EnviroNotes

december 2008

Indiana Supreme Court Overturns $16.4 Million Judgment Against IDEM
Environmental Appeals Board Punts on NSR Regulation of Carbon Dioxide
U.S. EPA Publishes Final Rule Easing Regulatory Burden on Hazardous Secondary Materials Recyclers
U.S. EPA Issues Long-Awaited Revised CAFO Rule
IDEM Eliminates Office of Enforcement
Inflation Pushes Civil Penalties Higher

Indiana Supreme Court Overturns $16.4 Million Judgment Against IDEM
By Andy Bowman, Chair, Environmental Law Department, Bingham McHale LLP

On December 9, 2008, the Indiana Supreme Court published its decision holding that an agreed order for an environmental cleanup between the Indiana Department of Environmental Management (IDEM) and a company performing the cleanup is not a contract that will support a claim for damages arising from breach of contract and alleged bad faith activities by the IDEM. IDEM v. Raybestos Products Company, No. 49S02-0804-CV-183 (December 9, 2008). The Court concluded that the agreed order is an agency action governed by the Indiana Administrative Orders and Procedures Act (AOPA), which provides the exclusive means for review of the order. The Court determined that AOPA does not provide for claims for damages against the IDEM.

In 1997 IDEM and Raybestos entered into an Agreed Order which required Raybestos to remove and dispose of PCBs in Shelly Ditch located in Crawfordsville, Indiana. Raybestos submitted a risk assessment to the IDEM which concluded that the PCBs did not pose a health risk. The IDEM approved the risk assessment, and Raybestos subsequently proposed a cleanup which allowed PCB concentrations up to 238 parts per million (ppm) to remain. IDEM refused to approve the cleanup proposal and withdrew its approval of the risk assessment. The IDEM persuaded the U.S. EPA to issue a unilateral agreed order to Raybestos requiring a cleanup level of no greater than 10 ppm PCBs.

Raybestos filed a lawsuit against the IDEM claiming breach of contract arising from the withdrawal of its approval of the risk assessment and its efforts to have U.S. EPA issue an order requiring more stringent cleanup levels. The trial court ruled that the IDEM breached the Agreed Order and awarded Raybestos $16.4 million in damages and attorney fees. The IDEM appealed and in 2007 the Court of Appeals reversed, holding that the Agreed Order was unenforceable as contrary to public policy because it allowed a cleanup level twenty times higher than the federal requirement.

The Indiana Supreme Court noted that because an agreed order is an agency action, rather than a contract, Raybestos may seek review of the Agreed Order under AOPA by first filing a petition with the Office of Environmental Adjudication, as it did. The Court also ruled that by entering into the Agreed Order the IDEM did not and could not waive its authority to communicate with U.S. EPA. The Court opined that if Raybestos had wanted to preclude the U.S. EPA from overfiling, it could have dealt directly with the U.S. EPA.

Environmental Appeals Board Punts on NSR Regulation of Carbon Dioxide
By Larry Kane, Partner, Environmental Law Department, Bingham McHale LLP

A long-awaited decision of the U.S. Environmental Appeals Board (EAB) on the question of whether the Clean Air Act’s PSD program applies to carbon dioxide (CO2) disappointingly fails to definitively address the central issue. On November 13, 2008, the EAB issued its nonfinal decision in the case of In re: Deseret Power Electric Cooperative (PSD Appeal No. 07-03) remanding the PSD permit issued by USEPA’s Region 8 for further consideration by the agency of an appropriate interpretation of the Clean Air Act’s provisions governing the scope of the PSD program. The permit in controversy had been issued for construction of a new coal-fired electric generating unit located within Native American tribal lands in Utah. The Sierra Club challenged the permit’s validity based on the lack of Best Available Control Technology (BACT) limits for CO2.

The decision provides a very unsatisfactory interim ruling on whether the CAA requires BACT limits to be set for carbon dioxide emissions and effectively defers an ultimate decision by EPA on this issue to the Obama Administration. Some have cynically suggested that this result was a guiding objective for the decision.

