Buttressing the Traditional Approach to Enforcement of Environmental Requirements: Noncompliance Penalties Under the Clean Air Act

Neil Orloff

Neil Orloff (B.S. 1964, Massachusetts Institute of Technology; M.B.A. 1966, Harvard Business School; J.D. 1969, Columbia Law School) teaches environmental law at Cornell University, where he is a member of the faculty of Cornell's Program on Science, Technology, and Society and its College of Engineering. Prior to joining Cornell, he was Legal Counsel in the President's Council on Environmental Quality.

[9 ELR 50029]

While approximately 90 percent of the nation's 23,000 major stationary sources of air pollution are in compliance with applicable emission limitations,¹ the remaining 10 percent pose major air pollution problems. Many of these violators are power plants, steel mills, copper, lead, and zinc smelters, and other large sources which spew great quantities of pollutants,² and their emissions frequently account for a very large proportion of the total emissions in a region.³ For example, although only 17 of New York's 1,120 major sources are not in final compliance with sulfur dioxide emission limitations or on a cleanup schedule, these 17 produce 30 percent of the state's total sulfur dioxide emissions.⁴ In New Jersey, only 13 of the state's 710 major sources are not in compliance with sulfur dioxide emission limitations or on a cleanup schedule, yet these 13 account for 64 percent of the state's total sulfur dioxide emissions.⁵ Moreover, because of their geographical distribution, these emissions often cause particularly severe environmental problems. Most of the sources are located in areas where the level of air pollution currently exceeds that permissible under ambient air quality standards.⁶ Several of them are located adjacent to heavily populated areas, and singlehandedly cause national ambient standards to be violated.⁷ Thus, although these offenders represent a relatively small percentage of all major sources, their emissions have an enormous impact on the nation.

In 1977, Congress sought to strengthen the Clean Air Act to deal more effectively with these sources. Under the statutory provisions originally enacted in 1970, the Environmental Protection Agency (EPA) had three different modes of enforcement. The Agency could issue an administrative order seeking compliance.⁸ It could bring a civil action for injunctive relief.⁹ And, it could bring a criminal action for fines and imprisonment.¹⁰ In the 1977 amendments to the Clean Air Act, Congress expanded the reach of this traditional enforcement authority. It authorized the Agency to seek money penalties in civil actions, in addition to injunctive relief.¹¹ And, it authorized the Agency to seek criminal sanctions against corporate officials, in addition to the corporations themselves.¹²

In the 1977 amendments Congress also took the much larger step of establishing a system of charges aimed at removing a polluter's economic incentive to delay installing pollution control equipment. This incentive can often be irresistible. Assume, for example, that compliance would necessitate capital expenditures of $10 million and annual operation and maintenance expenditures of $0.5 million. Then, to a first-order approximation, a one-year delay would save a corporation roughly $1.0 million in carrying charges for the capital equipment and $0.5 million in expenses — or a total of $1.5 million for the year. After taking accelerated depreciation and taxes into account, the savings would be roughly $1.0 million for the year. Two years' delay would double the savings; three years' delay would triple the savings; and the benefits continue to multiply. According to EPA Administrator Douglas Costle:

Many of [the 3,000 major industrial facilities in violation of emission requirements] find the expected costs of potential penalties and/or litigation to be less than the costs of installing and operating required control equipment.¹³

[9 ELR 50030]

To counter this powerful incentive to delay, Congress directed EPA, in § 120 of the amended Clean Air Act, to impose an administrative penalty on every major source in violation of emission requirements and to set the penalty equal to the full economic benefit accruing to the source as a result of its noncompliance.¹⁴ Congress directed that each polluter pay — on a quarterly basis — a penalty equal to this economic benefit until it attains compliance with applicable requirements.

This directive regarding noncompliance penalties represents a novel regulatory approach to securing conformance with standards. Many federal agencies have authority to bring a civil action for a money penalty, and several have authority to impose such a penalty administratively.¹⁵ But, these authorizations all contain implicit prosecutorial discretion. They do not preclude the agency from declining to prosecute because, for example, sufficient agency resources are not available, the violation is not serious, the offender is making good faith efforts to comply, the difficulty in proving the violation is too great, or the legal requirements are in a state of flux. The authorizations also permit an agency to accept a money settlement based on such factors as the size of the company, the harm caused, the likelihood of prevailing in litigation, and the amount of the fine expected to be imposed by a court. None of the agencies are mandated by Congress — as is EPA under § 120 of the Clean Air Act — to assess administratively a money penalty against every major violator. And, none of them are tied in their calculation of penalty — as is EPA under § 120 — solely to a determination of the economic benefit to the corporation from not complying with the law.

This authorization for noncompliance penalties raises the specter of enormous fines on polluters. According to EPA estimates, the program will result in cumulative penalties over the first few years of approximately $1 billion.¹⁶ Many individual polluters will be required to pay annual penalties of $5 million or more, and several will be forced to pay penalties of $20-30 million per year.¹⁷ Given these large amounts of money and the novel legal issues raised by the program, all observers acknowledge that there will be substantial litigation.

EPA is currently on the eve of implementing § 120. In March of this year, the Agency issued proposed regulations,¹⁸ and, during the early part of the summer, held hearings on them in Washington, D.C., Chicago, and San Francisco. The Agency currently expects to issue final regulations around the beginning of next year, and to begin assessing penalties at that time.

Overview of the § 120 Program

The imposition of a noncompliance penalty is triggered by the issuance of a notice of noncompliance.¹⁹ Under the statute, a notice must be sent to (1) every major stationary source that is not in compliance with "any emission limitation, emission standard or compliance schedule under any applicable implementation plan," (2) every stationary source that is not in compliance with any requirement established under § 111 (relating to new sources) or § 112 (relating to hazardous air pollutants), and (3) any source that receives a temporary exemption from the requirement to pay a noncompliance penalty and, during the period of exemption, violates any interim emission control requirement or schedule of compliance.²⁰ The notice must be issued within 30 days after the discovery of noncompliance.²¹

After a source receives a notice of noncompliance, it has two options. It may proceed with calculation of the penalty owed and, within 45 days after receiving the notice, submit this calculation to EPA or the state, along with a proposed payment schedule and information which would permit an independent verification of the calculation.²² Alternatively, it may submit a petition alleging that it is not in violation of applicable legal requirements and/or that it is entitled to an exemption.²³ Under § 120, a source may be exempted for the period during which its noncompliance is due solely to (i) a conversion to coal pursuant to administrative order, (ii) a prohibition against burning oil or gas under the Energy Supply and Environmental Coordination Act of 1974 or successor statutes accompanied by an administrative extension in the time to meet emission requirements, (iii) the use of innovative technology sanctioned by a delayed compliance order under § 113(d)(4), (iv) an inability to comply resulting from "reasons entirely beyond the control of the owner or operator of such source," or (v) the [9 ELR 50031] existence of a temporary energy or employment emergency declared under § 110(f) or § 110(g).²⁴ A source may also be granted an exemption on the ground that the particular instance of noncompliance is de minimus in nature and duration.

Upon receipt of a petition EPA or the state must hold a hearing.²⁶ If the petition is granted, no penalty is payable. If the petition is denied, the source must thereafter proceed with calculation of the penalty due.²⁷

The amount of the penalty is the economic benefit to the corporation from noncompliance. It is equal to the savings in the capital costs of the pollution control equipment that should have been installed, plus the savings in the operation and maintenace expense associated with that equipment.²⁸ Under EPA's proposed regulations, the penalty is calculated through the use of a simple computer program.²⁹ The program first calculates the present value of all the future cash flows associated with pollution control that would have been experienced if the source had been in compliance on the date it received the notice. It next calculates the present value of all the cash flows that are scheduled to be experienced as the source belatedly attains compliance. Finally, it calculates the difference between these two present values, which is the economic benefit from the delay, and converts this difference into a series of payments spread out over the remaining period of noncompliance.

