Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-01454/USCOURTS-caDC-99-01454-0/pdf.json

Parties Involved:
Alliance for Environmental Technology
Petitioner
Environmental Protection Agency
Respondent

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 24, 2002 Decided April 19, 2002

No. 99-1452

National Wildlife Federation, et al.,

Petitioners

v.

Environmental Protection Agency

and Christine Todd Whitman, Administrator,

Environmental Protection Agency,

Respondents

American Forest and Paper Association Inc.,

Intervenor

Consolidated with

99-1454, 99-1455, 99-1456

On Petitions for Review of a Final Rule of the

Environmental Protection Agency

Neil S. Kagan argued the cause and filed the briefs for

petitioners National Wildlife Federation, et al.

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Raymond B. Ludwiszewski argued the cause for petitioners Alliance for Environmental Technology, et al. With him

on the briefs were Peter E. Seley and Scott H. Segal. Gene

E. Godley entered an appearance.

Carol Ann Siciliano, Attorney, U.S. Environmental Protection Agency, and Jon M. Lipshultz, Attorney, U.S. Department of Justice, argued the cause for respondents. With

them on the brief was John C. Cruden, Assistant Attorney

General. Seth M. Barsky and Karen L. Egbert, Attorneys,

U.S. Department of Justice, entered appearances.

Russell S. Frye argued the cause for intervenor American

Forest and Paper Association Inc. With him on the brief was

Richard Wasserstrom.

Before: Sentelle, Henderson and Rogers, Circuit Judges.

Opinion for the Court filed PER CURIAM.

PER CURIAM: A coalition of environmental organizations

and a Native American tribe led by the National Wildlife

Federation (collectively "NWF") and the Alliance for Environmental Technology, Boise Cascade Corporation, International Paper Company, The Mead Corporation, and Westvaco

Corporation (collectively "Industry Petitioners") separately

challenge the Final Effluent Limitations Guidelines, Pretreatment Standards, and New Source Performance Standards for

the Pulp, Paper, and Paperboard Category. 63 Fed. Reg.

18,504 (April 15, 1998) ("Final Rule"). Their challenge is

confined to that portion of the Final Rule promulgated by the

Environmental Protection Agency ("EPA") under the Clean

Water Act as applied to one subcategory of the pulp and

paper industry--the bleached papergrade kraft and soda

subcategory (often referred to as the "BPK" subcategory).

The American Forest & Paper Association, Inc. intervenes in

support of the Final Rule. We deny the petitions.

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I.

The Clean Water Act of 1977 ("CWA") requires EPA to

promulgate limitations on the discharge of pollutants into the

waters of the United States. 33 U.S.C. s 1311 (1994). These

limitations are referred to as effluent limitations. The effluent limitations are based on the discharge levels achievable

by what EPA determines to be the "best available technology

economically achievable" (known as the "BAT") for existing

discharging sources (defined as "point sources" in the statute), id. s 1311(b)(2)(A), (C), (D), & (F), and a different

technology--the best available demonstrated control technology or "BADT"--for new pollutant sources, known as the new

source performance standard or "NSPS," id. s 1316(b)(1)(B).

In determining a BAT and BADT, EPA evaluates existing or

"available" technologies and considers their cost and capabilities among other factors. Id. s 1314(b)(2)(B). EPA then

promulgates discharge limitations that correspond to the

application of the identified technology but does not require

dischargers to install that technology.

Pursuant to a 1988 consent decree entered into by EPA in

settlement of Environmental Defense Fund and National

Wildlife Federation v. Thomas, Civ. No. 85-0973 (D.D.C.),

EPA committed to reviewing effluent limitations guidelines

under the CWA for pulp and paper mills producing bleached

pulp. 58 Fed. Reg. 66,078, 66,089 (Dec. 17, 1993). EPA also

anticipated that it would be imposing substantial new air

pollution control requirements on these mills under the Clean

Air Act ("CAA"), 42 U.S.C. s 7412. In order to avoid incompatible and potentially overly burdensome rulemaking, EPA

commenced a "Cluster Rulemaking" that would jointly establish effluent limitations guidelines under the CWA and hazardous air pollutant standards under the CAA. Involved in

the instant appeal is the portion of the Cluster Rules that

apply to the BPK subcategory within the pulp and paper

industry. These provisions establish limitations on the discharge of several pollutants as identified by EPA. See 40

C.F.R. ss 430.20-430.28. These pollutants include dioxin,

abbreviated as TCDD, furan, abbreviated as TCDF, 12 specific chlorinated phenolic pollutants, chloroform, and adsorbable

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organic halides ("AOX"). National Emission Standards &

Effluent Limitations Guidelines, 63 Fed. Reg. 18,504, 18,542

(Apr. 15, 1998).

To understand these limitations and the process by which

they were determined, we provide a brief description of the

paper production process. One of the components of wood

(the basis of paper products) that must be removed during

the pulping process is called lignin. The process of removing

lignin is called "delignification." The degree of delignification

is expressed as a "kappa" number. Prior to bleaching, additional lignin can be removed through either of two extended

delignification processes: extended cooking or oxygen delignification ("OD"). Supplemental Technical Development Document ("STDD") s 7.2.3, at 7-4 and s 7.2.6, at 7-9 (Oct. 15,

1997). During bleaching, traditional bleaching agents that

are used lead to the formation of a number of pollutants that

are ultimately discharged into external streams. Using a

process known as elemental chlorine free ("ECF") bleaching

lowers chemical consumption during bleaching and thereby

reduces the formation of undesired pollutants. The material

removed from the pulp in bleaching is typically discharged to

the mill wastewater treatment system. This wastewater is

known as effluent; its environmental quality at discharge

depends in part on the quantity of lignin in the pulp remaining after bleaching.

For the model technologies, EPA considered a number of

options, each in turn involving a package of technologies for

prevention of pollution within a pulp mill and treatment of

wastewater once it leaves the mill, 58 Fed. Reg. at 66,109-10,

ultimately focusing, after public comment on additional data,

on two technologies, referred to as Option A and Option B.

61 Fed. Reg. 36,835, 36,838-39. In the Final Rule, Option A

was defined as conventional pulping followed by ECF bleaching. 63 Fed. Reg. at 18,542. Option B did the same but

added oxygen delignification and/or extended cooking that

resulted in a kappa number at or below 20 for softwoods and

below 13 for hardwoods. Id. EPA determined that Option B

was too costly to be the BAT, naming it instead as the BADT

for new sources and naming Option A as the BAT. Id. at

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18,549-53. The projected capital cost of Option B was more

than twice that of Option A (already almost $1 million) and

would result in mill closures and the likely bankruptcy of

major paper companies. Id. at 18,550. EPA further determined that imposing limitations based on Option B technology

would result in little incremental reduction in toxic pollutants

and would produce no difference in monetized water quality

benefits. See id. at 18,545; 61 Fed. Reg. at 36,841. Cf. 63

Fed. Reg. at 18,590 with 63 Fed. Reg. at 18,592. EPA did

adopt, however, an innovative Voluntary Advanced Technology Incentives Program, which offered various benefits to

mills that installed beyond-BAT technology, such as OD plus

ECF or totally chlorine free ("TCF") processes. 63 Fed.

Reg. at 18,593-611.

EPA declined to establish separate limitations for mills

bleaching exclusively hardwood or softwood, even though

unbleached hardwood pulp contains less lignin than unbleached softwood pulp, in view of both the absence of

complete data on how these mills work and the difficulty of

applying separate limitations, as many mills pulp both hardwood and softwood in varying proportions, or swing between

the two. See, e.g., 58 Fed. Reg. at 66,167; Proposed Technical Development Document for Pulp, Paper, and Paperboard

Category Effluent Limitations Guidelines, Pretreatment

Standards, and New Source Performance Standards (Oct. 29,

1993) DCN 08517 at 2-3; STDD at 5-7. EPA also declined to

set effluent limitations for color, finding that the natural

coloring of receiving waters varies, with the result that the

aesthetic and aquatic impacts of color discharges on a particular receiving water is driven by highly site-specific conditions,

best left to regulation under federal and state permitting

procedures. 63 Fed. Reg. at 18,538.

