The Reg-Neg process in action.

In a traditional regulation making process, the Environmental Protection Agency develops and proposes a rule, solicits public comment, then publishes the final rule in the Federal Register. But in the case of wood finishing, EPA used a more novel approach after realizing that a wide chasm existed between the EPA's originally proposed guidelines, industry and environmental groups' viewpoints. In 1992, EPA assembled a regulatory-negotiation committee made up of state EPA officials and representatives of the wood products industry and environmentalist community.

The following are viewpoints of representatives from the woodworking industry and environmental groups who participated in the Reg-Neg process.

Draft Guidelines Both Flexible And Feasible

Several years ago, in July of 1990, I became concerned that with the passage of the Clean Air Act Amendments, methanol, a compound that was in furniture finishes, would be listed as a hazardous air pollutant. Thus began a personal journey that has taken some four years. In these four years, I saw the passage of the Act, development of standards for volatile organic compounds (VOCs), and development of standards for hazardous air pollutants (HAPs) for wood finishing. My concern that methanol didn't deserve to be on a hazardous air list was soon dwarfed by the massive EPA undertaking of major rulemaking.

In my capacity at Masco, a major manufacturer of metal products as well as wood furniture and kitchen cabinets, I had already been through the process of reviewing and installing air pollution control equipment. So in the words of Yogi Berra, it looked like "Deja vu all over again." I wanted to make sure that the regulators were aware of the differences in manufacturing processes and between coating metal and wood. Instead of the classic add-on control device "band-aid," I felt that the industry needed more flexibility.

As a result of being a furniture and cabinet maker, Masco stood to incur a major cost, for what in my mind was a small (less than 0.5 percent) contribution to national VOC emissions. Others felt the same way.

Industry mobilized to form a Joint Industry Steering Committee (JISC) which included the major trade associations and member companies involved in wood finishing, both suppliers and manufacturers. Although originally done to pool resources for a technology and economic review and study, it proved to be an ideal vehicle for what was to become a Reg-Neg committee. The results of the JISC study and EPA's preliminary study on VOC reductions verified that flexibility was important as there was not one industry fix for a very fragmented and diverse industry. We at Masco used the cost estimates and projected a $30 million cost for add-on control equipment at our plants alone.

After a year of JISC discussions with EPA, the negotiated rule-making process was suggested as a cost-effective way to address difficulties with EPA and potential difficulties with state agencies and the environmental community. In late 1992, we began the preliminary work and the project was approved in spring of 1993 and noticed in the Federal Register. A committee was agreed upon with representation from residential and office furniture, as well as kitchen cabinet manufacturers, both large and small, paint and coating manufacturers and their suppliers, state and federal agencies, and national and local environmental groups.

The process of intense data gathering, analysis and discussion from all table sitters under the facilitation of a professional consultant exposed where agreement would be easy or difficult. It appeared that pollution prevention and flexibility instead of required add-on controls were generally agreed to principles.

One-number approach

Much of our time early on was spent on MACT, then we switched to RACT then back to MACT. The procedures for setting the MACT floor (best 12 percent) and subsequently setting MACT were fairly well established, even though this industry was one of the first to go through the process.

Decisions did have to be made as to how to characterize the diverse segments of the industry. Early on, the JISC had devised what was called a one-number approach which averaged the finishing sequence instead of a coating by coating limit which had conventionally been done for VOCs. In theory, the one number would tend to minimize manufacturing differences. The fact that we had to explain it to others outside the industry helped to refine the concept in our own minds.

The MACT discussions led to intense scrutiny of the "segmentation" concept, which would segregate cabinets, furniture, etc., by manufacturing process, SIC code, number of coating steps and so on. The time spent on analysis and re-analysis of the data was excessive, but necessary. The exercise confirmed our belief that the one-number approach was good in its simplicity and a viable way to approach regulation.

Compliant coating approach

Continued discussions with the states moved us from the averaging concept toward the more traditional "compliant coating" approach because of their needs. Under this approach, finish suppliers provide materials that satisfy emission requirements. Users must keep records on usage and make them available to EPA inspectors. In essence, the Reg-Neg system was working as it should, with give and take on both sides throughout the discussions.

Discussion on the pollution prevention component was less adversarial and based primarily on common sense and good manufacturing techniques.

EPA procedural issues make way for industry concerns

My description may make the rule-making process seem more of a "love in" than it really was, but whatever cooperation there was, was always jeopardized whenever EPA would inject their complicated procedural and legalistic requirements. In the end, however, the EPA procedural issues gave way to concerns associated with averaging raised by state agencies and environmentalists.

