National Crushed Stone: EPA Not Required to Grant "Economic Hardship" Variances from 1977 Effluent Limitations

The Federal Waster Pollution Control Act (FWPCA),¹ which doubtless contains the most intricate of all congressional directives governing the establishment of pollution control standards, is also one of the least fathomable of the federal environmental laws. Naturally, the Act's ambiguities and omissions have led to extensive litigation that has interfered with its implementation. A case in point concerns the role of compliance costs in applying nationwide effluent limitations.

With respect to the effluent limitations requiring point sources to apply the best available technology by the mid-1980s,² the Act clearly authorizes variances to be granted to any source owner in order to relieve it of undue economic hardship. Yet with respect to the effluent limitations requiring application of the best practicable control technology by 1977,³ the statute makes no mention of variances. The United States Supreme Court ruled in 1977 that such variances are implicitly available,⁴ but it did not address whether they should issue to relieve economic hardship. Nor has Congress chosen to address the matter. A split among the circuits on the question disrupted the Environmental Protection Agency's (EPA's) efforts to promulgate nationally applicable, industry-by-industry effluent limitations and moved the Supreme Court to resolve the issue.

In Environmental Protection Agency v. National Crushed Stone Association⁵ a unanimous Court reversed the Fourth Circuit's ruling that EPA had illegally failed to authorize variances from the 1977 standards for any company that was unable to comply with them because of financial difficulties. In the High Court's view, the 1977 standards were meant to bemore demanding than that: if point sources in poor financial health are unable to comply with the effluent limitations, they have no alternative but to cease operations. Although not fully comfortable with the prospect of numerous plant closings, the Court saw that Congress had foreseen the likelihood of such impacts and judged them a necessary cost of exerting minimum controls over discharges of pollutants into the nation's waters.

The Establishment of Effluent Limitations

For many years federal water pollution legislation relied predominantly on the use of water quality standards. Under this system, permits were issued to dischargers in an attempt to achieve water quality goals in the form of numerically expressed levels of dissolved pollutants. When it became evident in 1972 that this system had failed,⁶ Congress altered the structure of the Act fundamentally. It now provides that "the discharge of any [10 ELR 10216] pollutant by any person shall be unlawful" unless authorized by a permit.⁷ These permits are to reflect progressively stringent discharge limitations designed ultimately to meet "the national goal that the discharge of pollutants into the navigable waters be eliminated by 1985."⁸ The limitations, in turn, are based on the available pollution control technology, not the quality of receiving waters.⁹

The 1972 amendments set July 1, 1977 as the deadline by which existing dischargers were to have in place pollution controls representing the "best practicable control technology currently available," commonly known as BPT.¹⁰ Within six years dischargers were to have in place more rigorous controls representing the "best available control technology economically achievable," or BAT.¹¹

These two levels of technological controls, which are defined and administered by EPA through the promulgation of effluent limitations, differ in one essential respect: the cost of compliance. In defining the best practicable technology EPA is required to weigh the cost of compliance "in relation to the effluent reduction benefits" expected to be realized.¹² Thus, in setting BPT limitations EPA performs the equivalent of a crude cost-benefit analysis.¹³ The best available technology, on the other hand, is designed to achieve as much additional reduction in pollution as is within the economic capability of each discharger. In setting BAT limitations EPA must consider the cost of the required level of controls, but it need not attempt to balance those costs against anticipated benefits.¹⁴

There is another important difference between the two sets of limitations. The BPT limitations were intended to impose uniform discharge standards across each industry or industry subcategory. EPA was explicitly directed not to calculate BPT on a source-by-source basis but to establish average standards to which worse-than-average polluters would have extra difficulty conforming.¹⁵

The concept underlying BAT is different. Once the BPT requirements have been met, BAT calls for further reductions in discharges, provided that such reductions are within the capability of each source. Although EPA is to establish BAT limitations on an industry-by-industry basis,¹⁶ allowance for source-by-source consideration of ability to pay is authorized by § 301(c). This provision allows discharge permit applicants to obtain a variance from the generic BAT limitations if less stringent requirements (1) are all that the source can afford and (2) will nevertheless lead to "reasonable further progress" toward the complete elimination of all discharges.¹⁷

[10 ELR 10217]

A Variance From BPT?

