Kennecott Corp. v. E.P.A., s. 80-2036

Decision Date30 July 1982
Docket NumberNos. 80-2036,80-2039,s. 80-2036
Citation684 F.2d 1007
Parties, 221 U.S.App.D.C. 485, 12 Envtl. L. Rep. 21,037 KENNECOTT CORPORATION, Petitioner, v. ENVIRONMENTAL PROTECTION AGENCY, Respondent. ASARCO INCORPORATED and Magma Copper Company, Petitioners, v. ENVIRONMENTAL PROTECTION AGENCY, Respondent. The BUNKER HILL COMPANY, Petitioner, v. ENVIRONMENTAL PROTECTION AGENCY, Respondent. MOLYCORP, INC., Petitioner, v. ENVIRONMENTAL PROTECTION AGENCY, Respondent. ASARCO INCORPORATED, et al., Petitioners, v. ENVIRONMENTAL PROTECTION AGENCY, Respondent. to 80-2041 and 81-1173.
CourtU.S. Court of Appeals — District of Columbia Circuit

Petitions for Review of Orders of the Environmental Protection agency.

David Booth Beers, Washington, D. C., with whom Frederick C. Schafrick, Nancy C. Shea, James E. Kaplan and Lucinda M. Finley, Washington, D. C., were on brief, for petitioners in Nos. 80-2039 and 81-1173.

Alfred V. J. Prather, Washington, D. C., with whom Carl B. Nelson, Jr., Richard T. Witt, William F. Boyd and Edwin H. Seeger, Washington, D. C., were on brief, for petitioners in Nos. 80-2036 and 80-2040.

E. William Cale was on brief for petitioner in No. 80-2041.

Todd M. Joseph, Asst. Gen. Counsel, E.P.A., Washington, D. C., with whom Robert M. Perry, Gen. Counsel, E.P.A., Donald W. Stever, Patrick J. Cafferty and Jeffrey C. Smith, Attys., Dept. of Justice, Washington, D. C., were on brief, for respondents.

Before TAMM and ROBB, Circuit Judges, and MARKEY, * Chief Judge, United States Court of Customs and Patent Appeals.

Opinion for the Court filed by Chief Judge MARKEY.

MARKEY, Chief Judge:

Petitioners Kennecott Corporation (Kennecott), Phelps Dodge Corporation, Bunker Hill Company (Bunker), Molycorp, Inc. (Molycorp), Asarco, Inc. (Asarco) and Magma Copper Company (Magma) seek review of the final regulations of the Environmental Protection Agency (EPA) promulgated under Section 119 of the Clean Air Act (Act) as amended 42 U.S.C. § 7419, and governing issuance of primary nonferrous smelter orders (NSO's). 1 40 C.F.R. Part 57, 45 Fed.Reg. 42514 et seq. (June 24, 1980). Asarco and Magma also seek review of EPA's denial of their petition for reconsideration of those regulations. We vacate and remand.

Background

The Act requires that EPA designate air pollutants reasonably expected to endanger public health or welfare, and that it establish air quality standards for each designated pollutant. 2 42 U.S.C. § 7409. In 1971, EPA established ambient standards for a number of pollutants, including sulfur dioxide (SO 2). 40 C.F.R. § 50.4.

The nonferrous smelting process produces waste gas streams, denoted "weak streams" and "strong streams," which contain quantities of SO 2. Constant control technology, typically a sulfuric acid plant, has been used to remove SO 2 from strong streams but has been considered ineffective in removing SO 2 from weak streams. 3 Smelters have therefore relied primarily upon dispersion techniques, 4 in conjunction with acid plants, to meet EPA standards.

In the 1977 amendments to the Act, Congress enacted § 123, 42 U.S.C. § 7423, providing that only constant control technology could be relied upon to meet ambient air quality standards. Congress created an exception, however, for nonferrous smelters, giving them additional time to develop new technology which would enable them to meet their emission limitations solely through constant controls. § 119, 42 U.S.C. § 7419. 5

Before enactment of the 1977 amendments, EPA had concluded that constant control technology was reasonable for most smelters only to control "strong streams" and that constant control of "weak streams" was in most cases "economically unreasonable and could in some cases result in shutdown." EPA Stack Height Increase Guideline, 41 Fed.Reg. 7450, 7452 (1976). EPA had therefore allowed smelters to use dispersion techniques in conjunction with acid plants to meet ambient standards. In enacting § 119, Congress "confirmed the authority of EPA to pursue the Agency's present smelter policy." H.R.Rep.No.95-294, 95th Cong., 1st Sess. 61 (1977) (House Report), U.S.Code Cong. & Admin.News, p. 1077.

