SCRAP v. United States: The ICC's Impact Statement on Freight Rates is Held Inadequate

Solid waste disposal presents one of the most pressing, though least glamorous, environmental issues today. Environmentalists have long urged that comprehensive recycling programs can achieve three important goals: reducing the mountains of refuse which must be disposed of by incineration, ocean dumping, or landfills; preserving the natural resources which must be used to make the discarded steel, glass, paper, etc.; and conserving the energy required to process raw materials. But rather than give preferential treatment to recyclables, they charge, the nation's railroads have imposed higher rate schedules for such materials, with the approval of the Interstate Commerce Commission. Now, a three-judge federal district court, in its third opinion in SCRAP v. United States, has ruled that the ICC prepared an inadequate environmental impact statement on applications for rail freight rate increases.¹ The decision requires the ICC to prepare a new impact statement, evaluating the entire existing rail freight rate structure, to determine if that structure discriminates against the shipping of recyclable scrap materials.

The court's opinion, written by Judge Skelly Wright, author of the D.C. Circuit's landmark decision in Calvert Cliffs' Coordinating Committee v. Atomic Energy Commission,² points out that if present rate structures discriminate against recyclables as compared with virgin materials, an across the board percentage rise in all freight rates would increase the disparity. The importance of the case is highlighted by the significant reduction in pollution and energy use which results when scrap materials are used in production instead of raw materials. The court cited an EPA study which found that when scrap iron is used in place of virgin ore in the production of steel, 74 percent less energy and 51 percent less water are expended, while 86 percent less air pollution and 97 percent less mining wastes are created.

History

The original plaintiffs in the case, an unincorporated association of law students calling themselves Students Challenging Regulatory Agency Procedures (SCR AP), commenced the action to oppose the ICC's approval of a 2 1/2 percent temporary emergency surcharge on almost all freight rates and its subsequent study of a permanent 4 percent increase. Plaintiffs argued that prior to any action, including approval of a temporary emergency surcharge, the ICC is required by NEPA to file an environmental impact statement evaluating the effects of a rate increase. The district court agreed, finding in its first opinion in the case that even a temporary surcharge was a "major federal action significantly affecting the quality of the human environment," and granted plaintiffs an injunction restraining application of the temporary surcharge to recyclables. The court dismissed the challenge to the permanent increase as premature because no final agency decision had been made. The Supreme Court reversed the district court's decision on the ground that the Interstate Commerce Act³ grants the ICC exclusive jurisdiction to suspend the rates pending a final decision.

In approving most of the increases, the ICC stated that an impact statement was not required, because the action would not significantly affect the environment. After plaintiffs moved to enjoin the increases, the Commission reopened its investigation to further evaluate the environmental effects of the increases and suspended all increases on recyclables. As a result, the court denied the plaintiffs' request for an injunction. The commission prepared a draft impact statement and solicited comments on it, though no new hearings were held. The final impact statement concluded that an examination of the underlying rate structure was not appropriate in a general rate increase proceeding and restated the view that the increases would have no significant effect on the environment. Upon the plaintiffs' motion, the court granted a temporary injunction restraining the Commission from collecting the increases which would have taken effect at the end of the suspension period on June 10, 1973. Chief Justice Burger stayed the injunction, and on November 19, 1973, the Supreme Court summarily vacated the lower court's decree, remanding the case for further consideration in light of Atchison, Topeka & Santa Fe R. Co. v. Wichita Board of Trade, decided by the Court the previous term⁴

[4 ELR 10046]

The District Court's Recent Decision

On remand, the plaintiffs, who included SCRAP, several environmental groups, and organizations representing the recycled goods industries, sought an order forcing the Commission to comply with NEPA by filing an adequate impact statement and properly considering it in making a final determination on the proposed increases. In the interim, an injunction prohibiting collection of rate increases was requested. The court issued the desired order but denied the motion for an injunction because of uncertainty as to whether an injunction was permissible under Atchison, in which the Supreme Court ruled that to enjoin ICC-approved rate increases would "ordinarily" interefere with Congress' grant of primary jurisdiction to the Commission. The district court stated, however, that it was refraining from issuing the injunction only out of an "abundance of caution," and dicta in the case make it clear that further litigation on the question has not been foreclosed.

The court's opinion first disposed of the question of jurisdiction, holding that in light of NEPA, existing judicial doctrines dictating restraint in review of Commission decisions should be reconsidered. The court indicated that prior cases refusing to review challenges to general revenue orders such as those presently involved were based upon doctrines of ripeness and exhaustion of administrative remedies rather than upon any statutory mandate. Those previous decisions, the court said, were based on the reasoning that the review of Commission decisions under § 15(7) of the Interstate Commerce Act should follow a challenge by shippers to the reasonableness of particular rates under §§ 13(1), 15(1) and 16(1). The court pointed out that plaintiffs had challenged the Commission's decision that the environmental costs were subordinate to the railroads' revenue needs, not the reasonableness of particular rates. Because neither the Commission nor any court had issued any orders recognizing the right of environmental groups to file challenges on environmental grounds in § 13 proceedings, the court declined to deny jurisdiction because of existing administrative remedies.

