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01/07/83 Duquesne Light Company, v. Environmental Protection

January 7, 1983




Before turning to the particular issues in this case, we note that the standard for judicial review is spelled out in the Act itself. Section 307(d)(9) provides that:



RESOURCES DEFENSE COUNCIL INC., INTERVENORS 80-2161, 80-2162, 80-2163, 80-2165, 80-2166, 80-2176, 80-2177, 80-2178, 80-2179, 80-2180, 80-2181, 80-2185, 80-2186, 80-2188, 80-2189, 80-2190, 81-1736

Petition for Review of an Order of the Environmental Protection Agency. 1983.CDC.6


Robinson, Chief Judge, Mikva, Circuit Judge and Bazelon, Senior Circuit Judge. Opinion for the Court filed by Circuit Judge Mikva.


To speed improvement of the nations' air quality, Congress adopted the Clean Air Act Amendments of 1977, Pub. L. No. 95-95, 91 Stat. 685 (Amendments). An innovative feature of the 1977 Amendments was the authorization of penalties to recoup the economic benefits derived by pollution sources that fail to comply with air pollution limitations, 1977 Amendments § 120, 42 U.S.C. § 7420 (Supp. IV 1980). Section 120 directed the Administrator of the Environmental Protection Agency to promulgate regulations by February 1978 for assessing the noncompliance penalties. Id. § 120(a) (1) , 42 U.S.C. § 7420 (a) (1) (Supp. IV 1980). EPA's final rules implementing section 120 were adopted nearly a year and one half later. 45 Fed. Reg. 50,086 (1980) (codified at 40 C.F.R. §§ 66.1 to 67.43 (1981)).

In these twenty consolidated cases, industry petitioners seek review of a variety of aspects of the final rules. *fn1 In nearly all respects, we find that EPA complied with the statutory mandate: to recover the economic benefits of continued noncompliance with air quality standards, swiftly but fairly. Before discussing the merits, it would be useful to outline the statutory plan. I. THE CLEAN AIR ACT AND SECTION 120

The Clean Air Act (Act) imposes an interlacing set of emission controls on stationary sources of air pollution. National standards limiting levels of pollutants in the air we breathe, termed ambient air quality standards, are set for particular pollutants by EPA. Act § 109, 42 U.S.C. § 7409 (Supp. IV 1980). *fn2 They are put into effect, by state implementation plans (SIPs), approved by EPA, which limit emissions from particular sources within the state in a manner designed to attain the ambient air quality standards. Id. § 110, 42 U.S.C. § 7410 (Supp. IV 1980). Additional, highly protective federal standards are set by EPA to limit emissions by particular sources of hazardous air pollutants, such as asbestos, that are capable of causing serious injury or death. Id. 112, 42 U.S.C. § 7412 (Supp. IV 1980); see, e.g., Ethyl Corp. v. EPA, 176 U.S. App. D.C. 373, 541 F.2d 1 (D.C. Cir. 1976). EPA also sets separate, uniform standards for new stationary sources of emissions under § 111, 42 U.S.C. § 7411 (Supp. IV 1980). These separate standards are designed so that pollution controls will be installed when the plant is being built and design changes are easiest, and so that the states will not compete for new industry by adjusting emissions levels for air pollution. *fn3

Although the original statutory framework was only put in place in 1970, by 1977 Congress expressed serious dissatisfaction with the slow progress towards improving air quality. *fn4 Part of the explanation for the slow pace was that the original timetables for developing and implementing air quality standards had been overly optimistic in light of the technological, economic, and political complexities of the problem of air pollution. *fn5 Another part was that the Act is "technology-forcing":6 sources must meet emissions standards or else face statutory penalties for continuing operations, regardless of whether available technology enables them to meet the standards. At least as important an obstacle, however, was the expense of reducing emissions, making it profitable for industry to delay needed expenditures as long as possible.7