Although § 301(c) is frequently referred to as a variance clause, this is a misnomer. The provision actually calls for a source-by-source determination of BAT. It does not allow any source to escape the requirements of BAT, even though its effect is to relieve ever source owner from compliance costs beyond those it can afford.

Strikingly absent from the Act is an analogous provision allowing a "variance" from BPT. Although, as pointed out above, this is evidently a reflection of Congress' intent that EPA establish uniform, nationwide BPT standards to which all sources within an industry must comply, the legislative history also shows that Congress may have contemplated some flexibility in the BPT limitations.¹⁸ And when EPA set about the process of promulgating the BPT standards, it discovered that because of the enormous variability among the technologies used within any given industry, rigid discharge schedules would in many cases be unduly burdensome and inequitable. Accordingly, the Agency, as a matter of discretion,¹⁹ developed a standard BPT "variance" clause which it inserted in all of its BPT effluent limitations. In relevant part it provided that

In establishing the limitations set forth in this section, EPA took into account all information it was able to collect, develop and solicit with respect to factors (such as age and size of plant, raw materials, manufacturing processes, products produced, treatment technology available, energy requirements and costs) which can affect the industrysubcategorization and effluent levels established. It is, however, possible that data which would affect these limitations have not been available and, as a result, these limitations should be adjusted for certain plants in this industry. An individual discharger or other interested person may submit evidence to the Regional Administrator … that factors relating to the equipment or facilities involved, the process applied, or other such factors related to such discharger are fundamentally different from the factors considered in the establishment of the guidelines …. If such fundamentally different factors are found to exist, the Regional Administrator or the State shall establish for the discharger effluent limitations in the NPDES permit either more or less stringent than the [BPT] limitations ….²⁰

EPA maintained steadfastly that such variances would not be granted on economic grounds, but would accommodate differences among sources of a "technical and engineering nature" only.²¹ This position was promptly challenged in the courts.

In Natural Resources Defense Council, Inc. v. Environmental Protection Agency, environmentalists argued that EPA lacked authority to issue any kind of variance, and that to do so would conflict with the congressional goal of uniform limitations and "allow Balkanization of that regulatory norm."²² The Second Circuit rejected the claim, noting that "variances are appropriate to the regulatory process" and that similar variance provisions had been upheld under other statutes.

In Appalachian Power Co. v. Train²³ the Fourth Circuit was asked to invalidate EPA's BPT limitations for the steam electric generating industry on the grounds, among others, that the variance provision was overly stringent since it precluded the issuance of such a variance on economic grounds. The court agreed, relying largely on the Act's BAT variance provision, § 301(c). In the court's view, since the BPT limitations are to be less stringent than the BAT limitations, they should contain a variance clause providing at least as much relief as § 301(c) provides from the BAT limitations. Therefore, since financially-strapped owners may be excused from meeting BAT, they should be eligible for relief from BPT on the same grounds. The effluent limitations were thus remanded to EPA with instructions "to come forward with a meaningful variance clause."²⁴

The Tenth Circuit, on the other hand, came to an opposite conclusion in American Petroleum Institute v. Environmental Protection Agency.²⁵ On review of the identical variance clause as used within the BPT limitations for the petroleum refining industry, the court agreed that EPA has some discretion to insert a variance provision in its regulations, but it found nothing in the statute requiring such a variance and thus nothing enabling it to strike down EPA's provision as too stringent. Rejecting explicitly the conclusion of the Fourth Circuit in Appalachian Power, the court noted "[s]uch a holding forgets that Congress did not provide for any [BPT] variance."²⁶

The D.C. Circuit read the Act similarly in Weyerhaeuser Co. v. Costle.²⁷ On review of the BPT limitation for the pulp and paper industry, the court agreed that nothing in the Act specifically requied BPT variances. Nevertheless, it was unwilling to overlook dictum in a recent Supreme Court opinion which indicated strongly that some sort of BPT variance was indeed necessary.²⁸ On [10 ELR 10218] the basis of an in-depth functional analysis of the respective purposes of the BPT and BAT limitations, especially the structure of the BAT variance set out in § 301(c), the court approved EPA's decision not to allow variances from BPT on grounds of economic hardship. According to the court, to do otherwise would subvert the primary purpose of the BPT requirements.

