emit chemicals that may damage the ozone layer are subject to stringent regulations. New

facilities, or those that wish to expand, must agree to keep their level of VOCs at the current level or less.

The 3M Camarillo facility has worked for many years to reduce its level of VOCs. Using pollution control equipment and solvent recovery technologies, the plant has reduced its level far below state requirements. This reduction created Emission Reduction Credits (ERCs) which 3M could legally sell or trade to another company.

Since 3M has a corporate policy against profiting from the sale of these credits, the credits which had been generated were originally returned to the Ventura County Air Pollution Control District (APCD) to improve air quality.

3M was approached by Procter & Gamble which operated at a nearby location. It wanted to expand its operations and create 250 more jobs in the community. Since unemployment was of significant concern in the area, this was a substantial opportunity for the area.

However, the addition to P&G could result in an additional 50 tons of VOC emissions annually, an amount not permitted by law. If P&G were to obtain a permit to build this addition from the APCD, they needed to secure a total of 75 tons of VOC emission credits, since the law requires them to own more credits than they actually use.

3M was the only source of emission credits available in the county, but the company's policy of not profiting from the sale of such credits was a barrier to the P&G expansion.

However, since 3M knew the P&G expansion was viewed favorably in the county, they worked with the county and P&G to find a way to help the plant expand, while not personally benefitting from the sale.

The eventual innovative solution, was for 3M to sell the necessary 75 credits to P&G for $1.5 million, then donate the money to a local Air Quality Improvement Fund. P&G agreed to match the amount of this donation.

This donation also allowed the Ventura County APCD to be more innovative. Prior to this situation, funding came from U.S. EPA and these funds were allocated to specific projects and

activities. Similarly, APCD also obtained funding from permit fees and from Ventura County, but the use of this funding, too, was highly restricted.

The new Air Quality Improvement Fund means the APCD now has a discretionary fund. It allows APCD to approve funds for outside groups which proposed funding environmental education projects or other projects. This is believed to be the first time a discretionary fund of this type has been established at an U.S. environmental regulatory agency.

Since the fund was established, it has financed the conversion of buses from diesel to natural gas power; paid for a solar heater at the Buena High School in Ventura; sponsored research and development of improved methods of pesticide use; and funded several environmental education programs.

Clearly, 3M, P&G and Ventura County all won by agreeing to this innovative plan. First, 3M's innovative pollution control technology led to the significant emission reductions at its own facility creating the emission credits. Second, P&G was able to expand and, in the end, did not need to add to their VOCs. And third, the transaction itself led to the creation of an Air Quality Improvement Fund under the auspices of the APCD, which has been used for more emission reduction and even greater environmental improvements.

The project continues to be a fine example of innovation at work.

Appendix C

3M Bedford Park, Illinois: Sale of Emission Credits

The 3M facility at Bedford Park, Ill., manufactures numerous styles of tape for home and industrial use. It is the largest producer of pressure-sensitive tape in the Midwest. The plant, located in a heavily industrialized suburb of Chicago, in Cook County, opened in 1959 and employs about 450 people.

Most kinds of pressure sensitive tape require the use of solvents which are similar to paint thinners. Emissions of solvents are classified as Volatile Organic Compounds or VOCs.

At Bedford Park, the solvents are used to dissolve the adhesive so it can be applied to a paper or plastic backing. In addition, solvents are also used to apply pre-coats which act as a primer for the adhesive and help release the tape so it can be unwound from the roll.

These solvents can contribute to the formation of ozone or smog, when they are emitted into the air. Because the entire Chicago metropolitan area is classified as a Severe Ozone Non-attainment Area, stringent emission regulations regarding the release of solvents are in place in Cook County.

After installing additional pollution control equipment and developing other technologies which prevent pollution, the Bedford Park plant significantly reduced its releases of VOCs to the atmosphere. These reductions meant the plant was significantly below the levels required by the regulations and that 3M Bedford Park had many Emission Reduction Credits which legally could have been sold to other companies.

3M has a corporate policy of not profiting from the sale of these credits. As a result, more than 3,000 tons of VOCs had been returned to the state of Illinois for air quality improvements.

3M learned that, since the entire area in and around Chicago had been classified as a Severe Ozone Non-attainment Area, it was almost impossible for much urban redevelopment and brownfield construction to occur. Yet, the City of Chicago had labeled urban development and brownfield reconstruction a high priority.

Under the current regulations, potential manufacturers who needed some emission offsets, even if they would emit only minor quantities of VOCs, were finding it difficult to locate in Cook County. Potential businesses could purchase emission credits on the open market, but the market is not well established and is highly unpredictable. In addition, this would require additional funding that some of the entrepreneurial businesses did not have.