In these appeals, the petitioners are at either extreme in

challenging the Cluster Rules under the CWA regarding the

BPK subcategory of the pulp and paper industry. Essentially, NWF contends that the Final Rule is too lax, because

EPA should have based the BAT for the BPK subcategory on

Option B, technology that EPA wrongly found too costly,

while Industry Petitioners contend that the Final Rule is too

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strict, moving far beyond the adoption of ECF bleaching as

the BAT and the NSPS, and thus beyond EPA's authority.

Supporting the rule, the industry association as Intervenor

points out that the Final Rule is not only the result of a

unique process involving simultaneous development of air and

water regulations, but the result of many years of research

and analysis by both EPA and the pulp and paper industry

and the result of a process in which environmental interest

groups also had substantial involvement. Who is right about

the Final Rule as it applies to BPK in an ultimate sense is not

the concern of the court.

The question before the court is limited to whether EPA

has acted arbitrarily or capriciously, or otherwise not in

accordance with law. 5 U.S.C. s 706(2)(A); see American

Iron & Steel Inst. v. EPA, 115 F.3d 979, 1004 (D.C. Cir.

1997). This standard is a narrow one, Citizens to Preserve

Overton Park, Inc. v. Volpe, 401 U.S. 402, 415-16 (1971), and

if the "agency's reasons and policy choices ... conform to

'certain minimal standards of rationality' ... the rule is

reasonable and must be upheld." Small Refiner Lead

Phase-Down Task Force v. EPA, 705 F.2d 506, 521 (D.C. Cir.

1983) (citation omitted). Furthermore, particular deference

is given by the court to an agency with regard to scientific

matters in its area of technical expertise. Baltimore Gas &

Elec. Co. v. Natural Res. Def. Council, 462 U.S. 87, 103

(1983); Appalachian Power Co. v. EPA, 249 F.3d 1032, 1051-

52 (D.C. Cir. 2001). This deference extends, moreover, to the

agency's interpretation of a statute it administers, particularly in a notice and comment rulemaking context. United

States v. Mead Corp., 533 U.S. 218, 227-31 (2001); Chevron,

U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 842-

45 (1984). In Part II, we address NWF's contentions. In

Part III, we address Industry Petitioners' contentions.

In Part IV, we address Industry Petitioners' motion to

sanction NWF counsel.

II.

NWF challenges the Final Rule on seven grounds.

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A.

In-plant Limitations. NWF contends that EPA lacked

the authority to define Option B in the manner that it did.

By specifying that Option B involved extended delignification

that resulted in particular kappa numbers, NWF contends

that EPA defined Option B in a way that would have imposed

in-plant limitations on regulated entities. Because, NWF

contends, EPA lacks the authority to impose such limits,

defining Option B in this way unlawfully inflated EPA's

evaluation of Option B's cost, thus invalidating its cost-driven

rejection of Option B as the BAT.

NWF's contentions are not well taken. As Intervenor

points out, NWF's contention is based on inaccurate assumptions about the technical basis for EPA's decision. There is

nothing in the record to suggest that EPA defined Option B

in a way that would have imposed in-plant restrictions on the

lignin content of unbleached pulp had EPA selected Option B

as the BAT technology. Rather, NWF infers such limitations

in the face of direct EPA statements to the contrary. 63 Fed.

Reg. at 18,546. EPA has an obligation to identify the technology options it is considering with sufficient particularity

that the industry to be regulated as well as environmental

groups such as NWF can review and comment upon proposed

effluent limitation guidelines and standards. See BASF

Wyandotte Corp. v. Costle, 598 F.2d 637, 644-45 (1st Cir.

1979), cert. denied, 444 U.S. 1096 (1980); Kennecott v. U.S.

EPA, 780 F.2d 445, 452-53 (4th Cir. 1985); see also Connecticut Light & Power Co v. NRC, 673 F.2d 525, 530-31 (D.C.

Cir.), cert. denied, 459 U.S. 835 (1982). Consistent with its

obligation, the technology that EPA identified as Option B

involved extended delignification that pulped to particular

kappa levels for hardwoods and softwoods. However, the

effluent limitations deriving from that technology would not

have required particular mills to reach kappa numbers within

the mill prior to discharges of wastewater into external

streams, but rather would only have placed limitations on the

discharge amount of dioxin, furan, chloroform, AOX, and a

collection of chlorinated phenolic pollutants. This is evident

from the NSPS, which reflects the limitations for new sources

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based on the operation of Option B technology. 40 C.F.R.

s 430.25(1) & (2). Indeed, as Intervenor points out, identifying a BAT technology that included effective operation of OD

that would result in a kappa number of 20 or less for

softwood and below 13 for hardwood, 63 Fed. Reg. at 18,542,

is no different than EPA's statements that Option A and

Option B included "effective brownstock washing, i.e., washing that achieves a soda loss of less than or equal to 10 kg

Na2SO4 per ADMT of pulp (equivalent to approximately 99%

recovery of pulping chemicals from the pulp)," 100% substitution of chlorine dioxide for chlorine, and "efficient biological

wastewater treatment, achieving removal of approximately 90

percent or more of influent BOD5." Id. As EPA counsel

suggested at oral argument, because mills are not required to

employ the BAT to achieve the effluent limitations, a mill

could implement an alternative technology that would achieve

the limitations by making adjustments in other parameters

and without achieving the kappa numbers associated with

Option B. See, e.g., Effluent Limitations Guidelines, Pretreatment Standards, and New Source Performance Standards dards: Pharmaceutical Manufacturing Category, 60

Fed. Reg. 21,592, 21,497 (May 2, 1995) (to be codified at 40

C.F.R. pt. 439). Thus, it is apparent that no in-plant kappa

number requirements would have been imposed on mills had

Option B been selected as the BAT. Because EPA did not

establish in-plant lignin limitations, we have no occasion to

reach NWF's contention that EPA was without authority to

impose in-plant technology limitations or that EPA failed to

provide the required notice and opportunity to comment

before imposing such limitations.

NWF's claim is perplexing because it contends that EPA

erred in rejecting a technology option that according to NWF

it would have been unlawful for EPA to impose. That is,

NWF is simultaneously contending that the definition of

Option B was unlawful but that EPA should have selected it

as the BAT. NWF cannot have it both ways. If Option B

was unlawful, then EPA was right to reject it. But this is not

the case. NWF does not truly advocate the adoption of

Option B; rather, it is seeking the adoption of a non-existent

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"Option C," which would embody some but not all of the

elements of Option B. EPA is not obliged to develop anew a

technology for consideration as the BAT; rather, it must

"survey the practicable or available pollution-control technology for an industry and assess its effectiveness." E.I. du Pont

de Nemours & Co. v. Train, 430 U.S. 112, 131 (1977). That is

what EPA did here and we find no error in its definition of

Option B or its rejection as the BAT. Thus, we deny NWF's

petition to vacate EPA's identification of Option A as the

BAT.

B.