However, the EAB definitively made certain preliminary legal conclusions. For example, the EAB held that Massachusetts v. EPA did not conclude that CO2 is subject to regulation under the Clean Air Act, contrary to contentions of the Sierra Club. (slip op. at 8) Also, the EAB held that the statutory phrase of Section 165 of the CAA (42 U.S.C. §7475) governing the scope of PSD applicability – whether a pollutant is “subject to regulation” under the CAA – is ambiguous and subject to interpretation by EPA, again contrary to Sierra Club’s contentions. (slip op. at 26)

In reaching the preceding conclusion, the EAB concluded that the requirement of Section 821 of the 1990 CAA Amendments that EPA adopt “regulations” to require the monitoring and reporting of CO2 emissions does not compel a conclusion that “subject to regulation” includes any regulation, such as monitoring and reporting requirements. (slip op., at 31) In other words, Congress may have intended different meanings for “regulation” as used in Section 165 of the CAA concerning the PSD program and for “regulations” as employed in Section 821 of the 1990 Amendments.

However, in turning to consider the EPA Region’s rationale for concluding that the CAA did not provide authority to require BACT limits for CO2, the EAB’s reasoning loses its clarity.

In issuing the PSD permit to Deseret Power, EPA’s Region 8 had declined to include BACT limits for CO2 on the grounds that the agency was constrained from further interpretation of PSD applicability to CO2 by a historical agency interpretation that “subject to regulation”, for purposes of PSD applicability, means that a pollutant must be subject to a regulatory requirement imposing actual controls on the pollutant’s emissions. The EAB criticized Region 8 for failing to “identify in its response to comments any [EPA] document expressly stating that ‘subject to regulation under the Act’ means ‘subject to a statutory or regulatory provision that requires actual control of emissions of that pollutant’ . . . Instead, the response to comments derives by inference what the Region views as the [EPA’s] historical interpretation.”

As a result, the EAB opined that it cannot conclude from the record for the Deseret permit that the historical EPA statements identified in the Region’s response to comments are “sufficiently clear and consistent articulations of an Agency interpretation to constrain the authority the Region acknowledges it would otherwise have under the terms of the statute. Thus, we must find that the Region committed clear error.” [Emphasis added.]

It seems that the EAB’s conclusion of “clear error” is pinned on a hypertechnical assessment of the manner in which Region 8 expressed its understanding of EPA’s historical interpretative position on the meaning of “subject to regulation.” In essence, the EAB seems to be prescribing an unreasonably high standard for an acceptable articulation by the Region of the rationale for its permit decision.

Consequently, the EAB remanded the Deseret Power permit to EPA “to reconsider whether or not to impose a CO2 BACT limit in light of the Agency’s discretion to interpret, consistent with the CAA, what constitutes a “pollutant subject to regulation under this Act.” In doing so, the EAB was careful to point out that it had not ruled that the CAA requires the PSD program to impose BACT limits on CO2. Instead, that interpretative decision was reserved for EPA.

Commenting on the EPA’s task under the remand, the EAB noted the obvious national import of the agency’s interpretation on this issue and strongly urged EPA to consider addressing the interpretative issue in an action of nationwide scope (implying a rulemaking).

Ramifications of the Deseret decision are grave: in leaving open the ultimate question whether the PSD program applies to CO2, the decision creates regulatory uncertainty not only for the electric utility industry but for virtually all other industrial sectors which combust even modest amounts of fossil fuels. Applications for PSD permits for construction or modification of such sources involving an increase in CO2 emissions are likely to be stalled and issued permits are almost certain to become embroiled in permit appeals.

U.S. EPA Publishes Final Rule Easing Regulatory Burden on Hazardous Secondary Materials Recyclers
By E. Ryan Murray, Attorney, Environmental Law Department, Bingham McHale LLP

After more than five years of rulemakings, the United States Environmental Protection Agency (“U.S. EPA”) published on October 30, 2008 a final rule revising the definition of solid waste to exclude certain hazardous secondary materials from regulation under Subtitle C of the Resource Conservation and Recovery Act (“RCRA”). 73 Fed. Reg. 64668 (Oct. 30, 2008). According to the U.S. EPA, the revisions to the definition were promulgated in order to respond to decisions of the U.S. Court of Appeals for the DC Circuit which “have provided EPA with additional direction regarding the proper formulation of the RCRA regulatory definition of solid wastes for purposes of Subtitle C” and to provide clarification on the concept of “legitimate” recycling. Id. The U.S. EPA estimates that the final rule would exclude up to 1.5 million tons per year of hazardous secondary materials from regulation under Subtitle C saving regulated industries approximately $95 million in regulatory and material recovery costs. Id. The final rule provides a revised definition of solid waste which excludes certain hazardous secondary materials when reclaimed, codifies factors for determining whether an activity is legitimate recycling, and provides an administrative process for receiving formal U.S. EPA determinations that hazardous secondary materials are not discarded and therefore are not solid waste when reclaimed.

