2
Market-Based Approaches for Stimulating Remediation Technology Development

The market for new environmental technologies, including those for contaminated site cleanup, peaked in 1990. During the 1980s, investors had flocked to the remediation technologies market in response to major new laws (the 1980 Comprehensive Environmental Response, Compensation, and Liability Act and the 1984 amendments to the Resource Conservation and Recovery Act) requiring cleanup of the nation's waste sites. Investors assumed that the very large number of contaminated sites, combined with strict federal enforcement of the new regulations, would create a large market for innovative cleanup technologies and saw the potential for high returns from environmental investments.

Investors' predictions about the remediation technologies market were not borne out. As shown in Figure 2-1, by 1993 the strength of stocks in environmental companies, including those involved in remediation, had plummeted to a less than half of its peak value, and it has continued to decline. Despite the billions of dollars per year spent on remediation and other environmental programs, companies have struggled to bring new remediation technologies to the market. The lack of affordable commercial technologies has, in turn, led to resistance to attempting to clean up sites and to a push for the use of risk-based corrective action approaches (see Chapter 1). This move to limit the number of site cleanups based on technical feasibility of cleanup and/or risk factors has further weakened the market for remediation technologies.

This chapter explains why the remediation technologies market has been so much weaker than initially predicted. It recommends ways to increase the market demand for innovative remediation technologies by moving to a system that relies on market pull, rather than regulatory push, to guide technology selection. Under this new system, the costs of leaving contaminants in place and delaying



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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization 2 Market-Based Approaches for Stimulating Remediation Technology Development The market for new environmental technologies, including those for contaminated site cleanup, peaked in 1990. During the 1980s, investors had flocked to the remediation technologies market in response to major new laws (the 1980 Comprehensive Environmental Response, Compensation, and Liability Act and the 1984 amendments to the Resource Conservation and Recovery Act) requiring cleanup of the nation's waste sites. Investors assumed that the very large number of contaminated sites, combined with strict federal enforcement of the new regulations, would create a large market for innovative cleanup technologies and saw the potential for high returns from environmental investments. Investors' predictions about the remediation technologies market were not borne out. As shown in Figure 2-1, by 1993 the strength of stocks in environmental companies, including those involved in remediation, had plummeted to a less than half of its peak value, and it has continued to decline. Despite the billions of dollars per year spent on remediation and other environmental programs, companies have struggled to bring new remediation technologies to the market. The lack of affordable commercial technologies has, in turn, led to resistance to attempting to clean up sites and to a push for the use of risk-based corrective action approaches (see Chapter 1). This move to limit the number of site cleanups based on technical feasibility of cleanup and/or risk factors has further weakened the market for remediation technologies. This chapter explains why the remediation technologies market has been so much weaker than initially predicted. It recommends ways to increase the market demand for innovative remediation technologies by moving to a system that relies on market pull, rather than regulatory push, to guide technology selection. Under this new system, the costs of leaving contaminants in place and delaying

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization FIGURE 2-1 Relative strength of environmental company stocks traded on the U.S. stock exchange during 1990–1996. The ratio shown is stock value for the candidate industry normalized to the Value Line composite stock value, with August 1971 serving as the base index of 100. SOURCE: Reprinted, with permission, from Value Line, Inc. (1996). © 1996 by Value Line, Inc. remediation would be explicit and consistent, allowing owners of contaminated sites to compare these costs with those of installing a remediation technology and cleaning up the site. FATE OF INNOVATIVE TECHNOLOGY VENDORS While successful examples of the introduction of innovative technologies for waste site remediation exist, such examples are relatively rare. As explained in Chapter 1, the range of technologies used to clean up hazardous waste sites is still quite limited. For example, although 14 general types of innovative technologies have been chosen for cleanup of contaminated soil at Superfund sites, 4 of these technologies—soil vapor extraction, thermal desorption, ex situ bioremediation, and in situ bioremediation—account for the bulk of projects. All other types of innovative soil cleanup remedies were selected for a total of fewer than 6 percent of Superfund sites where soil cleanup is under way (see Figure 1–7 in Chapter 1). Innovative remedies for ground water contamination are used at only 6 percent of

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization Superfund sites (EPA, 1996a). Thus, considering the magnitude of the waste site remediation problem, the number of types of innovative technologies in use is small, and vendors of innovative technologies have had difficulty capturing market share. Start-up companies founded on trying to market new remediation technologies have generally fared poorly. Table 2-1 shows the recent stock value of the seven companies that have gone public based on marketing of a technology for waste site remediation. As shown in the table, the stock price of six of these seven companies has dropped since the initial public offering. In today's market, remediation technologies are generally provided by large consulting firms offering a diverse range of environmental services, rather than by small companies offering "boutique" services focused on a specific niche of the market. There is little possibility that a firm offering a specialized technology will survive. The remediation industry is increasingly consolidating and diversifying, with fewer and fewer firms available to provide remediation technologies. In 1995, for example, there were 55 acquisitions of U.S. environmental services firms and in 1996 there were 73 acquisitions (ENR, 1996b). The one company in TABLE 2-1 Stock Value of Selected Remediation Technology Companies     Initial Public Offering Company Technology Area Date Price per Share ($) Recent Price per Share ($) Envirogen Biotreatment applications 8/92 7 2 ¾ Molten Metal Technology Catalytic extraction processes 2/93 16 15 Ensys Environmental Products Immunoassay products 10/93 10 1 1/2 Purus, Inc. VOC control 11/93 14 4 3/8 Thermo Remediation, Inc. Thermal processing 12/93 8 10 Conversion Technologies International Vitrification technology 5/96 4 1/2 2 Thermatrix Flameless thermal oxidation 6/96 12 1/2 9 ¼ Note: Initial public offering prices for the first five companies listed are quoted to the nearest point. Recent share prices are as of November 19, 1996.