To allow the city of Chicago to implement this urban renewal effort on a more predictable scale, 3M worked with the city's Department of the Environment to create the first Emission Bank in the nation. The city retains total control over that bank, and 3M did not profit from it in any way. Because of this bank, the city of Chicago can now encourage the development of new businesses in the area and guarantee that emission credits will be available if needed.

The creation of this emission bank was a joint effort of the city of Chicago and 3M. 3M initially contributed 300 tons of credits to the bank because of additional emissions reductions at Bedford

Park. Future contributions are possible.

This example emphasizes what can occur within local environmental agencies when an innovative opportunity is presented. Other cities, which face similar environmental challenges, cannot always address them by working solely at the national level. 3M believes that the "onesize-fits-all" approach to environmental protection is no longer the best way to obtain the greatest results at the local level.

The innovative solution that 3M and the city of Chicago developed is clearly supported by the NAPA report. It should be promoted by U.S. EPA for other major metropolitan areas where the lack of emission offsets is limiting development and brownfield reconstruction.

STATEMENT OF MARY GADE

Senator BOND. Ms. Gade.

Ms. GADE. Good morning, Mr. Chairman, ranking member Mikulski.

My name is Mary Gade, and I am the director of the Illinois Environmental Protection Agency. I also serve as vice president of the Environmental Council of the States or ECOS.

In addition to my State experience, I have worked for 13 years for U.S. EPA, both here in Washington, DC, and in the Chicago regional office.

My written testimony outlines the State's point of view and strongly supports the recommendations of the NAPA report. In essence, we believe the question today is not whether to make changes at all, but instead which changes to make and how rapidly.

Obviously, much has changed since the first Earth Day 25 years ago, but the underlying philosophy and system we use for environmental protection in this country has not changed. My colleagues, State directors who are on the front lines implementing environmental laws are clamoring for change.

And many within EPA want change, too. The people we regulate and the citizens we serve are dissatisfied with the way we go about protecting this Nation's environment.

Their dissatisfaction is causing us to change the role of States and change the role of the Federal Government in its relationship to States.

This morning I want to brief you on one exciting change that States and the EPA are announcing to reform oversight and to suggest two things that Congress can do to help us, both in the laws they pass and in your oversight of EPA.

Most of the tension between States and the EPA currently centers on Federal oversight. Like a parent who cannot accept that a

child has grown up, EPA has been reluctant to let States take the lead in running these delegated programs.

Too often, oversight includes micromanagement through site specific and case-by-case reviews of State actions.

For example, in my State, Illinois received approval 18 years ago to issue waste water permits. Until just last year, region 5 of EPA reviewed every major permit they issued and even EPA would acknowledge that during this time, they found very few problems with the permits.

Congress itself actually exacerbates the problem by placing specific oversight mandates in the legislation. The 1990 Clean Air Act Amendments required States to submit all title 5 air permits to EPA before we issued them. That level of oversight is simply not necessary.

I want to make this perfectly clear to the committee. The issue for States is not oversight, it is how oversight is done.

I cannot think of a single State that would dispute the need for some Federal oversight to ensure consistent national application standards, a level economic playing field for our industries, and responsible handling of Federal funds.

We just do not want to see more of our time, energy, and resources spent on oversight than on what we consider our real job, which is environmental protection.

Later today the States and EPA are taking bold action to reform the very broken oversight process. This afternoon EPA and ECOS will create a new national environmental performance partnership system.

The new system is based on a few general principles, the environmental goals and indicators to measure our success, and not numbers of permits issued or enforcement actions taken.

The States should take responsibility for doing a self-assessment of their programs, but the public should be involved in planning and priority setting and that the Federal Government should focus on capacity building and technical assistance to help States succeed, not to catch us in making mistakes. We think this new system is a step in the right direction.

Now I have two suggestions for how Congress can help us. First, we ask this committee to help us make this new system work. Congress can either nurture this new system or kill it by continuing to demand that EPA micromanage the States and focus on bean counting rather than results.

As EPA devolves more responsibility to the States, we ask that you change your oversight process to accommodate these needed changes.

Second, strengthening the State's role requires an important change in grants administration. For years, national laws have tied program funds to specific media appropriations, preventing us from addressing multimedia and local issues that have a higher priority. Recently, in fact, when I wanted to shift some of my staff and resources into a much more focused pollution prevention effort, I was blocked by the limitations on my grant funding.

Likewise, a State like South Dakota might choose to shift some of its unneeded air dollars into protecting its groundwater, the State's primary drinking water source.