Revision of “Solid Waste” Definition to Exclude Reclamation of Certain Hazardous Secondary Materials
Based on the U.S. Court of Appeals for the D.C. Circuit’s decisions referenced by the U.S. EPA as a major reason for the solid waste definition revisions, the U.S. EPA has no jurisdiction over materials that are not discarded. The statutory definition of “solid waste,” includes “other discarded material.” 42 U.S.C. § 6903(27). The term “solid waste” is further delineated under the regulatory definition of solid waste which provides that, with the exception of specifically defined exclusions, a solid waste is any discarded material. 40 CFR § 261.1(a)(1). A “discarded material” is defined as a material which is abandoned, recycled, considered inherently waste-like, or military munitions. 40 CFR 261.1(a)(2). Included in the term “recycled” are specific materials that are solid waste when reclaimed. 40 CFR § 261.1(c)(3). The U.S. EPA’s revisions to the regulatory definition of solid waste focus on the solid waste status of reclaimed materials. The U.S. EPA’s final rule excludes two classes of materials not previously excluded from the definition of solid waste: (1) hazardous secondary materials that are legitimately reclaimed under the control of the generator; and (2) hazardous secondary materials that are transferred for the purpose of legitimate reclamation.

1. Hazardous secondary materials legitimately reclaimed under the control of the generator

With regard to hazardous secondary materials that are legitimately reclaimed under the control of the generator, the revisions to the definition of solid waste include an exclusion of hazardous secondary materials that are legitimately reclaimed under the control of the generator in both land-based and non-land-based units. Excluded from the definition of “solid waste” are “certain hazardous secondary materials (i.e., listed sludges, listed by-products, and spent materials) that are generated and legitimately reclaimed . . . under the control of the generator, when such materials are handled only in non-land-based units.” 40 CFR § 261.2(a)(2)(ii). An identical exclusion applies to hazardous secondary materials that are generated and legitimately reclaimed under the control of the generator in land-based units. 40 CFR § 261.4(a)(23). These exclusions apply “to hazardous secondary materials that are not spent lead-acid batteries or listed wastes K171 or K172, or otherwise subject to the specific management conditions under 40 CFR § 261.4(a).” Id. The exclusions do not apply “to hazardous secondary materials that are inherently waste-like, . . . that are used in a manner constituting disposal or used to produce products that are applied to or placed on the land, . . . or [are] burned to recover energy or used to produce a fuel or otherwise contained in fuels.” 73 Fed. Reg. at 64669.

Hazardous secondary materials are considered under the control of the generator when: (1) the generator reclaims the material at the generating facility; (2) the material is generated and reclaimed at different facilities but “the generator certifies that the hazardous secondary materials are sent either to a facility controlled by the generator or to a facility under common control with the generator, and that either the generator or the reclaimer has acknowledged responsibility for the safe management of the hazardous secondary materials”; or (3) the hazardous secondary materials are generated and reclaimed pursuant to a written agreement between a tolling contractor and toll manufacturer. Id.

In addition, the final rule requires that when the generator and reclaimer are located at different facilities, the generator and reclaimer must provide the U.S. EPA with notification both prior to commencing operations under the exclusion and thereafter by March 1 of each even numbered year after the initial notification is provided. This reporting requirement replaces a requirement contained in the draft rule presented to the Office of Management and Budget (“OMB”) that required “[h]azardous secondary material generators, reclaimers and intermediate facilities [to] . . . re-notify within 30 days of a change to the name, address, or EPA ID number (if applicable) of the generator, reclaimer, or intermediate facility; the type of exclusion that applies.” According to U.S. EPA personnel, this requirement was removed from the final rule in order to eliminate duplicative requirements that would have increased the burden on both the regulated community and regulatory agencies.

2. Hazardous secondary materials that are transferred for the purpose of legitimate reclamation

With regard to hazardous secondary materials that are transferred for the purpose of legitimate reclamation, under the revised definition of solid waste, hazardous secondary materials are excluded from the definition when the hazardous secondary materials are transferred by the generator for the purpose of legitimate reclamation. 40 CFR § 261.4(a)(24). In order to qualify for this exclusion, the requirements for generators, discussed above, must be followed along with additional requirements, including:

1. Hazardous secondary materials transferred for purposes of legitimate reclamation must be handled only by the generator, transporter, or an intermediate facility or reclaimer. During transfer of such hazardous secondary materials, the materials may be stored at a transfer station for no more than ten days.
2. Generators must follow the requirements set forth in 40 CFR 261.4(a)(24)(v) which require: (a) containment of materials; (b) reasonable efforts to ensure that the intermediate facility or reclaimer intends to manage or recycle the hazardous secondary material properly and legitimately; and (c) retention of records of off-site shipments for three years.
3. Intermediate facilities and reclaimers must follow the requirements set forth in 40 CFR § 261.4(a)(24)(vi) which require: (a) containment of materials; (b) transmittal to generator of confirmation of receipt of materials; (c) maintenance of records of materials received and sent off-site; (d) financial assurance; and (e) proper management of residuals.