National Crushed Stone

In National Crushed Stone Association v. Environmental Protection Agency²⁹ a consortium of companies challenged EPA's BPT effluent limitations for the crushed stone and construction sand and gravel industry.³⁰ Among other things, the petitioners took issue with the grounds on which EPA was offering variances. The limitations contained the same boiler-plate variance clause that had beenconsidered by the Second, Tenth, and D.C. Circuits. The Fourth Circuit chose to disregard the conclusions of those circuits and instead to follow its previous ruling in Appalachian Power in declaring the identical variance provision invalid. One week later, in Consolidation Coal Co. v. Costle,³¹ the court voided the same clause as contained in the BPT effluent limitations for the coal industry. With the D.C. Circuit thus aligned with the Tenth Circuit and against the Fourth, the Supreme Court granted certiorari to resolve the conflict.³²

In a straightforward and relatively brief opinion, the Supreme Court reversed.³³ Justice White, writing for a unanimous Court, first explained that the plain language of the BAT variance provision, § 301(c), is tailored precisely to match the criteria for developing BAT effluent limitations, and is thus fundamentally incompatible with BPT limitations.

In order to qualify for a relaxation of BAT under § 301(c), a source must show that compliance with relaxed limitations (1) represents the maximum commitment of resources within the economic capability of the discharger and (2) will nevertheless assure "reasonable further progress" toward attainment of the "no discharge" goal of the Act.³⁴ These two factors are also prominent among those that EPA must consider in promulgating industry-wide BAT limitations under § 301(b)(2)(A).³⁵ In effect, therefore, § 301(c) provides that any source may seek a plant-specific determination of BAT which, while it is based on the same criteria as the industry-wide limitations, takes into account the special circumstances of the particular source.

As the Court pointed out, in this light § 301(c) is clearly inapposite to the BPT limitations. First, the requirement to show "reasonable further progress" toward the elimination of discharges suggests progress beyond a less stringent standard. In the case of BAT the lesser standard is BPT; in the case of BPT no lesser standard exists. Similarly, the second § 301(c) factor — that the source is making the maximum possible commitment of resources toward pollution control — is not a factor relevant to the setting of the general BPT limitations.³⁶ Thus the application of § 301(c) to BPT limitations, rather than calling for a source-specific calculation of BPT, actually calls for a wholly different calculus that is unharmonious with the generic BPT limitations.

Having shown the lack of a basis in the FWPCA for the Fourth Circuit's result below, Justice White proceeded to show that its rationale was equally implausible given the purposes and function of the two sets of limitations. In setting the BPT limitations EPA was directed to survey the "currently available" pollution control technologies and to model its limitations on those which are the "best."³⁷ Justice White observed that if the BPT limitations were to have a real impact on existing pollution levels it would be only by upgrading the performance of the "worst," or those with the poorest records in terms of pollution control. Since, however, it would be precisely those plants which would most likely qualify for an "economic hardship" variance, the availability of such a variance would effectively emasculate the BPT standards.

Similarly, the BPT "practicability" requirement calls for a judgment by EPA that a certain level of control is cost-justified. To allow a financially weak source to exceed the BPT limitations would lead to a level of discharges which, in the judgment of EPA, is unjustified and contrary to the intent of Congress.

Finally, the Court reviewed the extensive legislative history of the Act, and there found further evidence that the Fourth Circuit had erroneously defined the parameters of the required variance provision. In the first place, the BPT limitations had been said repeatedly by congressional leaders not to require a "plant-by-plant" determination of economic impact.³⁸ This seems to allow plant-specific assessments of technical or engineering difficulties only, while foreclosing consideration of individual firms' financial status. More significantly, the legislative history reveals that Congress had foreseen that some 200-300 plants would be closed as a direct result of the imposition of the BPT limitations.³⁹ This would hardly be the case if those plants were thought to be entitled to economic hardship variances.⁴⁰

[10 ELR 10219]

Observations

National Crushed Stone is one of those rare cases in which one position was clearly correct, the other clearly wrong. The Supreme Court unanimously rejected the respondents' arguments, never indicating that it saw any merit in them. How, then, could such an untenable thesis achieve such momentum?

