In yesterday’s decision the First Circuit held that the Coast Guard failed to comply with NEPA when it promulgated a rule (the “2007 Rule”) which purported to expressly preempt certain provisions of the Massachusetts Oil Spill Prevention Act (MOSPA).

By way of background, the MOSPA was enacted in response to a spill of approximately 98,000 gallons of oil into Buzzards Bay in April 2003. The federal government filed suit against the Commonwealth, asserting that the MOSPA was preempted by federal law. (The Coalition intervened as a defendant to support the Commonwealth in defending the MOSPA). Following a district court decision and an appeal to, and remand by, the First Circuit, and while the case was pending once again before the district court, the Coast Guard promulgated the 2007 Rule. 

The Coalition and others believe that the 2007 Rule provides less protection against oil spills than does the MOSPA – for example, the 2007 Rule requires tug escorts only for certain single-hulled vessels transporting oil through the Bay while the MOSPA requires such escorts for single- and double-hulled vessels. But in the course of the rulemaking the Coast Guard relied on a Categorical Exclusion (CE) to obviate the need for the preparation of an EA or EIS, and did not consider the impact of this lessened environmental protection.  The Commonwealth and The Coalition argued that in relying on a CE and failing to perform a NEPA analysis, the Coast Guard violated NEPA. The District Court found that the Coast Guard’s reliance on a CE was erroneous, but held that such error was harmless. 

The First Circuit agreed that the Coast Guard’s reliance on a CE was erroneous because the promulgation of the 2007 Rule was “likely to be highly controversial . . . in terms of public opinion”, and thus triggered an “extraordinary circumstances” exception to the use of a CE. The First Circuit then disagreed with the lower court’s finding that such error was harmless. 

The Court distinguished the case from prior cases finding harmless error, stating that

 the sockdolager is that the Coast Guard did not perform and environmental analysis at all. Indeed, it made no site-specific appraisal of the potential environmental effects of its proposed action. For ought that appears, it took no “hard look” at the situation. It gave the matter the barest of glances and . . . made no ‘reasoned finding.’ . . . the absence of any [substantial] analysis is antithetic to a finding of harmlessness.

Thus, the Court made clear that the harmless error rule is only applicable where there is evidence that some substantial environmental analysis has been undertaken by an agency. In this case the administrative record did not show that “the Coast Guard ever analyzed, or even adequately studied, the environmental impact of its proposed action.”

The Court also rejected the Coast Guard’s argument that failure of the Coalition and Commonwealth to object to its reliance on a CE during the notice-and-comment period resulted in a waiver of such objections, stating that

. . . nothing in Public Citizen shifts the burden of ensuring NEPA compliance from the agency that is proposing an action to those who wish to challenge that action. Indeed, the Public Citizen Court stressed that ‘the agency bears the primary responsibility to ensure that it complies with NEPA.’

In reaching its decision, the Court did not address the issue of preemption.  As a result of the decision, the First Circuit vacated a previously issued injunction of the MOSPA, and the 2007 Rule will now be remanded to the Coast Guard for proceedings consistent with the Court’s opinion.

The Sierra Club challenged three modifications undertaken at the Station: a 1995 change in fuel source from lignite coal to sub-bituminous coal; a 1998 boiler modification; and, 2001 changes which allowed the Station to supply steam to a nearby ethanol plant. In June 2008, the Sierra Club filed a citizen suit alleging, among other things, that the defendants violated and continued to violate the Clean Air Act in that they had failed to obtain PSD permits prior to the modifications and, as a result, were operating without appropriate permits and without abiding by best available control technology (“BACT”) limits that would have been imposed had PSD permits been obtained.

The Eighth Circuit upheld the district court’s dismissal of the case, basing its decision largely on the language of the PSD statute, which prohibit a facility from being “constructed” without meeting PSD requirements, and the citizen suit provision, which authorizes suit “against any person who proposes to construct or constructs,” as well as the related regulations.  Finding the language unambiguous, the court refused to defer to the contrary interpretation of EPA, which participated as an amicus party. The court rejected the argument that the CAA and PSD regulations should be interpreted as establishing operational duties based on the program’s purpose and the fact that PSD permits impose requirements on the operation of facilities, finding that such requirements are not enforceable independent of the permitting process. In addition to finding the Sierra Club’s civil penalty claims barred, the court held that its claims for equitable relief seeking to bring the Station into compliance with the Act were also barred. 

Under the Eighth Circuit’s reasoning, while a facility must obtain a PSD permit prior to construction or modification, and, having done so, must operate in accordance with the permit, if the operator fails to apply for such a permit, claims relating to its failure to obtain or operate pursuant to an appropriate PSD permit are barred unless brought within five years of the construction or modification. Given the potential difficulties involved in detecting PSD violations, the decision places a burden on plaintiffs seeking enforcement of PSD requirements to identify and file claims related to such violations as early as possible. Given that this issue has come up a number of times and there is some disagreement amongst the courts as to the right answer, it is possible that the Sierra Club will seek further review of this issue.

On Friday, July 23, in ConocoPhillips, et al. v. EPA, the Fifth Circuit granted EPA’s motion for a voluntary remand of the existing-facilities portion of its Phase III regulation. The Phase III rule, promulgated in 2006, addressed CWIS at existing small power plants and other facilities in certain industries, including the pulp and paper, chemical, primary metals and petroleum and coal products industries, as well as new oil and gas extraction facilities. The Phase III rule did not set a “best technology available” (BTA) standard for existing facilities, and instead continued the current practice of “best professional judgment,” case-by-case determinations of BTA. Not surprisingly, the rule was challenged by a number of entities.

Last year, following the Supreme Court’s decision in Entergy Corp. v. Riverkeeper, the agency had requested that the portion of the regulation dealing with existing facilities be remanded so that the agency could reevaluate it in conjunction with its proceedings on remand of the 2004 Phase II rule, which addressed CWIS at large, existing, power plants. In Entergy the Supreme Court held that EPA could, but was not required, to employ cost-benefit analysis when determining the BTA and has discretion to consider to what degree costs and benefits should be weighed in making such a determination. The Fifth Circuit’s recent ruling now clears the way for EPA to combine Phase II and Phase III into a single rulemaking covering all existing CWIS facilities. (At the same time that it remanded the Phase III rule as it relates to existing facilities, the court deferred to the agency and upheld the rule as it applies to new offshore oil and gas facilities).

This decision dovetails with the agency’s announcement two days earlier that it would be sending to the OMB for approval a proposed survey that would help the agency determine the benefits of the proposed regulatory options for CWIS. Data collected during the survey, which will be of approximately 2000 households, will be used to calculate willingness to pay for the reduction of fish losses at CWIS. Comments on the proposal must be submitted by September 20, 2010.   

So, it looks like some progress is being made towards a determination of what constitutes BTA for CWIS at existing facilities, but how long it will take for it to be made is unclear. Obviously, it seems that the agency’s previously announced intentions, as reported in the BNA Daily Environment Report, to issue a proposed rule in the middle of this year were a bit optimistic.

EPA has clearly attempted to address the problems identified in North Carolina v. EPA. Most significantly, while the Transport Rule still contains a trading component, trading is limited and the Rule ultimately requires that each state provide the reductions required to mitigate that state’s contribution to the interstate air transport problem. At 1,300 pages, the Rule is too long even to summarize here. For a quick summary, take a look at our Client Alert. You might also want to take a look at EPA’s helpful Fact Sheet and presentation summary for slightly more detail.