Capital Cost Estimate for Option B. NWF next contends that EPA erred when it included the cost of installing

oxygen delignification ("OD") on hardwood lines in its determination of the capital costs of extended delignification technology for Option B. This is error, contends NWF, because

OD technology is only necessary on hardwood lines to achieve

a kappa number lower than thirteen, a goal that is an invalid

in-plant limitation and costs for invalid limitations cannot be

considered. Alternatively, NWF contends that if the court

does not view the kappa number requirement as an invalid inplant restriction, consideration of the costs of installing OD on

hardwood lines is still beyond EPA's authority because that

technology is not required for hardwood lines to meet the

effluent limitations. As a result, EPA's estimate of Option

B's capital costs was grossly inflated, contributing to its

rejection as the BAT. NWF also contends that the cost of

Option B was further inflated by EPA's wrongful decision to

use the most modern OD equipment as the basis for its

pricing analysis. NWF finally contends, in a separate line of

argument, that even if it was within EPA's authority to

consider costs not necessary to achieve the effluent limitations, it was arbitrary and capricious for EPA actually to

include such costs.

We decline to reach the merits of NWF's cost estimate

challenges because neither NWF nor any other party before

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istrative phase of the rulemaking process. It is well established that issues not raised in comments before the agency

are waived and this Court will not consider them. E.g. Nat'l

Elec. Mfrs. Ass'n v. EPA, 99 F.3d 1170, 1171 n.1 (D.C. Cir.

1997); Washington Ass'n for Television & Children v. FCC,

712 F.2d 677, 681 (D.C. Cir. 1983). Further, this principle

does not apply only to newly raised factual issues as NWF

suggests. Indeed, there is a near absolute bar against raising

new issues--factual or legal--on appeal in the administrative

context. Appalachian Power Co. v. EPA, 251 F.3d 1026,

1036 (D.C. Cir. 2001).

Although neither NWF nor any other party raised the

issue that the cost of OD technology for all mills should not

be included in the Option B cost estimates or that the

assumption that modern equipment would be installed was

improper, NWF attempts to justify its acknowledged failure

to raise these issues by stating that "EPA did not provide any

notice or opportunity to comment on its inclusion of costs to

meet an in-plant limitation" and "the NWF Petitioners could

not have known that EPA would impose any such in-plant

limitation after they submitted their comments." This claim

is patently false. In its BAT and Best Management Practices

("BMP") Compliance Cost Estimates Report, EPA clearly

states, "Option B employs reduction of the lignin content of

the unbleached pulp through oxygen delignification (OD),

extended cooking (EC), or both. These extended pulping

technologies result in a typical kappa number of approximately 15 for softwood and 10 for hardwood." EPA went on to

itemize the cost of Option B with reference to the individual

component technologies that comprise that Option in Table

2-8 of the same report. In this Table, two separate line items

under the headings of "Capital Cost Component" and "Operating Cost Component" are entitled "Kappa Reduction (OD/

EC)." Those line items report costs for this component as

not applicable ("N/A") to Option A and exceeding a total of

$1.5 billion for Option B. Thus, NWF had notice that EPA

was including OD technology in Option B, that it expected

this technology to apply to both softwoods and hardwoods,

and that the cost of OD technology was a component of the

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total cost of Option B. As a result, NWF's claim of no notice

is meritless and it is left with no circumstance excusing its

failure to raise the issue. The cases on which NWF relies are

to no avail. Darby v. Cisneros, 509 U.S. 137 (1993), addresses exhaustion of administrative remedies, not waiver of

claims, and is thus wholly inapposite; Nat'l Ass'n of Mfrs. v.

Department of the Interior, 134 F.3d 1095 (D.C. Cir. 1998), is

directly contrary to NWF's position that it has not waived its

OD cost claims, stating that "Our cases ... require complainants, before coming to court, to give the [agency] a fair

opportunity to pass on a legal or factual argument." Id. at

1111 (quoting Washington Ass'n for Television & Children v.

FCC, 712 F.2d 677, 681 (D.C. Cir. 1983)). We thus hold that

NWF has waived the OD costing issues and decline to pass

on their merits.

C.

Failure to Explain the Reasonableness of EPA's Economic Assessment of Option B. NWF next contends that

EPA's rejection of Option B was arbitrary and capricious

because EPA failed to demonstrate the reasonableness of its

assessment that Option B is not affordable by the bleach

paper kraft subcategory as a whole. Because "we do not

review EPA's cost figuring de novo, but accord EPA discretion to arrive at a cost figure within a broad zone of reasonable estimate," Weyerhauser Co. v. Costle, 590 F.2d 1011,

1049 (D.C. Cir. 1978), in view of the complex nature of

economic analysis typical in the regulation promulgation process, NWF's burden to show error is high. As the Fourth

Circuit put it, "While EPA must take seriously its statutory

duty to consider cost, courts of review should be mindful of

the many problems inherent in an undertaking of this nature

and uphold a reasonable effort made by the Agency." FMC

Corp. v. Train, 539 F.2d 973, 979 (4th Cir. 1976). Thus, when

reviewing economic analyses of EPA, "a court's 'inquiry will

be limited to whether the Agency considered the cost of

technology, along with the other statutory factors, and whether its conclusion is reasonable.' " Chem. Mfrs. Ass'n v. EPA,

870 F.2d 177, 250 (5th Cir. 1989) (quoting Ass'n of Pacific

Fisheries, 615 F.2d 794, 818 (9th Cir. 1980)). The court

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should not "undertake its own economic study, but must

uphold the regulations if EPA has established in the record a

reasonable basis for its decision." Kennecott v. EPA, 780

F.2d 445, 456 (4th Cir. 1986); accord Chem. Mfrs., 870 F.2d

at 251.

NWF contends that EPA's economic analysis was inadequate because it failed to give sufficient specifics to support

the reasonableness of its conclusions regarding economic

impact. Reference to EPA's duties under statutory and case

law with respect to cost assessments reveal that this contention is without merit. EPA is statutorily required to take

into account the cost of achieving effluent reduction. 33

U.S.C. s 1314(b)(2)(B). However, the court has interpreted

this statute to mean that "the Agency need not on its own

undertake more than a net cost-benefit balancing to fulfill its

obligation under section 304." Weyerhaeuser Co. v. Costle,

590 F.2d 1011, 1048 (D.C. Cir. 1978). Although its analysis

may be general, EPA "has the heaviest of obligations to

explain and expose every step of its reasoning." American

Lung Ass'n v. EPA, 134 F.3d 388, 392 (D.C. Cir. 1998). This

duty to explain arises out of the need for reviewing courts to

be able to discern the basis for EPA's decision. Id.

In view of our deferential standard of review it is not

difficult to conclude that NWF's contentions regarding EPA's

cost analysis must fail. NWF's chief contention is that "EPA

failed ... to substantiate its claim by specifying the identity

of the 'large' firm or firms, how large the firm or firms are, or

the number of mills in the BPK subcategory owned by the

firm or firms." NWF Petitioner's Br. at 37. This is not the

type of contention that will topple an EPA cost assessment,

particularly in the context of an economic analysis as thorough and considered as the one EPA undertook in the instant

rulemaking. EPA provided a detailed explanation of the

bases for its economic conclusions both in the Federal Register, 63 Fed. Reg. 18,549-51, and in the accompanying report

entitled "Economic Analysis for the National Emission Standards for the Hazardous Air Pollutants for Source Category:

Pulp and Paper Production--Phase I (Oct. 27, 1997)" ("Economic Analysis").

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Specifically, EPA articulated its methodology, applied it to

industry data, and presented the results in verbal and tabular

form making clear the information upon which EPA based its

conclusion that Option B's costs were too high. In the

Economic Analysis EPA explains that compliance costs included both capital costs and annual operating costs. EPA

described its market impact analysis methodology under

heading 3.2 of that report, explaining that it used elasticities

to estimate market price increases and factored those into the

financial and economic analysis. Financial impact was described as encompassing facility closure, employment, and

output impacts resulting from compliance costs. As EPA

explained, if "the present value of post-compliance net earnings is less than the salvage value of the mill ... the mill is

projected to close because closure is more economically advantageous to the owner." EPA went on to explain that

"[w]hen the closure analysis projects a facility closure, all

employment, production, and exports reported for the facility

are considered lost." Regarding bankruptcy analysis, EPA

explained that it would use the Altman Z-score analysis,

comparing pre- and post-compliance Z-scores and determining that a score dropping below 1.81 was indicative of a

compliance-induced bankruptcy.

