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U.S. Environmental Protection Agency
Office of Research and Development
National Center for Environmental Research
Science to Achieve Results (STAR) Program

CLOSED - FOR REFERENCES PURPOSES ONLY

Market Mechanisms and Incentives for Environmental Management

Opening Date: June 27, 2003
Closing Date: October 22, 2003

Summary of Program Requirements
Introduction
Background
Description
Related Information Sources
Funding
Eligibility
Standard Instructions for Submitting an Application
Sorting Code
Additional Requirements
Contact Persons

Find Standard STAR Forms and Instructions (http://www.epa.gov/ncer/rfa/forms/index.html)
View NCER Economics & Decision Sciences Research (http://www.epa.gov/ncer/science/economics)
View Research Awarded under Previous MM&I Solicitations (http://cfpub.epa.gov/ncer_abstracts/index.cfm/fuseaction/recipients.main/displayOption/alphabetical/alphalist/M)


SUMMARY OF PROGRAM REQUIREMENTS

GENERAL INFORMATION

Program Title: Market Mechanisms and Incentives for Environmental Management (MM&I)

Synopsis of Program:

The U.S. Environmental Protection Agency (EPA), as part of its Science to Achieve Results (STAR) program, is seeking applications for research leading to improved theoretically-sound empirical analyses of the feasibility and effectiveness of market mechanisms and economic incentives (MM&I) as substitutes for, or complements to, traditional environmental management programs. The terms "market mechanisms" and “incentives" refer to approaches that rely on economic incentives, market forces, or financial mechanisms to encourage regulated entities to reduce emissions, discharges and waste generation, or generally improve environmental performance. EPA is interested in supporting research on practical applications of MM&I approaches related to its mission, i.e., protecting environmental quality and human health.

Contact Person: Matthew Clark, PhD., 202-564-6842; email: clark.matthew@epa.gov
Applicable Catalog of Federal Domestic Assistance (CFDA) Number(s): 66.509

Eligibility Information:
Academic and not-for-profit institutions located in the U.S., and state or local governments are eligible to apply for assistance under this program.

Award Information:
Anticipated Type of Award: Grant

Estimated Number of Awards: Approximately three to five

Anticipated Funding Amount: Approximately $1 million
Potential Funding per Grant per Year: $50,000 to $200,000 per year for 1 to 3 years, dependent upon topic addressed by application.

Limitations: Requests over $400,000 total will not be considered.

Sorting Code(s):
The sorting code for applications submitted in response to this solicitation is: 2003-STAR-J1

Deadline/Target Dates:
Letter of Intent Due Date(s): None
Application Proposal Due Date(s): October 22, 2003


INTRODUCTION

The Environmental Protection Agency (EPA) Office of Research and Development, National Center for Environmental Research (NCER), announces an extramural grants competition supporting research in the area of market-based mechanisms and other incentives (MM&I) for environmental quality management. The terms "market mechanisms" and “incentives" refer to approaches that rely on economic incentives, market forces, or financial mechanisms to encourage regulated entities to reduce emissions, discharges and waste generation, or generally improve environmental performance.

EPA has supported similar economic research in 2000, 2001 and 2002 through earlier versions of the MM&I solicitation, and for several additional years through the EPA/NSF joint program on Decision-making and Valuation for Environmental Policy (DMVEP). This year, subject to available funding, EPA also plans economic and decision science solicitations addressing valuation of environmental impacts on human health and the environment, and corporate environmental behavior and the influence of government interventions. Announcements and awards related to these competitions may be found on the Internet at: http://www.epa.gov/ncer/.

BACKGROUND: MARKET MECHANISMS AND INCENTIVES

Environmental economists have suggested that MM&I approaches could improve environmental performance or reduce compliance costs when compared to traditional environmental regulation. This has been validated by recent experience with waste water treatment fee systems, and with sulfur dioxide and nitrogen oxides trades in the United States; the former represent estimated savings of about $2 billion per year, while the latter represent savings of over $5 billion, compared to an approach that requires each facility to meet a regulatory standard. The total present value of potential savings from MM&I programs at all levels is estimated to be approximately $40 billion (Anderson, Robert. Economic Savings from Using Economic Incentives for Environmental Pollution Control, Environmental Law Institute for EPA. 1999). This competition encourages research that will contribute to the development of practical, credible approaches for designing cost-effective environmental programs that will meet the Nation's environmental goals.