The program requires 12 financial parameters, all but two of which are obtainable from published materials or other readily accessible sources.³⁰ The two variables that must be developed specifically for the purpose of calculating the penalty are the schedule of capital expenditures necessary to attain compliance and the estimated annual operation and maintenance expenditures necessary to maintain compliance. The other 10 variables consist of easily identifiable numbers such as the proportion of debt and equity in the company's capital structure, the company's marginal income tax rate, the percentage investment tax credit permissible under the Internal Revenue Code, the depreciable life permissible under the Internal Revenue Code, the inflation rate for pollution control expenditures — represented by the Plant Cost Inflation Index reported in Chemical Engineering, the average industry return on common stock — as reported in the Federal Trade Commission's Quarterly Financial Report for Manufacturing, Mining and Trade Corporations, and the national average returns on debt and preferred stock — as reported in Moody's Bond Record. Along with its submission of the proposed penalty, a source must transmit supporting information which will permit EPA to verify the source's calculation. Based on this information, EPA may revise the penalty proposed by the source.³¹

Payments are to be made on a quarterly basis until compliance is achieved.³² The first payment is due six months after the date of issuance of the notice of noncompliance and is equal to the installment due for the upcoming quarter plus the amount owed for the period between the date of issuance of the notice of noncompliance and the date of the first payment.³³ Subsequent payments are due every three months from the date the first payment was due.³⁴ If the notice was issued by EPA, the penalty is payable to the United States Treasury.³⁵ If the notice was issued by a state, the penalty is payable to the state.³⁶ A strong financial incentive has thus been included in § 120 to spur states to implement the program. If a state administers the program with respect to sources in the state, it receives all the noncompliance penalties assessed against those sources.

After a source achieves compliance, there is an "evening up" determination.³⁷ Upon EPA's concurrence that the source has actually attained applicable emission limitations, the noncompliance penalty is recalculated. The same formula is used as in the initial calculation of the penalty, however the actual level of capital expenditures and the current annual operation and maintenance expenditures are substituted for the earlier estimates. With this new information, a determination is [9 ELR 50032] made of what the penalty should have been. If there has been an overpayment, the source is given a refund along with interest.³⁸ If there has been an underpayment, the source must pay the additional amount owed along with interest.³⁹

A state may seek delegation of the noncompliance penalty program for all sources in that state.⁴⁰ Under the proposed regulations, the Administrator shall approve any state program for administering the noncompliance penalty provisions that substantially conforms to the requirements of the statute and the regulations. For a state to secure such delegation, it must demonstrate that it has adequate legal authority to impose penalties, sufficient staffing and funding, a capability either through state personnel or contractors to carry out analyses of financial data and the operation of the computer program, the ability to conduct the necessary administrative hearings, and a mechanism for routinely transmitting to EPA notices and penalty calculations issued by the state under the program.⁴¹ EPA retains concurrent authority within a state even after a delegation of the program is in effect.⁴² The Administrator may issue a notice of noncompliance and take any action necessary to assess and collect a penalty against a source whenever the state fails to proceed with respect to that source.⁴³ The Administrator may review a decision of the state to grant an exemption and disapprove it if it is not in accordance with the requirements of the statute,⁴⁴ and he may object to the amount of a penalty as less than is required by the statute and establish a substitute noncompliance penalty for that source.⁴⁵

In order to reduce the administrative burden of the program, the statute authorizes EPA or a state to enter into a contract with a financial consultant for assistance in determining the amount of the penalty to be assessed.⁴⁶ Whenever a source to whom a notice is issued fails to submit its own calculation of the penalty, a schedule of payments, or the information necessary for an independent verification of these calculations, EPA or a state may enlist the services of a financial consultant and may add to the amount of the penalty the cost of the financial consultant's services.⁴⁷ Similarly, after a source achieves compliance, EPA or a state may enter into a contract for an independent calculation of the revised penalty if the source fails to submit its own final accounting or the information necessary for an independent verification of that accounting.

The statute provides for substantial penalties for violation of the requirements of § 120. Any person who fails to pay a quarterlypenalty when due must pay, in addition to the penalty owed, a quarterly nonpayment penalty.⁴⁸ The nonpayment penalty is equal to 20 percent of the aggregate amount of the penalties and nonpayment penalties accrued against the source as of the beginning of the quarter and must be paid each quarter in which payment is not made by the due date.⁴⁹ Failure to pay a noncompliance penalty or a nonpayment penalty also subjects the source to civil and criminal penalties. The Administrator may commence a civil enforcement action for recovery of any amounts due pursuant to § 120 and for additional fines of up to $25,000 per day.⁵⁰ He also may bring a criminal action against any person who knowingly violates any requirement of § 120 and seek heavy additional fines and/or imprisonment.⁵¹

The § 120 program has been designed to spur corporations to take the steps necessary to comply with pollution control requirements and to prevent them from postponing this responsibility by pursuing hearings and appeals. While many of its provisions appear strong, the program must be understood as a congressional antidote to years of foot dragging and delay. The challenge facing EPA has been to design an administrative mechanism that both achieves this basic goal and is compatible with the procedural safeguards provided by the statute and the Constitution.

Notice of Noncompliance

The issuance of the notice of noncompliance is the most important step in the assessment of a penalty. Under the statute, each person who receives a notice must pay a noncompliance penalty, unless there has been a final determination that the source is in compliance with applicable requirements or is entitled to an exemption.⁵² Thus, the issuance of notices identifies all those who are potentially subject to penalties. The issuance of the notice also marks the start of the period over which the penalty must be paid.⁵³ Regardless of administrative or judicial challenges by the corporation receiving the notice, the penalty accrues from the date that the notice was issued.⁵⁴

Under the statute, EPA or a state must send a notice to every stationary source that is in violation of applicable [9 ELR 50033] legal requirements.⁵⁵ In some cases, it will be clear whether a source is in violation of such requirements. For example, air pollution regulations may require that the source not burn fuel that exceeds a maximum percentage sulfur content, or the regulations may be impossible to meet without the installation of pollution control equipment. However, in many other cases, it will be unclear whether a source is in violation of applicable legal requirements. There are three general instances in which confusion may arise.

First, the emission limitation may be vague. It may require a curtailment of emissions only in particular circumstances that, in themselves, are difficult to ascertain. For instance, the Michigan Administrative Rules for Air Pollution Control provide:

R 336.49 Mission of Sulphur Dioxide From Power Plants

Rule 49. (1) It is unlawful for a person to burn in a power plant fuel which does not comply with either the sulfur content limitation of table 3, or which when burned results in sulphur dioxide emissions exceeding an equivalent emission rate as shown in table 4, unless….

(c) The user furnishes evidence that the fuel burning does not create, or contribute to, an ambient level of sulphur dioxide in excess of the applicable ambient air quality standards….⁵⁶

The emission limitation may also be vague because it is structured in terms of a goal along with a listing of possible equipment that will satisfy the goal. For example, the Wyoming Air Quality Regulations provide:

Hydrocarbon emissions shall be limited by all persons handling, transporting, or storing volatile organic compounds to prevent unnecessary emissions to the extent that ambient air standards described in these standards are exceeded. Measures considered appropriate for such control, or any equivalent method shall be:

(1) all waste disposal combustion systems for organic compounds from a vapor blowdown or emergency relief system shall be burned by smokeless flares or an equally effective control device…. (emphasis added).⁵⁷

Second, an emission limitation may be unenforceable not because of vagueness, but because it is in a state of flux. One approach widely followed by states in developing their state air implementation plans (SIPs) was to promulgate stringent emission limitations that applied immediately to all sources within a category, and then to provide for variances which would permit individual sources a reasonable amount of time to attain those standards. During the pendency of a variance proceeding, which might last for several years, it is unclear what emission limitation will ultimately be found to apply to the source over the interim period between the initial promulgation of the standard and the date for final attainment of the standard.⁵⁸ Similarly, states are continually revising their SIP provisions, relaxing some and making others more stringent. During the period beginning with the proposal of a SIP revision and continuing onwards through public hearings on the revision, approval/disapproval by the state, and approval/disapproval by EPA, which altogether may last several years, there are two emission limitations in effect. There is the "old" SIP provision and its as yet not finally approved replacement.⁵⁹ Lastly, emission limitations may be in a state of flux due to the administrative and judicial review process. An extreme case involves the State of Ohio. While an enforceable set of emission standards for sulfur oxides was due by 1972, a set was not actually promulgated until August 1976. EPA was ultimately required to write a control strategy, over the state's objections. Challenged on a number of grounds, the EPA-developed SIP was stayed in November 1976 and republished, with changes, in May 1977.⁶⁰ Recently, the state has indicated that it plans to revise this federally developed control strategy.⁶¹ In a case handed down a few months ago in Wisconsin, involving water pollution standards, the Wisconsin Supreme Court invalidated state regulations that had been issued four years earlier — and had been in litigation for three and a half years.⁶² Overall, then, whether because of variance proceedings, the revision process, or administrative or judicial review, it may not be clear whether an emission limitation — even one that is specific on its face — is currently enforceable against a particular source.