With this view of the problem, Congress both revised the substantive standards of the Act and strengthened the methods it provided for enforcing air quality standards. Substantive changes included new provisions for state plans to implement air quality standards in areas of persistent pollution -- so-called "non-attainment areas." Act 171-178, 42 U.S.C. §§ 7501-7508 (Supp. IV 1980). The Amendments also required the states to set standards to prevent significant deterioration of air quality in areas relatively free from pollution. Id. §§ 160-169A, 42 U.S.C. §§ 7470-7491 (Supp. IV 1980). Congress also revised the new source performance standards, requiring new sources to use the best available systems of emissions controls. Id. §§ 111, 42 U.S.C. § 7411 (Supp. IV 1980).8

The Act, as established in 1970, provided for criminal fines of up to $25,000 per day or imprisonment of up to one year for knowing violations of standards under the Act. It also empowered EPA to order sources to comply with applicable air quality standards, and to seek injunctive relief for violations of its orders. Pub. L. No. 91-604, § 113(b), 84 Stat. 1676, 1686-87 (1970). The 1977 Amendments added civil penalties to the enforcement Amendments added civil penalties to the enforcement scheme. Act § 113(b), 42 U.S.C. § 7413(b) (Supp. IV 1980). Together with these changes in traditional methods, the 1977 Amendments also added section 120 noncompliance penalties to the enforcement scheme of the Act.

Section 120 is a unique federal experiment with economic penalties. It is designed to alter economic behavior by changing the costs of emitting pollutants in violation of applicable air quality standards. See H.R. REP NO. 294, 95th Cong., 1st Sess. 72-79 (1977) [hereinafter 1977 HOUSE REPORT], reprinted in 4 A LEGISLATIVE HISTORY OF THE CLEAN AIR ACT AMENDMENTS OF 1977 at 2539-46 (1978) [hereinafter 1977 LEGISLATIVE HISTORY]. Congress added section 120 to the Act because it anticipated that even the augmented civil and criminal penalty scheme would not create sufficient incentives for sources to comply with air quality standards. Id. at 72. Congress also hoped that the section 120 penalties would increase administrative flexibility in enforcing the Act, by serving as a middle ground between stiff criminal sanctions or shutdown of non-complying facilities. Id. at 5. Equally important, by removing the economic benefits of noncompliance with the Act, Congress hoped to place polluters on the same economic footing as those who had limited their emissions through increased anti-pollution expenditures. Id.

Section 120 begins by specifying the sources made subject to noncompliance penalties. Under section 120(a) (2), penalties may be assessed against any major stationary source -- defined as any source that emits or has the potential to emit one hundred or more tons of any pollutant per year, Act § 302(j), 42 U.S.C. § 7602(j) (Supp. IV 1980) -- not in compliance with any applicable emission limitation. Such penalties also are to be assessed against other stationary sources not in compliance with federal new source performance standards or standards for hazardous pollutants. Finally, sources operating under certain types of delayed compliance orders allowed by the Act are to be assessed penalties if they fail to comply with the terms of such orders.

Sources meeting certain conditions, however, are to be exempted from the noncompliance penalties. For example, sources converting from petroleum to coal pursuant to orders issued under the Act, and complying with the terms of such orders, are exempt from noncompliance penalties. § 120(a) (1) (i). So are sources experimenting with innovative technology under the Act, § 120(a) (2) (iii), and certain sources unable to comply with emission limitations for reasons utterly beyond their control, § 120(a) (2) (iv). These exemptions are mandatory, although the burden of demonstrating entitlement to any of them falls on the source. In addition, EPA may exempt sources from penalties for certain instances of noncompliance that are de minimis in nature and duration. 120(a) (2) .

