Mr. MULLIGAN. I think this is a subject that has been debated and redebated on a number of occasions with no clear answer as of this date. I think people within industry are beginning to feel the pinch and the burden and are beginning to, let's say, have some sense that we are being placed at a competitive disadvantage, but I have never seen anything definitive to sort of support that statement.

But the fact remains that there are a number of marginal operators within many of our industrial sectors that are falling by the wayside, who can no longer compete in the global marketplace.

Senator BAUCus. I am going to have to leave now. I wondered whether you, Mr. Mullins, in particular, and others who wish could maybe make some suggestions as to how, within the framework of the bill, we can be sure that there are not unnecessary costs that are too burdensome upon the industry. Could you do that, please? Mr. MULLINS. Yes, sir, we would be glad to do that. Senator BAUcus. All right, fine.

[The information requested follows:]

In an effort to answer your question Senator Baucus, I would refer you to both CMA's written statement (page 5 and pages 22-29), and to the following comments on Mr. Ryan's reference to Michael Porter's views on environmental protection and competiveness. Specifically, Mr. Ryan quoted the following passages from Mr. Porter's book, The Competitive Advantage of Nations:

"The conflict between environmental protection and economic competitiveness is a false dichotomy. Strict environmental regulations do not inevitably hinder competitive advantage against foreign rivals; indeed, they often enhance it." and

"Turning environmental concern into competitive advantage demands that we establish the right kind of regulation. They must stress pollution prevention.” [my emphasis]

We have reviewed Dr. Porter's book and his essay "America's Green Strategy". We do not disagree with his fundamental thesis that "Strict environmental regulations do not inevitably [my emphasis] hinder competitive advantage against foreign rivals." We are concerned, however, that his words may be taken out of context. And there are some details of his work and the foundation for his conclusions that we question.

To begin, however, we are confident that Dr. Porter would agree that not every proposal made under the mantle of "environmental protection"-including some "pollution prevention" proposals-has merit or should be pursued by any form of stricter regulation. Indeed, in his essay, Dr. Porter states:

Properly constructed regulatory standards which aim at outcomes and not methods, will encourage companies to re-engineer their technology. The result in many cases is a process than not only pollutes less but lowers costs or improves quality. [my emphasis] and

Turning environmental concern into competitive advantage demands that we establish the right kind of regulations. They must stress pollution prevention rather than merely abatement or cleanup. They must not constrain the technology used to achieve them, or else innovation will be stifled. And standards must be sensitive to the costs involved and use market incentives to contain them. [my emphasis]

A careful reading of his words is important. We note that he suggests stressing pollution prevention, not mandating it and that standards must be sensitive to the costs involved. He implicitly gives recognition to the fact that not every pollution prevention or pollution reduction proposal has benefits that exceed its costs. And, unlike some who are unconcerned about the costs of environmental proposals because they believe that the costs are borne by "corporations with deep pockets", he will recognize that the costs are, in the end, borne by all members of the economy. It is critically important that the public and legislators understand that not every action to reduce or prevent pollution is going to lead to more efficient production that will save companies money and make U.S. industry more competitive. Some

actions may, indeed, achieve that goal, but most will not. And as emission and other standards are consistently pushed higher, it will be increasingly unlikely that waste, emission and pollution reductions can be don in ways that save money, though some methods will be less costly than others.

Moreover, in an integrated; increasingly competitive world economy--one where the U.S. chemical industry has large investments and production facilities in foreign countries and there are many foreign investments in the United States-U.S. industry does not require the spur of additional regulation as a means to adopting more cost-effective production methods. Normal functioning of the market normally will provide such incentives more rationally than can government regulation.

Our concern is that government regulation as contemplated in Title II of S. 976 is a very blunt instrument for increasing the pace of industry innovation and pollution reduction efforts. We do not believe that increased government regulation can be counted on to be "sensitive to the costs involved." Nor do we believe that government can intelligently implement a misdirected program aimed at phasing out the use of chemicals that do not pose significant risks to workers or consumers, and are vital not just to the U.S. chemical industry, but Title II does not "stress pollution prevention." In addition, its requirements go far beyond "aiming on goals" and will also "contain the technology used to a broad spectrum of U.S. manufacturing's products and processes.