The third area of confusion arises in instances where EPA or the state does not possess sufficient evidence to clearly prove a violation of applicable legal requirements. Monitoring of emissions is rarely done on a continuous basis, and thus it may be necessary to engage in a specific test of the stack gas. However, such a test is very expensive; it may cost $15,000 or more for a single test.⁶³ Moreover, the tests that are performed are often unreliable or otherwise open to challenge because of the procedures followed in conducting them.⁶⁴

[9 ELR 50034]

The proposed regulations attempt to circumvent the problem of demonstrating noncompliance by providing that "the existence of an outstanding unsatisfied enforcement order or judicial decree governing a source shall be prima facie evidence that the source is out of compliance with applicable legal requirements."⁶⁵ This provision is, though, overly broad. The paradigm case would be where the consent decree explicitly provides that, in agreeing to the decree, the source does not admit to any violation of applicable legal requirements. More generally, a source may accept a decree because it views proceeding to comply with the decree as less onerous than continuing the dispute over its emissions.While one can sympathize with EPA's attempt to ease the demonstration of noncompliance in difficult cases, the use of an enforcement order or judicial decree in a context wholly foreign to that in which it was developed appears unwarranted.⁶⁶

Many sources are likely, upon receipt of a notice of noncompliance, to petition for a statutory exemption. The first category of exemptions requires, as a prerequisite, the issuance of a specified administrative order, extension, or suspension. A substantial amount of criticism has been leveled at EPA for narrowly drawing these exemptions in its proposed rules.⁶⁷ Yet, wide-open exemptions would clearly nullify the impact of the penalty program.

The greatest criticism has been aimed at EPA's limiting the "inability to comply" exemption to instances of natural disaster, fire, embargo, strike, or the complete impossibility of a supplier or contractor to furnish materials necessary to achieve compliance.⁶⁸ In particular, the Agency has been challenged for its exclusion of circumstances of technical or financial difficulty as a valid basis for the exemption. A consortium of close to 100 electric utilities has argued that the exemption for inability to comply should be available "where a source owner has chosen and installed a reasonable control technology only to find that it does not work…. In such a case, the source owner has taken all reasonable steps to insure compliance…."⁶⁹ However, such a wide-open interpretation of the exemption appears to be equally unjustifiable. It would require EPA in every instance to determine whether the specific equipment chosen by a polluter represented a reasonable choice.Thus, it would broaden the responsibility of the government from setting emission limitations to include determining how a particular source should go about complying with those limitations. It would also make EPA responsible for the success or failure of the equipment that was ordered and installed. Such a massive intrusion by EPA into the detailed operations of a polluter is unwarranted.

Corporations also have urged that the "inability to comply" exemption should encompass instances of financial difficulty. While EPA has provided that temporary market conditions may justify a finding of inability to comply, it has excluded any broader consideration of the specific financial situation of the corporation in question. Some commentators have argued that a corporation would in some instances be unable to comply for financial reasons because the issuance of the necessary debt would adversely affect its interest coverage ratio.⁷⁰ Again, though, such an intrusion by EPA into the detailed operations of a polluter is unjustifiable. There are many ways by which a source may raise capital, only one of which is through debt, and the selection of the specific financing method to be employed is a consideration that should remain outside EPA's area of consideration.

EPA has also narrowly drawn the de minimus category of exemptions.⁷¹ It requires that they be small in both nature and duration. It also requires that when they result from an unavoidable breakdown of process or air pollution control equipment, the source demonstrate that repairs were made in an expedient fashion and that the excess emissions are not part of a recurring pattern indicative of inadequate design, operation, or maintenance. EPA has been urged to expand the scope of this exemption to include instances where a polluter has experimented with new pollution control technology that has not resulted in full attainment of the emission standard.⁷² Again, however, this would enmesh EPA in detailed considerations of the best way for a polluter to achieve compliance. Congress has provided for an exemption based on truly new technology in § 120(a)(2)(B)(iii), which requires as a prerequisite a delayed compliance order issued under § 113(d)(4). The de minimus exemption should be limited to those situations that are in fact de minimus in nature and duration.

Calculation of the Penalty

The amount of the penalty is the economic value that a delay in compliance produces for the owner of the source. The statute views this conceptually in terms of the absence of an "add-on device" to a polluter's facility. Thus, § 120 provides that the economic value that results [9 ELR 50035] from noncompliance is equal to the net savings from (1) the capital costs associated with the equipment that should have been installed, plus (2) the operation and maintenance costs that would have been incurred had the equipment been in place.⁷³

EPA could have followed either of two approaches for determining the amount of this penalty. It could have eschewed general principles on the economic benefit from noncompliance and approached each situation on a case-by-case basis. Such an approach would require addressing a large number of questions such as the market structure of the industry in which the company competes, the degree to which increased costs for pollution control equipment could be passed on to customers in the form of increased prices, and the company's alternative uses for additional capital, in addition to the more basic questions such as the cost of the necessary pollution control equipment, annual operation and maintenance expenses, the corporation's cost of capital, and the corporation's marginal income tax rate. This approach would require an army of economists, financial analysts, accountants, and lawyers, as well as individuals technically competent in the cost and effectiveness of alternative pollution control technologies. If there were no constraints on the time and resources available to the Agency, this approach would be desirable. Yet, in the real world, is would simply render the program inoperable.

The second apprach to calculation of the penalty involves the development of a model. A mathematical formulation of the economic benefit to a typical corporation is constructed, based on generally accepted principles of accounting and finance and the degree to which various types of information can be readily obtained. Under this approach, the goal of accuracy in the determination of the penalty is viewed in terms of various degrees of accuracy and placed side-by-side with the associated administrative burdens. A compromise goal then emerges: the calculation of a penalty that closely approximates the economic benefit to the corporation and that imposes an acceptable administrative burden on the Agency.

EPA has obviously chosen this latter approach. It has developed a computer program that, based on 12 financial parameters, determines the present value to a source from an estimated delay in compliance and then determines a series of quarterly payments over the period of noncompliance which equals this present value sum.⁷⁴ Apart from two variables — the schedule of capital investments and the annual operation and maintenance expense — all the required parameters are obtainable from easily verifiable sources.

There have been two general sets of criticisms of this approach. The first set is aimed at EPA's use of a computer model. While some corporations have argued that the model is too simple, many others have argued that the model is much too complex for them to apply. These conflicting assaults on EPA's approach appear to reflect vast differences in the underlying ability of the environmental departments of corporations to engage in the necessary economic and financial anlyses. Although the criticisms are strongly expressed, together they cancel each other. They produce the ironic situation where, regardless of whether EPA chooses to increase or decrease the sophistication of its model, the criticism aimed at its degree of complexity will grow.

The second set of criticisms raise more conceptual issues. First, it is argued that many of the financial parameters are not tailored to the specific corporation. National averages are used for the rates of return on debt and preferred stock and for the rate of inflation. Industry averages are used in most cases for the rate of return on equity. Anticipating this concern, EPA has pointed out in the preamble to its proposed regulations, that "[t]he use of such industry and national averages greatly reduces the administrative costs, both to the firm and EPA."⁷⁵ Moreover, it appears that the variation between the penalty calculated by using firm-specific parameters compared to using the industry and national average parameters is, in most cases, very small. Coopers and Lybrand, consultants retained by the Natural Resources Defense Council in connection with its preparation of comments on the proposed regulations, calculated penalties using EPA's computer model for nine major companies, three each in the paper industry, petroleum industry, and iron and steel industry. The calculations were first performed using industry averages and then performed using firm-specific data. According to Coopers and Lybrand:

Although firm-specific return on equity diverged from industry averages by as much as 50%, the divergence in penalties under the two approaches was less than 5% in each instance. Thus, we conclude that the use of industry averages as opposed to firm-specific data introduces only very small differences in penalties.⁷⁶

Similarly, the use of national averages as opposed to firm-specific data also introduces only minor differences in penalties.