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization Table 2-1 whose stock value increased after the initial public offering, Thermo Remediation, markets a system for thermally treating petroleum-contaminated soils but has increasingly diversified its services. It is affiliated with companies that collect and recycle used motor oil, provide wastewater processing services, and remove radioactive contaminants from soils. In addition, in December 1995 Thermo Remediation acquired Remediation Technologies Inc., an engineering/construction firm that provides a range of environmental services. While research continually generates new ideas for how to clean up contaminated sites, small firms that have been founded based on new research ideas have not fared well. The inability of small firms with new ideas to survive discourages innovation. Large, service-oriented firms generally provide their clients with "safe" technologies rather than risking a new approach that might perform better than the traditional one but that also has a chance of failing. ELEMENTS OF THE REMEDIATION TECHNOLOGY MARKET As is evident from the lack of success of new ventures in bringing remediation technologies to the market, the remediation market is difficult to enter. In part, this is a result of barriers to innovation that are a construct of the regulatory process, but it is also in part a result of the inherent fragmentation of the remediation market. The market is fragmented by client type and, more importantly, by site type. The clients for remediation technologies can be grouped into two broad categories: (1) private-sector, including a broad range of company types and sizes, and (2) public sector, including federal agencies, primarily the Departments of Defense (DOD) and Energy (DOE). About one-third of the remediation market consists of contaminated sites owned by the federal government (Russell et al., 1991), while the remainder consists of privately owned sites. Within the private-sector market, there is wide variation by client type and site size. For example, most of the contaminated sites shown in Table 1-2 in Chapter 1 are leaking underground storage tanks, many of them owned by small gasoline stations, while the larger, more complex sites are usually owned by large industries or groups of industries. Similarly, the characteristics of the public sector remediation market vary because of the wide variation in the agencies (ranging from the U.S. Department of Agriculture to the DOE) responsible for contaminated sites. The factors of importance to one public agency differ from those important to other agencies, which, in turn, differ from those important to large private corporations, which differ from those of greatest importance to gasoline stations or other small enterprises with contaminated sites. Further complicating matters, clients (whether public agencies or private industries) are usually represented by consultants, who may have their own concerns about technology performance. Thus, technology vendors need to develop different sales strategies, depending on the client and the client's consultant.

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization A much more difficult problem for remediation technology vendors is the fragmentation of the remediation market based on site type. A technology that works well for cleaning up a particular contaminant, such as petroleum hydrocarbons, in a particular geologic setting, such as a sandy aquifer, may not work at all for the same contaminant in a different geologic setting, such as a fractured rock aquifer. As a result, in the remediation business it is often not possible to market "widgets" that the client can simply plug in and use. Almost always, those "widgets" must be accompanied by significant technical expertise on how to apply the system in the site-specific setting. Such expertise is usually provided by consultants. Technology vendors therefore must either diversify to provide consulting services themselves or must convince consultants hired by their client that the new technology has merit. REGULATORY BARRIERS TO INNOVATION The regulatory structure for implementing hazardous waste cleanups, especially at Superfund and Resource Conservation and Recovery Act (RCRA) sites, has added to the inherent difficulties that remediation technology vendors face in bringing new products to the market. The fundamental problem with these programs is that they rely on regulatory push rather than market pull to create demand. The process of technology selection is strictly regulated. At the same time, the penalties for failing to initiate remediation promptly are insufficient. The result is that companies responsible for cleanups often delay remediation rather than trying new technologies because they perceive no economic gain from accelerated cleanup. Providers of new technologies have trouble staying in business while awaiting client and regulatory acceptance of their processes. Although the federal government has sponsored numerous initiatives, from the Superfund Innovative Technologies Evaluation program to the Strategic Environmental Research and Development Program, to promote innovative technology development (see Chapter 5), without the necessary market demand in place the technologies developed under these programs will not become widely used. At Superfund and RCRA sites, technology selection is often a negotiated process between the regulators and the regulated. The market for new technologies becomes stifled for two reasons. First, regulatory restrictions limit a customer's freedom to choose a remediation technology and adapt the remedy over time as new technologies emerge. Second, the ability to arbitrate a cleanup often removes the incentive for improved solutions. In other market sectors, such as the computer and information technology industry, customers create demand for new technologies because they have freedom to choose and desire improved solutions. New technologies are then developed through a process of trial and error. New companies depend on early users to "de-bug" a new technology and use that information to make the necessary adjustments and improvements before the technology or product is released for commercialization. This type of gradual

