu of options. This approach allows individual businesses to choose the incentives that are most appealing. Clearly, the menu approach in the GEMI report is a good resource for regulatory agencies that are designing an incentive-driven program.

Environmental benefits

The variety of incentive programs being explored today should result in a number of environmental benefits. Some of these benefits include increased pollution prevention actions; reduced releases of regulated and non-regulated pollutants; decreased consumption of non-renewable natural resources; voluntary cleanup and redevelopment of vacant industrial properties; increased purchase of recycled materials and greater global consistency of environmental, health and safety practices.

We must address the need for new thinking, approaches and creativity as we look for ways to improve both our environment and the economy. Offering business incentives in exchange for voluntary environmental protection efforts is a win-win proposition for the agencies, companies and communities involved. With a track record of successful implementation, these types of business incentives could become an integral part of a more flexible and innovative regulatory system.


1Environmental Improvement Through Business Incentives, Global Environmental Management Initiatives (GEMI), p. 8-25.
2From Pilot to Practice — A Journey To System Change, U.S. Environmental Protection Agency Project XL EPA 100-R-99-007, p. 1-2.
3Ibid, p. 4-5.
4"The States Protect the Environment," EcoStates, Environmental Council of the States, p. 3-5.

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This article appeared in Environmental Protection magazine, July 2000, Vol. 11, No. 7, p. 36.

This article originally appeared in the 07/01/2000 issue of Environmental Protection.