We are concerned that "pollution" may be so broadly defined by some advocates as to needlessly constrain emissions, production and processes that do not pose significant hazards to workers, the general public, or consumers and that Dr. Porter's essay may be misinterpreted.

It is critically important that environmental proposals consider costs versus benefits and that decisions use the best risk assessment information available in deciding which proposals have merit and which do not.

We also do not find Dr. Porter's conclusions about the trade and competitiveness effects of environmental regulations to be compelling. For example, he states in his

essay

The strongest proof that environmental protection does not hamper competitiveness is the economic performance of nations with the strictest laws. Both Germany and Japan have tough regulations, and both countries continue to surpass the U.S. in GNP growth rates and rates of productivity growth.

As a renowned scholar, Dr. Porter knows this is a gross oversimplification. Put in academic terms, correlation does not imply causation and there are literally hundreds of factors that have caused the differences between U.S. and foreign productivity and economic growth rates. We believe that, taken as a whole, the United States has been in the forefront of implementing environmental controls for a decade or more. Our own government 's assessment is that tighter U.S. environmental control costs are a growing factor in lagging investment in U.S. manufacturing and its international trade performance.

It stretches the imagination beyond reasonable limits to believe that tighter environmental regulation by foreign competitors is an operative-let alone dominantfactor in lagging U.S. performance.

We are uncertain about the merits of Dr. Porter's conclusion that some Japanese and German regulations are tougher than those of the United States. In some areas, by some judgments, they may be. In others, this is certainly not true. But it is not simply the technical content of the regulations that counts, but how government facilitates the implementation of those regulations. As a general rule, foreign governments are more sensitive to the needs of their export industries and take pains to avoid disadvantaging them, employing tax breaks and other means to preserve their international competitiveness. In the U.S. for example, administrative costs and burdens (e.g. permitting costs) are a major part of hazardous waste regulations.

Moreover, while international data comparisons are shaky, available data show U.S. spending on pollution abatement to have been a higher percentage of GNP than that of major competitor nations. And EPA projections show that based on programs existing before the Clean Air Act amendments, U.S. spending will increase to 2.8 percent of GNP by the year 2000. The Clean Air Act will add significantly to these costs. In addition there is a never-ending stream of new proposals than can be expected to raise these costs still higher. There is thus every prospect that U.S. pollution abatement regulation and spending will remain well ahead of that of major competitors in the decade ahead. A large portion of these costs-about half-will initially fall on the chemical industry and other U.S. industries that must face foreign competition.

We do not feel assured, however, that this higher level of spending ensures, or will contribute to, an increase in U.S. international competitiveness and the U.S. trade position. On the contrary, we have very serious concerns about the ability of the U.S. chemical industry to maintain its international competitiveness and its large trade surpluses in the years ahead as the extremely costly provisions of the Clean Air Act amendments and other regulations under consideration begin to impact on U.S. production costs.

With these concerns in mind, it is useful to examine Dr. Porter's assessments of the trade effects of environmental regulations. He states in his essay:

As other nations have pushed ahead [in raising environmental standards] U.S. trade has suffered. Germany has had perhaps the world's tightest regulations in stationary air-pollution control, and German companies appear to hold a wide lead in patenting-and exporting-air-pollution and other environmental technologies. As much as 70 percent of the air pollution-control equipment sold in the U.S. today is produced by foreign companies. [my emphasis added] . . . Environmental protection is a universal need, an area of growing expenditure in all the major national economies ($50 billion a year in Europe alone) [my emphasis] and a major export industry. Without competitive technology America will not only forsake a growth industry, but more and more of our own environmental spending will go to imports. We are uncertain as to how Dr. Porter defines "air pollution-control equipment" or the source of his statistic that "As much as [emphasis added] 70 percent of the air pollution-control equipment sold in the U.S. today is produced by foreign companies." Indeed, it seems to contradict the statement in his book "American firms have historically led in the export of pollution control equipment and services, reflecting advanced domestic standards." (p. 648) In any event we believe that his essay conveys the wrong impression about actual and potential exports of pollution control equipment.