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization diffusion and adoption of technology has not worked effectively, except in a few cases, in increasing the market share for innovative remediation technologies. The Superfund and RCRA corrective action programs leave little room for customer (or consultant) choice and no room for a "try as you go" concept. Regulators must "sign off" on the customers' choice of a technology through an official Superfund record of decision or RCRA corrective action plan. Mechanisms for adjusting the remedy once it is officially approved are bureaucratically cumbersome and provide a disincentive to change the selected remedy even if a much better solution evolves. In many instances, it is less costly for a company to delay remediation through litigation than to select a technology and begin cleanup. The incentive to delay rather than begin cleanup reduces market demand for remediation technologies. For example, the Congressional Budget Office has estimated that the average cost to clean up a private-sector Superfund site is $24.7 million (Congressional Budget Office, 1994b). Yet, analysis of corporate annual reports and financial statements shows that companies typically report a liability of about $1 million for sites where they have not yet begun cleanup. Thus, many companies are faced with a choice of cleaning up and taking an immediate cash drain of, on average, $25 million or carrying a $1 million annual liability with some litigation and assessment costs. Under these circumstances, there is little question that delay is the preferred alternative, because spending for full remediation might cause a company to lose a major portion, or all, of its cash reserves. The RAND Corporation sampled 108 firms with annual revenues of less than $20 billion involved in the cleanup of Superfund sites and found that transaction costs associated with legal work accounted for an average of 21 percent of these firms' spending at Superfund sites; spending on transaction costs exceeded 60 percent of the cost share for more than one-third of the firms (Dixon et al., 1993). The U.S. General Accounting Office (GAO) has estimated that Fortune 500 companies spend fully a third of their costs at Superfund sites on legal expenses such as disputing cost shares with other potentially responsible parties and negotiating remedy selection with the Environmental Protection Agency (EPA) (GAO, 1994b). At many sites, this extensive litigation serves the purpose of delaying remediation expenses. Adding to the incentive to delay are the possibility that waste site cleanup regulations will change and the inconsistent enforcement of existing regulations. Like other laws and regulations implementing them, Superfund and RCRA have been subject to political swings. For example, current political pressure for Superfund reform is tending toward less stringent cleanup standards and requiring cleanup at a narrower range of sites. In 1995, a bill for Superfund reform, H.R. 2500, was introduced to the U.S. House of Representatives that would eliminate the requirement to consider all applicable or relevant and appropriate requirements in setting cleanup goals, meaning essentially that goals would be relaxed; eliminate the preference for treating contaminated water rather than developing alternative water supplies; make responsible parties liable only for

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization damages to resources that are currently being used; and limit the number of new Superfund sites identified each year to 30. Other bills introduced to Congress have proposed eliminating or limiting retroactive liability for contaminated sites. Some organizations are lobbying to incorporate in Superfund the risk-based corrective action standards being developed by the American Society for Testing and Materials; use of these standards would substantially decrease the number of sites at which active cleanup would be required. Taken together, these proposals would significantly reduce the level of cleanup responsible parties are liable to undertake. If companies and responsible government agencies knew for certain that existing cleanup standards would be strictly enforced, there would be an incentive to clean up sites sooner. However, shifting political forces and changing legislative agendas, combined with a lack of sufficient penalties for failing to comply with existing regulations, reward those who wait for political relief. Further encouraging delay in cleanup, economic incentives for carrying out remediation are lacking under current policies. Companies perceive remediation as a tax on earnings and a drain on their bottom line, rather than as an activity undertaken in the company's economic self interest. Although remediation ex- TABLE 2-2 Earnings Used to Support Environmental Remediation at Selected U.S. Corporations (1994, millions of dollars) Company Sales Earnings Remediation Expenses Percent of Earnings to Support Remediation Allied Signal 12,817 759 66 8.7 Amoco 30,362 1,789 119 6.7 ARCO 17,199 919 160 17.4 Chevron 35,130 1,693 182 10.8 DuPont 39,333 2,727 91 3.3 General Electric 60,109 4,726 98 2.1 General Motors 154,951 4,900 105 2.1 Monsanto 8,272 622 52 8.4 Sun Company 9,818 90 60 66.7 TOTAL 367,991 18,225 933 5.1   SOURCE: Actual expenses as reported in 1994 corporate annual and 10-K statements.