Penalties are to be assessed against non-complying sources either by EPA or by the individual states. Section 120 directs EPA to promulgate regulations implementing the penalties after notice and opportunity for public hearing -- the regulations we must evaluate here. Individual states may take over responsibility for administering the noncompliance penalty program if they submit plans approved by EPA, § 120(a) (1) (i), in which case the penalties are paid to the states, § 120(d) (1). To date, however, states have shown little interest in taking responsibility for the program. In any event, the statute does not differentiate substantively between the penalty program as administered by EPA and by the states, and the discussion to follow will for convenience refer principally to EPA as administering the program.

Section 120 sets out carefully the procedures to be followed in assessing the noncompliance penalties. Sources not complying with applicable air quality standards are to be given "a brief but reasonably specific notice of noncompliance." § 120(b) (3). Upon receipt of a notice of noncompliance, a source must either calculate the amount of the penalty owed, which begins to accrue with the issuance of the notice of noncompliance, § 120(b) (3) (c) (ii), or submit a petition within forty-five days challenging the notice of noncompliance or asserting entitlement to an exemption. EPA is to provide a hearing on the record and to act on the petition within ninety days.9 § 120(b) (5). Should a source in receipt of a noncompliance notice fail to respond, EPA may contract for calculation of the penalty. § 120(c).

Penalties are to be calculated to reflect the projected economic value of noncompliance to a source. EPA is to promulgate regulations for calculating the penalty, which must include at least the quarterly equivalents of capital costs, operating costs, and maintenance expenses avoided as a result of noncompliance. § 120(d) (2) . The penalty is to be paid on a quarterly basis, in equal installments during the entire period of noncompliance, beginning with issuance of the notice of noncompliance and ending when the source comes into full compliance with applicable air quality standards. § 120(d) (3) , . Expenditures made during a quarter for the purpose of bringing the source into compliance with air quality standards, and not otherwise reflected in the calculation of the penalty amounts, are to be credited against the penalty assessment for that quarter. § 120(d) (2) . Credits not taken into account fully in a given quarter may be carried over and offset against the next quarter's penalty assessment. § 120(d) (2). When a source reaches full compliance with air quality standards, the penalty is to be recalculated to take into account the actual -- rather than the projected -- expenditures required to bring the source into compliance with air quality standards and the length of the actual period of delay in the expenditures. § 120(d) (4). Sources that have overpaid are entitled to reimbursement, at interest rates set by the United States Treasury (or by the state, if the state is administering the penalty program); sources that have underpaid are to be assessed the deficiency, again with interest. § 120(d) (4) , .

Initial penalty payments are due six months after issuance of the notice of noncompliance. A source may seek judicial review of a determination by EPA that penalizes the source under section 120, but the penalty is not stayed pending the review process, § 120(e). The penalties are in addition to other civil and criminal penalties under the Act, and do not alter a source's other obligations under the Act. § 120(f).

In the case of review of any action of the Administrator to which this subsection applies, the court may reverse any such action found to be --

arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;

contrary to constitutional right, power, privilege, or immunity;

in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; or

without observance of procedure required by law, if (i) such failure to observe such procedure is arbitrary or capricious, (ii) the failure to observe such procedure was raised with reasonable specificity during the period for public comment, and (iii) the failure to observe such procedure was so serious and related to matters of such central relevance to the rule that there is a substantial likelihood that the rule would have been significantly changed if such failure had not been made.

§ 307(d)(9). 42 U.S.C. § 7607(d)(9) (Supp. IV 1980).

We have reviewed these regulations with this standard as our measure. II. THE APPLICABILITY OF SECTION 120

Industry petitioners' challenge to EPA's regulations implementing section 120 begin with the threshold question of which sources are subject to noncompliance penalties. EPA interprets the scope of the statute broadly, while industry petitioners argue for a narrow interpretation.