It is true that pollution control equipment will be a universal need and a growing market as all nations increase their pollution abatement efforts. But "$50 billion a year in Europe alone" of expenditures does not equate to $50 billion of spending for pollution abatement equipment. Most of the costs of environmental controls come in increased operating costs-increased raw materials and labor inputs. And the increased capital equipment costs do not come primarily from purchasing some new piece of foreign- or U.S.-made equipment that can be wheeled into existing plant and plugged into existing systems. Rather, the capital equipment costs are often largely the extensive plant modifications that are required to change systems to adapt to new processes that may utilize the new equipment. Much of the new pollution control equipment installed in the process, however, may be relatively mundane items, such as gauges, pumps, compressors, and valves, not just from some exotic piece of new "high tech" equipment.

Our point is that, while we do not know what definition of pollution control equipment Dr. Porter used in his statistical compilations, and while we most certainly do not advocate neglecting the development of pollution control technology in the United States, neither the export of pollution control equipment nor the licensing of pollution control technology can be expected to provide a major source of international earnings for the United States or any other country. U.S. chemical exports in 1990 were $39 billion, imports $22.5 billion. A 10 percent negative movement in these numbers-exports down $3.9 billion, imports up $2.25 billion-would cost the United States $6.15 billion in international trade performance, far more than the likely potential returns that might result from dominance in exports of pollution equipment or technology.

Environmental legislation and regulation must be undertaken with a recognition that the costs involved can have an important negative effect on the ability of U.S. manufacturing to compete in U.S. and foreign markets. It is an oversimplification to imply government regulation will improve the international competitiveness of U.S. manufacturing, or to expect that exports of pollution control equipment and technology might offer a major source of U.S. export earnings.

The most critical issue is, therefore, focussing on those environmental controls where benefits exceed costs and doing it in ways that will not impair the international competitiveness of the chemical industry and other manufacturing industries that are the most exposed to, and will bear the brunt of, foreign competition. There is not necessarily a conflict between environmental protect ion and economic competitiveness. But neither should it be thought that competitiveness will increase as environmental regulations grow. It all depends on what the regulations are and how they are implemented. In this regard we believe that overall, Title II of S. 976 will

significantly impair U.S. competitiveness with at best marginal environmental gains yet with a real possibility of negative environmental and human health gains.

Mr. RYAN. Senator Baucus, I would just point to the work of Michael Porter at the Harvard Business School, who recently wrote the book, The Competitive Advantage of Nations. He said,

The conflict between environmental protection and economic competitiveness is false dichotomy. Strict environmental regulations do not inevitably hinder competitive advantage against foreign rivals; indeed, they often enhance it.

He concludes, "Turning environmental concern into competitive advantage demands that we establish the right kind of regulation. They must stress pollution prevention."

Senator BAUCUS. Thank you very much.

Mr. RYAN. Thank you.

Senator BAUCUs. The hearing is adjourned.

[Whereupon, at 12:15 p.m., the subcommittee adjourned, to reconvene at the call of the Chair.]

[Statements submitted for the record follow:]

PREPARED STATEMENT OF DR. JAMES T. ALLEN

Good morning, I am James Allen, a Division Chief in the California Department of Toxic Substances Control in charge of the Alternative Technology Division. My Division carries out the hazardous waste minimization program in California. Our hazardous waste minimization program is actually a collection of programs which are among the most aggressive in the Nation. Our recycling program was established in the late 1970's and includes the country's longest-running waste exchange. For many years our waste minimization program has emphasized source reduction. It includes a very active waste audit program in which industry-specific waste minimization studies are conducted and the resulting information disseminated widely to all industries, especially small business, in the form of reports, waste reduction assessment manuals and fact sheets. In 1985, California established a grant program which funds development of new technologies and approaches for hazardous waste minimization and treatment. Innovations in source reduction are the highest priority for awards of the one million dollars a year in grant funds. Most recently, California established a facilities source reduction planning program, commonly referred to as SB 14, that requires industry to examine the source reduction potential within their facilities. Most of my comments will focus on our source reduction program. In my written testimony, I have attempted to relate the experience gained in our program to the questions posed in the July 16, 1991 letter I received from Senator Chafee and Senator Baucus.