Section 119 authorized EPA or the States to issue up to two NSO's permitting a smelter to continue reliance for a limited time on dispersion techniques, where constant controls sufficient to meet the emission limitations for SO 2 were not "adequately demonstrated to be reasonably available." 6 During an NSO term, the smelter is required, however, to use constant control equipment in addition to dispersion techniques in attaining the ambient standards, § 119(d) (1)(C), 7 unless such equipment "would be so costly as to necessitate permanent, or prolonged temporary cessation of operations." § 119(d)(2). 8 A smelter already using constant and supplemental controls may not be required, as a condition of receiving a first NSO, to secure "additional continuous emission reduction technology" without a hearing. § 119(d)(4). 9 Finally, smelters receiving NSO's must commit reasonable resources to research and development of appropriate emission control technology. § 119(d) (1)(C)(ii).

EPA published proposed regulations implementing § 119 on January 31, 1979. 44 Fed.Reg. 6284 et seq. The proposed regulations set forth, inter alia, (1) a financial test for NSO eligibility, i.e., whether additional constant controls are "adequately demonstrated to be reasonably available" to the smelter pursuant to § 119(b)(3), and (2) operating requirements for the smelter's acid plant during the NSO term.

Under EPA's financial test, a smelter is eligible for NSO if it cannot install the required constant control equipment "without reducing the present value of (its) net income and terminal value below (its) current salvage value". 10 The test thus compares the net revenues a smelter would receive from its operations after installing constant controls with salvage value upon closure. Constant controls are deemed "reasonably available" if the smelter, on being required to install them immediately, would elect to continue operation, rather than close down. Hence the parties' appellation, "closure," to EPA's test. Revenue and cost forecasts for use in making that determination are based upon EPA estimates of metals prices, labor and energy costs, inflation rates, and the cost of capital.

Respecting operating requirements, the regulations provide that a smelter receiving an NSO must control all of its strong SO 2 streams in an acid plant and may bypass the acid plant only when necessary because of a malfunction or during start-up following acid plant closure for scheduled maintenance or halts in smelter production. 11

Petitioners argued in comments to EPA that both the eligibility test and operating requirements contravene § 119. EPA rejected those arguments and published its final regulations on June 24, 1980 (45 Fed.Reg. 42514 et seq.). EPA acknowledged in a preamble that a portion of the economic forecast data in the eligibility test was not placed in the docket until shortly before promulgation, and announced that it would consider objections to that material as based on grounds "arising after the period for public comment". 12 EPA also stated in the preamble that the eligibility test was derived from economic feasibility tests used by the agency before enactment of § 119, citing financial analyses performed by EPA for two smelters. 13

Petitioners Asarco and Magma jointly filed a petition requesting that EPA convene a proceeding to reconsider its eligibility test and forecast data, and asked that EPA provide additional materials respecting its prior economic tests.

Responding, EPA made certain changes which it termed "technical corrections" to some economic forecast data, 14 but refused to reinstitute notice and comment proceedings or to place additional materials in the docket.

Each of the petitioners here filed a petition for review of the final regulations on the ground that the regulations violate § 119. Kennecott and Bunker also assert unconstitutionality of § 110(a)(6) of the Act, 42 U.S.C. § 7410(a)(6), which forbids reduction of employees' pay as a result of using dispersion techniques under an NSO. 15 Molycorp says EPA improperly excluded molybdenum roasters from relief under § 119. The petitions were consolidated by order of this court dated September 3, 1980.

Asarco and Magma also filed a petition for review of EPA's denial of their petition for reconsideration, asserting certain procedural defects in EPA's rulemaking and saying that EPA thus violated certain requirements of § 307(d) of the Act. 16 That petition was consolidated with the others by order of this court dated March 12, 1981.

Issues

(1) Whether EPA's financial test governing NSO eligibility is authorized under § 119.

(2) Whether EPA's regulations governing interim acid plant operation are consistent with § 119.

(3) Whether § 110(a)(6) constitutes an unconstitutional impairment of contract.

(4) Whether EPA properly excluded molybdenum roasters from relief under § 119.

(5) Whether EPA violated the procedural requirements of § 307(d) in its rulemaking proceedings.

Opinion
(1) Financial Test Governing NSO Eligibility

Under § 119(b)(3), a smelter is eligible for an NSO if the constant controls required to meet the ambient standards for SO 2 have not been "adequately demonstrated to be reasonably available" to the smelter, "as determined by the Administrator, taking into account the cost of compliance, non-air quality health and environmental impact, and energy consideration."

Petitioners say that EPA's "closure," i.e., shut down of all operations, test is inconsistent with § 119(b)(3); that the legislative history of § 119 makes clear that "reasonably available" is a less strict standard than closure and was intended to measure whether a smelter would experience a significant decrease in profitability if constant controls were...

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