EPA applied this methodology to reach several conclusions,

which it presented in the Economic Analysis report. It

concluded that for the 29 public companies with facilities

regulated by the BAT, "the final BAT/PSES option [Option

A] results in no additional bankruptcies" while "[o]ne or more

companies move into the 'bankruptcy likely' category with

BAT/PSES Option B." EPA then went on to outline the

many adverse economic consequences associated with bankruptcy which rendered any option that induced bankruptcy an

economically unachievable alternative under the statute. See

33 U.S.C. s 1311 (b)(2)(A), (C), (D) & (F). Regarding facility

closures, EPA determined that Option B would have twice the

adverse impact of Option A, resulting in two plant closures, a

loss of $273 million worth of shipments, $19 million in exports,

and 900 jobs. The differences between Options A and B were

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exacerbated when compliance costs of the entire Cluster

Rules were analyzed; Option B in conjunction with the air

quality regulations would result in 4 plant closures, lost

shipments of $1.3 billion, $24 million in lost exports, and a loss

of 4,800 jobs. This is compared to two plant closures, a loss

of $273 million worth of shipments, $19 million in exports, and

900 jobs associated with the compliance costs of Option A

combined with the air quality standards.

This description of how EPA applied its methodology constitutes just a portion of the detailed economic and financial

analysis conducted and presented by EPA. This analysis

hardly arises to a failure to explain "the reasonableness of its

assessment that Option B is not affordable by the BPK

subcategory as a whole" as NWF contends. EPA sufficiently

fulfills its duty to explain when it makes an "attempt at

explanation or justification" sufficient to provide the reviewing court with a "way to know the agency's methodology."

Engine Mfrs. Ass'n v. EPA, 20 F.3d 1177, 1182 (D.C. Cir.

1994). Here, EPA offered a thorough explanation and the

court hardly has to "guess at the theory underlying the

agency's action." SEC v. Chenery Corp., 332 U.S. 194, 196-97

(1947). Indeed, EPA's "theory" is clear: Option B costs a

certain amount, that cost renders facility closure a more

economically advantageous option, and facility closures result

in the loss of jobs and output formerly associated with those

plants.

Furthermore, any ambiguity in EPA's analysis is unrelated

to the methods, rationales, or assumptions of its analysis.

Rather, the ambiguity in the analysis and complained of by

NWF relates to the specific identities of the firms adversely

impacted in the manner that EPA predicts. Such ambiguity

is insufficient to undermine the explanatory value of EPA's

analysis for two reasons. First, because much of the firmspecific information NWF seeks constitutes protected confidential business information ("CBI") that may not be publicly

disclosed, EPA cannot be faulted for keeping such information confidential. See 33 U.S.C. s 1318(b). Second, the

provision of the identity of the specific firms at risk of

bankruptcy--either through naming or through the sharing

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of sufficient descriptive information to allow interested persons to figure out the identity--is not a requisite of an

adequately explained economic analysis because a plant-byplant analysis is not required under the statute. Chem. Mfrs.

Ass'n v. EPA, 870 F.2d 177, 219 n.157 (5th Cir. 1989). EPA

need only be concerned with the nature of the impact on the

industry as a whole. Id. at 238.

In sum, EPA has provided more than an adequate explanation of its economic analysis. EPA determined through

methods it clearly described that a certain number of bankruptcies and plant closures would occur under Option B.

EPA then determined that such economic impact rendered

Option B economically unachievable. Whether Firm A or

Firm Z was the firm involved in the potential bankruptcy or

plant closure would not alter the outcome that those bankruptcies and closures would occur. The court will not secondguess EPA's analysis nor "undertake [its] own economic

study"; rather, the court must "uphold the regulations if

EPA has established in the record a reasonable basis for its

decision." Kennecott v. EPA, 780 F.2d 445, 456 (4th Cir.

1986). A reasonable basis exists here. We thus hold that

EPA's analysis was sufficiently detailed to provide an understanding of the basis of its decision and that EPA's conclusion

that Option B was not economically achievable was not arbitrary and capricious.

D.

Altman Bankruptcy Model. NWF next asserts EPA

erred in using Edward I. Altman's Z-score analysis to predict

the likely incidence of bankruptcies in the cost analysis of

Option B. We may reject an agency's choice of a scientific

model "only when the model bears no rational relationship to

the characteristics of the data to which it is applied." Appalachian Power Co. v. EPA, 135 F.3d 791, 802 (D.C. Cir. 1998)

(citing Am. Iron & Steel Inst. v. EPA, 115 F.3d 979, 1005

(D.C. Cir. 1997); Chem. Mfrs. Ass'n v. EPA, 28 F.3d 1259,

1265 (D.C. Cir. 1994)). That is not the case here.

NWF contends EPA's use of the Altman model is arbitrary

and capricious because (1) the model has become outdated

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since its adoption in 1968, (2) it was devised to predict

bankruptcies of companies smaller than those involved here,

(3) it has an error rate of at least 15% and (4) in applying it,

EPA collected data from only a single year. We reject each

objection in turn. First, as recently as 1993 Altman confirmed the model's continuing reliability, noting it had been

"quite accurate over these last 25 years and remains an

objective, established tool." See Edward I. Altman, Corporate Financial Distress and Bankruptcy 179 (2d ed. 1993).

Second, as EPA points out, Altman himself has cited the

financial decline of LTV Corp., International Harvester and

Chrysler Corp., all large companies, to illustrate the accuracy

of his Z-score analysis. Id. at 197-99, 201-02. Third, the

15% inaccuracy rate does not seem so large as to call into

question the model's reliability, especially given that the

decision to enter bankruptcy vel non can be influenced by

factors other than mere financial distress. See id. at 197

(characterizing "bankruptcy" as "a behavioral event" that

"manifests due to the combined 'efforts' of an ineffective firm

and its management and the decision on the part of creditors

to try to recover their investment within the confines of the

Bankruptcy Code"). Finally, although Altman recommended

gathering multi-year data, he recognized that this might not

always be practical and so admonished that "[t]he analyst

interested in practical utilization of the Z-score model is

therefore advised to be careful." Id. at 206.

E.

No Limits for Color. Next, NWF challenges EPA's decision not to establish nationwide standards for discharge of

"color." EPA determined instead that color pollution should

be "dealt with on a case-by-case basis through individual

[National Pollutant Discharge Elimination System] permits

or, when appropriate, through local limits." 63 Fed. Reg. at

18,538. NWF contends EPA lacks authority to address the

problem of color pollution piecemeal but is required by section 301(b)(2) of the CWA to establish a single, national

standard. We believe EPA acted both reasonably and within

its authority in adopting a case-by-case approach.

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Section 301(b)(2) of the CWA governs standards for pollutants such as color:

[T]here shall be achieved--

...

(2)(A) for pollutants identified in subparagraphs (C), (D),

and (F) of this paragraph,1 effluent limitations for categories and classes of point sources, other than publicly

owned treatment works, which (i) shall require application of the best available technology economically achievable for such category or class, which will result in

reasonable further progress toward the national goal of

eliminating the discharge of all pollutants, as determined

in accordance with regulations issued by the Administrator pursuant to section 1314(b)(2) of this title, which such

effluent limitations shall require the elimination of discharges of all pollutants if the Administrator finds, on

the basis of information available to him (including

information developed pursuant to section 1325 of this

title), that such elimination is technologically and economically achievable for a category or class of point

sources as determined in accordance with regulations

issued by the Administrator pursuant to section

1314(b)(2) of this title....