Our current program within the Department of Toxic Substances Control focuses on hazardous waste minimization. For your information, discussions are currently underway in California regarding the potential to broaden our current source reduction efforts to address all forms of pollution in a coordinated fashion. Governor Wilson is committed to the concept of pollution prevention-emphasis on pollution prevention is one of the key principles outlined in his environmental reorganization proposal, which just last week resulted in the establishment of the California Environmental Protection Agency. The Governor has directed his Secretary for Environmental Protection to work with interested parties to develop a suggested multimedia pollution prevention approach for his consideration. During the past several years, many States have enacted laws aimed at reducing hazardous waste. The various State program requirements range from brief descriptions of past and planned waste reduction efforts that must accompany permit applications to plans with mandated performance goals specifying numeric standards for toxic use and hazardous waste reduction. By comparison, California's source reduction program lies somewhere in between, requiring a detailed review and planning effort and waste management reports, but allowing industry to choose what source reduction measures to implement and how much source reduction to achieve. Industry is allowed the flexibility to do it their way.

Our source reduction program captures all generators that produce more than 12,000 kilograms of hazardous waste per year. This amounts to about 70 pounds per day. Each generator captured by the program must complete a Plan and Report. However, special allowances are made for small businesses. The prospective Plan

must include an estimate of the quantity of hazardous wastes generated, an evaluation of potential source reduction approaches, an estimate of possible source reduction, and a timetable for implementing selected source reduction measures. Only major waste streams, those that constitute 5 percent or more of the total, need be addressed, but each process, procedure or activity that contributes to those waste streams must be addressed individually.

Generators must also prepare a retrospective Report. The Report was asked for by industry as a vehicle to claim credit for past source reduction activities and environmentally sound waste management activities that do not fit the definition of source reduction. It includes an assessment of the effect of each previously implemented waste management approach including source reduction, recycling, and treatment. Plans and Reports must be completed every four years beginning on September 1, 1991.

Through our source reduction program, California has embarked upon a new approach to reduce the threats posed by environmental pollution. The new approach is profoundly simple and yet radically different from the typical command and control programs with which the California hazardous waste community has become familiar. It is rooted in the belief that once examined, the benefits of source reduction will be seen to far outweigh the costs of implementation and that this economy coupled with the prevention of the future liability associated with hazardous waste will make California's source reduction program work.

Consistent with this belief, the Department worked extensively with industry and local government, through informal workgroups, to develop a Plan format rigid enough to ensure that a good faith effort is made to identify applicable source reduction measures while not constraining industry from exercising the creativity they need to discover a new way of doing business. And the completed Plans are not inflexible, rigidly enforceable contracts for implementation of chosen measures. When reviewing the Plans and Reports, the Department can take enforcement action if Plans are incomplete or not implemented, but has no authority to judge the appropriateness of any decision. However, the public has free access to the completed Plans and Reports and we expect this daylighting of industries' source reduction efforts to go a long way toward ensuring compliance with the law and good faith efforts to achieve significant source reduction.

In implementing our source reduction program, we have undertaken our largest outreach effort to date. We have strongly emphasized the benefits of source reduction and shared information on source reduction alternatives and approaches through publications, presentations at conferences and to a large number of industry groups, and a televideo conference, viewed by 4,000 people, where we shared the stage with industry and consultant representatives. As we review the Plans and Reports that industry prepares, we will be documenting and disseminating information on successful technologies and approaches and asking companies to assist us in this effort through technical papers and presentations at conferences. Our source reduction program is truly a cooperative effort between government and industry.

Anecdotal evidence suggests that our program is well received and, in fact, is welcomed by some segments of the industrial community. Positive comments are received daily by my staff. However, the initial success of our program will not be ascertained until we have had a chance to review a sample of the Plans and Reports that will be complete on September first of this year. We intend to focus much of our early review efforts and information sharing on the waste streams that we have identified in our Capacity Assurance Plan as critical for reduction through waste minimization. A better measure of success of our program will come as the Plans are implemented and significant source reduction is documented in the required Reports, and the Biennial Generator Reports required under RCRA.

I would like to draw your attention to the fact that there are approximately 20 different State sponsored pollution prevention planning initiatives underway right now around the Nation. California and Oregon will be the first to actually have plans submitted. While there are a number of similarities between the plans required by various States, it is really premature to judge what are the right elements. Indeed, the right elements may actually be different between States based on both type and mix of industries as well as the size and level of technical expertise of the State staff. We encourage Congress to recognize and support the existing State programs as opposed to mandating a national template for everyone to follow.

In the remainder of my written testimony, you will find more detail on our experience to date with California's source reduction law as this experience relates to the questions posed in your letter. I will be happy to respond to any questions from Subcommittee Members.