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization penses have a significant impact on the profit margins of many large U.S. corporations, improvement in remediation technologies has not been linked to improved financial performance. Table 2-2 shows that for several large corporations, an average of about 5 percent of corporate earnings goes toward supporting remediation expenses. Yet, managers at companies often are unaware of the true cost of their remediation activities because they frequently do not account for remediation costs and report them to shareholders. For example, a Price Waterhouse survey of securities issuers in 1992 found that as many as 62 percent of responding companies had known environmental liabilities that they had not yet recorded in their financial statements (Blackwelder, 1996). In the absence of assessing the liability for cleaning up contaminated sites and posting this liability on corporate balance sheets, there is no economic driver for improved remediation. As an analogy, companies are required to assess and fully report future pension and health care liabilities, providing an incentive to control pension and health care costs. This incentive is lacking for remediation. To the contrary, if a company were to voluntarily assess all of its future remediation costs and post the total on its balance sheet, the value of the company would be reduced, creating a disadvantage relative to companies that do not report this liability. Companies cannot show that spending more resources on remediation will result in improved earnings or reduced liabilities. It therefore becomes difficult for companies and their consultants or advisors to see the financial benefit of early remediation. For investors, the lack of financial drivers is especially troublesome because capital providers are primarily in the business of creating the highest possible rate of return for a given level of risk. Without being able to identify the value provided to the customer by a new technology, investors have difficulty estimating their potential investment returns and tend to shy away from the remediation sector to more familiar markets. As shown in Table 2-3, venture capital investment in environmental technologies (including remediation and other environmental technologies) is more than an order of magnitude lower than investment in other modern technologies such as biotechnologies and communications systems. While total venture capital investments have nearly doubled since 1992, venture capital investment in environmental technologies has declined by nearly 70 percent. In part because of the incentives to delay remediation and in part because of the long series of regulatory steps involved in selecting a cleanup remedy for a site, the time line for selecting and installing a remediation technology can be very long and can vary unpredictably from site to site. According to the Congressional Budget Office, for example, the average time between when a site is proposed for listing on the Superfund National Priorities List (NPL) and completion of construction of the cleanup remedy was 12 years for the first 1,249 sites on the NPL (Congressional Budget Office, 1994a). Although the EPA in the early 1990s instituted administrative reforms to try to speed cleanup of NPL sites, a recent GAO analysis showed that cleanup completion times increased between 1989

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization TABLE 2-3 Venture Capital Disbursements, 1991–1995   Amount Invested ($ millions) Industry 1991 1992 1993 1994 1995 Communications and networking 608.7 588.1 881.4 875.5 1,375.7 Electronics and computers 370.9 384.3 274.0 474.8 463.8 Semiconductors and components 163.4 189.9 244.5 189.3 301.7 Software and information services 461.9 547.2 528.0 745.7 1,239.1 Medical compounds 498.3 700.4 715.0 720.5 715.5 Medical devices and equipment 474.5 468.8 421.9 463.3 607.1 Health care services 141.9 221.0 322.6 326.2 492.6 Retailing and consumer products 267.8 213.5 544.5 529.1 1,206.9 Environmental 64.6 93.8 65.8 54.5 29.0 Other 276.1 574.9 502.1 641.4 1,000.1 TOTAL 3,328.1 3,981.9 4,499.8 5,020.3 7,431.5   SOURCES: VentureOne Corp., 1996. and 1996 (Guerrero, 1997). Figure 2-2 shows the remediation time line for a site that provides an extreme example of delay in remediation: a RCRA site where, more than 20 years after contamination was discovered, a final remedy is not yet in place. While remediation of all but the simplest sites requires a significant investment of time because of the technical difficulty of site characterization and remediation technology design, the financial disincentives to initiate remediation and time-consuming bureaucratic procedures can greatly increase the uncertainties associated with predicting the timing of remediation projects, as shown in Figure 2-2. Unpredictable time delays make it very difficult for technology developers and funders to forecast cash flow. Start-up technology providers have gone out of business for lack of cash flow while waiting for final regulatory approval to use their technology at a large enough number of sites to stay solvent (see Box 2-1).

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization FIGURE 2-2 Time line of events associated with the investigation and cleanup of an active FMC pesticide production facility in Middleport, New York. The plant site is governed under RCRA; off-site contamination is governed under Superfund. In 1975, significant wildlife mortality led to the discovery of soil and ground water contamination from plant pesticides and wastes, including arsenic. At present, only partial remedies have been implemented. Disputes between the facility owner and the regulatory agencies have delayed cleanup for more than two decades. SOURCES: FMC, 1984, 1995; Stone, 1975; Conestoga-Rovers & Associates, 1986; NYS DEC, 1987, 1996; NYS DOH, 1987; M. Hinton, NYS DEC, personal communication, 1997.