33 U.S.C. s 1311(b)(2)(A) (footnote and emphasis added).

EPA found below that elimination of discharge is not "technologically and economically achievable" for color pollutants as a

category or class but, to the contrary, that a case-by-case

approach was necessary because "[t]he potential for significant aesthetic or aquatic impacts from color discharges is

driven by highly site-specific conditions." 63 Fed. Reg. at

18,538.2 In light of this finding, EPA's decision does not

__________

1 Color is among the "pollutants identified in subparagraph[ ] ...

(F)," the catchall subparagraph for all pollutants not identified in

subparagraph (C), (D) or (E).

2 EPA has long adhered to this position, which it explained more

fully in a 1982 rulemaking:

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conflict with its statutory responsibilities under section

301(b)(2) and its decision to handle color on a case-by-case

basis must be upheld as reasonable. Cf. Maier v. EPA, 114

F.3d 1032 (10th Cir.), cert. denied, 522 U.S. 1014 (1997)

("When we apply the deference due an administrative agency

which Chevron mandates, '[t]he permissive nature of the

statute implies broad agency discretion in selecting the appropriate manner of regulation.' EPA's position that the statute

allows the agency to impose limits for [nitrogenous biochemical oxygen demand] on a case-by-case basis through the

permitting process is a reasonable and permissible reading of

the statute, to which we must defer.") (quoting Professional

Drivers Council v. Bureau of Motor Carrier Safety, 706 F.2d

1216, 1221 (D.C. Cir. 1983)).

III.

Next we consider, and reject, each of the challenges raised

by Industry Petitioners.

A.

AOX Limits. Industry Petitioners first challenge EPA's

decision to set limits on the discharge of AOX and to require

daily monitoring of AOX levels. For the following reasons,

we conclude EPA's decision was within its authority and not

arbitrary or capricious.

__________

The Agency is withdrawing the existing effluent limitations and

standards for color and we are not establishing any new ones

based on our evaluation that color is not a pollutant of national

significance in this industry. In some cases, it has been shown

that color can interfere with light transmission and the process

of photosynthesis in the aquatic environment. However, in

most instances, color is simply an aesthetic pollutant. Thus,

EPA no longer believes that color is a pollutant of uniform

national concern in this industry.

Pulp, Paper, and Paperboard and the Builders' Paper and Board

Mills Point Source Categories Effluent Limitations Guidelines, Pretreatment Standards, and New Source Performance Standards, 47

Fed. Reg. 52,006, 52,014 (1982).

Industry Petitioners complain EPA should not have imposed AOX limits because AOX is not itself harmful and it is

a poor predictor of the presence of chlorinated pollutants that

are harmful, notably dioxin and furan. The petitioners explain that because ECF bleaching reduces the amount of

dioxin and furan, which make up only a small percentage of

total AOX,3 much more quickly than it reduces other AOX

components, AOX levels in treated wastewater do not accurately reflect the remaining levels of dioxin and furan. Industry Petitioners may be correct that AOX is not a good

surrogate for dioxin and furan but EPA does not justify the

AOX limits on the basis that it is. EPA proposes AOX limits

and testing as a means to monitor BAT/NSPS technological

compliance at a mill and thereby to indirectly ensure reduction of dioxin and furan levels through compliance. EPA

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notes this method is both less expensive than the alternative

of daily measuring the specific chlorinated pollutants, see 63

Fed. Reg. at 18,537 ("monitoring for AOX as required in

today's rule is considerably less expensive" than monitoring

for dioxin, furan, chloroform and the 12 regulated chlorinated

phenolic pollutants), and more effective as well, see 63 Fed.

Reg. at 18,537 ("[T]he presence of AOX can be readily

measured in mill effluent, in contrast to the presence of many

of the chlorinated organic compounds regulated in today's

rule, which for the most part are likely to be present at levels

that cannot be reliably measured by today's analytical methods."); "Justification for Establishing Limitations and Standards for AOX" 1 ("Limitations on AOX provide much more

certainty than monitoring directly for [dioxin and furan]

because AOX is detectable when [dioxin and furan] concentrations are below the analytical method minimum level.").

In response, Industry Petitioners do not dispute that measuring AOX levels is an effective means of monitoring BAT

and NSPS compliance. They do, however, cite cheaper alternatives they contend will also be effective. First, they suggest EPA could rely on weekly or monthly testing which

__________

3 AOX "is a measure of the total chlorinated organic matter in

wastewaters." 63 Fed. Reg. at 18,537.

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would adequately determine compliance. EPA reasonably

concluded below, however, that daily testing is required to

ensure consistent and effective treatment; otherwise a mill

could switch its bleaching chemicals between testings. See

id. at 14 (With only monthly monitoring, "there is nothing to

stop a mill running with some chlorine, and switching to ClO2

bleaching for a few days prior to the day that [dioxin and

furan] are monitored."). Second, Industry Petitioners suggest EPA could simply authorize mills to "certify" that they

are in compliance in lieu of testing. EPA responds, again

reasonably, that certification will not prevent treatment lapses attributable to human error.

B.

Definition of "New Source." Industry Petitioners next

contend that EPA unreasonably broadened the existing definition of "new source" by designating supplemental fiber lines

as "new sources" in the Rule's preamble, and thereby subjecting supplemental fiber lines to Option B technology under the

New Source Performance Standard ("NSPS"). We conclude,

as did the relevant parties at oral argument, that this argument is "much ado about nothing" given the language of the

regulatory text.

Section 306 of the Act defines a "new source" as "any

source, the construction of which is commenced after the

publication of proposed regulations prescribing a standard of

performance under this section which will be applicable to

such source, if such standard is thereafter promulgated in

accordance with this section." 33 U.S.C. s 1316(a)(2); see

also 40 C.F.R. s 122.2 (general definition of "new source" for

direct dischargers). A "source" is defined as "any building,

structure, facility, or installation from which there is or may

be the discharge of pollutants." 33 U.S.C. s 1316(a)(3); 40

C.F.R. s 122.29(a)(2). If a source is designated as a "new

source," then it must adhere to the NSPS.

In 1984, EPA promulgated a final rule which made it clear

that the NSPS applies only to sources that meet the "new

source" definition in 40 C.F.R. s 122.2, as well as one of the

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following three criteria: (i) it is constructed at a site at which

no other source is located (i.e., a greenfield site); (ii) it totally

replaces the process or production equipment that causes the

discharge of pollutants at an existing source; or (iii) its

processes are substantially independent of an existing source

at the same site. 40 C.F.R. s 122.29(b)(1). If new construction does not satisfy 40 C.F.R. s 122.2 and one of the three

criteria set forth in 40 C.F.R. s 122.29(b)(1), then the construction is generally classified as a "modification" and is not

subject to the NSPS.

The 1984 rule also included two factors to assist in determining whether new processes are "substantially independent" from an existing source under 40 C.F.R.

s 122.29(b)(1)(iii). See National Pollutant Discharge Elimination System Permit Regulations, 49 Fed. Reg. 37,998, 38,043

(1984). The first factor examines the degree to which new

processes are integrated with existing ones. "Under this first

factor, if the new facility is fully integrated into the overall

existing plant, the facility will not be a new source....

However, on the other extreme, if the only connection between the new and old facility is that they are supplied

utilities such as steam, electricity, or cooling water from the

same source or that their wastewater effluents are treated in

the same treatment plant, then the new facility will be a new

source." 49 Fed. Reg. at 38,043. The second factor is

whether and to what extent "the construction results in

facilities or processes that are engaged in the same general

type of activity as the existing source." Id. This factor looks

to whether "the proposed facility is engaged in a sufficiently

similar type of activity as the existing source," in which case

the facility "will not be treated as a new source." Id.