The fact that industry had developed a good internal process to air intra-industry disputes was a Godsend when confronted with these seemingly alien concerns. We could deal with the tangential issues in-house and the substantial issues at the table. Thusly, we were able to weather the storms and end up with draft rules that accommodate flexibility and still result in substantial reductions in emissions in a fashion that can be tracked.

Workable solutions

To achieve emission reduction goals, the draft CTG for non-attainment areas is flexible and permits the use of water-based or high solids coating technologies plus allows for control equipment or other equivalent technology.

The draft NESHAP sets a materials limit of one pound of HAP per pound of solids (in itself a new concept rather than conventional pound per gallon measurements) for existing sources and generally 0.8 pounds per gallon for new sources. These limits can be met by averaging emissions from finishing steps or through the use of individual compliant coatings.

The pollution prevention steps, improved management of solvents and coatings by requiring the best spray technology, utilization of the best clean-up techniques and sound record-keeping will produce substantial emission reductions in and of themselves. Industry agreed to include tracking of 11 compounds of potential concern to address the legitimate concerns with the averaging approach raised by environmentalists. Small companies are allowed some breaks from the more costly and complicated requirements if they maintain their small status. When it is all combined, it seems we have, in fact, arrived at a workable solution.

As regards the personal journey, it was like pushing a loaded wheelbarrow up a hill in a rainstorm. It got heavier and harder as time went on and I moved up the hill. I think we have reached the peak.

Standards Set Are Minimally Stringent

The wood furniture regulatory negotiation, to my great surprise, came to a successful conclusion. Agreement on the regulation of Hazardous Air Pollutants (HAPs) is especially noteworthy because the negotiators' positions remained far apart for many months and the differences were deep. The substance of the agreement is an obviously important consideration in the evaluation of the success of the negotiations, but process is also an important consideration. The type of process determines, among other things, the efficiency with which negotiations are conducted. On a score of 1 to 10, I'd rank the wood furniture negotiation at 6 for substance and 2-3 for process.

Negotiation works when a proposal that serves the interest of one party also offers something to the other side, who then accepts the proposal because its interests are satisfied more completely by agreement than without agreement. Regulatory negotiation has much in common with a dovetail joint. The joint works when a dovetail fits into a corresponding mortise. A joint can't work when the tenon and mortise don't fit. From the beginning, the different parties to the negotiation followed incompatible templates for regulating HAPs, 189 chemicals designated by Congress in the Clean Air Act Amendments of 1990.

Troublesome issues

The troublesome issues concerned the potential for unintended increases in health risks which may occur under emissions averaging, the core of the industry's proposal for regulating HAPs. To comply, a wood furniture manufacturer keeps the overall rate of emissions from the facility to 1 pound of volatile HAPs per pound of coatings solids (0.8 pounds VHAPs/pound solids for new sources). Thus, emissions from all individual emission points in the facility -- all finishing steps and all finishing lines -- are averaged and compliance is demonstrated for the facility as a whole.

The proposed one-number standard would have allowed a manufacturer unlimited flexibility to average across coatings, finishing lines and emission points to achieve compliance with the standard. Further, it would not have restricted usage of any specific HAP or the amount of a VHAP in a coating formulation (provided that the average emissions did not exceed the standard). Nor would the one-number standard have restricted the substitution of non-HAP VOCs for VHAPs, even though a VOC that is not on the list of 189 chemicals can be just as hazardous to health as a listed chemical.

The representatives of environmental interest groups and of state regulatory agencies asserted that flexibility must be accompanied by responsibility. Specifically, we pressed for two complements to the one-number standard: 1) a periodic, comprehensive emission trends report and 2) a reasonable effort to prevent the increase of certain chemicals of particular concern. The trends report would briefly describe current and emerging technologies being used by manufacturers to reduce emissions and would inform the public of all substantial usage of VHAPs and VOCs by the industry.

To avoid increased usage of chemicals of particular concern, we proposed development, under certain circumstances, of a formulation assessment plan. Each major source would track usage of certain chemicals; report usage above a threshold to the source's permitting authority; and explain such usage. Then, in general but not in all cases, the source and the permitting authority would discuss practical and reasonable alternatives to increased usage. As a result of this discussion, the permitting authority may require the source to develop a plan to reduce usage to the extent feasible.

Health incentives missing

As late as mid-September, industry representatives were balking at these modifications of the one-number standard. My analysis of the HAP standard as of that date was mixed. The flexibility implied by emissions averaging would result in substantial and desirable cost-savings to industry, but the standard did not contain incentives protecting against the increase in health risks that may occur with chemical substitution.

