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Abuses and Usurpations

Friday, November 1, 1996

Here's a statistic that would make Joe Six-Pack wince. The Coors brewery in Golden, Colorado, spills between 18 and 22 million gallons of beer every year as it overfills its cans and bottles to force the air out before they're sealed. That's a foamy runoff of about a six-pack a second.

          One man's brewsky, of course, is another man's "volatile organic compound." VOC -- that's how Colorado environmental officials classify the evaporating ethanol given off by all that spilled beer. VOCs can be harmful in large amounts, but until 1993 breweries like Coors were thought to be minor-league emitters of these naturally occurring toxins.

Federal bureaucrats are bullying states that let corporations police their own compliance with environmental regulations.

          But then Coors did something controversial, and increasingly popular among American companies: It tested itself. The company conducted a voluntary self-audit of its operations to see whether they complied with state environmental standards. It discovered that they didn't -- regulators had underestimated the brewery's VOC emissions by a factor of 17 -- and promptly reported its infraction to state environmental authorities.

          As a reward for playing the good corporate citizen and turning itself in, Coors was slapped with a record $1-million fine by the Colorado Department of Health. The company protested the fine, arguing that a million bucks was too much to pay for alerting the state to pollution that neither party had known was occurring. The state legislature and Democratic governor Roy Romer agreed, and in 1994 Colorado became the second state in the nation to pass a law to protect the results of self-audits from being used against companies that voluntarily disclose and correct their environmental infractions.

          To date, 19 states have passed audit laws -- all of them since 1993 -- and 25 more are considering them. But this surging tide of state innovation is lapping up against a formidable seawall of entrenched federal bureaucratic interests. Officials at the Environmental Protection Agency (EPA) and the Justice Department have long been hostile to self-audit laws, and that hostility has recently turned to active sabotage. States that have passed these laws -- as well as those merely considering them -- are being bluntly told that they do so at the risk of losing autonomy over their own environmental programs. Do it our way, the EPA has warned, or don't do it at all. Democratic and Republican state officials recognize this tactic for what it is: blackmail.

          In the age of reinvented government, rulemaking by the EPA has increased by 20 percent since 1992. Wayne Crews of the Competitive Enterprise Institute estimates the cost of environmental regulation at $174 billion this year, a whopping 26 percent of the total regulatory burden on American families.

          Self-audits help businesses cut through complex regulations administered by multiple layers of bureaucracy by providing them with a detailed breakdown of their operations, including suspected sources of pollution. As long as these reports remain in-house, they are useful tools that result in greater environmental compliance. But for bureaucrats used to measuring results in terms of the fines and sentences they impose, audit reports are an irresistible temptation to regulate.

          In some instances, as with Coors, state or federal regulators subpoena the audit reports themselves. In others, third parties -- typically environmental groups -- use these reports as the basis for class-action lawsuits. As a result, many companies are understandably reluctant to perform a self-audit. States are attempting to overcome this reluctance by providing businesses with assurances that their good deeds will not be used against them. Most state laws protect, or "privilege," audit reports from use against the company in a lawsuit. Many also provide limited immunity from prosecution to companies that promptly report and correct any violations they uncover.

         States love self-auditing because it allows them to replace the old command-and-control regulatory model with one that allows private-sector innovation. Audits are part of a new thinking about regulation that prizes a cooperative private industry over a reactive regulatory bureaucracy, and environmental compliance over punishment. Whereas the old model relied on legions of enviro-cops to enforce the law, the new model does what even the most zealous and well-staffed bureaucracy cannot: detect operational problems before they become environmental hazards.

          But for all the same reasons the states love self-auditing, it seems, the feds hate it. Although it cannot cite one case in which an audit-protection law was abused, the EPA has decided that states with audit laws are guilty until proven innocent. Without the benign supervision of our federal regulators, EPA officials tell state governors, you will willfully and intentionally foul your own nests. When New Hampshire was considering an audit law last year, John DeVillars, the chief EPA administrator for that region, warned Governor Steve Merrill that the law might tempt him to relax environmental enforcement and turn his state into a "pollution haven" in order to attract business. Merrill replied that he was offended by the suggestion that he would jeopardize the health of his citizens by ignoring criminal behavior -- and he signed the law.

          When artful persuasion failed to sway the states, federal bureaucrats resorted to a blunter instrument: their power to delegate to -- or withhold from -- the states the authority over environmental programs under the major federal laws. In March 1995, EPA Administrator Carol Browner warned that the passage of state audit laws "would cause environmental programs delegated to states . . . to revert to national control at EPA."

          For the 50 states, this was no small matter. Although most major federal environmental statutes allow the states to administer and enforce programs, EPA officials have the ultimate say in when and how that authority is granted. They have not been shy about using it. States that are considering audit laws such as Ohio, Arizona, Florida, and California have received what one official dubbed "nastygrams" from the EPA. Earlier this year, for instance, Arizona was warned in the bluntest terms that passage of its audit law would lead to a denial of the state's authority to run the Clean Air Act permit program. Other states that have audit laws and would also like to be able to issue permits to businesses under the Clean Air Act -- including Texas, Idaho, and Michigan--have been denied that authority by the EPA.

          In some states, this "delegation blackmail" approach seems to be working. Audit bills died in the Ohio, Maryland, and California legislatures this year following heavy lobbying by the EPA and environmental groups. Texas state senator Warren Chisum, who sponsored the Texas law as a Democrat but became a Republican this year, said "the EPA threats have certainly played a role in delaying this in other states. Legislators might say these bills are a good deal, but they are not worth bringing down the wrath of the EPA upon the state."

          Still, some state officials refused to be cowed. "I think scare tactics in swing districts in an election year can be effective, but I didn't poll anyone," says Arizona state representative Russell Bowers. "It always disturbs me when state law is dictated to us by the feds. But the bill will be back next year."

          For others, the Clinton administration's heavy-handed tactics have only increased their resolve. Russell Harding, the director of Michigan's Department of Environmental Quality, has been a leader in organizing states with audit laws to resist federal pressure. Harding has dug in his heels in Lansing every bit as deep as Carol Browner's pumps pierce the terra in Washington, D.C. -- maybe deeper. "We think we have a very balanced, very carefully crafted law," he says. "Our intention is not to change it. If push comes to shove, we'll give them their programs back."

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