Section 120 provides that noncompliance penalties are to be assessed against "every person who owns or operates" one of three categories of non-complying sources. The statutory language reads:

(i) a major stationary source (other than a primary nonferrous smelter which has received a primary nonferrous smelter order under section 119) which is not in compliance with any emission limitation, emission standard or compliance schedule under any applicable implementation plan (whether or not such source is subject to a Federal or State consent decree), or

(ii) a stationary source which is not in compliance with an emission limitation, emission standard, standard of performance, or other requirement established under section 111 or 112 of this Act, or

(iii) any source referred to in clause (i) or (ii) (for which an extension, order, or suspension referred to in subparagraph (b), or Federal or State consent decree is in effect), or a primary nonferrous smelter which has received a primary nonferrous smelter order under section 119 which is not in compliance with any interim emission control requirement or schedule of compliance under such extension, order, suspension, or consent decree.

§ 120(a) (2) . Section 120 penalties thus apply most extensively to major stationary sources, which may be liable to pay penalties for failure to comply with any type of air quality standard, interim or permanent, applicable under the Clean Air Act. Other, smaller stationary sources will be assessed penalties only for failures to meet federal new source performance standards, § 111, 42 U.S.C. § 7411 (Supp. IV 1980), federal standards for particularly hazardous pollutants,

EPA's regulations implementing section 120 specify that a notice of noncompliance -- the first step in the penalty assessment process -- is to be sent to the owner or operator of any source that is in violation of "applicable legal requirements." 40 C.F.R. § 66.11(a) (1981). The regulations defining the term "applicable legal requirements" track the language of the applicability provisions set out above. See id. 66.3(c) (1)-(4). Industry petitioners challenge this definition, together with two other EPA interpretations of the applicability provisions. The first of these is EPA's definition of "owner or operator" of a source to include both lessees and supervisory companies of sources not in compliance with applicable legal requirements. Id. 66.3(i). The second is EPA's broad definition of "potential to emit," a term of art used in deciding which stationary sources are "major." Id. §§ 66.3(g), (j). We now turn to those definitions.

A. " Applicable Legal Requirements "

EPA's regulations define "applicable legal requirements" for major sources as follows:

(1) In the case of any major source, any emission limitation, emission standard, or compliance schedule under any EPA-approved State implementation plan (regardless of whether the source is subject to a Federal or State consent decree). . . .

40 C.F.R. § 66.3(c) (1981).

Industry raises two objections to this definition. The first is that it permits the assessment of penalties against sources operating under consent decrees and complying with their terms, but not yet in compliance with applicable legal requirements. The second is that EPA's regulations dictate that penalties are to be assessed against major sources failing to comply with limits stipulated in state SIPs, even though proposed revisions of the SIPs are pending, and even though EPA has not acted on the revisions within the time limits mandated in the Act. With regard to the first objection, we affirm EPA's determination that section 120 penalties are to be applied to sources operating under consent decrees. With regard to the second, we conclude that EPA's application of section 120 penalties pending SIP revisions must be modified in part.

1. Sources in Compliance with Consent Decrees

The regulations require noncompliance penalties to be assessed against major stationary sources operating under consent decrees. They explicitly provide that a major source is liable for failures to comply with emission limitations set for that source in the SIP of the state in which the source is located, 40 C.F.R. § 66.3(c) (1) (1981), even though the source has been sued for violation of the limitations in question, the suit has resulted in a consent decree, and the consent decree sets out a schedule for the source to come into compliance with the limitations in exchange for an agreement by EPA not to pursue the civil or criminal penalties set out in the enforcement section of the Act, 113(c).

Industry petitioners concede that the statutory parenthetical "(whether or not such source is subject to a Federal or State consent decree)," 120(a) (2) (i), permits assessment of noncompliance penalties against some major sources operating under consent decrees. They contend, however, that such penalties may be assessed only in two kinds of cases: (1) if the source fails to comply with a different emission limitation that was not the subject of the consent decree and (2) if the source fails to comply with the terms of the consent decree itself. Petitioners argue that by assessing penalties against major sources for failure to comply with emission limitations that were themselves the subject of consent decrees, EPA has misinterpreted the statutory parenthetical. In the alternative, they contend that if EPA's interpretation of the statute is correct, the statute interferes with previous court decrees in an unconstitutional manner.