Codification of Factors for Determining Legitimacy of Recycling Activities
The exclusions from the definition of solid waste outlined above are dependent upon legitimate reclamation or recycling of hazardous secondary materials. As stated in the preamble to the final rule “due to economic incentives for managing hazardous secondary materials outside the RCRA regulatory system, there is a potential for some handlers to claim that they are recycling the hazardous materials when, in fact, that are conducting waste treatment and/or disposal.” 73 Fed. Reg. at 64670. In order to prevent such “sham” recycling, the U.S. EPA codified requirements for determining when legitimate reclamation activities are occurring, including specific factors to be considered when making a legitimacy determination.

In determining whether a recycling operation involving a secondary hazardous material is legitimate, the U.S. EPA will first examine the type of hazardous secondary material involved. Under 40 CFR § 260.43(b), legitimate recycling operations “involve a hazardous secondary material that provides a useful contribution to the recycling process or to a product or intermediate of the recycling process, and the recycling process must produce a valuable product or intermediate.” A material provides a useful contribution if it contributes valuable ingredients to a product or intermediate, replaces a catalyst or carrier, is the source of a valuable constituent recovered during the recycling process, is recovered or regenerated by the recycling process, or is used as an effective substitute for a commercial product. The product is valuable if it is sold to a third party or used by the recycler as a substitute for a commercial product or as an ingredient or intermediate in an industrial process.

If a recycling operation involves hazardous secondary materials satisfying the requirements outlined above, several other factors are considered in making a final legitimacy determination. First, the hazardous secondary material must be managed as a valuable commodity. Second, the product of the recycling process must not contain significant concentrations of constituents not found in an analogous raw material. And finally, all factors must be evaluated and legitimacy considered as a whole when making a determination that a hazardous secondary material is legitimately recycled.

Non-Waste Determinations
In the final rule, the U.S. EPA established an administrative process under which regulated entities may receive a formal U.S. EPA determination that hazardous secondary materials are not discarded and therefore are not solid waste when reclaimed. Two types of non-waste determinations are available under the final rule: (1) a determination for hazardous secondary materials reclaimed in a continuous industrial process and (2) a determination for hazardous secondary materials indistinguishable from a product or intermediate. The criteria for issuance of such determinations from the U.S. EPA are provided under 40 CFR § 260.30.

Effective Date of the Final Rule
The revisions to the solid waste definition contained in the final rule will become effective 60 days after publication in the Federal register (December 29, 2008). However, it should be noted that the effective date of the final rule has become a point of contention between the U.S. EPA and environmental groups. In the draft version of the final rule submitted to the OMB, the provisions were to become effective 180 days after publication in the Federal Register which would have made the rule effective several months into the Obama Administration in April 2009. Critics of this rule and other controversial U.S. EPA rules promulgated shortly before the end of the Bush Administration, contend that the U.S. EPA changed the effective date of the final rule in an effort to prevent the Obama Administration from blocking the implementation of the revisions to the definition of solid waste. Opponents of these so-called “midnight” rulemakings are currently developing strategies designed to revoke final rules. While the effective date of the final rule remains December 29, 2008, it is unclear whether the revisions to the definition of solid waste will survive into the next presidential administration.

For a detailed discussion of the revised solid waste definitions, see the federal register publication of the final rule here. Interested persons will need to monitor further developments on this issue.

U.S. EPA Issues Long-Awaited Revised CAFO Rule
By Matt Gernand, Attorney, Environmental Law Department, Bingham McHale LLP

On October 31, 2008, the U.S. EPA finalized a rule requiring concentrated animal feeding operations (“CAFOs”) dischargers to apply for a national pollutant discharge elimination system (“NPDES”) permit. See, 73 Fed. Reg. 70418 (Nov. 20, 2008). The rulemaking was required after the decision in Waterkeeper Alliance et al. v. EPA, 399 F.3d 486 (2nd Cir. 2005) vacated and remanded several portions of a similar rule issued by the U.S. EPA in 2003.