In the Cluster Rules, EPA promulgated a new definition of

"new source" for pulp and paper mills in the bleached papergrade kraft and soda and papergrade sulfite subcategories.

See 40 C.F.R. s 430.01(j). This new definition completely

adopted the three criteria from the general definition in Part

122 (compare 40 C.F.R. s 122.29(b)(1)(i), (ii) & (iii) with 40

C.F.R. s 430.01(j)(1)(i), (ii) & (iii)). It also clarified the

second criterion by stating that the "total replacement of a

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fiber line" could trigger a new source determination. Compare 40 C.F.R. s 430.01(j)(1)(ii) with 40 C.F.R.

s 122.29(b)(1)(ii); see also National Emission Standards for

Hazardous Air Pollutants for Source Category: Pulp and

Paper Production, 63 Fed. Reg. 18,504, 18,552 (1998). EPA

thus specifically identified a particular type of construction

that would trigger a new source determination under 40

C.F.R. s 430.01(j)(1)(ii). EPA also explained in the Rule's

preamble that a "new fiber line built to supplement an

existing fiber line" would be considered a "substantially independent" source within the meaning of 40 C.F.R.

s 430.01(j)(1)(iii), and would consequently be considered a

"new source" subject to the NSPS. See 63 Fed. Reg. at

18,552, 18,567-68; 40 C.F.R. s 430.01(j)(1)(iii). EPA did not,

however, incorporate this concept into the regulatory text of

40 C.F.R. s 430.01(j)(1)(iii); s 430.01(j)(1)(iii) remains identical to s 122.29(b)(1)(iii). Moreover, EPA made clear in its

Response to Comments that its new definition was not intended to include as a new source any new facilities that "would

not otherwise be captured by the current definition of new

source at 40 C.F.R. 122.29(b)(1)." EPA also explained during

oral argument that while the preamble states an "expectation" regarding supplemental fiber lines based on the evidence in the record, the "new source" definition was not

intended to be inconsistent with its earlier definition.

Despite the unchanged language from s 122.29(b)(1)(iii) to

s 430.01(j)(1)(iii), Industry Petitioners and EPA devote significant portions of their briefs to arguing whether supplemental

fiber lines are "substantially independent" such that they fit

the definition of "new source," and, consequently, whether

they should be subject to the NSPS. Industry Petitioners

argue that, through the Final Rule's preamble, EPA has

created an irrebuttable presumption that all supplemental

fiber lines are "substantially independent" from existing

sources and therefore subject to the NSPS. Industry Petitioners further argue that EPA cannot, as a matter of law,

make that presumption. EPA must instead make independent determinations of supplemental fiber lines based on the

two factors in the "substantially independent" test. At oral

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argument, Industry Petitioners stated that they would not

object to the new source definition if we found that such an

irrebuttable presumption was inappropriate, and instead relied on the "substantially independent" test for new source

determinations.

We find that EPA did not establish an irrebuttable presumption that supplemental fiber lines are new sources under

the Final Rule. Consequently, Industry Petitioners' objection to the "new source" definition is moot. The definition of

"new source" included in the text of the Final Rule as it

pertains to supplemental fiber lines is altogether unchanged

from EPA's earlier definition of "new source." To the extent

the preamble suggests a change in EPA's "new source"

determinations, that suggestion is rejected. The preamble to

a rule is not more binding than a preamble to a statute. "A

preamble no doubt contributes to a general understanding of

a statute, but it is not an operative part of the statute and it

does not enlarge or confer powers on administrative agencies

or officers." Ass'n of American R.Rs. v. Costle, 562 F.2d

1310, 1316 (D.C. Cir. 1977) (citing Yazoo Railroad Co. v.

Thomas, 132 U.S. 174, 188 (1889)). "Where the enacting or

operative parts of a statute are unambiguous, the meaning of

the statute cannot be controlled by language in the preamble." Id. Section 430.01(j)(1)(iii) (the section applicable to

supplemental fiber lines) remains unchanged from EPA's

earlier "new source" definition set forth in 40 C.F.R.

s 122.29(b)(1)(iii). When we examine the text of 40 C.F.R.

s 430.01(j)(1)(iii), together with EPA's statements both in its

Response to Comments and during oral argument that it did

not intend to change the definition of 40 C.F.R.

s 122.29(b)(1), there is nothing left of the Industry Petitioners' objection to the "new source" definition. Permitting

authorities will continue to make "new source" determinations

using the regulatory text and the two factors of the "substantially independent" test identified by EPA to assist in making

such determinations--criteria that have not been changed in

any fundamental respect from EPA's earlier rule. In short,

EPA did not act arbitrarily or capriciously in promulgating its

"new source" definition.

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C.

Selection of Option B Technology for "New Sources."

Industry Petitioners next challenge EPA's decision to adopt

Option B technology as the NSPS. See 63 Fed. Reg. at

18,553. Industry Petitioners object to Option B on two

grounds: 1) extended cooking/oxygen delignification will only

result in measurable decreases in AOX, not known pollutants;

and 2) in light of EPA's "new source" definition applying to

supplemental fiber lines, Option B's cost is not justified.

We addressed, and dismissed, Industry Petitioners' first

argument under our discussion of "AOX Limits," supra, and

we need not repeat our analysis here. As for Industry

Petitioners' second argument, we find that much of it results

from their assumption that the Rule's preamble language

creates an "irrebuttable presumption" that supplemental fiber

lines will be considered new sources under the Final Rule.

We dismissed this assumption under our previous section,

noting that it is the language of the regulatory text, and not

the preamble, that controls. To the extent that construction

of a supplemental fiber line meets the long-held and unchanged criteria of the "substantially independent" test (and

thus constitutes a "new source"), then that supplemental fiber

line would be subject to Option B technology--as would any

"new source" construction.

In any event, EPA's economic analysis concerning Option B

technology for the NSPS was not arbitrary or capricious.

First, appellate courts give EPA considerable discretion to

weigh and balance the various factors required by statute to

set NSPS. See, e.g., BP Exploration & Oil, Inc. v. EPA, 66

F.3d 784, 802 (6th Cir. 1995). "The CWA does not state what

weight should be accorded to the relevant factors; rather, the

Act gives EPA the discretion to make those determinations."

Id. Second, as Industry Petitioners concede, section 306

requires that, when setting the NSPS, the Administrator

must take costs into consideration, but does not require that

she conduct a cost-benefit analysis. "[T]he Administrator

must inquire into the initial and annual costs of applying the

technology and make an affirmative determination that those

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costs can be reasonably borne by the industry." Chem. Mfrs.

Ass'n v. EPA, 870 F.2d 177, 262 (5th Cir. 1989); see also CPC

Int'l, Inc. v. Train, 540 F.2d 1329, 1341 (8th Cir. 1976)

("There is no language in s 306 requiring a cost-benefit

analysis. Rather, EPA is required only to take costs under

'consideration.' We conclude, therefore, that a cost-benefit

analysis is not required in determining the reasonableness of

the cost of achieving the new source standards."). Section

306(b)(1)(B) requires only that "[i]n establishing or revising

Federal standards of performance for new sources ... the

Administrator shall take into consideration the cost of achieving such effluent reduction, and any non-water quality environmental impact and energy requirements." 33 U.S.C.

s 1316(b)(1)(B). This EPA has done.

After conducting its economic analysis, EPA rejected Option B technology for existing sources because EPA concluded it would cause severe economic disruption that could not

be reasonably borne by the pulp and paper industry. See 63

Fed. Reg. at 18,550-51. With respect to its cost analysis at

new sources, EPA concluded that "[t]he incremental capital

cost of complying with the selected NSPS for all pollutants,

as compared to the costs of complying with the standards

based on the next best technology, BAT Option A, is only .5

to 2.0% of the total capital cost of constructing either a new

source fiber line at an existing mill or a new greenfield mill."