EPA rested its decision to permit assessment of noncompliance penalties against major stationary sources operating under consent decrees squarely on its reading of the statutory language. 45 Fed. Reg. 50,086-87 (1980). EPA also pointed out that assessing penalties against sources operating under consent decrees would further the purposes of section 120, for sources out of compliance with emissions limitations derive benefits from their noncompliance regardless of whether they have been subject to consent decrees. Id. at 50,087.

We think that EPA's interpretation of the statute is sound. Section 120 distinguishes three categories in which noncompliance penalties are to be assessed. See supra p. 465. The disputed parenthetical language appears in the first of these -- major sources failing to comply with any SIP limitations. Reference to consent decrees also appears in the third category, which provides for the assessment of penalties against sources failing to comply with the terms of consent decrees or other interim orders. Industry petitioners' reading of the parenthetical -- that it principally indicates that penalties may be assessed against sources failing to comply with their consent decrees -- accounts only for the reference to consent decrees in the third category. It would render the parenthetical superfluous, for the third category makes absolutely plain that sources failing to comply with consent decrees may be subject to penalties for that very failure. Thus the function of the initial parenthetical is to make clear that consent decrees do not bar the imposition of penalties against major sources in violation of any emission limitation.

The legislative history, although limited, also supports the interpretation of the parenthetical chosen by EPA. Section 120 as originally enacted did not include the disputed parenthetical. See Pub. L. No. 95-95, 91 Stat. 714 (1977). The parenthetical was added as one of a number of "technical" amendments to the Clean Air Act Amendments of 1977, in the Safe Drinking Water Amendments of 1977, Pub. L. No. 95-190, § 14(a) (28), 91 Stat. 1401. An item-by-item summary of the technical amendments offered to the House explained that the parenthetical

clarifies that a noncompliance penalty applies to any non-complying source (which is not exempted) including a source which has received a Federal or State consent decree extending a final compliance date.

123 CONG. REC. 36,331 (1977). The universal scope of the explanation -- that penalties are to apply to any source, in spite of a consent decree -- clearly expresses the understanding of the statute urged by EPA.10

Moreover, EPA's interpretation furthers the statutory purpose of section 120: recouping the economic benefits of noncompliance. The legislative history of section 120 repeatedly emphasizes the goal of removing the benefits derived by sources from delayed compliance with the Act. A source under a consent decree reaps such benefits, although the benefits may be expected to shrink as the source follows the course of compliance set out under the decree. Industry petitioners are surely correct that sources would be encouraged to enter consent decrees if the decrees provided shelter from noncompliance penalties, but it does not follow that Congress meant the decrees to abrogate the penalties. The penalties are intended to provide a swift, even-handed, economic incentive for compliance with the Act's standards, but would not do so if sources could escape the penalty by means of consent decrees.

Industry petitioners alternative argument is that if we find EPA's interpretation of the parenthetical sound -- as we do -- we must find the statute itself constitutionally defective. Full statement of their constitutional concerns requires further description of the enforcement scheme of the Act.