Initial responsibility lies with the Fourth Circuit. In Appalachian Power it ruled that the § 301(c) variance from BAT should be equally applicable to BPT, notwithstanding the almost complete lack of legal justification for that conclusion.⁴¹ Evidently the court was simply uncomfortable with Congress' failure to inject any flexibility into the requirement that every source in the nation must comply with the rigid BPT limitations. Dissatisfied with EPA's discretionary creation of the "fundamentally different factors" variance provision, it mandated a more substantial opportunity for relief.

Obviously, where courts endeavor to compensate for perceived legislative omissions by fabricating new substantive requirements such as a variance from BPT, they risk disrupting the legislative scheme.This is what happened in Appalachian Power. The Fourth Circuit, lacking system embodied in §§ 301 and 304 of the FWPCA, carelessly assumed that the "economic hardship" exemption available from BAT should also be available from BPT. The more precise and deliberate analysis performed in Weyerhaeuser and National Crushed Stone revealed that this was incorrect.

In addition, EPA deserves credit for injecting unnecessary confusion into the issue. For years the Agency insisted that economic factors would never be considered when passing on applications for BPT variances.⁴² Yet the fact is that economics have always played a key role in these determinations. Any plant entitled to a variance because it is "fundamentally different" in terms of "technical or engineering" factors is going to be more costly to bring into compliance with BPT. It is these increased costs that make a level of pollution control which is "practicable" for an industry "impracticable" for that plant and thus overly stringent. What EPA had meant to say all along — as it acknowledged in 1978⁴³ — was that it would not consider the affordability of BPT limitations on a source-by-source basis. In other words, economic hardship does not entitle a source to a variance. It was this position that was ultimately sustained in National Crushed Stone.

Conclusion

In light of some of the murky opinions that dot the landscape in this area, Justice White's opinion for the Court in National Crushed Stone is a refreshingly direct discussion of the issues. It shows a lucid perception of the FWPCA's complicated mechanism for developing effluent limitations and accommodating the economic hardships that they impose on regulated sources.

To be fair though, Judge McGowan of the D.C. Circuit deserves much of the credit for unraveling some of the misconceptions that had become embedded in the case law. Weyerhaeuser was actually the first opinion to contain a detailed examination of the purposes of the two sets of technology-based limitations and the special role of variances under each. Perhaps for this reason, it stands as a turning point in this line of cases. Until it was released, EPA had decided to comply with the erroneous mandate in Appalachian Power and to promulgate limitations for the steam electric industry with a more liberal variance clause.⁴⁴ After Weyerhaeuser, however, it sought Supreme Court review of the adverse ruling in National Crushed Stone, equipped with the compelling reasoning of the D.C. Circuit. Most of that reasoning, of course, was followed by the High Court.

Had the Fourth Circuit's opinion in National Crushed Stone not been overruled, Appalachian Power and its progeny would have continued to plague EPA's effort to develop uniform national standards and allowed a significant number of sources to discharge more than otherwise permitted. Thus, the effect of the Supreme Court's decision in National Crushed Stone is to stave off a significant threat to EPA's effluent limitations program and stabilize what will be the dominant water pollution control system for most of the 1980s.

1. 33 U.S.C. §§ 1251-1376, ELR STAT. & REG. 42100.

2. See note 14, infra, and accompanying text.

3. See note 12, infra, and accompanying text.

4. E.I. DuPont de Nemours & Co. v. Train, 430 U.S. 112, 7 ELR 20191 (1977).

5. 49 U.S.L.W. 4008, 10 ELR 20924 (Dec. 2, 1980).

6. See S. REP. NO. 414, 92d Cong., 1st Sess. at 8 (1971), reprinted in CONGRESSIONAL RESEARCH SERVICE, A LEGISLATIVE HISTORY OF THE WATER POLLUTION CONTROL ACT AMENDMENTS OF 1972, 93d Cong., 1st Sess. at 1426 (1973) (hereafter cited as LEG. HIST.).

7. FWPCA § 301(a), 33 U.S.C. § 1311(a), ELR STAT. & REG. 42123.

8. FWPCA § 101(a), 33 U.S.C. § 1251(a), ELR STAT. & REG. 42105.

9. See generally Environmental Protection Agency v. State Water Resources Control Bd., 426 U.S. 200, 202-05, 6 ELR 20563, 20564-65 (1976).