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization BOX 2-1 GRC Environmental: Cash Flow Problems Due to Slow Acceptance of an Innovative Remediation Technology In the late 1980s, a company known as GRC Environmental had developed a patented technology for cleaning up polychlorinated biphenyls (PCBs) and dioxin in soil. The technology and company appeared destined for success. GRC had demonstrated its technology at the pilot scale. PCB and dioxin cleanup was scheduled to occur at a large number of sites. The technology's main competitor, incineration, was losing favor with regulators and the public. The technology, an alkaline substitution process that operates at elevated temperature, had a particular advantage over incineration in that it produced no harmful byproducts. However, although the company was able to obtain regulatory approval to use its technology at one site, it went out of business for lack of approval to use the method at a large enough number of sites to maintain a consistent cash flow (Houlihan, 1995). GRC experienced great difficulty in landing its first job contract. The venture capitalists who funded the company attributed this difficulty to distrust that the technology would be approved by regulators. GRC finally secured a contract for a first job, a Superfund site in Houston, only because the site presented so many challenges that the primary contractors had been unsuccessful in achieving cleanup goals (Houlihan, 1995). One of the primary technical difficulties at the site was that the soil was clay, which is very difficult to clean. Further, during the cleanup, Houston experienced its heaviest rain in years, interfering with equipment operation. Technically, GRC's cleanup of the Houston site was a success in that it restored the soil to the satisfaction of regulators. However, the job was a financial failure (Houlihan, 1995). Because of the lack of additional contracts to provide cash flow and the backlog of expenses from the Houston site, GRC had to file for bankruptcy. GRC had invested too much of its capital to construct the system in Houston, and it had been unable to obtain the additional jobs that could have kept the company solvent even with losses at the Houston site. The lack of predictable timing is of particular concern to investors because they are unable to project investment returns. Worse, there is a disincentive for investors to provide funds early in the technology development cycle because the technology does not appreciate in value until just before it becomes commonly accepted. Thus, there is insufficient reward for the additional risk of having provided capital at the early stage of development. Like the remedy selection time line, the end point that a technology must

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization released a standard, known as ISO 14001, that prescribes how corporations can establish management systems, including accounting procedures, for keeping track of how all of a company's activities affect the environment (Begley, 1996). The ISO standard could serve as a model for developing a management process and an accounting system specific to keeping track of contaminated sites. The standard is expected to become widely used as a model for corporate accounting of environmental impacts (Begley, 1996). For example, the DOD and other U.S. agencies are conditionally requiring their vendors to become certified under the standard. To eliminate financial disincentives for companies to comply with remediation liability reporting requirements, Congress should establish a remediation "mortgage" program. The program would allow a company to depreciate all of the remediation costs it declares at the outset of a project over a 20- to 50-year period, rather than having to subtract the full liability from its balance sheet all at once. The program would not be a true mortgage program because it would not involve financial lending. However, it would be similar to a mortgage program in that, rather than having to bear the full burden of remediation liability at once, companies could charge part of the cost against earnings each year, much as a homeowner generally has 15 to 30 years to pay off debt. Such a program would ensure that companies would not risk losing a major portion of their value by accurately and completely reporting all remediation costs they are likely to face in the coming decades. That is, companies would not have to bear the full impact of remediation liability at once. A remediation "mortgage" would have the added advantage of providing companies with a cost target (the cost of the "mortgage") to beat. Although federal agencies must be accountable to the public and have a responsibility to spend tax dollars wisely, remediation at government sites is less driven by financial concerns than remediation at privately owned sites. At federal sites, financial resource allocations are driven more by goals and negotiated milestones than by costs (GAO, 1995b). Thus, the public-sector remediation market is less subject to influence by financial stimuli than the private-sector remediation market. Nevertheless, financial incentives for considering innovative remediation technologies could be created by careful oversight of remediation contractors. Rather than hiring contractors on a cost-reimbursable basis, federal agency managers should hire remediation contractors on a fixed-price basis, in which the cost of achieving a specified goal is agreed upon in advance and clear milestones are established. To provide assurance that remediation is proceeding toward those milestones in an efficient manner and protect against waste and abuse of government resources, federal site managers should establish independent peer review panels to check progress at specified milestones. Limiting the amount that can be charged toward remediation of federal sites and providing for independent review of progress at those sites would provide incentives for remediation contractors to implement efficient, innovative solutions. In some cases, site complexities

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization will result in remediation costs much higher than those originally projected by the contractor. In such cases, the peer review panel could examine the request for a cost increase and determine whether it is technically justified. Consistent Enforcement A market that is a function of regulatory requirements as its core basis must at a minimum be consistent and predictable. For example, the U.S. tax system is based on self reporting, but it works because there are known and credible consequences for those who do not comply. Enforcement of waste site remediation requirements should be similarly consistent. Organizations will engage in remediation for two reasons: (1) because there is value in solving the problem or (2) because there are known negative consequences for noncompliance. It is imperative to have a predictable, known, and consistent enforcement mechanisms accompanied by high penalties. Without sufficient enforcement and penalties for noncompliance, the system rewards those who delay. The financial resources and number of personnel dedicated to enforcement of waste site remediation regulations need to be increased so that those who do not comply are consistently penalized. In addition, enforcement penalties need to be higher than the costs of remediation to make noncompliance more costly than remediation. Third-party auditing of environmental liability, as described above, could be added to the existing set of regulatory enforcement tools. The EPA and the Department of Justice could pursue enforcement actions against companies whose audits reveal failure to comply with hazardous waste regulations. Predictable Regulatory Requirements and Time Lines The regulatory process for deciding on cleanup goals and selecting remediation technologies must be sufficiently uniform to justify the development cost of a new technology and thus leverage the cost over a wide group of customers. Consistency in the remedy selection process is not equivalent to establishing presumptive remedies that will be the preferred choice for cleaning up different types of contaminated sites. In fact, establishment of presumptive remedies runs counter to innovation by, in essence, freezing the menu of technologies at the point in time at which the presumptive remedies were developed. Rather, consistency in remedy selection processes means that the detailed steps in selecting remedies for two different sites having similar geophysical and contaminant characteristics should be similar, regardless of the regulatory program under which the sites are being cleaned up or the EPA office responsible for overseeing the sites. To increase the consistency of the remediation technology selection process, the EPA should conduct a detailed review of remedy selection procedures at Superfund and RCRA sites in its 10 regions. Based on this review, the EPA should deter-