Clearly, no one gains from regulation that is unnecessarily expensive. Emissions averaging helps to reduce the cost of air quality regulation. Nonetheless, flexibility is only one of the two interlocking components of the regulation of HAPs. The other essential component is responsibility. By including a comprehensive trends report and a meaningful formulation assessment plan, the HAPs rule for wood furniture manufacturers demonstrates one way in which both flexibility and responsibility are attainable.

So why did I give the process a score of only 6 out of 10? The protections offered by the trends report and formulation assessment plan are not guaranteed because their effects depend on the vigilance of the public and the assertiveness of regulatory agencies, both highly uncertain. Also, the emissions standard is minimally stringent because it was set at the "MACT floor."

Another foregone opportunity to reduce emissions is especially significant: A nationally uniform and comprehensive limit on VOCs in coatings that would satisfy both the HAP and ozone control requirements in the 1990 amendments to the Clean Air Act. This approach to reducing emissions would go a long way toward preventing the undesired consequences of regulating HAPs without requiring an actual reduction in harmful emissions. A single standard would also simplify the industry's compliance burden, and coating manufacturers would be spared the costs of making products based on a customer's location (i.e., in an attainment area or not). Industry representatives rebuffed this proposal, reflecting, I believe, a preoccupation with emissions averaging which reduced their willingness to explore innovative approaches.

My overall evaluation also reflects my judgment of the most likely alternative -- the regulation that the EPA would promulgate in the absence of the regulatory negotiation. Although one can only speculate about what that regulation would be, my opinion is that EPA's regulation would not have included either the trends report or the formulation assessment plan. Therefore, from my perspective, the outcome of the regulatory negotiation is superior to the alternative.

Reg-Neg: Face-to-face interaction

Ideally, regulatory negotiation involves face-to-face negotiation by interested parties comprising a negotiation committee in which the different interests are equally represented; also a professional facilitator assists. For regulatory negotiation to be superior to conventional rule-making, time must be allowed for trust to develop among the negotiators and for a problem-solving "chemistry" to develop. In judging that the wood furniture regulatory negotiation employed a seriously deficient process, I am making an observation on both the resources, including time, that the EPA allocated to the negotiation and composition of the negotiators.

EPA: A mixed role

The wood furniture negotiation started out well -- although the negotiating committee under-represented state regulators and environmentalists -- the three negotiating sessions of the full negotiating committee were productive. Then the process deteriorated. The full committee never met again despite the existence of several potentially deal-busting issues. Negotiations continued for 10 more months and were undertaken by random subsets of the full committee. We also lacked the facilitators.

One result was that misunderstandings developed and lingered, although they probably would have been avoided with the assistance of a facilitator. The EPA's role became confused because its staff attempted to function both as interested party and neutral facilitator. The consequences of the process were frustration and inefficiency.

The EPA's expectation that three sessions involving the full committee would be sufficient was extremely unrealistic. During the 10 months since that third session, the process departed further and further from the ideal. At the last conference call, the primary negotiators representing industry were not industry members of the negotiating committee (some of whom were present), but their legal advisors. It is hard to believe that there was an actual balance among interests in the negotiation.

In my opinion, regulatory negotiation will be a viable approach to rule-making only if all parties agree to attend as many negotiating sessions as are necessary to resolve all significant issues. Another requirement is that the EPA ensure that a neutral facilitator will be available throughout the entire course of negotiations.

For this rule-making, the environmental gains that may have been achieved through regulatory negotiation marginally justify participation. The EPA should carefully review the lessons from the wood furniture negotiation before proposing to use negotiation again for developing MACT standards.

(I wish to acknowledge the assistance of fellow negotiators Jon Heinrich (representing the State of Wisconsin) and Freeman Allen (representing the Sierra Club) who provided very insightful comments on an earlier version of this article. Nonetheless, the article solely expresses my concerns and judgments.)

REBUTTAL 

"You can observe a lot by watching."

Yogi Berra

Yogi has really connected with the ball with this remark, but I think he missed something, too. Not only do you need to watch, you need to look at something from different perspectives to observe everything. I was reminded of this recently when finishing a half dozen sizeable cherry shelves for my living room. To make sure that I hadn't missed a thick or thin spot in the finish, I examined the work from different angles. The project also gave me time to reflect on Paul's comments on the wood furniture regulatory negotiation. Basically, I intend to illuminate several assumptions that help explain some important dynamics of the negotiation.

