FEATURE
Hard Times for Innovative Cleanup Technoloqy What can be done to remove market barriers to new groundwater and soil remediation technologies? JACQUELINE A. MACDONALD
I
n the early 1990s, venture capitalists began to flock to the market for groundwater and soil cleanup technologies, seeing it as offering significant new profit potential. The market appeared large; not only was $9 billion per year being spent on contaminated site cleanup, but existing technologies were incapable of remediating many serious contamination problems. Despite the market's apparent promise, investments in remediation technologies did not pay off. "Those of us who invested in this market lost our shirts," said Dag Syrrist, a venture capital investor with Vision Capital in Boston, Mass. Today, capital investors are wary. "Investorss.. will not go near the remediation technologies market because it is too volatile and sluggish," said Robert Gillham of EnviroMetal Technologies, Inc. (ETI), in Guelph, Ontario, a small company formed to commercialize underground "walls" that treat contaminated water as it passes through a permeable barrier. Private investments in innovative technologies for cleaning up contaminated groundwater and soil are also declining sharply despite a strong economy and continued high spending on hazardous waste-site cleanup. Total venture capital investments in all industries increased by 87% between 1992 and 1995. Over the same time period, venture capital funding for remediation and other environmental technologies decreased by nearly 70%, according to a 1997 National Research Council (NRC) report, Innovations in Groundwater and Soil Cleanup: Frrm Concept to Commercialization (1). The slowdown in venture capital funding of new remediation technology companies is symptomatic of a larger problem: a weak U.S. market for innovative groundwater and soil cleanup technologies. Companies that have tried to market new groundwater and soil cleanup technologies in the United States have failed or performed poorly in almost all cases (Table 1), according to the NRC report. "Many start-up companies have simply gone out of business," said
Suresh Rao, a soil scientist at the University of Florida and chair of the NRC study. The weakness of the U.S. market for remediation technologies is not caused by an oversupply of technologies for site cleanup. Although significant progress has been made in developing technologies for cleaning up relatively mobile and reactive contaminants—primarily petroleum hydrocarbons and chlorinated solvents—few technologies are available for treating recalcitrant contaminants such as polychlorinated biphenyls (PCBs), polycyclic aromatic hydrocarbons (PAHs), metals, and pesticides. The problems of site cleanup are compounded when contaminants are contained in subsurface heterogeneous geologic media. The NRC report concludes, "From a national perspective, there is little field experience with innovative technologies for treating contaminants other than petroleum hydrocarbons and to a lesser extent chlorinated solvents in relatively homogeneous geologic settings " According to the NRC, two key factors have constrained the U.S. remediation technologies market: it is segmented, and there is no link between rapid cleanup of contaminated sites and the financial selfinterest of those responsible. Until these basic problems are resolved, the NRC argues, developers of new remediation technologies will continue to lose money, and progress in deploying new technologies in site cleanups will continue to be slow. Delays in site cleanup Strong financial incentives to delay site cleanup are major factors contributing to the weakness of the remediation technologies market. Under current policies, corporate financial managers generally perceive litigation or other delay tactics as more costeffective than cleanup, according to the NRC. Delay of remediation by continual litigation over cleanup requirements and cost shares is a common strategy. Fortune 500 companies generally budget onethird of their expenditures on legal expenses for con-
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taminated sites, according to the U.S. General Accounting Office. Moreover, although the Congressional Budget Office reports that average Superfund site cleanup costs are approximately $25 million (2), most corporate financial statements, because of loopholes in existing regulations for reporting remediation-related liabilities, list a liability of only about $1 million for these sites. Delaying remediation and carrying a $1 million reported liability on a balance sheet arefinanciallypreferable to tying up $25 million for site cleanup. Another major incentive to delay remediation is inconsistent enforcement of site cleanup requirements. "The absence of stronger enforcementbased incentives may reward delay in cleanup as the low risk of enforcement action is considered alongside the greater monetary benefits of going slowly and/or spending less on permanent remedies," commented Bruce Means of EPA's Superfund office. The possibility that Congress will relax current cleanup standards also encourages delay tactics. Congress is due to reauthorize Superfund; the tax fund used to finance the program runs out mis fiscal year. A major issue to be considered is whether the law's current preference for