The Act empowers EPA to order a major stationary source to comply with any applicable SIP requirement. § 113(a). Should the source fail to comply with EPA's order, EPA may sue in federal district court to enforce the order. § 113(b). EPA's power to enforce the provisions of the Act, moreover, is not exclusive. States are under a duty to enforce their implementation plans. § 113(a) (2). States may bring suit either in federal district court or in state court to enforce any emission limitation, provided only that the limitation is at least as stringent as the state's SIP. § 116, 42 U.S.C. § 7416 (Supp. IV 1980). Citizens, too, are "welcome participants in the vindication of environmental interests," Friends of the Earth v. Carey, 535 F.2d 165, 172 (2d Cir. 1976), cert. denied, 434 U.S. 902, 54 L. Ed. 2d 188, 98 S. Ct. 296 (1977); see also Metropolitan Washington Coalition for Clean Air v. District of Columbia, 167 U.S. App. D.C. 243, 511 F.2d 809 (D.C. Cir. 1975), and may bring suit in federal district court against any person, including the United States, in violation of any emission standard, 304(a), 42 U.S.C. § 7604(a) (Supp. IV 1980), unless EPA or the state has brought suit to compel compliance, § 304(b) (1) . See Baughman v. Bradford Coal Co., 592 F.2d 215 (3d Cir. 1979) (federal district court has jurisdiction of citizen suit to enforce emission limitation despite fact that action by Pennsylvania Department of Environmental Resources is pending before Pennsylvania Environmental Hearing Board, an entity lacking full enforcement powers of federal courts).

Suits brought by any of these plaintiffs -- EPA, the individual states, or private citizens -- may terminate with consent decrees. In the case of a suit brought by EPA or the state, such decrees typically set out a schedule for compliance by the source in settlement of the source's further liability for civil and criminal penalties under the Act for the violations at issue.11 EPA may intervene as of right in a suit brought by a private citizen, § 304(c), and there, too, the consent decree may settle the source's then-existing liability for civil or criminal penalties under the Act.

Consent decrees entered into before the 1977 Amendments to the Act of course do not mention or purport to settle the section 120 noncompliance penalties. Since 1977, consent decrees entered into by states have been required to include notice to the source that it may be assessed noncompliance penalties despite the fact that the decree sets out a schedule for delayed compliance with SIP requirements, § 113(d) (1) .12 In the rulemaking at issue here, EPA announced its intention not to enter into any consent decrees without explicit provision that the source may be required to pay noncompliance penalties unless exempted by EPA. Notice of Proposed Rulemaking, 44 Fed. Reg. 17,315 (1979). Nevertheless, in some cases EPA has continued to enter into consent decrees that neither settle section 120 penalties nor give notice that they may continue to be assessed,13 so that EPA's present practice is not quite clear.

Industry petitioners' principal constitutional complaint is that by assessing a noncompliance penalty against a source subject to a consent decree, EPA interferes with the res judicata effect of the decree, in violation of the separation of powers. Petitioners' position is that EPA, should it wish to assess a penalty, may do so only by petitioning the issuing court for modification of the decree. Although petitioners are correct that consent decrees, like final judgments, do have a res judicata effect, they misconstrue the statutory situation.

Congress always has the power to impose a new penalty on continuing activity. Here, under its power to regulate interstate commerce,14 Congress has imposed a new penalty. As it specifically noted in passing this section, "any orders, payments, sanctions, or other requirements under [section 120] shall be in addition to any other permits, orders, payments, sanctions, or other requirements established under this Act." § 120(f). Thus, when EPA promulgated its regulations, it was not seeking to relitigate, revise, or otherwise overturn a validly entered consent decree; rather, it was merely acting in furtherance of the additional, constitutionally proper, mandate Congress gave it in the 1977 Amendments.

Industry petitioners raise two other constitutional objections to the imposition of section 120 penalties on sources operating under consent decrees. Each can be disposed of quickly. First, petitioners argue that imposition of the penalties without a hearing and findings of fact by the initial issuing court would violate a source's right to due process of law. This argument, however, relies on the mistaken assumption that in imposing the section 120 penalties, EPA is unilaterally revising the terms of consent decrees, rather than imposing a new statutory penalty on a continuing violation. Second, petitioners argue that the imposition of section 120 penalties on sources operating under state court consent decrees violates the tenth amendment by interfering with state judicial proceedings. This argument, too, falters because of its mistaken assumption that section 120 permits the revision of decrees setting liability for prior violations. Petitioners do not argue that the penalties per se are invalid ...

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