The second conceptual criticism of EPA's approach is the use of financial parameters that are based on historical rather than current or projected data. For example, the future inflation rate is estimated by calculating the average rate of inflation over the past five years. This method, of course, substantially underestimates the true inflation rate and produces a penalty that is smaller than it should be. In other cases, though, the use of historical data could result in a penalty that is higher than it should be. For example, a corporation's marginal rate of return on new investments may be lower than the historical industry rate of return. In such a case, the use of EPA's formula produces a penalty that is greater than the true economic benefit to the corporation. EPA's response to [9 ELR 50036] the criticism based on the use of historical data is, again, that the use of such readily available and verifiable information substantially reduces the administrative burden associated with calculating the amount of the penalty and that, in most cases, the error introduced is very small.

The third challenge involves EPA's assumption of "infinite replacement cycles." In developing its model, EPA assumed that the underlying polluting facility would never be retired, that it would repeatedly be replaced when it wore out. Accordingly, EPA's model assumes that a new pollution control facility will always be installed when the current pollution control facility wears out. This "infinite replacement cycles" assumption is obviously not appropriate in all cases. A coal-fired power plant may be permanently shut down at some point in time, thus eliminating the need for any further pollution control equipment. In addition, the technology of pollution control is rapidly changing; thus, even if there were a need for a second or third generation of pollution control equipment, it might be significantly different from the first generation of installed equipment. However, the impact of the "infinite replacement cycles" assumption on the amount of the penalty is not great. Since the second and third cycles occur many years out into the future, and the cash flows associated with each of these cycles are discounted to the present, they have title impact on the overall penalty. While the assumption may be questionable in some cases, the benefits from removing ambiguity and reducing administrative burden generally outweigh any error that the assumption might introduce.

All three of these criticisms — the use of non-firm specific data, the use of historical data, and the "infinite replacement cycles" assumption — raise the general question of how much accuracy may be subordinated to the easing of EPA's administrative task. While a precise answer is not possible, EPA's heavy reliance on the practical problems associated with alternative approaches has considerable merit in most situations. Yet, some mechanism is necessary to deal with exceptional cases. Though few in number, the result in such a case is a penalty that is unfair. Thus, the regulations should provide an opportunity for a source to demonstrate that some other method much more accurately reflects the economic benefit to it from noncompliance. Such a proceeding should not toll the requirement to pay a penalty based on EPA's model. If the corporation ultimately prevailed, then the amount of the penalty would be adjusted, and a refund would be provided with interest. The potential danger, of course, is that every corporation subject to a penalty would view its situation as exceptional, and request a hearing. Yet, opening the door part of the way clearly does not require opening the door all the way. It would also strengthen the regulations by enabling them to deal with a much wider variety of situations.

Section 120(d)(2)(B) of the Act requires that the amount of the penalty calculated by reference to capital costs and to operation and maintenance expense be offset by the amount of any expenditure made by the firm for the purpose of bringing the source into compliance.⁷⁷ EPA has been urged to interpret this as permitting a dollar-for-dollar offset.⁷⁸ While the statutory wording would appear to support this interpretation,⁷⁹ such an approach would undermine the thrust of the noncompliance penalty program. Assume, for example, that a source must spend $10 million on capital equipment to attain compliance and $0.5 million annually on operation and maintenance expenditures to maintain compliance. Without any offsets, the corporation would be required under EPA's model to pay a quarterly penalty of approximately $250,000. Under the dollar-for-dollar approach to offsets, the corporation could entirely escape from the requirement to pay a noncompliance penalty so long as its expenditures towards attaining compliance were $250,000 per quarter. At this rate, the source could delay installation of the necessary pollution control equipment for 10 years after the issuance of a notice of noncompliance and still not pay any penalty.

EPA's approach to providing for offsets divides the penalty (initially calculated without reference to any offsets) into a capital component and an operation and maintenance component. The computer model then reduces the capital component of the penalty by a percentage that is equal to the proportion of the scheduled expenditures on capital equipment that have been made to the total investment in capital equipment that is required. The model similarly reduces any pre-compliance expenditures on operation and maintenance. This approach both much more accurately captures the cost savings from delay than would a dollar-for-dollar credit and furthers the objective of the statute of removing the financial incentive to delay.

Overall, then, the proposed regulations on calculating the amount of a penalty fairly balance the need for accuracy with the administrative burdens which alternative approaches would involve. With the addition of a mechanism that would permit a source to challenge the application of EPA's model because of unique circumstances, without tolling the requirement to pay a penalty during such a proceeding, the regulations would reasonably implement the Act. Such a mechanism could also be used for revision of the penalty calculation. Under § 120(b)(8) of the Act, EPA must provide for an adjustment, from time to time, of the amount of the penalty assessment or the payment schedule whenever the Agency determines, after a hearing on the record, that the penalty or schedule do not meet the statutory requirements.⁸⁰ The proposed regulations do not now contain such a provision. It could, however, be inserted as [9 ELR 50037] part of the exceptional review mechanism recommended above.

Administrative and Judicial Review

The statute and regulations establish an elaborate structure of administrative hearings and judicial review. A source may request an administrative hearing in connection with four basic Agency decisions: (1) EPA's finding that the source is in violation of applicable legal requirements, (2) whether the source is entitled to an exemption, (3) EPA's revision of the penalty calculation submitted by the source, and (4) EPA's revision of the post-compliance adjustment proposed by the source.⁸¹ If a source requests a hearing on any of these determinations, it is entitled to a full-scale adjudicatory hearing.⁸² Held before an Administrative Law Judge and subject to EPA's Consolidated Rules of Practice, the hearing provides for the examination of witnesses under oath, cross-examination, objections to the introduction of evidence, a transcript of the full proceedings, and a decision on the record.⁸³ To exhaust its administrative remedies, the corporation must appeal an adverse decision of the Administrative Law Judge to the Administrator.⁸⁴

Judicial review is available both of EPA's regulations implementing § 120 and of these individual determinations.⁸⁵ A petition for review of the regulations must be brought in the United States Court of Appeals for the District of Columbia within 60 days after their promulgation.⁸⁶ A petition for review of a specific determination must be brought in the United States court of appeals for the appropriate circuit within 60 days after the date of the final Agency decision.⁸⁷ Apart from this brief statute of limitations period, the Clean Air Act provides that any action of the Administrator with respect to which review could have been obtained shall not be subject to judicial review in civil or criminal enforcement proceedings.⁸⁸ The statute also provides that:

In any action respecting the promulgation of regulations under Section 120 or the administration or enforcement of Section 120 no court shall grant any stay, injunctive, or similar relief before final judgment by such court in such action.⁸⁹

There are three major sets of issues associated with these provisions on administrative and judicial review. The first involves the delay in EPA's promulgation of regulations implementing § 120. Final regulations were due within six months after the date of enactment of the Clean Air Act Amendments of 1977 — or February 7, 1978.⁹⁰ Since penalties were to be imposed starting August 1979, the statute provided a period of approximately one and one-half years during which a source could have secured a final judicial determination of the validity of the regulations. So far, EPA has only issued proposed regulations. The Agency currently plans to promulgate final regulations around the beginning of next year and to begin to implement the program at that time. Thus, as a result of EPA's delay, the period during which a source can secure judicial review of the regulations prior to being required to pay a penalty under them may be considerably shortened. Corporations have argued that this imposes a hardship on them, particularly since a court is precluded under § 307(g) of the Act from staying the regulations prior to a final judgment.

In fact, though, the hardship is much less serious than it might appear. The first notices of noncompliance will not be issued earlier than a month after the final regulations are promulgated, and the first payments will not be due prior to six months after the date of these notices.⁹¹ Thus, only the initial group of sources are likely to be exposed to even a potential hardship. Whether this potential materializes depends on the amount of time which the court of appeals takes to render a final decision. It also depends on whether the court upholds the challenges and, in particular, whether the court invalidates EPA's drawing of exemptions from the penalties. Finally, even if payment is required before there is a judicial decision, a simple remedy would be to require payment of the assessment and then provide reimbursement with interest for any portion of the payment subsequently determined to be unwarranted.⁹² Thus, as a practical matter, the hardship [9 ELR 50038] to any individual corporation from EPA's delay in issuance of the final regulations is likely to be small.⁹³

The second major issue involves the timing of final Agency determinations. Under the statute, the first payment is due 180 days after receipt of the notice of noncompliance.⁹⁴ If a source challenges the notice, it must submit a petition within 45 days after receipt of the notice,⁹⁵ and EPA must reach a decision on the petition within 90 days.⁹⁶ Thus, under this statutory framework, a source is allowed at least 45 days after the denial of its petition to calculate the amount of the penalty due and to make the first payment.