treating wastes, rather than containing them and leaving them in place, should be eliminated. A recent draft Senate Superfund reauthorization bill eliminated the treatment preference. According to EPA's Betsy Shaw, a revised version of the same bill requires treatment only for sites that meet several stringent criteria, including an inability to reliably contain the contamination. Not all delays in site cleanup are the result of intentional acts by site owners. Bureaucratic requirements for approving site cleanup technologies have been blamed for causing major holdups. Technical complexities encountered at contaminated sites also cause delays. Contaminants that penetrate the subsurface and migrate to locations, such as small pore spaces or larger rock fractures, are difficult or impossible to locate and extract with existing technologies. Moreover, subsurface contaminant soil sorption exacerbates extraction attempts; remediation is further hindered by a high degree of uncertainty in predicting groundwater and contaminant transport which is associated with a lack of knowledge about subsurface physical variability. " [A] reality is that remediations of all but the simplest sites are technically very difficult Site characterization and field testing are time-consuming and expensive steps " said Bruce Rittmann head of Northwestern University's environmental engineering program There are no incentives for site owners to work through the bureaucracv and find more efficient solutions to technical comnlexities Delays, whether because of disincentives to initiate remediation, bureaucratic inefficiency, or technical complexities, substantially weaken the market for cheaper, more effective remediation technologies. "When you're a small company looking at month-to-month cash flow, delays get pretty frustrating," said ETI's Gillham. ETI has conducted 150 demonstrations of its reactive wall at sites around the country, but the process of converting these demonstrations to full-scale cleanups has been slow. The company has received its licensing fee, which is what
TABLE 1
Stock values fall for technology companies The stock value of selected remediation technology companies that have gone public has declined since their initial public offerings, even though the overall stock market has soared to all-time high levels. Stock value ($)
IPO Company
Technology area
date
IPO
Envirogen
Biotreatment applications
8/92
7
2%
2%
Molten Metal Technology
Catalytic extraction processes
2/93
16
15
B'/s
Ensys Environmental
Immunoassay
10/93
10
Vh
V/z
Products 3
11/96 9/97
products
Purus, Inc.
VOC control
11/93
14
4Y$
3%
Thermo Remediation, Inc.
Thermal processing
12/93
8
10
7
Conversion Technologies International
Vitrification technology
5/96
AV2
2
1%
Thermatrix
Flameless thermal oxidation
6/96
MV2
a
9V4 2%
In January 1997, Ensys changed its name to Strategic Diagnostics.
Source: Adapted from National Research Council report.
it depends on for earning profits, from only one of the sites. "We're not making the profit that people assume. I haven't made a cent," said Gillham. "We have lots of projects in deposit, but they have not turned into cash." Delays have forced many other small companies offering new remediation technologies into bankruptcy. One example is GRC Environmental, a company that had developed an innovative thermal process for removing PCBs and dioxins from excavated soil without producing harmful incineration byproducts. GRC conducted one successful full-scale application of its technology at a Texas Superfund site, but was unable to secure a second job contract quickly enough to stay in business, according to Jay Houlihan, a venture capital investor who provided funds for GRC in the late 1980s. Most small companies lack the cash flow needed to withstand delays and remain intact. They cannot meet payroll and other costs without a steady stream of income generated on a predictable basis Market fragmentation The market for groundwater and soil cleanup technologies is undercut by the high degree of segmentation created by many regulatory programs that oversee contaminated sites. The Superfund program regulates closed or abandoned waste sites; the Resource Conservation and Recovery Act (RCRA) governs active waste management facilities; leaking underground storage tank regulations apply to contamination from underground storage tanks at gas stations and other facilities; and state-level programs in most states regulate contaminated sites that are not covered by the Superfund or RCRA programs. Although the sites governed by various cleanup programs are technically similar (but have VOL. 31, NO. 12, 1997/ENVIRONMENTAL SCIENCE & TECHNOLOGY / NEWS » 5 6 1 A