10. FWPCA § 301(b)(1)(A)(i), 33 U.S.C. § 1311(b)(1)(A)(i), ELR STAT. & REG. 42123.

11. FWPCA § 301(b)(2)(A), 33 U.S.C. § 1311(b)(2)(A), ELR STAT. & REG. 42123.

12. In establishing the requirements of BPT, EPA is to consider:

the total cost of application of technology in relation to the effluent reduction benefits to be achieved from such application, … the age of equipment and facilities involved, the process employed, the engineering aspects of the application of various types of control techniques, process changes, non-water quality environmental impact (including energy requirements), and such other factors as the Administrator deems appropriate;

FWPCA § 304(b)(1)(B), 33 U.S.C. § 1314(b)(1)(B), ELR STAT. & REG. 42127.

In 1977 Congress amended the Act to allow EPA to grant exemptions from the 1977 deadline on a case-by-case basis, provided that in all cases full compliance is achieved by January 1, 1979. See Clean Water Act of 1977, Pub. L. No. 95-217, 91 Stat. 1566 (1977); Comment, The Clean Water Act of 1977: Congress Passes "Mid-Course Correction" Amendments to the FWPCA, 8 ELR 10010 (1978). This amendment had no bearing on the issues considered in National Crushed Stone.

13. The legislative history contains a statement by Senator Muskie to the effect that rather than performing this cost-benefit analysis to assure a reasonable relation between costs and benefits, EPA is simply to ascertain that the effluent reduction attained by BPT is not "wholly out of proportion" to the compliance costs. LEG. HIST. at 170. But cf. Zener, The Federal Law of Water Pollution Control, in FEDERAL ENVIRONMENTAL LAW 697-98 (Dolgin & Guilbert eds. 1974) (congressional conferees failed to reach agreement as to the weight to be given costs in setting BPT).

14. In establishing the requirements of BAT, EPA is to consider:

the age of equipment and facilities involved, the process employed, the engineering aspects of the application of various types of control techniques, process changes, the cost of achieving such effluent reduction, non-water quality environmental impact (including energy requirements), and such other factors as the Administrator deems appropriate;

FWPCA § 304(b)(2)(B), 33 U.S.C. § 1314(b)(2)(B), ELR STAT. & REG. 42127.

The 1977 amendments to the Act, see note 10, supra, extended the deadline for achievement of BAT by anywhere from one to four years, depending on the nature of the discharge. See generally Comment, The Clean Water Act of 1977: Congress Passes "Mid-Course Correction" Amendments to the FWPCA, 8 ELR 10010, 10010-11 (1978). What were once known as the "1983 standards" (and what are referred to by the Supreme Court in National Crushed Stone as the "1987 standards") will be referred to herein simply as BAT.

In addition, the 1977 amendments established an alternative technology-based standard known as "best conventional pollution control technology," or BCT. See FWPCA § 304(b)(4)(B), 33 U.S.C. § 1314(b)(4)(B), ELR STAT. & REG. 42127. Neither the existence nor makeup of the BCT standard had any bearing on the issues considered in National Crushed Stone.

15. See 118 CONG. REC. 33758 (1972) (remarks of Rep. Dingell); 118 CONG. REC. 33697 (1972) (remarks of Sen. Muskie). But see note 18, infra.

16. FWPCA § 301(b)(2)(A), 33 U.S.C. § 1311(b)(2)(A), ELR STAT. & REG. 42123.

17. FWPCA § 301(c) provides that

(c) The Administrator may modify the requirements of subsection (b)(2)(A) of this section with respect to any point source for which a permit application is filed after July 1, 1977, upon a showing by the owner or operator of such point source satisfactory to the Administrator that such modified requirements (1) will represent the maximum use of technology within the economic capability of the owner or operator; and (2) will result in reasonable further progress toward the elimination of the discharge of pollutants.

33 U.S.C. § 1311(c), ELR STAT. & REG. 42123.

18. See LEG. HIST. at 1468 (Senate report: "In applying [BPT] effluent limitations to any individual plant, the factors cited above should be applied to that specific plant.").

19. See In re Louisiana-Pacific Corp., 10 ERC 1841, 1851 (Decision of the EPA Administrator, 1977) ("My authority to provide for variances from BPT flows from, and is inherent in, my authority to promulgate effluent limitations guidelines ….").

20. 39 Fed. Reg. 28926 (Aug. 12, 1974).