However, under EPA's proposed regulations, final Agency decisions may occur not only beyond the 90-day statutory period for such decisions but also beyond the 180-day period before a source must make its first payment.⁹⁷ The regulations are unclear on what happens in this situation. Must a corporation pay a penalty even though there has been no final administrative decision on its petition alleging that it is in compliance or that it is entitled to an exemption? Section 66.61 of the proposed regulations states that a source must pay the first installment within six months after issuance of the notice of noncompliance, and § 66.63 establishes a late payment penalty for each source that fails to pay any penalty due under § 66.61. On the other hand, § 66.44 permits a source 45 days after EPA has made a final Agency decision denying its petition to submit its penalty calculation.

At first glance, the major problem with the timing of Agency determinations appears to be an unwarranted flexibility in the regulations permitting a final Agency decision later than the 90-day statutory period. However, there is a deeper problem, and it lies elsewhere. The statute requires Agency determinations of highly complicated matters within an unrealistic time schedule. It is simply impossible to make these Agency decisions both on a full record and within the period of time mandated by the statute. Short of an amendment to the statute, EPA's proposed regulations represent a reasonable approach to the problem. They shoud be revised, though, to make clear that the initial payment may be postponed until 45 days after the issuance of the Agency's decision.The payment would date back to the notice of noncompliance, but, if it was made within 45 days, would not subject the firm to a late payment penalty.

The final — and most important — set of issues involve the restrictions imposed on administrative and judicial review. EPA's regulations bar examination in Agency hearings of all but a very limited number of issues. For example, § 66.4(b) provides that:

(1) No exemptions may be granted unless explicitly authorized by these regulations. Arguments that the statute is more or less restrictive than the regulations will not be considered in any subsequent agency proceeding.

(2) When penalty calculations are at issue, only the accuracy of the inputs to the calculation model which are specific to that particular source … may be challenged in an agency hearing. Neither the terms and conditions of the model nor the conclusions as to what form of evidence will be considered in deciding on the accuracy of a particular input not specific to the source will be re-examined in individual proceedings.

(3) Sources are free to use methods of penalty calculation other than the Computer Program, if such methods are consistent with the Manual and Technical Support Document …. However, any such method of calculation that gives results different from the Computer Program in the case being calculated is automatically unacceptable.⁹⁸

While EPA's goal of limiting the number of potential issues that a source may raise is understandable, particularly in light of the statutory requirement to reach Agency decisions within a very short period of time, these prohibitions are clearly too broad. They exclude many issues which a source should be permitted to raise. For example, a source which believes that its emissions are 90 tons per year should be permitted to challenge the Agency's determination that it is a "major" source within the meaning of the statute.⁹⁹ A corporation that has already paid a civil penalty to a state that includes within the penalty a portion representing the economic value of noncompliance should be able to raise this payment as a defense to EPA's issuance of a notice of noncompliance. EPA's rejection of a source's notice that it has finally attained compliance should entitle the source to a hearing on the issue. While some limits on the scope of administrative proceedings are desirable, the regulation's prohibition on raising issues such as these should be relaxed.

Congress' restrictions on the scope of judicial review raise issues of a constitutional dimension. The statute requires that petitions for judicial review of EPA's regulations must be filed within 60 days after the promulgation [9 ELR 50039] of the regulations,¹⁰⁰ and that any action of the Administrator with respect to which review could have been obtained shall not be subject to review in later civil or criminal proceedings.¹⁰¹ Thus, if a firm fails to challenge EPA's regulations within the 60-day period on the ground, for example, that they too narrowly interpret the scope of a statutory exemption or they establish an incorrect method for calculation of the penalty, the firm may not raise these issues in a later proceeding. They are barred both in a lawsuit initiated by the firm challenging EPA's imposition of a penalty, and as a defense to a lawsuit initiated by EPA seeking collection of a penalty.¹⁰² In the view of some, it is unrealistic to expect all parties who may at any time be subject to the regulations to be able to bring suit within this brief period of time raising all issues presented by the regulations. It thus may be a denial of due process to foreclose contesting provisions of the regulations in later proceedings.

The right to judicial review of administrative action that imposes a penalty enforceable through the courts has repeatedly been declared as a right conferred by the Constitution.¹⁰³ Congress may, of course, limit the right to judicial review, under its power in article III to establish the jurisdiction of the inferior federal courts. However, collection of a penalty through the judicial power is subject to the requirements of duc process. This includes the opportunity to contest the legality of the imposition of the penalty. Thus, for an administrative penalty scheme to be enforceable, it must provide a party, at some point, with an opportunity for judicial review that satisfies the requirements of due process.

Section 307(b), with its restrictions on judicial review, raises the question of whether the review that is made available satisfies these requirements. Fortunately, the Supreme Court recently had occasion to interpret the preclusion provisions of § 307(b) in Adamo Wrecking Co. v. United States.¹⁰⁴ Adamo dealt with a small company that was accused by EPA of criminally violating a hazardous air pollutant standard established for asbestos which required the wetting down of buildings prior to their demolition. In its defense to the enforcement action brought by EPA, Adamo argued that the standard that it was accused of violating was not an "emission standard" as required by the statute. EPA responded that, since this challenge to the standard was not raised within the period required by § 307(b), Adamo was foreclosed from later raising it as a defense.

The Supreme Court disagreed, finding authority within the wording of § 307(b) to permit a limited inquiry into whether the standard was the type of standard authorized by the statute. The majority opinion dealt with the issue solely as a matter of statutory interpretation. The concurring opinion of Justice Powell noted that § 307(b) might in this situation raise a constitutional question, as did Justices Stewart, Brennan, and Blackmun in a footnote at the end of their dissent.

Due process of law, as applied to the imposition of noncompliance penalties, essentially requires that a party be afforded a reasonable opportunity to a hearing challenging the Agency's regulations.¹⁰⁵ If the application of the preclusion in § 307(b) to a small demolition company in the context of a relatively minor standard lies on the edge of constitutionality, then it appears that the prohibition as applied to corporations subject to noncompliance penalties lies well within permissible boundaries. Unlike Adamo, virtually all companies subject to § 120 are very large corporations — firms which emit substantial quantities of air pollution and which therefore may reasonably be expected to apprise themselves of major regulations issued under the Clean Air Act. Moreover, unlike the hazardous air pollutant standard that Adamo was accused of violating, which no one contested in a judicial proceeding commenced within the allowable period after promulgation of the standard, it is clear that a large number of well-researched and well-financed lawsuits will be filed forcing careful scrutiny of the legality of the major issues raised by EPA's regulations. While the Adamo case did not hold that the preclusion provision as applied to Adamo and the asbestos standard were constitutional, it does provide a reference point from which to view the preclusion provision in other contexts. Well down the road a party may wish to raise a novel issue under the § 120 regulations and run into the bar of § 307(b). However, that situation will not present itself in the round of lawsuits that will surely be initiated within the 60-day period following EPA's issuance of its final regulations.¹⁰⁶

Conclusion

In developing the § 120 regulations, EPA has had to walk a tightrope between being fair to corporations in connection with the imposition of penalties and establishing an administrative mechanism that does not overburden the Agency. Even polluters are entitled to certain basic procedural rights. These include calculating the amount of the penalty according to an approach that closely approximates the statutory standard of economic benefit, and providing a reasonable opportunity for a firm to present a defense. On the other hand, for § 120 to achieve its full potential, it must be a summary mechanism. Intended to buttress the traditional modes of enforcement, it can do so only to the extent that it spurs firms to take the steps necessary to reduce their emissions without requiring the Agency to go through the regular [9 ELR 50040] time-consuming and resource-intensive procedures associated with civil actions.

The inherent difficulty in walking this tightrope has been compounded by flaws in the congressional design of the statute. Specific provisions of § 120 are ambiguous, such as therequirement for offsets, the scope of the "inability to comply" exemption, and the date on which the payment of the noncompliance penalty is supposed to begin.