varying degrees of complexity), processes for remediation technology approval differ from program to program. Remediation technology developers can incur large expenses while conducting numerous, often duplicative, demonstrations to prove that their technology works to the satisfaction of regulators in each of these programs. Terra Therm, a Shell subsidiary developing a thermal process for removing contaminants from groundwater and soil at relatively low cost, conducted a successful field test involving removal of PCBs from clay soil at a Missouri site. Now, to obtain its regulatory approval, it is being required to conduct similar tests in other states. Alluding to tests performed in Missouri, Terra Therm's Harold Vinegar cisked, "^Tiy do we have to do the S3IT1G demonstration in California for CalEPA [California Environmental Protection Agency] ? It should be sufficient to demonstrate [the technologvl maybe twice " A rare example of a company that successfully navigated the morass of regulations is Regenesis of San Juan Capistrano, Calif., which markets an oxygenreleasing compound used in bioremediation. Regenesis focused its initial mar"Those of us keting strategy on consultants involved the cleanup of leaking underground who invested in storage tank sites, according to comin this pany president John Griffiths. The company initially stayed away from larger market lost contaminated sites, because the cost of approvals and demonstrations was too our shirts." high, Griffiths said. Several initiatives are under way to — Dag Syrrist, streamline the process of obtaining cliVision Capital ent and regulatory approval of innovative remediation technologies, but these initiatives have failed to solve the problem of market fragmentation. The oldest program designed to bring order to the remediation technology testing process is the Superfund Innovative Technology Evaluation (SITE) program, an outcome of the Superfund Amendments and Reauthorization Act of 1986. Remediation technology developers can apply to run a technology demonstration under SITE and have their data verified by EPA. In theory this should increase confidence in the technology and reduce the number of additional tests required by regulators and site owners. Funding for the SITE program, which has been low, was cut entirely in 1996 and reinstated at $6 million in 1997. In the early years of the SITE program, the lag time between acceptance of a technology into the and publication of EPA reports verifying test data was two to three years A.c_ cording to SITE program documents budget cuts increased the lag time at least temporarily Long lag times between completion of a technology demonstration and publication of test results can create problems for small technology development companies Small enterprises need rapid results so they can develop client bases sufficient to maintain their cashflows The possibilitv of delays along with ques tions about the value of STTF data to clients has dis couraeed some technoloev develoners from nartic matine in the STTF nmeram "Weriplihprarplvsrav d 5 6 2 A • VOL. 31, NO. 12, 1997 / ENVIRONMENTAL SCIENCE & TECHNOLOGY / NEWS
At many manufactured gas plant sites, coal tar in contaminated soil has persisted for as long as a century. Cleanup attempts with existing technologies are frustrated by coal tar's strong affinity for soil and resistance to biological and chemical degradation. (Courtesy Richard Luthy, Carnegie Mellon University)
away from the SITE program; we decided to commercialize on our own," said Terra Therm's Vinegar. In 1994, California established its own state-wide verification program for environmental technologies, known as the CalEPA Technology Certification Program. The program's purpose is to "eliminate redundant field validations and . . . simplify regulatory permitting," according to CalEPA documents. "Unfortunately, no remediation technologies have made it through the program yet," said Tony Luan of CalEPA. A relatively new program standardizing regulatory approval requirements among states is being run by the Interstate Technology and Regulatory Cooperation (ITRC) Working Group, convened by the Western Governors Association. With the goal of creating state-to-state consistency in technology approval requirements, the ITRC work group has written reports about several remediation technologies, including in situ bioremediation and low-temperature thermal desorption, according to ITRC cochair Nancy Worst of the Texas Natural Resource Conservation Commission. Currentiy, 27 states have signed on to consider ITRC's work, but whether the ITRC DIOC6SS will have the intended effect of standardizing state approval requirements remains to be seen. "We're finishing the tool development phase and entering the sale phase It's too early to see a big effect " said Worst Other programs also have been established to standardize remediation technology testing and approval protocols. The Federal Remediation Technologies Roundtable has produced a guide specifying how to document cost and performance data at federal sites; the Southern States Energy Board is working on developing compatible regulations among the
southern states; and the Six-State Partnership for Environmental Technology, which includes California, Illinois, Massachusetts, New Jersey, New York, and Pennsylvania, is developing a process for reciprocal evaluation, acceptance, and approval of environmental technologies. Whereas all of these programs, from the SITE program to the Six-State Partnership, are designed to reduce duplication in technology testing and approval, the existence of such varied programs can create added problems for remediation technology developers, according to the NRC. The protocols for testing remediation technologies under the different programs vary. Although there is some cooperation among programs, technology developers who participate in one program receive no guarantee that their performance data will be accepted by the other programs.