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization mine the degree to which these procedures vary and should recommend how to make the process more consistent. The EPA should also consider whether establishing national cleanup standards for ground water and soil would enhance the cleanup process by providing greater consistency. Such standards would be based on cancer and noncancer (such as neurological and reproductive) effects of contaminants, as well as ecosystem effects. They would need to include some mechanism to account for site-specific variations in the potential for human or ecosystem exposure to the contamination and in synergistic effects caused by the presence of multiple contaminants. While national ground water and soil cleanup standards might benefit remediation technology developers by clarifying the level of performance that remediation technologies must achieve, the issue of whether such standards should be established is highly controversial and needs careful analysis. The Committee on Innovative Remediation Technologies could not reach consensus on whether such standards are advisable. Some members favored the establishment of standards because of the greater consistency they would provide and because such standards might create an incentive to achieve higher levels of cleanup, much as the establishment of standards for drinking water has spurred development of improved water treatment technologies. However, other members objected to recommending the establishment of national standards because they believe such standards might limit opportunities for site-specific judgment of appropriate cleanup levels by trained professionals. Nonetheless, the committee did agree that the issue of whether national ground water and soil cleanup standards should be established warrants careful consideration. Many states already have statewide cleanup standards for soil, ground water, or both. If national standards were developed, site-specific assessment could always be an alternative and may be more appropriate for large, complex sites. The EPA and the Congress should review the effectiveness of state cleanup standards and the rationale for establishing them and determine whether national standards for soil and ground water cleanup would help advance the state of development of cost-effective subsurface remediation technologies. As part of this effort, the EPA should also establish guidelines that would indicate tentative time lines for reaching the various regulatory milestones (site investigation, remedy selection, remedy construction) at sites with varying degrees of complexity, with more complex sites having longer remediation time lines. Site-specific flexibility is essential to allow for more detailed studies and longer time lines where initial investigations reveal site complexities. Nonetheless, general guidance on remediation time lines based on site complexity would help technology developers anticipate with greater certainty how long they might have to wait before receiving a job contract. Although the EPA prepares quarterly management reports that document the average duration of stages in the process

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization of cleaning up Superfund sites, such averages are of limited use to remediation technology vendors because of the wide deviations from these averages and because the averages do not apply to cleanup efforts occurring outside of the Superfund program. To the extent possible, state-run remediation programs should follow the EPA's guidelines and general remedy selection processes. To further increase the predictability of remediation time lines at Superfund sites, steps should be taken to reduce litigation associated with identifying potentially responsible parties. According to the GAO (1994b), factors that can help decrease the amount of litigation over who should pay for cleanup include careful work by the EPA to identify all potentially responsible parties up front, consistent enforcement against responsible parties who fail to meet regulatory requirements, and involvement of skilled mediators with the full group of responsible parties to negotiate their individual responsibilities. Freedom to Choose To provide incentives for innovation, customers must have the freedom to choose any remediation technology or group of technologies they desire in order to meet the required cleanup standards. Theoretically, regulators should be indifferent about how a company or federal agency cleans up a site, as long as the regulatory requirements for risk reduction are met. Current regulatory preapproval of remediation technologies should be curtailed. At the same time, the public will need assurance that in allowing this freedom, the public's goals for remediation are still achieved. Table 2-5 shows how companies could be allowed freedom to choose remediation technologies while still providing assurance to the public that cleanup standards will be achieved. TABLE 2-5 Elements of a Regulatory System that Allows Freedom to Choose Remediation Technologies Industry Goals Public Safeguards Performance-based regulation No increase in risk (no backsliding on standards); increased penalties and liability for noncompliance Flexibility in choosing treatment technology, including ability to change technology if a better alternative emerges Prior public notice of remediation plan, with full disclosure of contamination conditions Confidentiality of proprietary data Auditing of data by third parties Reduced cost Continuing right to litigate if standards are not met

