This Article examines the evolution of EPA's audit policy, explores the reasons for states' dissatisfaction with it, and then discusses whether the federal policy should have been issued as a rule under the Administrative Procedure Act (APA). Part I examines the evolution of the federal audit policy and then analyzes the strengths and weaknesses of the policy in its Federal Self-Audit Policy current form. Part II explores various types of evidentiary privilege and looks at the arguments for and against extending the privilege to audit reports. It then offers a similar analysis of the case for limited immunity, concluding that neither an expanded privilege nor immunity is necessary to encourage compliance audits, and that both provisions can seriously undermine the public's right to know and the Agency's law enforcement abilities. Part III clarifies the distinction between policies and rules under the APA in order to determine whether EPA's audit policy is actually a rule in disguise. The Article concludes that the federal audit policy offers sufficient enticements to industry to self-audit. The overall goal of both the state and federal policies should be heightened compliance with environmental laws. Yet, state statutes bedeck the audit process with incentives to the point where companies potentially could gain more by auditing than through complying with the law. Such laws treat audits as an end in themselves. This is a dangerous trend. Business uncertainties concerning the interpretation and impact of environmental laws should be allayed through compliance rather than through audits alone. The federal audit policy, unadorned by privilege' or immunity clauses, does not hallow audits, but offers only limited incentives as part of an overall policy of encouraging lawful behavior.

This article examines the factors that affect state adoption of environmental audit legislation and self-policing policies. The results of both a cross-section probit and a Weibull proportional hazard model suggest that political context and state-federal relationships are key factors in adoption decisions while environmental conditions are less significant and institutional capacity is the least important. Overall, the results for audit privilege and immunity legislation are very similar, but several explanatory factors affect adoption of audit legislation and self-policing policies in opposite ways. Finally, these results also suggest that EPA opposition to audit legislation has had a significant deterrent effect.