63 Fed. Reg. at 18,553. Thus implementing Option B technology would only increase the costs of constructing a new

mill or fiber line by 0.5% to 2%. As such, EPA concluded

that the cost of implementing Option B technology for new

sources was reasonable. Indeed, Industry Petitioners concede that this economic analysis alone would likely satisfy

section 306. Industry Petitioners instead take issue with the

perceived "irrebuttable presumption" concerning supplemental fiber lines set out in the Rule's preamble. Such a presumption, argues Industry Petitioners, renders EPA's economic analysis arbitrary and capricious because EPA "failed

to take into account the tremendous cost of retrofitting

existing mills to accommodate the Option B technology as

required under the expanded definition of new source." AcUSCA Case #99-1454 Document #672437 Filed: 04/19/2002 Page 25 of 34
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cording to Industry Petitioners, existing mills will, in fact, be

required to implement Option B technology--at a cost that

EPA has already found to be prohibitive.

Industry Petitioners' argument depends on an expanded

definition of "new source." Without reliance on the expanded

definition, Industry Petitioners have already conceded that

EPA's economic analysis will likely pass judicial review.

They are correct. And because we have already rejected the

"expanded definition" of "new source" (drawn from the Rule's

preamble) in favor of the existing definition of "new source"

(based on the traditional "substantially independent" test), we

find no merit to Industry Petitioners' argument challenging

EPA's economic analysis.

D.

Monthly Effluent Limitations. Industry Petitioners next

object to EPA's decision to set the monthly maximum effluent

limitation at the 95th percentile of the distribution of monthly

measurements rather than the 99th percentile. For the

reasons that follow, we find that EPA did not act arbitrarily

or capriciously in setting the monthly limitation at the 95th

percentile.

EPA monitors a mill's discharge of pollutants by setting

and monitoring daily and monthly standards of performance

that mills must achieve. The Cluster Rules require plants to

achieve effluent limitations that are based on the proper

operation of mills using the model technologies. According to

EPA, "limitations ... are numerical values that are bounds

on the amounts of pollutants that may be discharged and are,

in effect, measures of how well the production processes and

wastewater treatment systems must be operated." The daily

maximum limitation is a restriction on the amount of pollutant

in any one daily sample. The type of limitation at issue here,

the monthly average limitation, is a restriction on the average

of daily measurements taken during a month.

Briefly, the limitations are derived using the following

process: EPA determines an average performance level, or

long-term average, that a well-designed mill using the model

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technologies can achieve. Recognizing variability among

treatment processes, pollutant concentrations, sampling, and

analysis, EPA incorporates "variability factors" into the limitations to account for these sources of variability. Because

the variability factors for the Cluster Rules were derived

from mills using the model technologies, EPA asserts that the

effluent limitations "already account for any reasonable variability likely to occur and thus well operated mills implementing technologies representing the appropriate levels of control

will be capable of compliance at all times." EPA then

calculates limitations based on percentiles using the products

of long-term averages and variability factors. The chosen

percentiles are intended to accommodate reasonably anticipated variability within the mill's control while at the same

time reflect a level of performance consistent with BAT and

BADT.

EPA has consistently used the 99th percentile of the distribution of daily measurements as the basis for daily maximum

limitations, and has at times used the 99th percentile of the

distribution of monthly averages as the basis for monthly

average effluent limitations. In its Cluster Rules, EPA set

the daily maximum limitation for BAT technology at the 99th

percentile, and it set the monthly maximum limitation for

BAT technology at the 95th percentile. Industry Petitioners

argue that EPA deviated from past precedent by setting the

monthly average limitations at the 95th percentile rather than

the 99th percentile, and that EPA has designed a system that

ensures a well-operated mill using the model technologies will

exceed the monthly average limitations 5% of the time.

We reject Industry Petitioners' arguments and uphold

EPA's decision to set the monthly average limitation at the

95th percentile. EPA has considerable discretion in determining a technical approach that will ensure that effluent

limitations reasonably account for expected variability in

plant operations while still maintaining an effective level of

control. See Weyerhaeuser Co. v. Costle, 590 F.2d 1011,

1056-58 (D.C. Cir. 1978). While EPA set monthly average

limitations at the 99th percentile for the pulp and paper

industry in 1982 and 1986 rulemakings for Best Practicable

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Technology ("BPT") and Best Conventional Technology

("BCT"), Industry Petitioners ignore the fact that after those

rule-makings, EPA determined, "as a matter of policy, that

the 95th percentile was a more appropriate choice for monthly average limitations in all industrial effluent guidelines

rulemakings because the variability of monthly averages is

less than the variability of daily measurements." EPA has

followed that policy in developing monthly average limitations

in all effluent guidelines rulemakings since 1987. It was

neither arbitrary nor capricious for EPA to continue that

policy here.

EPA carefully explained that its purpose in setting the

monthly average limitations at the 95th percentile was to

ensure that a mill achieves the long-term average effluent

levels. EPA explained that the daily maximum limitations

are set at a higher percentile level to account for the greater

variability expected from daily measurements. But consistent compliance with the daily maximum limitation alone

would not ensure compliance with the long-term average.

Continuous operation at or near the daily maximum would in

fact result in discharges that exceed the long-term average.

Likewise, setting monthly limitations at the 99th percentile

would not insure that the long-term average is met. EPA

therefore set the monthly average limitation at a lower level

to ensure that mills operate more closely around the longterm average. EPA reasonably anticipated that, because

monthly average limitations are based on averages of more

than one daily measurement, less variability would be present

in monthly measurements than in daily measurements. As

EPA observed in its Response to Comments: "In establishing

monthly average limitations, EPA's objective is to provide an

additional restriction that supports EPA's objective of having

facilities control their average discharges at the long-term

average. The monthly average limitation requires continuous

dischargers to provide on-going control, on a monthly basis,

that complements controls imposed by the daily maximum

limitation. In order to meet the monthly average limitation,

a facility must counterbalance a value near the daily maximum limitation with one or more values well below the daily

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maximum limitation. To achieve compliance, these values

must result in a monthly average value at or below the

monthly average limitation."

Industry Petitioners argue that even if they employ the

model technologies, they will still exceed the monthly average

limitations five percent of the time. The "fundamental flaw"

in using the 95th percentile, according to Industry Petitioners, is EPA's assumption that variability of discharges can be

adequately controlled through quality control of plant processes and treatment procedures. They argue that not all

variances or exceedances will result from improper quality

control or treatment procedures, and cite the presence of two

elevated levels of chlorinated phenolic compounds recorded

by mills using the model technologies. We reject this argument. First, EPA did not establish monthly average limitations for chlorinated phenolic compounds. The relevance of

this argument by Industry Petitioners is therefore unclear.

Second, Industry Petitioners completely ignore the "upset

provision" that is available should an exceedance arise due to

an unforeseen or unexplainable event. If such an event

occurs, operators may raise this "upset defense" as an affirmative defense in an enforcement action. See 40 C.F.R.

s 122.41(n).

EPA's approach to developing monthly limitations was

reasonable. It established limitations based on percentiles

achieved by facilities using well-operated and controlled processes and treatment systems. It is therefore reasonable for

EPA to conclude that measurements above the limitations are

due to either upset conditions or deficiencies in process and

treatment system maintenance and operation. EPA has included an affirmative defense that is available to mills that

exceed limitations due to an unforeseen event. EPA reasonably concluded that other exceedances would be the result of

design or operational deficiencies. EPA rejected Industry

Petitioners' claim that facilities are expected to operate processes and treatment systems so as to violate the limitations

at some pre-set rate. EPA explained that the statistical

methodology was used as a framework to establish the limitations based on percentiles. These limitations were never

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intended to have the rigid probabilistic interpretation that

Industry Petitioners have adopted. Therefore, we reject

Industry Petitioners' challenge to the effluent limitations.

