Natural Resources Defense Council v. U.S. E.P.A.

• Decision Date: 23 May 2008
• Docket Number: No. 06-73217.,06-73217.
• Citation: 526 F.3d 591
• Parties: NATURAL RESOURCES DEFENSE COUNCIL, Petitioner, v. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

526 F.3d 591

NATURAL RESOURCES DEFENSE COUNCIL, Petitioner, v. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, Respondent.

No. 06-73217.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 15, 2007.

Filed May 23, 2008.

Sharon Buccino, Aaron Colangelo and Margaret Renner, Natural Resources Defense Council, Washington, D.C., for the petitioner.

David A. Carson, United States Department of Justice, Environmental & Natural Resources Division, Denver, CO, for the respondent.

Thomas C. Jackson, Baker Botts L.L.P., Washington, D.C., for amicus curiae American Petroleum Institute.

Janet Lynn McQuaid, Fulbright & Jaworski L.L.P., Austin, TX, for amicus curiae Independent Petroleum Association of America.

Petition for Review of a Final Rule of the Environmental Protection Agency. EPA No. 71 Fed.Reg. 33628.

Before: JANE R. ROTH,^* SIDNEY R. THOMAS, and CONSUELO M. CALLAHAN, Circuit Judges.

ROTH, Circuit Judge:

The Natural Resources Defense Council (NRDC), along with the Oil and Gas Accountability Project (OGAP), Amigos Bravos, and Powder River Basin Resource Council (Powder River), have challenged aspects of the Environmental Protection Agency's (EPA) recent Clean Water Act (CWA) storm water discharge rule. This rule is entitled "Amendments to the National Pollutant Discharge Elimination System (NPDES) Regulations for Storm Water Discharges Associated With Oil and Gas Exploration, Production, Processing, or Treatment Operations or Transmission Facilities," 71 Fed.Reg. 33,628 (Jun. 12, 2006) (codified at 40 C.F.R. § 122.26).¹ The rule exempts from the permitting requirements of the CWA discharges of sediment from oil and gas construction activities that contribute to violations of water quality standards. Petitioners contend that the rule's NPDES permitting requirement exemption for storm water discharges of sediment from oil and gas construction activities is unlawful under section 402(l)(2) of the CWA, 33 U.S.C. § 1342(l)(2), as amended by section 323 of the Energy Policy Act of 2005, 33 U.S.C. § 1362(24), and under the Administrative Procedure Act (APA), 5 U.S.C. § 706(2)(A). As such, petitioners ask this Court to vacate EPA's rule. For the reasons stated below, we will grant the petition for review, vacate the rule, and remand this matter to EPA for further proceedings in accordance with this opinion.

I. BACKGROUND

A. 1972 Amendments to the CWA

In 1972, Congress amended the CWA, codified at 33 U.S.C. §§ 1251-1387, in order "to restore and maintain the chemical, physical, and biological integrity of the Nation's waters." 33 U.S.C. § 1251(a). In furtherance of this goal, the CWA prohibits the "discharge of any pollutant" except in compliance with the CWA's provisions.² Id. § 1311(a). One such provision is embodied by section 402 of the CWA which establishes the NPDES — a system requiring permits for any discharge of pollutants from a point source. Id. § 1342.³

B. The CWA as Amended by the Water Quality Act of 1987

Recognizing the environmental threat posed by storm water runoff, Congress passed the Water Quality Act of 1987(WQA). See Pub.L. No. 100-4, 101 Stat. 7 (1987) (codified as amended in scattered sections of 33 U.S.C.); see also 132 Cong. Rec. 32,381 (1986). The WQA added sections 402(l) and (p) to the CWA, setting up a new scheme for regulation of storm water runoff.

Section 402(l) exempts certain storm water sources from NPDES permitting. 33 U.S.C. § 1342(l). With respect to storm water runoff from oil, gas, and mining operations, section 402(l)(2) provides that

The Administrator shall not require a permit under this section, nor shall the Administrator directly or indirectly require any State to require a permit, for discharges or stormwater runoff from mining operations or oil and gas exploration, production, processing, or treatment operations or transmission facilities, composed entirely of flows which are from conveyances or systems of conveyances (including but not limited to pipes, conduits, ditches, and channels) used for collecting and conveying precipitation runoff and which are not contaminated by contact with, or do not come into contact with, any overburden, raw material, intermediate products, finished product, byproduct, or waste products located on the site of such operations.