The basic statutory flaw, though, is the absence of any Agency discretion on whether to impose a penalty. While § 120 was patterned after a scheme adopted in Connecticut, which contained prosecutorial discretion,¹⁰⁷ and while EPA requested in hearings on the proposed 1977 amendments to the Clean Air Act that it be given discretion,¹⁰⁸ Congress ultimately decided to make the imposition of penalties mandatory. In so doing, it removed a great deal of the flexibility that EPA would otherwise have had in using the threat of imposition of a penalty to force compliance — a threat which, if wisely used, would only rarely have required any follow through by the Agency.

EPA clearly does not have sufficient resources to simultaneously implement the program against all major violators. The front-end burdens associated with conducting adjudicatory hearings on whether sources are in compliance or entitled to an exemption are simply too great. In a request recently submitted by EPA to the Office of Management and Budget for approval of a form, the Agency stated:

The number of [sources subject to noncompliance penalties at the outset] is estimated by EPA to be 680. Because of resource constraints on EPA and the limited number of adjudicatory hearings that can be handled at one time by the administrative law judges, it will take approximately three years for EPA to complete the penalty assessments for these 680 sources.¹⁰⁹ EPA also indicated that "[c]ompleting these penalty assessments will take less time if a large number of States accept delegation of the § 120 program; however this is very unlikely."¹¹⁰ There has been little interest so far by state environmental agencies in adopting the program, both because they perceive the administration of the program as very complex and burdensome and because any penalties collected will go into their state treasury rather than be available for use by them in connection with their own particular programs. Thus, as a practical matter, the noncompliance penalty program will be implemented — at least initially — as an enforcement scheme that is not applied simultaneously against all major sources in violation of emission requirements and yet which does not have the flexibility of a discretionary enforcement scheme.

Section 120 still provides substantial benefits, even as this somewhat unusual hybrid. Compared to pursuing an enforcement action under § 113, it has two major advantages. It establishes the amount of the penalty to be imposed on a source according to a formula, thereby erasing the valid assessment that substantial penalties for a violation are unlikely to be imposed under the civil penalty provisions of the statute. It also requires a firm that desires to litigate the imposition of sanctions to litigate on its own time. Since the penalty is calculated from the date of issuance of the notice of noncompliance, there is now no advantage to pursuing litigation as primarily a delaying tactic.

As with most major, new environmental policies, § 120 represents a complicated compromise. The program is likely to be much less than its sponsors have promised. Yet, it is likely to spur some firms to move more quickly to curtail their emissions. Over the long run, it also will provide a test of the application of economic incentives to the goal of improving the quality of the environment.

1. As of October 1977, EPA had identified 23,033 major stationary sources in the United States individually capable of emitting more than 100 tons of a pollutant each year (without reference to any emission control device which the facility may have installed). ENVIRONMENTAL PROTECTION AGENCY, PROGRESS IN THE PREVENTION AND CONTROL OF AIR POLLUTION IN 1977 81-82. As of this date, 20,358 (88 percent) were in final compliance; 1,276 (6 percent) were meeting cleanup dates in schedules or orders; 1,225 (5 percent) were in violation of emission standards or compliance schedules; and the status of 174 was in doubt. COUNCIL ON ENVIRONMENTAL QUALITY, ENVIRONMENTAL QUALITY — NINTH ANNUAL PEPORT 71-72 (1978).

These figures may, however, substantially overestimate the actual degree of compliance by major stationary sources. According to the General Accounting Office, "incorrect progress and status reports [on compliance by major sources] have been issued [by EPA] to the Congress and the public." COMPTROLLER GENERAL, GENERAL ACCOUNTING OFFICE, IMPROVEMENTS NEEDED IN CONTROLLING MAJOR AIR POLLUTION SOURCES, REP. NO. CED-78-165 at i (Jan. 2, 1979). According to GAO, the actual status of many sources is unknown, because information used to determine compliance is either unavailable or unreliable. GAO estimates that the compliance rate for major sources "is considerably less than the … percent reported by [EPA]." Id. at ii.

2. ENVIRONMENTAL PROTECTION AGENCY, supra note 1 at 82-90.

3. COMPTROLLER GENERAL, supra note 1 at 6-7.

4. Id.

5. Id.

6. ENVIRONMENTAL PROTECTION AGENCY, supra note 1 at 82.

7. COUNCIL ON ENVIRONMENTAL QUALITY, supra note 1 at 2, 73.

8. 42 U.S.C. § 1857c-8(a) (1979).

9. 42 U.S.C. § 1857c-8(b) (1976).

10. 42 U.S.C. § 1857c-8(c) (1976).

11. 42 U.S.C.A. § 7413 (Supp. 1978), ELR STAT. & REG. 42220 [hereinafter Clean Air Act § 113].

12. Clean Air Act § 113(c)(3), 42 U.S.C. § 7413(c)(3), ELR STAT. & REG. 42220.

13. Hearings Before the Subcomm. on Health and the Environment of the House Comm. on Interstate and Foreign Commerce on H.R. 4151, 4758, and 4444, 95th Cong., 1st Sess. 1680 (1977).

14. 42 U.S.C.A. § 7420 (Supp. 1978), ELR STAT. & REG. 42226 [hereinafter Clean Air Act § 120].

15. For a comprehensive survey of federal agency authority to seek a money penalty in a civil action or to administratively impose such a penalty, see Goldschmid, An Evaluation of the Present and Potential Use of Civil Money Penalties as a Sanction by Federal Administrative Agencies in 2 RECOMMENDATIONS AND PEPORTS OF THE ADMINISTRATIVE CONFERENCE OF THE UNITED STATES, July 1, 1970-Dec. 31, 1972 at 896-964.

16. Pursuant to Executive Order 12044, 3 C.F.R. 152 (1979), EPA commissioned a study of the economic effects of its proposed regulations implementing § 120. See TEMPLE, BARKER & SLOANE, THE ECONOMIC EFFECTS OF NONCOMPLIANCE PENALTIES UNDER SECTION 120 OF THE CLEAN AIR ACT ON THE IRON AND STEEL, ELECTRIC UTILITY, PULP AND PAPER, AND PETROLEUM REFINING INDUSTRIES (1979). The study estimates that total penalties under § 120 will be: (1) iron and steel industry — $261 million; (2) electric utility industry — $557 million; (3) pulp and paper industry — $16.1 million; and (4) petroleum refining industry — $21.8 million. These four industries account for approximately 40 percent of the industrial facilities which EPA estimates will be out of compliance with emission limitations as of August 1979.

17. Id. at Exhibits II-5b and III-6b.

18. 44 Fed. Reg. 17310 (Mar. 21, 1979) [hereinafter referred to as Proposed Noncompliance Penalty Regulations]. These proposed regulations missed the statutory deadline by over a year. Under § 120(a)(1)(A), final regulations were due no later than February 7, 1978. 42 U.S.C. § 7420(a)(1)(A), ELR STAT. & REG. 42226. Once issued, the final rules are to be codified at 40 C.F.R. parts 66-67.

19. Clean Air Act § 120(b)(3), 42 U.S.C. § 7420(b)(3), ELR STAT. & REG. 42227.

20. Clean Air Act § 120(a)(2)(A), 42 U.S.C. § 7420(a)(2)(A), ELR STAT. & REG. 42227.

21. Clean Air Act § 120(b)(3), 42 U.S.C. § 7420(b)(3), ELR STAT. & REG. 42227.

22. Clean Air Act § 120(b)(4)(A), 42 U.S.C. § 7420(b)(4)(A), ELR STAT. & REG. 42227.

23. Clean Air Act § 120(b)(4)(B), 42 U.S.C. § 7420(b)(4)(B), ELR STAT. & REG. 42227.

24. Clean Air Act § 120(a)(2)(B), 42 U.S.C. § 7420(a)(2)(B), ELR STAT. & REG. 42227.

25. Clean Air Act § 120(a)(2)(C), 42 U.S.C. § 7420(a)(2)(C), ELR STAT. & REG. 42227.

26. Clean Air Act § 120(b)(5), 42 U.S.C. § 7420(b)(5), ELR STAT. & REG. 42227. The proposed regulations do not fully comport with the statute on this point, however, in that they permit the Agency to decline to hold a hearing if it determines that the petition does not raise significant questions of material fact.Proposed Noncompliance Penalty Regulations, § 66.42(b), 44 Fed. Reg. at 17329. The statute itself contains no such provision.