The 2008 rule requires only those owners or operators of CAFOs that discharge or propose to discharge to apply for an NPDES permit. The vacated 2003 rule required all CAFOs “with the potential to discharge” to apply for an NPDES permit regardless of whether they discharged. The revised rule requires the CAFO operator to conduct an objective assessment of the CAFO’s design, construction, operation and maintenance to determine whether CAFO does or will discharge from its production or land application area. A CAFO may request a “no discharge certification.” This voluntary certification will shield the CAFO from a violation for failing to obtain a permit if the CAFO has an accidental discharge after obtaining the no discharge certification. An unpermitted CAFO that has not obtained the no discharge certification and has a subsequent discharge will have the burden of proof that it did not “propose to discharge” prior to the discharge.

The other major change from the 2003 rule is the requirement for CAFO’s to submit a nutrient management plan (“NMP”) with its NPDES permit application. NMPs are required to include best management practices and procedures necessary to achieve effluent limitations and standards. The permitting agencies are now required to review the NMP, make the NMP available to the public for comment and incorporate the terms of the NMP into the NPDES permit. This will be required for both individual NPDES permits and general NPDES permits.

Other components of the final rule include:

Agricultural Stormwater Exemption. Under the final rule, a precipitation-related discharge from a land application area “under the control” of an unpermitted large CAFO will be exempt from NPDES permitting requirements as long as the CAFO land applies its manure, litter or process waste water in accordance with site-specific nutrient management practices as specified in the rule. This clarification applies to unpermitted large CAFOs that have no other discharges other than precipitation-related discharges from land application areas.

New Source Performance Standards (“NSPS”). The 2003 rule established a no discharge standard as the NSPS for new sources and allowed sources to meet this standard through the use of a 100-year, 24-hour containment structure. The final rule deletes the 100-year, 24-hour containment structure as NSPS stating that these systems still allowed discharges. The new rule allows NPDES permitting authorities to develop a site-specific, no discharge NSPS using “rigorous modeling analysis” that demonstrates that the designed containment system will comply with the no discharge requirement.

Water Quality Based Effluent Limitations (“WQBELs”). Under the Clean Water Act, two types of effluent limitations may apply. The first are technology-based effluent limitations which take into account the availability or effectiveness of treatment technologies and their associated costs. WQBELs are required if technology-based standards are insufficient to meet water quality standards. Under the new rule, the U.S. EPA has clarified that WQBELs may be required in permits with respect to production area discharges and discharges from land application areas that are not exempt as agricultural stormwater.

More information on the rulemaking can be found here.

IDEM Eliminates Office of Enforcement
By Jennifer Thompson, Partner, Environmental Law Department, Bingham McHale LLP

Indiana Department of Environmental Management (“IDEM”) Commissioner Tom Easterly has announced that IDEM will be eliminating its Office of Enforcement and that its Offices of Air Quality, Water Quality and Land Quality will be responsible for enforcement activities for their respective programs. Commissioner Easterly has assured the public that the IDEM will continue to vigorously enforce environmental laws and rules. He stressed the need for the Assistant Commissioner of each program office involved to approve enforcement actions, noting too many enforcement matters were coming before him for issuance of a Commissioner’s Order that the agency should not have been pursuing. The Office of Enforcement was created in 1992. Prior to its creation, enforcement matters were handled by the individual program offices as will be the case again.

Although the IDEM will be returning its enforcement authority to the program offices, the IDEM plans to continue to maintain its enforcement database. The IDEM also plans to continue to implement its self-disclosure policy, however, all self-disclosures now will be reviewed and handled by the Office of Pollution Prevention and Technical Assistance.

The announcement to eliminate the Office of Enforcement comes at the same time as Commissioner Easterly’s announcement regarding the need to first obtain Governor Daniels’ approval before hiring any staff to fill IDEM position vacancies and the announcement to eliminate permitting and enforcement activities by local agencies.

Inflation Pushes Civil Penalties Higher
By Andy Bowman, Chair, Environmental Law Department, Bingham McHale LLP

On December 11, 2008, the U.S. EPA published a final rule setting higher maximum civil penalties under 15 federal environmental laws. 73 Federal Register 75340 (December 11, 2008). Most violations of the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Emergency Planning and Community Right-To-Know Act and other major federal environmental statutes will be subject to a maximum penalty of $37,500 per day beginning January 12, 2009. The higher civil penalties will apply only to violations which occur after January 12, 2009. Federal law requires the U.S. EPA to adjust civil penalty amounts for inflation every 4 years. The last adjustment occurred in 2004. Most penalty provisions were increased 9.83%. A complete list of the new civil penalty amounts can be found in the Federal Register notice.

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