33 U.S.C. § 1342(l)(2) (emphasis added). In administering this exemption, "the EPA Administrator has discretion to determine whether or not storm water runoff at an oil, gas or mining operation is contaminated with ... overburden, raw material, product, or process wastes...."⁴ NRDC v. EPA, 966 F.2d 1292, 1307 (9th Cir.1992); see H.R.Rep. No. 1004, 99th Cong., 2d Sess., at 151.

Section 402(p) of the CWA provides that the EPA or the NPDES States could not require a permit for storm water discharges until October 1, 1992, except for storm water discharges listed under section 402(p)(2).⁵ Section 402(p) then establishes two separate phases for the regulation of storm water discharges.⁶ 33 U.S.C. § 1342(p).

1. Phase I Storm Water Rule

In 1990, EPA issued its NPDES Phase I storm water rule. 55 Fed.Reg. 47,990 (Nov. 16, 1990). This rule established permit requirements for certain storm water discharges, including those discharges associated with construction activities that disturb five acres or greater (large construction sites).

First, at 40 C.F.R. § 122.26(c)(1)(iii), the Phase I rule codified the conditions that would be considered indicative of "contamination" under the CWA section 402(l)(2) exemption as follows:

(iii) The operator of an existing or new discharge composed entirely of storm water from an oil or gas exploration, production, processing, or treatment operation, or transmission facility is not required to submit a permit application in accordance with paragraph (c)(1)(i)⁷ of this section, unless the facility:

(A) Has had a discharge of storm water resulting in the discharge of a reportable quantity for which notification is or was required pursuant to 40 CFR 117.21 or 40 CFR 302.6 at anytime since November 16, 1987; or

(B) Has had a discharge of storm water resulting in the discharge of a reportable quantity for which notification is or was required pursuant to 40 CFR 110.6 at any time since November 16, 1987; or

(C) Contributes to a violation of a water quality standard.

(emphasis added).⁸ Recognizing the "potential for serious water quality impacts," EPA concluded that oil and gas facilities are "likely to discharge storm water runoff that is contaminated" and that "[s]uch contamination can include disturbed soils." 55 Fed.Reg. at 48029. With regard to permit applicability to oil, gas, and mining facilities, EPA explained:

"[These] facilities are among those industrial sites that are likely to discharge storm water runoff that is contaminated by process wastes, toxic pollutants, hazardous substances, or oil and grease. Such contamination can include disturbed soils and process wastes containing heavy metals or suspended or dissolved solids, salts, surfactants, or solvents used or produced in oil and gas operations. Because they have the potential for serious water quality impacts, Congress recognized, throughout the development of the storm water provisions of the Water Quality Act of 1987, the need to control storm water discharges from oil, gas, and mining operations, as well as those associated with other industrial activities.... From the standpoint of resource drain on both EPA ... and potential permit applicants, [Congress's] conclusion was that operators that use good management practices and make expenditures to prevent contamination must not be burdened with the requirement to obtain a permit. Hence, section 402(l)(2) creates a statutory exemption from storm water permitting requirements for uncontaminated runoff from these facilities."

55 Fed.Reg. at 48029 (emphasis added).

Thus, EPA's interpretation of 402(l)(2) was that "section 402(l)(2) creates a statutory exemption from storm water permitting requirements for uncontaminated runoff from these facilities," and the Phase I rule merely codified such interpretation. Id. (emphasis added).

Second, because the statutory exemption was limited to "operations," EPA determined that all related construction activities were ineligible for the exemption and must apply for a permit in light of the "serious water quality impacts" caused by construction storm water discharges polluted with sediment.⁹ 55 Fed.Reg. at 48,033-34. After reviewing the findings of various studies, the EPA provided the underlying rationale for its belief that storm water permits were appropriate for the construction industry:

Construction activity at a high level of intensity is comparable to other activity that is traditionally viewed as industrial, such as natural resource extraction. Construction that disturbs large tracks of land will involve the use of heavy equipment such as bulldozers, cranes, and dump trucks. Construction activity frequently employs dynamite and/or other equipment to eliminate trees, bedrock, rockwork, and to fill or level land. Such activities also engage in installation of haul roads, drainage systems, and holding ponds that are typical of the industrial activity identified in § 122.26(b)(14)(i-x). EPA cannot reasonably place such activity in the same category as light commercial or retail business.

Further, the runoff generated while construction activities are occurring has potential for serious water quality impacts and reflects an activity that is industrial in nature. Where construction activities are intensive, the localized impacts of water quality may be severe because of high unit loads of pollutants, primarily sediments. Construction sites can also generate other pollutants such as phosphorus and nitrogen from fertilizer, pesticides, petroleum products, construction chemicals and solid wastes. These materials can be toxic to aquatic organisms and degrade water for drinking and water-contact...