IV.

Motion for Sanctions. As a final matter, we consider

Industry Petitioners' motion to sanction NWF counsel. A

summary of the events leading up to Industry Petitioners'

motion is included below.

EPA, acting under its authority in 33 U.S.C. s 1318(a),

collected certain industry confidential business information

("CBI") during the development of the Cluster Rules. On

November 9, 1998, NWF Petitioners filed a motion in the

Ninth Circuit to compel production of all CBI that EPA had

collected. Nat'l Wildlife Fed'n v. Browner, No. 98-70506 (9th

Cir. filed Nov. 9, 1998). Specifically, NWF sought the number of mills with hardwood lines that used oxygen delignification. Both EPA and Industry Petitioners opposed the motion. This Court (after receiving the transferred case) denied

NWF Petitioners' motion on the ground that the CBI sought

was "the type of sensitive information and confidential or

trade secret information that EPA can properly withhold

from public view." Nat'l Wildlife Fed'n v. EPA, No. 99-1452

(D.C. Cir. Feb. 2, 2000) (order denying motion to compel

disclosure of information in the administrative record) (citing

Natural Res. Def. Council v. Thomas, 805 F.2d 410, 418 n.13

(D.C. Cir. 1986)).

In 1999, NWF Petitioners requested information from EPA

regarding bleached kraft mills. In response, EPA emailed a

computer file attachment to an NWF law clerk, who then

forwarded the email attachment to NWF counsel on June 16,

1999. The file attachment contained three spreadsheets, the

second of which contained CBI and included the notation

"CBI" above the spreadsheet.

According to NWF, NWF counsel opened the file, printed

the spreadsheets, and reviewed them in May 2000 without

immediately noticing that the second spreadsheet, which included nine separate pages, was marked as "CBI." He did,

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however, determine that the information contained on the

second spreadsheet included the information he had sought in

his motion to compel (i.e., the number of mills running

hardwood lines). Only after NWF counsel attempted to

locate the information in the administrative record did he

notice that the spreadsheet was labeled "CBI." According to

NWF's counsel, the CBI notation was only located on the

first page of the second spreadsheet, and was in all other

ways inconspicuous.

That same day, NWF counsel consulted an attorney regarding his ethical obligations with respect to the CBI. The

attorney advised NWF counsel that a DC Ethics Opinion

supported the position that he could use the information that

was inadvertently disclosed to him. NWF counsel then notified EPA's in-house counsel that he received a document

labeled "CBI." EPA's counsel requested return of the document--NWF counsel forwarded the email, but informed EPA

counsel that he intended to use the information included in

the CBI in a brief filed under seal with this Court. EPA's

counsel of record then contacted NWF counsel, urged him not

to refer to the CBI in NWF's brief, and provided him with a

citation to the sources in the confidential portion of the

administrative record supporting the information included in

the CBI. NWF Petitioners used this citation in its brief to

this Court.

Despite requests to return the CBI, NWF counsel refused

on grounds he would need the information if another party

contested the accuracy of the information in NWF's brief.

Only after EPA stipulated to certain CBI on July 17, 2000,

did NWF counsel return the CBI. The next day, Industry

Petitioners filed a motion to impose sanctions, including dismissing the NWF petition or, in the alternative, striking

portions of the merits brief filed by the NWF Petitioners and

awarding attorney fees and costs to Industry Petitioners, on

grounds the NWF counsel improperly disclosed CBI and

improperly used CBI to extract additional data from EPA

and a stipulation from EPA in support of NWF's litigation

position.

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NWF argues that its counsel acted properly throughout the

present litigation with respect to the CBI. NWF assures this

Court that its counsel did not know that the email contained

CBI when he first reviewed it, and relies on a DC Ethics

Opinion which provides that an attorney who receives inadvertently disclosed information, and who has no knowledge

that the information was disclosed inadvertently, does not act

unethically in using that information to his advantage. See

District of Columbia Legal Ethics Comm., Formal Op. 256

(1995). (NWF does not suggest that counsel would have been

able to use the information if he knew that it was confidential

when he initially reviewed it.) NWF also denies that NWF

counsel used the CBI as a bargaining chip with EPA. Finally, NWF argues that NWF counsel did not violate this

Court's Order denying NWF's motion to compel because the

order was silent as to whether NWF could use information

released to it by EPA.

We begin and end our analysis with this Court's Order

denying NWF's motion to compel. NWF insists that its

attorney did nothing wrong in retaining and using the CBI

because our Order did not specifically address whether the

information could be used if EPA disclosed it, but was instead

limited to whether EPA could, in fact, disclose it. This

argument is disingenuous at best. We issued our Order in

direct response to NWF's request for CBI--the CBI it

subsequently received, used, and retained. Our Order stated

clearly that "[t]he confidential business information NWF

seeks is the type of sensitive information and confidential or

trade secret information that EPA can properly withhold

from public view." The effect of our Order was simple:

NWF requested access to the information; we denied the

request. That NWF later received this information inadvertently in no way changes our designation of this material as

"confidential," "sensitive," and similar to "trade secret information," and in no way changes our position that NWF

counsel should not have had access to it. Because of that, we

fail to understand how NWF counsel, after receiving the

information and learning of the inadvertent disclosure, could

justify retaining and using the information in his possession.

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NWF counsel, and the attorney he consulted, relied on

ethics and judicial opinions which hold that under some

circumstances, a privilege is waived if inadvertently released

by the privilege holder. In doing so, NWF counsel and his

attorney appear to have mischaracterized the operative facts

and been unaware of caselaw from this Circuit that closely

resembles the question at hand: whether the inadvertent

disclosure of privileged or confidential information maintained by a third party (here, EPA) constitutes waiver. See

SEC v. Lavin, 111 F.3d 921 (D.C. Cir. 1997). In Lavin, we

noted that cases wherein a holder of the privilege inadvertently discloses information provide "limited guidance on

whether disclosures by third parties over whom the holder of

the privilege has virtually no control, i.e., involuntary disclosures," constitute waiver. Id. at 930. We then adopted the

reasoning of the Ninth Circuit in United States v. de la Jara,

973 F.2d 746, 749-50 (9th Cir. 1992), holding that the privilege is preserved in involuntary disclosures if the privilege

holder has made reasonable efforts designed to protect and

preserve the privilege. See Lavin, 111 F.3d at 930. In so

holding, we observed that "[u]nless communications remain

privileged as long as the holder has acted reasonably in

attempting to protect them, involuntary disclosures by third

parties may render illusory the privilege's guarantee of privacy." Id. We find that Industry Petitioners' efforts in opposing NWF's motion to compel the CBI was indeed a reasonable attempt to protect its confidential business information,

and any protection afforded that information was not waived

through the inadvertent disclosure of that information by

EPA.

We understand, however, that the present situation involves an Order of this Court concerning trade secret information rather than an evidentiary privilege. The holding of

Lavin then, while instructive, is not necessarily controlling.

The Lavin holding does instruct us, however, to seriously

question the propriety of counsel's actions, especially when

taken together with the language of our Order denying NWF

access to the very information NWF now argues it was

entitled to use. For these reasons, rather than impose

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sanctions against NWF counsel, we refer this matter to the

Committee on Admissions and Grievances for its consideration and such recommendation or petition to the Court as

the Committee may see fit to present. See In re Door, 195

F.2d 766, 770 (D.C. Cir. 1952).

V.

For the reasons stated, the petitions for review and the

motion for sanctions are denied.

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