EPA is interested in supporting research that is related to its mission, i.e., protecting environmental quality and human health. EPA is not soliciting proposals that address market or incentive approaches to natural resource management issues that are not within the scope of the Agency’s mission. Such issues would include water supply, forestry or agriculture, except to the extent that these affect or are affected by environmental quality, e.g., farming or logging impacts on water quality, or impacts of air pollution on agriculture.

The competition encourages proposals from researchers in economics and other behavioral and social sciences. It particularly encourages collaborations with non-social science disciplines when needed to answer social science-based questions. It supports both research conducted within a single disciplinary tradition, as well as novel, collaborative, and interdisciplinary scientific efforts.

DESCRIPTION

The U.S. experience with MM&I applications is rapidly growing. However, there is still a need for sound behavioral and other scientific research to make further progress in establishing MM&I programs. The various potential applications of MM&I mechanisms, as well as their relative efficiency and distributional effects need to be better understood. EPA wants a better understanding of how to improve existing environmental markets (e.g., tradable emission permits) and how to successfully design and establish new markets where none currently exist. The Agency is particularly interested in understanding the prerequisites for, as well as the barriers and obstacles to, the establishment of and use of MM&I approaches in order to further extend their use.

This competition is soliciting proposals for theoretically sound empirical research that will accomplish one or more of the following objectives:

  1. Identify the institutional, technical, legal and regulatory obstacles to successful implementation of MM&I approaches at the federal, state or local level;
  2. Provide empirical estimates of the level and distribution of MM&I cost-savings relative to more traditional regulatory approaches, including equity effects;
  3. Demonstrate the relative environmental results of MM&I programs in a variety of situations, compared to traditional regulatory approaches;
  4. Identify and evaluate the most effective applications of MM&I for media-specific or cross-media environmental quality management issues that government entities at all levels must address, and/or determine why incentive approaches have been much more widely used in some situations (such as air pollution) than in others (such as water);
  5. Show how selected MM&I approaches can be transferred or generalized to other environmental problems, geographic scales, or political scales - including consideration of international trade;
  6. Identify and evaluate the enforcement and performance-verification of institutional arrangements needed to make MM&I programs effective.

The results of this research are expected to inform policy-makers in both executive and legislative capacities, as well as members of regulated communities, the academic community, and public interest groups, all of whom will be stakeholders and participants in the debate on uses of MM&I.

Examples of research topics of interest include, but are not limited to:

  • Description of the type and magnitude of administrative and other transaction costs, monitoring requirements, enforcement aspects, and information burden of taxes, subsidies, fees, and trading systems, and the overall effect of these costs on efficiency for specific air, land or water pollutants;
  • Creation of improved designs of trading systems for specific air or water pollutants, including the relative efficiency and equity of different property rights distribution systems among polluters and victims, upstream and downstream product users;
  • Assessment of the transferability of actual experiences with existing MM&I to novel situations, for example, generalizability of approaches across media types or scales of operation, including identification and demonstration of the reasons why programs have worked in some media but not in others;
  • Design of institutional frameworks that will foster innovative, market- or incentive-based approaches to achieve improved environmental quality, for example, hypothetical or empirical examples of institutional approaches that would encourage businesses and individuals to develop effective alternative approaches to environmental problems;
  • Analysis of how novel trading systems may be applied to achieve water quality standards, particularly total maximum daily loads (TMDLs), through point-point, point-nonpoint, and nonpoint-nonpoint source trades;
  • Application of novel trading systems for achieving air quality standards across all types of pollutants or emission sources, and between supply and demand alternatives.
  • Identification of a theoretically sound basis for requiring MM&I approaches to achieve greater environmental improvements than the traditional regulations that they supplant and how this achieves improved social welfare, either through efficiency, risk aversion or improved equity outcomes.

RELATED EPA INFORMATION SOURCES

Applicants are encouraged to avail themselves of information from the following sources during preparation of proposals. The MM&I research effort relates to several EPA programs, including:

