Pareto Policy Solutions, LLC

advancing innovation through smart regulation

Pareto Policy Solutions, LLC is a policy analysis and advocacy firm committed to advancing sustainability through “smart” regulation: regulation that rewards, and does not penalize, superior performance.  Often, such actions leverage advances in science and technology and make the regulatory program itself more effective as well as more efficient.

Biotech Products, Chemical Safety, and Environmental Self-Audits

White House Seeks Changes to Biotechnology Regulation

On July 2, White House officials (from OSTP, OMB, USTR, and CEQ) sent a memo to FDA, USDA, and EPA requesting that they coordinate and change the federal approach to reviewing products of biotechnology (e.g., plant pests, pesticides, foods) This memorandum represents a sea change in biotechnology regulation, and will have significant impact on productivity and innovation. 

The memo asks these agencies to re-write the 1986 Coordinated Framework for the Regulation of Biotechnology (CF).  The goal is two-fold:  to increase public confidence and to promote innovation.   The memorandum announces a new interagency working group to develop an update of the CF (within one year) and formulate a long-term strategy to ensure the federal system can address risks posed by future biotechnology products.  USDA, FDA, and EPA are to jointly fund an external analysis of biotechnology products into the future.

The good news about this effort is that the focus is to regulate products based on risk, a concept established in 1992 when the CF was last modified.  The most efficient regulations employ performance standards, such as risk.  The challenge, however, is that a risk-based approach can be at odds with public opinion, which is generally skeptical about the products of genetic engineering (e.g., GMO foods) even when the product is deemed safe by experts.  How then to reconcile “public confidence” with a risk-based approach? 

Another challenge is that recently developed techniques in biotechnology (e.g., so-called “gene editing”) allow the resulting products to avoid federal regulatory scrutiny altogether.  The interagency group will have to determine whether the potential risk posed by such products should require regulatory review prior to market entry and, if so, whether statutory changes are needed to expand the jurisdiction of regulators.

This effort deserves close scrutiny by innovators and investors.  Although the policy will continue to evolve after President Obama leaves office, the Administration’s goal is to set a course of action that will have staying power for decades to come.

House Passes TSCA Reform Bill

On June 23rd, the House of Representatives approved a bill (H.R.2576) to reform the Toxic Substances Control Act (TSCA), which gives EPA authority to regulate chemicals in commerce.  The bill, approved by a whopping 398-1 vote (Republican Tom McClintock voted against), would require the Agency to determine if potentially thousands of chemicals in commerce when TSCA was first enacted meet a health-based standard.  For those that do not, the Agency must regulate them to ensure that the standard is met.

The challenge of evaluating chemical risk is significant because it typically can take EPA years or even decades to do so for a single chemical.  Although the bill, sponsored by John Shimkus (R-IL) will make it easier for EPA to obtain information and to regulate a chemical that fails to meet the standard, these changes are not enough to overcome the large number of substances potentially subject to review and the complexity of undertaking a risk assessment. 

To partially address this challenge, the House included provisions allowing chemical makers to request that EPA evaluate a particular substance.  The request must be “in a form and manner” prescribed by the Agency.  Presumably, EPA could require that such requests include information critical for Agency review, up to and including a draft risk evaluation.  In any event, the bill does not prohibit a manufacturer from submitting its own risk evaluation to EPA for its consideration.

Leveraging private sector resources to undertake a risk evaluation will increase the pace of EPA evaluations and determinations, the rate-limiting step in the review process.  It will also help the Agency identify the highest priority substances for review.  Any request by industry for an EPA evaluation is likely to focus on chemicals of greatest concern to consumers and therefore represents an appropriate complement the Agency’s focus on identifying substances that may pose the greatest risk.

The Senate has its own TSCA reform bill (S.697), which has cleared committee and is ready for floor action.  That bill, sponsored by Senators Tom Udall (D-NM) and David Vitter (R-LA), allows for external parties to submit a safety assessment on a chemical but limits the extent to which manufacturers can nominate a substance as a priority for EPA review.

Most pundits expect TSCA reform to be enacted in this Congress.  In the Spring of 2014, when I asked EPA Administrator McCarthy about the chances for enactment of TSCA reform, she was pessimistic about Congress getting it done in 2014 but told me it would likely get done in the next Congress.  Her prognostication is looking very good right now.

EPA Announces Changes to its Audit Policy

On June 10th and June 15th, EPA held webinars describing eDisclosure, an on-line portal that will be used to implement its Audit Policy (EPA Incentives for Self-Policing:  Discovery, Disclosure, Correction, and Prevention of Violations) and Small Business Compliance Policy, which were first issued fifteen years ago.  These EPA policies, which allow reduced penalties for environmental violations by companies in return for prompt disclosure and correction, are widely seen as incentives for improved environmental performance. 

Prior to launching the new portal, EPA will not change its implementation of the policies.  At the expected Fall launch of eDisclosure, the Agency will simultaneously issue a Federal Register notice describing changes to implementation of its policies.  Self-disclosures will fall into one of two categories.  One category (Tier I) will represent routine self-disclosures, and the Agency will process and approve them relatively quickly.  For violations that are not routine (Tier II), the Agency will make a determination as to eligibility for reduced penalties if and when it considers taking an enforcement action.

Although it is not unusual for the Agency to not make an affirmative determination for more complex violations, the announcement creates uncertainty about the frequency of such incidents.  On the positive side, electronic processing of routine violations (Tier I) is likely to speed approval and reduce the cost of submittal.

EPA is also expected to change its Freedom of Information Act (FOIA) policy; unresolved disclosures will likely be released upon request even though the Agency currently tends not to release such information.

The Agency is directing any questions about the new portal or the audit policy to Phil Milton at milton.philip@epa.gov.

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