[EPA press release - December 3, 1979]

The U.S. Environmental Protection Agency today issued a new innovation-inducing, cost-cutting "bubble" policy allowing industry management to figure out the best way to clean up air pollution at individual plants, provided that overall clean air requirements are met, EPA Administrator Douglas M. Costle announced.

"If businesses can find better ways of cleaning up their air pollution than detailed environmental rules now permit, the Environmental Protection Agency encourages them to innovate," Costle said.

Costle predicted that "This new, flexible approach to regulation will both stimulate the discovery of new control techniques and reduce the cost of regulation substantially. In the long run both these results are critical environmentally," he said.

A DuPont Corporation study reports that DuPont may be able to cut its annual air pollution expenditures from $136 million to $55 million--without any increase in emissions--by making use of this new policy. "While we have not verified the DuPont estimates independently, our early review of several other industries suggests that these sorts of savings may indeed be possible for complex firms like DuPont," said Costle.

"Savings like these will give business a powerful incentive to find better ways of cleaning up. We want the skill and creativity of their engineers turned to the environment's business, and that's exactly what this policy will do."

"We'll get further by regulating results, not means," said Costle.

"This policy reflects President Carter's belief that, if private industry is offered realistic economic incentives to meet public goals, it will find the most efficient means of doing so."

Costle said that the believed the bubble policy will prove to be the most important single reform of the regulatory process we have made. Otto Eckstein, President of Data Resources, commented that "The bubble incorporates some very fundamental economic concepts that should play a central role in controlling pollution at minimum cost in this country."

Former Secretary of Labor and now Harvard Business School Professor John Dunlop adds, "The public, the economy, and the environment will benefit. The policy stimulates the development and adoption of new technologies. The public benefits from such anti-inflationary regulatory innovation."

As Costle explains it, the policy is very simple. "Environmental rules now regulate each of the different processes in a plant. With this new policy we will draw an imaginary bubble around the whole plant and tell the company that it can find the most efficient way of controlling the plant's emissions as a whole. If it costs a dollar to control a pound of particulate pollution from one machine and fifty cents from another, the plant manager will quite reasonably choose to control fewer $1 pounds and more 50 cent pounds. If the plant engineer can find a new way of reducing particulate emissions from a third machine for 30 cents a pound, he will remove as many of these pounds as he can in preference to either the 50 cent or one dollar pounds. As long as no more particulates escape from the overall bubble than before, the company's engineers can continue to innovate."

Costle gave an example of the bubble concept in practice: "If the owners of an auto paint shop decide that it is more cost-effective to control hydrocarbon air pollution from grease removal rather than from painting operations, they could apply for State approval to reduce controls at the painting end in exchange for a compensating increase in controls at the degreasing process. The key consideration is to maintain or improve air quality."

Under the bubble approach, plant managers can propose their own emission standards--tightening them in places where it is least costly, and relaxing or even eliminating them where pollution control costs are high. "The bubble policy will not mean less pollution control, but less expensive pollution control. Why should a company have to spend a dollar to control a pound of pollution, when it can control the same amount of pollution differently for only fifty cents a pound? We are going to let industry concentrate their cleanup dollars where they do the most good," Costle said.

"Even more important, this approach for the first time provides a positive economic incentive for industry to develop new, improved pollution control technologies," Costle said. "Under the current command-and-control approach, a company has no incentive to remove one ounce more pollution from any process than the regulations require. It has consequently little reason to innovate. With the bubble, however, a firm will actively look for new ways to push control further and at lower cost. Over the long run, the bubble will advance the frontier of pollution control technology.

"The bubble policy also gives plant managers and plant owners a stake in environmental control. When a company begins to live by a control strategy that it designed for itself, its managers will operate and maintain their control equipment more conscientiously, since they will have made not only a financial investment, but a psychic investment, in choosing it. They are also more likely to understand it. In short, business starts helping us do our job."

Costle explained that such cooperation between business and government was essential to protecting the environment over the long run. "We have a fixed amount of air, land, and water in which to dump the by-products of our industrial economy. As the country grows, environmental problems are bound to grow worse unless we find better, cheaper way to reduce pollution. The choices are stark; rapidly rising cleanup costs and/or a deteriorating environment--or a joint venture of government and business to improve environmental technology without imposing needless costs."

The bubble policy establishes safeguards to protect human health and the environment. For example, plants using this approach may not relax controls on hazardous pollutants in exchange for increasing controls on less toxic pollutants, and may not hamper or delay the enforcement of EPA and State cleanup requirements.

The policy allows plants in the same area to trade emissions of the same pollutant--particulates, sulfur dioxide or hydrocarbons. Emission trade-offs between more than one plant will be permitted as long as the overall air quality is unaffected. This type of trade, however, will require the company to make a more detailed showing of equivalence than would be required for a single plant trade.

The bubble policy is one element of a broader EPA program, called "controlled trading," that includes EPA's offset and banking policies. The offset policy allows plants to locate in areas where they would have previously been prohibited, while the banking policy permits firms to obtain credits for installing controls that go beyond federal and state pollution control standards.

The bubble policy, as EPA's recommendation for "Alternative Emission Reduction Options within State Implementation Plans," will appear in the Federal Register later this week.