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization Massachusetts is pioneering a program for allowing customer freedom to choose remediation technologies that could serve as a useful model at the federal level (Huang, 1995). In Massachusetts, consultants can apply to become ''licensed site professionals" who can select remediation technologies, without regulatory approval, for sites where cleanup is required under the Massachusetts Contingency Plan. Licensed site professionals must have 8 years of experience in hazardous waste consulting, with 5 of those years consisting of experience as a principal decisionmaker, and their qualifications must be validated by a state review board. They can approve remedies for all but a few sites that the state has determined are highest priority. State regulators audit about 20 percent of the sites each year to ensure that licensed site professionals are complying with regulatory cleanup requirements. One problem with this system has been that licensed site professionals can hesitate to choose innovative technologies because of the fear that they will not work. To help overcome this fear of risk, Massachusetts has developed guidance documents on innovative technologies for licensed site professionals, an on-line data base with innovative technology performance information, and educational sessions focusing on innovative technologies. In addition, the state provides regulatory incentives such as reduced fees and extended deadlines when innovative technologies are used. Although licensed site professionals have been some what conservative in selecting technologies, the system nonetheless has added certainty to remediation of hazardous waste sites in Massachusetts. Companies know that once a licensed site professional selects a remedy for their site, they can implement cleanup without fear of regulatory delays. Full Disclosure of Contaminated Sites Companies, as well as government agencies, should be required to fully disclose information about all contaminated sites above a given size or risk level. Included in this disclosure should be descriptions of contaminants present at the site, geologic conditions, and releases into the soil, ground water, and air. Environmental impacts and risks to public health, wildlife, and ecosystem should also be evaluated and publicly disclosed. Such a public disclosure requirement would provide technology developers with information about the size and nature of the remediation market. It would also increase awareness of contamination problems among stakeholders and thus provide incentives and support for prompt site remediation. Already, some state laws, such as New Jersey's Environmental Cleanup Responsibility Act, require disclosing the environmental condition of a site when it is being transferred to another party. A national disclosure program would go beyond such state programs in that it would not require property transfer as a trigger. While there is political pressure to avoid including sites on registries such as the Superfund National Priorities List because of the perceived stigma associated with having a site on such a list, public disclosure of contaminated site information is essential not only for the benefit of communities potentially af-

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization fected by these sites but also to clarify market opportunities for remediation technology developers. The EPA could be responsible for compiling all of the information from the site disclosure program, as well as information from abandoned sites requiring cleanup, into a national registry that could be included in a home page on the Internet. The registry should include all types of contaminated sites, including those governed by the Superfund program, the RCRA program, and state programs. New York has a hazardous waste site registry consisting of concise site reports that might serve as a model for a national registry. The information in the registry should be indexed according to location, owner/operator, site characteristics, contaminant types, off-site impacts, and regulatory status. The new site inventory would be analogous to the existing Toxics Release Inventory (TRI) created under the Emergency Planning and Community Right-to-Know Act of 1986, which requires industries to report certain releases to air, water, and land. The TRI reporting requirement has had the unintended but beneficial effect that companies have learned of emissions about which they were previously unaware and have found ways to reduce or eliminate them altogether, in part in order to avoid standing out as the worst polluter. In addition to creating an essential source of market data for technology developers, a requirement for full disclosure of remediation-related liabilities would provide companies and agencies with more data about the impacts of the contaminated sites, regulators with better information for analyzing associated risks and alternatives, and the public with a better basis for involvement in the selection of remedies. Disclosure would help ensure corporate and regulatory accountability for remediation decisions. Technology Demonstration and Verification Given the hesitancy of corporations to serve as the first client for an innovative remediation technology, more opportunities need to be created to test innovative technologies and verify their performance prior to marketing. The EPA has recognized this problem and has in place initiatives to encourage the testing of innovative remediation technologies at federal facilities, including DOD and DOE sites, as described in detail in Chapter 5. Such programs should be given a high priority. If testing on a federal facility proves the technology is effective and cost competitive, the government should guarantee that it will use the technology at least once at a federal facility. Also needed is a coordinated program for formally verifying remediation technology performance. Official, federally sanctioned verification of technology performance provides customers with assurance that performance data on new technologies are valid and representative of the future expected performance of the technology. Performance verification could also reduce regulatory barriers and hence time to market entry and facilitate the raising of capital needed to commercialize new technologies. As explained in Chapter 5, existing technology

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization demonstration and verification programs are uncoordinated and lack credibility across market sectors. Chapter 5 explains the details of how technology performance can be verified. CONCLUSIONS Increasing the use of innovative remediation technologies at public-and private-sector sites will require a shift in the paradigm that currently governs the remediation market. Rather than being driven by environmental regulations alone, organizations responsible for contaminated sites need to be motivated to pursue remediation for financial reasons. Making this transition to a market-oriented system for remediation will require that environmental regulators allow organizations with contaminated sites the freedom to choose how they will accomplish the required remediation end points; it will require organizations responsible for contamination to honestly evaluate and disclose the full costs of site remediation. Shifting to a market-oriented approach to contaminated site remediation would create incentives for faster and more effective subsurface cleanups and would thus revitalize the market for remediation technologies. Instead of searching for ways to delay cleanup, organizations would be prompted by financial self interest to expedite remediation. A market-based approach would also allow for more efficient allocation of corporate and regulatory resources. Regulators could shift their attention from organizations that are actively cleaning up their sites to those that are lagging. Companies working to meet the regulatory requirements would benefit from reduced bureaucratic transaction costs. To date, the market for remediation technologies has been constrained by lack of customer demand, not because the number of contaminated sites is small but because customers have failed to perceive remediation as an activity undertaken in their economic self interest, rather than as a pure expense. The rest of this report focuses on technological solutions to the problems of commercializing innovative remediation technologies. However, these technological initiatives will be ineffective without concurrently stimulating the market forces needed to create demand for better, less costly remediation technologies. RECOMMENDATIONS To amplify the market forces for remediation technology commercialization, the following steps should be taken: The SEC should clarify and strictly enforce requirements for disclosure of environmental remediation liabilities by all publicly traded U.S. corporations. Clarifying the existing requirements for reporting of environmental liabilities and strictly enforcing these requirements would provide an incentive for companies to initiate remediation, rather than delaying it, in order to clear