21. 39 Fed. Reg. 30073 (Aug. 20, 1974).

22. 437 F.2d 642, 646, 6 ELR 20461, 20462 (2d Cir. 1976).

23. 545 F.2d 1351, 6 ELR 20732 (4th Cir. 1976).

24. 545 F.2d at 1359.

25. 540 F.2d 1023, 6 ELR 20748 (10th Cir. 1976).

26. 540 F.2d at 1033.

27. 590 F.2d 1011, 9 ELR 20284 (D.C. Cir. 1979).

28. In E.I. DuPont de Nemours & Co. v. Train, 430 U.S. 112, 7 ELR 20191 (1977), the Supreme Court had been presented with a challenge to EPA's basic authority to issue BPT limitations. Hurdling the ambiguity in §§ 301 and 304 of the Act, the Court noted that EPA unarguably had authority to issue the BAT limitations, and nothing in the Act "suggests any radical difference in the mechanism used to impose [the BAT and BPT] limitations." 430 U.S. at 127, 7 ELR at 20194. The Court went on to state that

the statute authorizes the [BPT] limitations as well as the [BAT] limitations to be set by regulation so long as some allowance is made for variations in individual plants as EPA has done by including a variance clause in its [BPT] limitations.

430 U.S. at 128, 7 ELR at 20194 (emphasis added). The question of variances was not discussed elsewhere in the opinion, nor was any rationale offered for the dictum italicized above. Yet the effect of this statement was evidently to require the BPT variance provision that EPA had created in its discretion. See note 19, supra, and accompanying text.

The Weyerhaeuser court seemed to take a dim view of the Court's reading of the Act, saying that "[t]he Court apparently insisted upon reading a variance requirement into § 301's provisions …." 590 F.2d at 1033, 9 ELR at 20292.

29. 601 F.2d 111, 9 ELR 20535 (4th Cir. 1979).

30. 42 Fed. Reg. 35843 (July 12, 1979), codified at 40 C.F.R. pt. 436 (1979). Actually, "crushed stone" and "construction sand and gravel" are subcategories of the "mineral mining and processing" point source category.

31. 604 F.2d 239, 9 ELR 20511 (4th Cir. 1979).

32. 48 U.S.L.W. 3535, 10 ELR 10050.

33. Environmental Protection Agency v. National Crushed Stone Ass'n, 49 U.S.L.W. 4008, 10 ELR 20924 (Dec. 2, 1980).

34. See note 17, supra.

35. See note 14, supra.

36. See notes 12 & 13, supra.

37. See, e.g., Kennecott Copper Corp. v. Environmental Protection Agency, 612 F.2d 1232, 1238, 10 ELR 20415, 20417 (10th Cir. 1979) (citing authorities).

38. See LEG. HIST. at 170. See also W. RODGERS, ENVIRONMENTAL LAW § 4.11 at 455 n.37 and accompanying text.

39. See American Iron & Steel Institute v. Train, 526 F.2d 1027, 1052-56, 6 ELR 20068, 20077-78 (3d Cir. 1975). See also LEG. HIST. at 1282 (remarks of Sen. Bentsen).

40. The Court also noted that in lieu of creating an economic hardship variance, Congress had inserted into the Act other means of reducing adverse effects, such as low-cost loans from the Small Business Administration.

41. Indeed, in E.I. DuPont de Nemours & Co. v. Train, 541 F.2d 1018, 1028, 6 ELR 20371, 20373 (4th Cir. 1976), decided only months before Appalachian Power, the industry petitioners had argued that § 301(c) had no application to BPT, and the court implicitly agreed. Instead of relying on § 301(c), it stated simply that variances are "appropriate to the regulatory process." Id.

42. See, e.g., 39 Fed. Reg. 28926 (Aug. 12, 1974) and 42 Fed. Reg. 35850 (July 12, 1977) ("economic costs" not to be considered in ruling on BPT variance requests).

43. See 43 Fed. Reg. 37132 (Aug. 21, 1978) (BPT variance may be awarded where "fundamentally different factors" result in substantially increased costs of compliance; economic affordability not considered).

44. See 40 C.F.R. § 423.12 (1980), in which EPA states that for purposes of the steam electric industry only, variances will be available upon a showing by a discharger of "significant cost differentials."