Only two days after the court's decision, the Interstate Commerce Commission issued notice of proposed rules that would expressly allow environmental organizations, both private and governmental, to participate in challenges to rate schedules on grounds that such schedules discriminate against shipments of recyclable materials.⁵ It is doubtful whether future NEPA challenges to Commission decisions will be forced to exhaust this administrative remedy, for the court indicated in its opinion that "an appeal from a Commission order on the reasonableness of a particular rate would not be an appropriate time for a court to review the Commission's challenged compliance with NEPA." Since NEPA requires the Commission to consider environmental impact before approving a general rate increase, for the Commission merely to establish a procedural forum for environmental groups to complain of NEPA abuses after the fact would be inadequate. The court noted that although provision is made under §§ 13(1), 15(1), and 16(1) of the Interstate Commerce Act for reparations to parties aggrieved by erroneously approved tariffs, "the environmental degradation which continues while challenges to particular rates are being considered may not be reparable at all."

Two major deficiencies in the actions of the Commission were indicated by the court: the manner in which the agency made its final decision, and the inadequacy of the impact statement. The court found that the ICC first made its decision and only afterwards prepared an impact statement to justify that decision. Judge Wright referred several times to the opinion in Calvert Cliffs' and to the mandates which that case held to be imposed upon federal agencies by § 102(2)(C) of NEPA. The Commission did not even acknowledge, the court observed, the comments made by the private and governmental organizations and appended to the impact statement. Section 15(7) of the Interstate Commerce Act grants authority for the Commission to issue orders on proposed rates only after a hearing has been held; failure to hold another hearing to reconsider the already approved rate increases after preparation of the impact statement, the court held constituted a clear abridgement of NEPA's requirement that the impact statement and comments "shall accompany the proposal through the existing agency review processes."

The court found that the impact statement prepared by the Commission did not constitute a full and good faith adherence to NEPA's procedural commands. The court characterized the ICC's impact statement as "combative, defensive and advocatory," and noted its abusive assertion that opponents of the rate increases were victims of "syndromes." The court then questioned the Commission's failure to respond in the final impact statement to the comments in which other federal agencies, including EPA, CEQ, and the Department of Transportation, leveled what the court considered as valid criticisms of the proposed increases. The court found, however, that the statement's most serious inadequacy was its lack of any evaluation of the effect the underlying rate structure might have on the environment by discriminating against the shipment of materials which are to be recycled, thereby encouraging the depletion of raw materials. The court termed this evaluation to be required not only by NEPA but also by the Regional Rail Reorganization Act of 1973 which, inter alia, directs the Commission to adopt rules to "eliminate discrimination against the shipment of recyclables in the existing railroad rate structures … where such discrimination exists."⁶

[4 ELR 10047]

The court's order requires the Commission to prepare a new draft impact statement including an in-depth analysis of the effect rail tariff increases have upon the demand for recyclable goods and upon the level of investment in industries that use salvaged materials. After comments have been received and a final statement has been prepared, the agency is to hold hearings on the proposed increase and then issue a revised order reflecting not only the impact statement, but also a reassessment of the national transportation policy underlying the original October order as well.

The case, hailed by one of the plaintiffs in the suit as a major victory, has expanded the scope of federal agency actions which courts will find governed by NEPA. Although it has long been established that regulatory agencies such as the AEC and the FPC are required to comply with NEPA's § 102 procedure, the applicability of that statute to agencies with less obvious effect upon the environment had not been defined by the courts. The court's decision in SCRAP demonstrates growing judicial recognition of the far-reaching environmental consequences of governmental action, and points the way to a broader definition of what constitutes federal action significantly affecting the environment.

1. U.S. v. SCRAP, 4 ELR 20267 (D.D.C. Feb. 20, 1974). For earlier decisions in the case, see 3 ELR 20536 (U.S. June 18, 1973); 3 ELR 20525 (D.D.C. June 7, 1973); 3 ELR 20308 (D.D.C. Jan. 9, 1973); 2 ELR 20486 (D.D.C. 1972). See also Comment, More on Standing: The Supreme Court's Latest Word, The Tenth Circuit's Last Stand, 3 ELR 10096 (July 1973).

2. 1 ELR 20346 (D.C. Cir. 1971), cert. denied, 404 U.S. 942 (1972).

3. 49 U.S.C. § 15(7) (1970).

4. 412 U.S. 800 (1973).

5. 39 Fed. Reg. 6738 (Feb. 22, 1974).

6. Regional Rail Reorganization Act of 1973, Pub. L. 93-236, § 603.