Clearly, the Environmental Protection Agency ranks much lower in Paul's estimation than say, making wood furniture, the Joint Industry Steering Committee, and baseball. He accuses the EPA of repeatedly "jeopardizing" cooperation by injecting "complicated procedural and legalistic requirements." I find in this criticism an assumption that the Agency's long-standing policies and statutory mandates were or should have been negotiable. I disagree with Paul because I do not believe that the Agency, even in a regulatory negotiation, has to justify past decisions concerning record-keeping, enforcement, or other "rules of the game." I do share Paul's frustration over the way those regulatory issues affected the negotiation, but for a different reason: The negotiation would have been much more efficient if the EPA had stated the non-negotiable parameters at the outset.

Here's a very significant comment: "The negotiated rule-making process was suggested as a cost-effective way to address difficulties with EPA and potential difficulties with state agencies and the environmental community." Thus, Paul indicates that industry's participation in the regulatory negotiation was predicated on the ease with which assumed opposition can be neutralized. Paul, am I over-interpreting your comment? This position excludes the possibility of seeking joint gains ("win-win" solutions) through collective action. Perhaps it is one explanation for why the negotiators didn't develop trust in each other and why we rarely hit a problem-solving stride. (No one should infer that I am blaming industry or attempting to blame anyone for these aspects of the negotiation.)

And one more. "In the end, however, the EPA procedural issues gave way to concerns associated with averaging raised by state agencies and environmentalists. The fact that industry had developed a good internal process to air intra-industry disputes was a Godsend when confronted with these seemingly alien concerns." ALIEN concerns? You witnessed the 1990 amendments' restructuring of the federal program for regulating hazardous air pollutants -- to increase the pace and scope of emissions reduction -- and concerns over the health-risk implications of emissions averaging are alien? The difficulty of productively resolving the tension between industry and environmentalists/state regulators over emissions averaging almost rained out the negotiations.

Paul likens his journey through the negotiations to pushing a heavily loaded wheelbarrow up a wet hill. The key point of the analogy is that he reached the peak. Isn't it presumptive to think that the industry will only have to respond once to the public's concern over emissions of hazardous air pollutants?

REBUTTAL

It is not surprising that some perceptions of the various parties to the negotiation are unchanged even as a result of the negotiation. It is disturbing, however, that at least some of the state and environmental participants rank the outcome as a six.

I would give them kudos, for while they conceded slightly on the "one number" (they still incorporated the age-old limit per coating approach), they got written in a provision that goes beyond the law -- industry has to keep records on some non-HAPs also. It's kind of like a robber not only divesting you of your wallet and watch, but also getting an IOU for some of your future assets.

The law is there to protect all parties or stakeholders, including manufacturers. While we know how to make furniture or cabinets, we do not know the law as well as state regulators or environmental special interest groups. The advantage of the negotiations at the table was that industry was represented by non-attorneys, plant operating executives and association staff so we didn't get bogged down. The foul cry about having legal counsel involved to help advise us, therefore, is a bit of a low blow.

It would have been easy to accept a "nationally uniform limit on VOCs" from a regulatory standpoint. However, it would have been a grave disservice to our industry with our low profit margins and intense foreign competition. Many companies would not be able to meet such limits and would either have to operate out of compliance or close up shop. These tough proposed regulations will allow manufacturers to have the flexibility of choosing the compliance plan that best fits their needs while still achieving significant VOC and HAPs reductions in their emissions.

I must agree with Dr. Morton that, without the facilitator, EPA's role became confused. I assumed their role late in the negotiations was as a neutral facilitator and not an interested party. His comment does, however, suggest that in some of our discussions they went beyond the neutral facilitator role.

Even though there might be some residual hard feelings, I think all parties had major accomplishments: EPA apparently achieved the first MACT regulation for an industry as diverse (both in terms of size of manufacturing plant and product produced) as ours; states and environmental groups got their concerns addressed that they couldn't get through Congress in the Clean Air Act; and manufacturers have the flexibility to stay in business and contribute to a cleaner environment. Therefore, I believe we met the basic test of a successful negotiation as defined by Dr. Morton as all interests were served.

Paul Eisele represented the wood products industry in the Regulation-Negotiation proceedings concerning the Clean Air Act Amendment. He is director of Health, Safety and Environmental Affairs for Masco Corp., Taylor, Mich., parent company of well-known cabinet and furniture companies including Merillat, KraftMaid, Henredon, Drexel-Heritage and Universal.

Brian Morton is an economist with the North Carolina Environmental Defense Fund. His was one of seven environmental groups represented in the Reg-Neg meetings that developed wood finishing guidelines under the 1990 Clean Air Act Amendment.