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization their balance sheets of this liability. Detailed accounting procedures for complying with this requirement, along with a mechanism for certifying environmental accountants, need to be established by the U.S. accounting profession, possibly using the model of the International Standards Organization's series of standards for environmental management systems. Although technical uncertainties will preclude be required to report their best estimates of these liabilities using reasonable estimates of probable remedition scenarios. The SEC should enforce environmental liability reporting requirements through a program of third-party environmental auditing. The possibility of an environmental audit, along with strong penalties for failing the audit, would help ensure that companies would comply with SEC requirements to report environmental liabilities. Certified public accountants, ground water professionals, or all of these could conduct the audits after receiving appropriate training. Congress should establish a program that would allow companies to amortize the remediation liabilities they report over a 20-to 50-year period. Such a program would ensure that by fully evaluating and disclosing their remediation liabilities with the best available current information, companies would not risk losing a major portion of their value. It would also provide a measurable cost target for remediation technologies to beat (the total cost of the declared liabilities). The EPA should work to improve enforcement of Superfund and RCRA requirements. Consistent, even-handed enforcement is essential for ensuring that U.S. companies are not placed at a competitive disadvantage compared to their domestic competitors by spending money on remediation. Managers of federal hazardous waste sites should hire remediation contractors on a fixed-price basis and should establish independent peer review panels to check progress toward specified remediation milestones. Such steps are necessary to provide stronger incentives for federal remediation contractors to implement efficient, innovative solutions to contamination problems. When site complexities result in remediation costs that exceed the initial estimates, the peer review panel could verify that the cost increase is technically justified. The EPA should review procedures for approving remediation technologies in its 10 regions and should develop guidelines for increasing the consistency and predictability of these procedures among regions and across programs; to the extent possible, state hazardous waste remediation programs should follow these guidelines. A consistent regulatory process that responds rapidly to approval requests is essential so that remediation technology developers can predict with reasonable certainty the steps that will be required for regulatory approval of their technology and how long they may have to wait before receiving their first job contract. While the process for remedy selection

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Innovations in Ground Water and Soil Cleanup: From Concept to Commercialization should be the same at each site, site managers must have the flexibility to consider any remediation technology that they believe will meet regulations at the lowest possible cost, provided the public has sufficient opportunity to voice concerns during the remedy selection process and to challenge the selected remedy. Congress and the EPA should assess the arguments for and against establishing national standards for ground water and soil cleanup. While some states are adopting state-wide cleanup standards, no national standards exist. Such standards might increase the predictability of the remediation process and consistency in the approaches used in the many remediation programs; predictability and consistency would benefit technology developers by providing them with a more certain end point for remediation. On the other hand, such standards might have the detrimental effect of decreasing flexibility in site remediation . The issue of whether national cleanup standards are advisable should be carefully considered. The GAO should investigate the Massachusetts program for licensing site professionals to select remediation technologies on behalf of environmental regulators and should recommend whether such a program should be implemented nationally. Such a program might help to eliminate delays associated with regulatory approval steps. The EPA should establish a national registry of contaminated sites similar to the Toxics Release Inventory and should make it publicly available on the Internet. Such a registry would allow technology developers to assess the size and characteristics of different segments of the remediation market. It would also provide an incentive for companies to clean up sites quickly in order to remove them from the registry. Although there is political pressure to avoid including contaminated sites on registries because of the perceived stigma associated with owning a site on such a list, public disclosure of contaminated site information is essential for ensuring that accurate and complete information about the remediation market is widely available. Federal agencies should continue to support and expand programs for testing innovative remediation technologies at federal facilities. Providing opportunities for testing full-scale technology applications is essential for new technology ventures that need cost and performance data to provide to potential clients. REFERENCES American Institute of Certified Public Accountants. 1996. Statement of Position 96-1: Environmental Liability. Jersey City, N.J.: American Institute of Certified Public Accountants. Begley, R.1996. ISO 14000: A step toward industry self-regulation. Environmental Science & Technology 30(7):298A–302A. Bianchi-Mosquera, G. C., R. M. Allen-King, and D. M. Mackay. 1994. Enhanced degradation of dissolved benzene and toluene using a solid oxygen-releasing compound. Ground Water Monitoring and Remediation 9(1):120–128.

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