27. The first payment is required within 180 days after the issuance of a notice of noncompliance, unless there has been a final Agency decision granting the source's petition. The statute requires that this Agency decision be made no later than 90 days after receipt of the petition. Thus, under the statute, a source is given at least 45 days after the denial of its petition for calculation of the amount of the penalty and tender of its payment. Clean Air Act §§ 120(b)(5) and 120(b)(7), 42 U.S.C. §§ 7420(b)(5) and 7420(b)(7), ELR STAT. & REG. 42227. The regulations are ambiguous on whether, if EPA delays its decision beyond the statutory 90 days, payment must still be made within the 180-day period. See text at notes 94-97.

28. Clean Air Act § 120(d)(2), 42 U.S.C. § 7420(d)(2), ELR STAT. & REG. 42227.

29. Proposed Noncompliance Penalty Regulations § 66.21, 44 Fed. Reg. at 17320. Appendix A to EPA's proposed regulations, entitled "Technical Support Document," contains a mathematical derivation of the formula used in the computer program. Appendix B, entitled "Instruction Manual," presents the procedures to be used to operate the program and contains a sample problem. Appendix C is a printout of the actual computer program.

30. Proposed Noncompliance Penalty Regulations — Appendix B, 44 Fed. Reg. at 17372.

31. Clean Air Act § 120(b)(8), 42 U.S.C. § 7420(b)(8), ELR STAT. & REG. 42227.

32. Clean Air Act § 120(d)(3)(A), 42 U.S.C. § 7420(d)(3)(A), ELR STAT. & REG. 42227.

33. Clean Air Act § 120(d)(3)(B), 42 U.S.C. § 7420(d)(3)(B), ELR STAT. & REG. 42228.

34. Clean Air Act § 120(d)(3)(A), 42 U.S.C. § 7420(d)(3)(A), ELR STAT. & REG. 42227.

35. Clean Air Act § 120(b)(2), 42 U.S.C. § 7420(b)(2), ELR STAT. & REG. 42227.

36. Clean Air Act § 120(b)(1), 42 U.S.C. § 7420(b)(1), ELR STAT. & REG. 42227.

37. Clean Air Act § 120(b)(9), 42 U.S.C. § 7420(b)(9), ELR STAT. & REG. 42227.

38. Clean Air Act § 120(d)(4)(A), 42 U.S.C. § 7420(d)(4)(A), ELR STAT. & REG. 42228.

39. Clean Air Act § 120(d)(4)(B), 42 U.S.C. § 7420(d)(4)(B), ELR STAT. & REG. 42228.

40. Clean Air Act § 120(a)(1)(B)(i), 42 U.S.C. § 7420(a)(1)(B)(i), ELR STAT. & REG. 42226.

41. Proposed Noncompliance Penalty Regulations § 67.11, 44 Fed. Reg. at 17324.

42. Clean Air Act § 120(a)(1)(B)(ii), 42 U.S.C. § 7420(a)(1)(B)(ii), ELR STAT. & REG. 42226.

43. Clean Air Act § 120(b)(2)(B), 42 U.S.C. § 7420(b)(2)(B), ELR STAT. & REG. 42227.

44. Clean Air Act § 120(b)(6), 42 U.S.C. § 7420(b)(6), ELR STAT. & REG. 42227.

45. Clean Air Act § 120(b), 42 U.S.C. § 7420(b), ELR STAT. & REG. 42227.

46. Clean Air Act § 120(c), 42 U.S.C. § 7420(c), ELR STAT. & REG. 42227.

47. Id.

48. Clean Air Act § 120(d)(5), 42 U.S.C. § 7420(d)(5), ELR STAT. & REG. 42228.

49. Id.

50. Clean Air Act § 113(b), 42 U.S.C. § 7413(b), ELR STAT. & REG. 42221.

51. Clean Air Act § 113(c)(1)(D), 42 U.S.C. § 7413(c)(1)(D), ELR STAT. & REG. 42221.

52. Clean Air Act § 120(b)(7), 42 U.S.C. § 7420(b)(7), ELR STAT. & REG. 42227.

53. Clean Air Act § 120(d)(3)(C)(ii), 42 U.S.C. § 7420(d)(3)(C)(ii), ELR STAT. & REG. 42228.

54. Clean Air Act §§ 120(d)(3)(B), 120(d)(3)(C), 42 U.S.C. §§ 7420(d)(3)(B), 7420(d)(3)(C), ELR STAT. & REG. 42228.

55. CleanAir Act § 120(b)(3), 42 U.S.C. § 7420(b)(3), ELR STAT. & REG. 42227. See also Proposed Noncompliance Penalty Regulations § 66.11(a), 44 Fed. Reg. at 17319.

56. Michigan Administrative Rules for Air Pollution Control, § R336.49, ENVT. REP. 411:0508.

57. Wyoming Air Quality Regulations, § 9(b), ENVT. REP. 556:0504.

58. See, e.g., Union Electric Co. v. EPA, 593 F.2d 299, 9 ELR 20154 (8th Cir. 1979), cert. denied, 48 U.S.L.W. 3203 (U.S. 1979), and United States v. West Penn Power Co., 460 F. Supp. 1305, 8 ELR 20874 (W.D. Pa. 1978).

59. See, e.g., Comments of Illinois Power Company on EPA's Proposed Noncompliance Penalty Regulations, EPA Docket No. EN-79-1, Document No. IV-D-10. In early 1977, Illinois Power Company sought a revision of the emission limitation applicable to one of its coal-fired power plants. The state finally approved the revision in early 1979, two years after Illinois Power Company's application, and then transmitted the revision to EPA for its approval. As of May 1979, EPA had not yet acted on the state's request.

60. 42 Fed. Reg. 27589 (May 31, 1977). See Comments of Buckeye Power, Inc. et al. on EPA's Proposed Noncompliance Penalty Regulations, EPA Docket No. EN-79-1, Document No. IV-D-133.

61. See Ohio Adopts Sulfur Dioxide Rules Less Stringent than Current Regulations, ENVT'L REP. 1154 (Sept. 14, 1979).

62. Wisconsin Electric Power Co. v. Natural Resources Board, 280 N.W.2d 218 (Wis. June 29, 1979).

63. See, generally, F. ANDERSON, et al., ENVIRONMENTAL IMPROVEMENT THROUGH ECONOMIC INCENTIVES 98-101 (1977).

64. See, e.g., Donner Hanna Coke Corp. v. Costle, 464 F. Supp. 1295, 9 ELR 20279 (W.D.N.Y. 1979). More generally, see Macbeth, The Need for Flexibility and Variety in Environmental Enforcement in ENVIRONMENTAL ENFORCEMENT at 13-14 (American Bar Association, Standing Committee on Environmental Law 1978). In commenting on the difficulties associated with testing methods and the use of monitoring equipment, Mr. Macbeth pointed to a 1977 audit performed by the National Enforcement Investigative Center. The audit found such widespread error in the collection and use of samples and testing equipment by 106 water polluters "that 99% of the audited sources were found to have submitted reports which were not full and complete." According to Mr. Macbeth, "Clearly, the assumption that source reports constitute a reliable data base is invalid." Even greater technical problems exist in the measurement of air pollution emissions. See F. ANDERSON, supra note 63 at 98-101.

65. Proposed Noncompliance Penalty Regulations § 66.41(b), 44 Fed. Reg. at 17321.

66. Section 66.11(c) of the proposed regulations attempts to simplify the problem produced by inchoate emission requirements by providing that "The existence of any pending litigation or judicial or administrative stays … shall not affect the issuance of a notice of noncompliance." 44 Fed. Reg. at 17319. To the extent that this purports to allow a notice of noncompliance to be issued, based on an underlying emission limitation that has been declared by a court to be unlawful, this provision is also too broad.

67. See Proposed Noncompliance Penalty Regulations § 66.31, 44 Fed. Reg. at 17320.

68. Id. at § 66.31(c).

69. Comments of The Utility Air Regulatory Group et al. on EPA's Proposed Noncompliance Penalty Regulations, EPA Docket No. EN-79-1, Document No. IV-D-132 at 41.