  • Previous research funded by EPA under Market Mechanisms and Incentives, Decision Making and Valuation, Corporate Environmental Behavior, and Futures and Exploratory Research: http://www.epa.gov/ncer/grants/
  • The National Center for Environmental Economics of the Office of Policy and Innovation, Web homepage includes links to a number of MM&I reports: http://www.epa.gov/economics/. See recent report: The United States Experience with Economic Incentives in Environmental Pollution Control Policy at http://yosemite.epa.gov/ee/epa/eed.nsf/Webpages/USExeprienceWithEconomicIncentives.html
  • The Innovation Strategy from the Office of Policy, Economics and Innovation. The Innovation Strategy’s priority issues are innovative approaches to smog, greenhouse gases, water infrastructure, water quality, and solid waste management. The Strategy will be available in the spring of 2002 at http://www.epa.gov/innovation. Currently a draft of the strategy can be found at: http://www.epa.gov/innovation/across.htm
  • Trading programs in several EPA program offices, including: the Office of Water: http://www.epa.gov/owow/watershed/trading.htm; and the Clean Air Markets program of the Office of Air and Radiation: http://www.epa.gov/airmarkets/
  • The Sustainable Environments Branch of the Sustainable Technologies Division, of ORD’s National Risk Management Research Laboratory, which is researching the application of trading to storm water quantity control. An overview is provided at: http://www.epa.gov/ORD/NRMRL/std/seb/#eet
    Other federal, state and local environmental agencies also employ variations of MM&I approaches. EPA welcomes research that identifies the barriers that need to be overcome as well as the changes that need to occur in order for these agencies to apply MM&I approaches.

FUNDING

EPA anticipates making approximately three to five awards totaling about $1 million. The projected range is from $50,000 to $200,000 per award per year, with durations from one to three years. Field experiments, survey research, and multi-investigator projects may justify the higher funding level. Awards made through this competition will depend on the availability of funds. Requests for amounts in excess of a total of $400,000, including both direct and indirect costs, will not be considered.

ELIGIBILITY

Institutions of higher education and not-for-profit institutions located in the U.S., and Tribal, state and local governments are eligible to apply. Profit-making firms are not eligible to receive grants from EPA under this program.

National laboratories funded by federal agencies (Federally-funded Research and Development Centers, “FFRDCs”) may not apply. FFRDC employees may cooperate or collaborate with eligible applicants within the limits imposed by applicable legislation and regulations. They may participate in planning, conducting, and analyzing the research directed by the principal investigator, but may not direct projects on behalf of the applicant organization or principal investigator. The principal investigator's institution, organization, or governance may provide funds through its grant from EPA to a FFRDC for research personnel, supplies, equipment, and other expenses directly related to the research. However, salaries for permanent FFRDC employees may not be provided through this mechanism.

Federal agencies may not apply. Federal employees are not eligible to serve in a principal leadership role on a grant, and may not receive salaries or in other ways augment their agency's appropriations through grants made by this program. However, federal employees may interact with grantees so long as their involvement is not essential to achieving the basic goals of the grant. EPA encourages interaction between its own laboratory scientists and grant principal investigators for the sole purpose of exchanging information in research areas of common interest that may add value to their respective research activities. This interaction must be incidental to achieving the goals of the research under a grant. Interaction that is “incidental” does not involve resource commitments.

The principal investigator’s institution may enter into an agreement with a federal agency to purchase or utilize unique supplies or services unavailable in the private sector. Examples are purchase of satellite data, census data tapes, chemical reference standards, analyses, or use of instrumentation or other facilities not available elsewhere. A written justification for federal involvement must be included in the application, along with an assurance from the federal agency involved which commits it to supply the specified service.

Potential applicants who are uncertain of their eligibility should contact Thomas Barnwell in NCER, phone (202) 564-0824, barnwell.thomas@epa.gov

STANDARD INSTRUCTIONS FOR SUBMITTING AN APPLICATION

The Standard Instructions for Submitting a STAR Application including the necessary forms will be found on the NCER web site, .
http://www.epa.gov/ncer/rfa/forms/

SORTING CODE

The need for a sorting code to be used in the application and for mailing is described in the Standard Instructions for Submitting a STAR Application. The sorting code for applications submitted in response to this solicitation is 2003-STAR-J1
The deadline for receipt of the application at NCER is no later than 4:00 p.m. ET, October 22, 2003.

ADDITIONAL REQUIREMENTS: Data and Model Availability

The application must include a plan to make available all data (including primary and secondary data) from observations, analyses, or model development under a grant awarded in this program in a format and with documentation such that others in the scientific community may readily use them. The data must be made available to the project officer in a standard exchange format without restriction and be accompanied by comprehensive meta-data documentation adequate for specialists and non-specialists alike to be able to understand how and where the data were obtained and to evaluate the quality of the data. Applicants who develop databases containing proprietary or restricted information should provide a strategy, not to exceed two pages, to make the data widely available, while protecting privacy or property rights. These pages are in addition to the 15 pages permitted for the project description.

CONTACT PERSONS

Further information, if needed, may be obtained from the EPA official indicated below. Email inquiries are preferred.

Dr. Matthew Clark
EPA National Center for Environmental Research
clark.matthew@epa.gov
voice (202) 564-6842
Fax (202) 565-2447

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