Strengthening the market Solutions to the current stagnation in the remediation technologies market lie in providing financial incentives for companies to clean up sites quickly, disincentives for delays, and a more uniform regulatory process, according to the NRC. Key solutions identified by the council include the following: • Clarify and strictly enforce requirements for U.S. corporations to disclose environmental remediation liabilities. If companies uniformly and consistently reported the full extent of their liabilities for remediation, they would have a strong incentive to clean up sites quickly to remove that liability from their balance sheets. To make this recommendation work without bankrupting companies, corporations would need to be allowed to amortize their remediation liabilities over a 20- to 50-year period. • Improve enforcement of contaminated site cleanup regulations. Regulations are not enforced consistently enough to create a strong disincentive for delaying remediation. Financial resources and number of personnel dedicated to enforcement need to be increased. • Decide whether the Massachusetts progrrm— licensing-site professionals approving selection of remediation technologies for contaminated sites without regulatory approval—should be instituted at the national level. Massachusetts has developed this program to reduce bureaucratic delays in site cleanup. An auditing program ensures that consultants comply with regulatory requirements. The U.S. General Accounting Office should advise Congress on whether a similar program, if implemented at the national level, could decrease bureaucratic delays. • Increase the consistency of site cleanup requirements across regulatory programs and regions. EPA should identify inconsistencies among the various regulatory programs governing site cleanup and should work internally and with the states to eliminate these inconsistencies. • Establish a coordinated national program for testing and verifying the performance of new remediation technologies. Such a program could be administered by EPA and implemented by a private testing organization, professional association, or EPA laboratory. Its goal would be to eliminate duplicative testing requirements of the numerous regulatory programs. The extent to which these proposed reforms will
Cleanup efforts at contaminated sites are complicated, because coal tar remains separate from water and forms an interfacial film. It will slowly release polycyclic aromatic hydrocarbons to groundwater. The nonaqueous-phase coal tar shown in this photo has been in the water sample for a year. (Courtesy Richard Luthy, Carnegie Mellon University)
be implemented remains to be seen. EPA has reacted positively to many of the recommendations. "The recommendations of [the NRC] report about how to stimulate the market for hazardous waste treatment technology innovation should be of great interest to everyone concerned about the problems associated with toxic waste disposal in this country," said Means. "As long as [site owners] can continue to hide liability, the market will not work. There is an artificial allowance for waste sites to stay dirty," he said. The NRC's recommendations are also beginning to enter congressional debates over Superfund reauthorization. Democratic and Republican staffers have been reviewing the recommendations but are not yet willing to reveal how they might use them in upcoming legislation. "The recommendations are very controversial," said one staffer. As is clear from the continued downturn in the market for remediation technologies, the existing Superfund legislation and other laws for waste-site cleanup have been inadequate to spur the development of cost-effective remediation technologies. "Incentives are needed to stimulate the market [for environmental remediation technologies]. We need more demand pull," said Walt Kovalick of EPA's Technology Innovation Office.
References (1) National Research Council, Committee on Innovative Remediation Technologies. Innovations in Groundwater and Soil Cleanup: From Concept to Commercializaiion; National Academy Press: Washington, DC, 1997. (2) The Total Cost of Cleaning Up Nonfederal Superfund Sites; Congressional Budget Office, U.S. Government Printing Office: Washington, DC, 1994. Jacqueline A. MacDonald is the associate director of the National Research Council's Water Science and Techno-
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