70. Id. at 44.

71. Proposed Noncompliance Penalty Regulations § 66.32, 44 Fed. Reg. at 17320.

72. Comments of The Utility Air Regulatory Group et al., supra note 69 at 48-49.

73. EPA's proposed regulations also provide for the permanent closing of a facility as a way to meet emission requirements. See Proposed Noncompliance Penalty Regulations, Appendix A, Attachment E, 44 Fed. Reg. at 17362. In such a case, a partial credit is allowed for expenditures made on pollution control equipment at a replacement facility of the same, or greater, capacity as the existing facility.

74. The mathematical derivation of the formula incorporated into the computer program appears in Appendix A of the proposed regulations, 44 Fed. Reg. at 17326.

75. 44 Fed. Reg. at 17312.

76. Comments of the Natural Resources Defense Council on EPA's Proposed Noncompliance Penalty Regulations, EPA Docket No. EN-79-1, Document No. IV-D-135, Attachment at p. 5.

77. Clean Air Act § 120(d)(2)(B), 42 U.S.C. § 7420(d)(2)(B), ELR STAT. & REG. 42227.

78. See e.g., Comments of the American Iron and Steel Institute on EPA's Proposed Noncompliance Penalty Regulations, EPA Docket No. EN-79-1, Document No. IV-D-25.

79. The statutory wording would also support an interpretation which would require a penalty equal to the full amount of the necessary capital investment. Thus, if $10 million in pollution control equipment were required and the delay in compliance were two years, the $1.25 million per quarter would be assessed as the capital cost component of the penalty. In such a case, a dollar-for-dollar offset approach would both conform with the apparent wording of the statute and not undermine the statutory objective of removing the financial incentive to delay.

80. Clean Air Act § 120(b)(8), 42 U.S.C. § 7420(b)(b), ELR STAT. & REG. 42227.

81. Proposed Noncompliance Penalty Regulations §§ 66.14(b), 66.52, and 66.73, 44 Fed. Reg. at 17320, 17321, and 17322.

82. Clean Air Act § 120(b)(5), 42 U.S.C. § 7420(b)(5), ELR STAT. & REG. 42227. When the program is administered by EPA, there is one exception to the general requirement that EPA grant an adjudicatory hearing. If a firm requests an exemption on the ground that noncompliance was de minimus in nature and duration, EPA may, under the statute, hold an informal hearing. Clean Air Act § 120(a)(2)(C), 42 U.S.C. § 7420(a)(2)(C), ELR STAT. & REG. 42227.When the program is administered by a state, the hearings need not conform to the full formal requirements of 5 U.S.C. § 554, ELR STAT. & REG. 41002, so long as they provide for a decision on the record and an opportunity for cross-examination. Proposed Noncompliance Penalty Regulations § 67.11(b)(3), 44 Fed. Reg. at 17324. Where a state hearing has been held, any EPA hearing to review the granting of an exemption or the assessment of a penalty may be of an informal nature. Proposed Noncompliance Penalty Regulations §§ 67.33 and 67.43 Fed. Reg. at 17325.

83. Consolidated Rules of Practice Governing the Administrative Assessment of Civil Penalties or the Revocation or Suspension of Permits, 43 Fed. Reg. 34738 (Aug. 4, 1978). The regulations have not yet been promulgated in final form.

84. Proposed Noncompliance Penalty Regulations § 66.81(b), 44 Fed. Reg. at 17322.

85. Clean Air Act § 307(b)(1), 42 U.S.C. § 7607(b)(1), ELR STAT. & REG. 42257.

86. Id.

87. Id.

88. Clean Air Act § 307(b)(2), 42 U.S.C. § 7607(b)(2), ELR STAT. & REG. 42258.

89. Clean Air Act § 307(g), 42 U.S.C. § 7607(g), ELR STAT. & REG. 42259.

90. Clean Air Act § 120(a)(1)(A), 42 U.S.C. § 7420(a)(1)(A), ELR STAT. & REG. 42226.

91. Clean Air Act § 120(d)(3)(B), 42 U.S.C. § 7420(d)(3)(B), ELR STAT. & REG. 42228. Under the Administrative Procedure Act, final regulations must be published not less than 30 days before their effective date, except for good cause shown. 5 U.S.C. § 553(d), ELR STAT. & REG. 41002.

92. The opportunity for judicial review of such a deprivation of property required as part of due process need not precede the Agency's collection of a penalty assessment. The Internal Revenue Service, for example, regularly collects taxes through summary administrative proceedings, with post hoc judicial review providing the vehicle for reimbursement of monies improperly collected. See generally, L. JAFFE. JUDICIAL CONTROL OF ADMINISTRATIVE ACTION 381-89 (1965).

93. In the absence of final regulations, EPA and the states have not yet issued notices of noncompliance. Thus, sources have escaped the payment of penalties that would now be accruing if final regulations had been promulgated. This virtually eliminates any net hardship to firms subject to § 120.

94. Clean Air Act § 120(d)(3)(B), 42 U.S.C. § 7420(d)(3)(B), ELR STAT. & REG. 42228.

95. Clean Air Act § 120(b)(4)(A), 42 U.S.C. § 7420(b)(4)(A), ELR STAT. & REG. 42227.

96. Clean Air Act § 120(b)(5), 42 U.S.C. § 7420(b)(5), ELR STAT. & REG. 42227.

97. A typical scenario under the regulations would be:

Day 1: Issuance of notice of noncompliance.

Day 45: Petition by source for a hearing. (Section 66.14)

Day 75: EPA grant of a hearing. (Section 66.42)

Day 165: Initial decision by the Administrative Law Judge. (Section 66.93)

Day 180: Petition by source for an appeal to the Administrator. (Section 66.97)

Day 195: EPA reply to the petition. (Consolidated Rules of Practice § 22.30(a)(2))

Day __: Argument before the Administrator. (Consolidated Rules of Practice § 22.30(d) No specific time limit is set for this step.

Day __: Final Agency decision. No specific time limit is set for this step.

98. Proposed Noncompliance Penalty Regulations § 66.4(b), 44 Fed. Reg. at 17319. Other provisions of the regulations also limit the issues that may be raised in agency hearings. For example, § 66.95(a) of the regulations provides that in a petition challenging the issuance of a notice of noncompliance, "no other issues may be raised except the question of noncompliance …." 44 Fed. Reg. at 17323.

99. This challenge would be barred under § 66.95(a) of the proposed regulations.

100. Clean Air Act § 307(b)(1), 42 U.S.C. § 7607(b)(1), ELR STAT. & REG. 42257.

101. Clean Air Act § 307(b)(2), 42 U.S.C. § 7607(b)(2), ELR STAT. & REG. 42258.

102. The only exception is where the grounds for the petition arise after the 60-day period following the Agency decision. In such a case, the petition must be filed within 60 days after the grounds arise.Clean Air Act § 307(b)(1), 42 U.S.C. § 7607(b)(1), ELR STAT. & REG. 42257.

103. See generally, L. JAFFE, supra note 92 at 381-89.

104. 434 U.S. 257, 8 ELR 20171 (1978).

105. No problem arises in connection with judicial review of the imposition of a specific penalty, since in such a case, adequate notice would have been provided through the issuance of the notice of noncompliance.

106. The issue of the constitutionality of § 307(b) raises a question much broader than whether the restrictions on review of the § 120 regulations are permissible. Section 307(b) applies to all major EPA actions under the Clean Air Act. Thus, the issue goes to the tailroad framework established by Congress for administrative and judicial cooperation in carrying out the goals of the statute.

107. See H.R. REP. NO. 294, 95th Cong., 1st Sess. 74 (1977), reprinted in 1977 U.S. CODE CONG. & AD. NEWS 1152.

108. Supra note 13.

109. Standard Form 83, submitted by Robert Homiak of the Environmental Protection Agency's Division of Stationary-Source Enforcement on August 9, 1979 to the Clearance Officer of the Office of Management and Budget.

110. Id. In workshops on the proposed regulations, held by EPA in the Spring of 1979 for the the staff of state environmental agencies, many of the state officials expressed substantial concern over the resource burdens whch they saw associated with the § 120 program. At the present time, EPA anticipates that not more than three or four states are likely to request delegation of the program within the first year of its implementation.