Opinion ID: 413378
Heading Depth: 1
Heading Rank: 3

Heading: exemptions from section 120 penalties

Text: 94 Being in violation of an applicable legal requirement does not automatically subject a source to section 120 penalties, as the statute sets out a number of exemptions to the noncompliance penalties. Five of these exemptions are mandatory, with the burden of proof on the source to show that it is entitled to the exemption it claims. Sec. 120(a)(2)(B)(i)-(v). EPA's regulations implementing two of the five mandatory exemptions are challenged here. The first of these is for noncompliance due solely to an inability to comply with an emissions standard, which inability is entirely beyond the control of the owner or operator of such source or of any entity controlling, controlled by, or under common control with the owner or operator of such source, and for which inability the source has received a delayed compliance order under the Act. Sec. 113(d); see Sec. 120(a)(2)(B)(iv). The second exemption at issue is for noncompliance due solely to conditions by reason of which a temporary emergency suspension is authorized under section 110(f) or (g) of the Clean Air Act, such as one due to a national energy emergency. See Sec. 120(a)(2)(B)(v). 95 In addition to the mandatory exemptions, section 120 authorizes EPA to exempt a source from penalties for a particular instance of noncompliance if it finds that such instance of noncompliance is de minimis in nature and in duration. Sec. 120(a)(2)(C). In contrast to the mandatory exemptions, this de minimis exemption is permissive only. This exemption is also at issue. 96 We take up in turn the issues raised by EPA's regulations implementing these exemptions. We find that the regulations overstepped the statutory mandate in one respect when interpreting the inability to comply exemption. In all other respects we affirm the regulations' treatment of the section 120 exemptions.
97 In passing the Act in 1970, Congress intended to spur the development of air pollution control technology. The Act was technology-forcing: it did not provide exemptions for sources unable to comply with requirements because the technology necessary was as yet undeveloped. When it became clear that optimistic hopes for technological advances in pollution control were not being entirely realized, Congress in the 1977 Amendments provided for delayed compliance orders. Sec. 113. Under these orders, sources making good faith efforts to come into compliance, but faced with immature technology, may continue operation and follow a more protracted schedule of compliance with emission limitations. 18 98 In section 120, too, Congress built some flexibility into the penalty scheme for sources unable to meet applicable legal requirements. Such sources are entitled to exemptions if they can show that they meet two conditions: (1) their inability to comply is entirely beyond their control and (2) they have received a delayed compliance order under section 113. Sec. 120(a)(2)(B)(iv). Industry petitioners find flaws in EPA's regulations implementing both of these conditions.
99 Under the inability to comply exemption, a source is exempted from penalties if its failure to comply resulted, inter alia, from reasons entirely beyond its control. The statute does not list factors that are to trigger the exemption; it is entirely open-ended. During consideration of section 120, there was some debate over whether to enumerate the factors that would trigger the exemption. EPA had urged confining the list to a narrow set of factors, such as strikes, fires, embargoes, and natural disasters. 1977 HOUSE REPORT at 76, reprinted in 4 1977 LEGISLATIVE HISTORY at 2543. The House, however, decided to incorporate some flexibility into the exemption, because it was concerned that [n]ot all possible unforeseen circumstances could be foreseen and expressly provided for in this provision. Id. The Senate likewise did not confine the inability to comply exemption to a set list of factors. Both the House and the Senate, however, were insistent that the exemption, like other exemptions, should be narrowly construed. 19 100 EPA's regulation implementing section 120 enumerates seven factors that it will consider as beyond the control of a source: 101
102
103
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105 (5) Inability to obtain capital, if that inability is the result of temporary market conditions; 106 (6) Failure of equipment to perform as designed, assuming expectations about performance were reasonable; and 107 (7) The complete inability of a supplier or contractor to furnish labor or materials. 108 40 C.F.R. Sec. 66.31(c)(1)-(7) (1981). Only if a source can show that it meets one of these conditions will EPA grant it an exemption for inability to comply. 109 Industry petitioners object, first, that this list should be expanded to include technological impossibility as a factor. EPA based its refusal to grant a general exemption for technological incapacity on its understanding of the technology-forcing character of the Act. See 45 Fed.Reg. 50,096 (1980). EPA recognized, however, the difficulties of assessing a penalty to reflect the economic benefits of noncompliance, when the technology was not yet available to outline the steps to be taken by the source to bring it into compliance. Estimating the costs of pollution control equipment, for example, may be impossible when it is not yet known what equipment will be necessary. EPA thus determined that 110 [w]here existing technology has not yet demonstrated compliance, the penalty will be based upon the cost of installing the best available controls as determined on a case-by-case basis, as well as a commitment to an appropriate research and development (R & D) program designed to develop the new means of emission control necessary to achieve the standards. Thus, a source that has taken and is continuing to take all possible steps to achieve compliance, including the installation of the best available controls and, where appropriate, participation in an appropriate R & D program, would be considered to be deriving no economic benefit from its failure to comply.... 111 Id. EPA's approach, in other words, is to deny an exemption for technological impossibility but to calculate the penalties to ensure that sources doing their best to surmount existing technology will not be assessed any penalties. In EPA's judgment, this approach would provide the best mix of incentives to bring about the goals of the Clean Air Act: sources would be deterred from hiding their inadequate efforts behind the excuse of technological impossibility, and would be encouraged to take advantage of and build upon technological advances as they occur. Id. at 50,097. 112 We agree with EPA that it is reasonable to exclude technological impossibility from the inability to comply exemption. At no time during the debates did Congress consider enumerating technological impossibility as one of the factors triggering the exemption, nor did Congress move towards the more flexible formulation of the exemption in order to incorporate technological impossibility. Indeed, Senator Muskie's explanation of the version of section 120 that emerged from the Senate and House conference stated explicitly that the exemption was not intended to cover a claim that needed technology is unavailable. 3 1977 LEGISLATIVE HISTORY at 347. Congress' emphasis that exemptions should be construed narrowly, to avoid diluting incentives created by the penalty provision, was repeated. 113 Furthermore, EPA's approach is a reasonable balance of statutory goals. Congress intended the Act to create incentives to develop the technology needed to abate air pollution. Perhaps the best that can be expected from sources in pursuit of this goal is use of the best available technology and continued efforts to develop better technology. EPA's treatment of technological impossibility encourages this progress, and we affirm such treatment. 114 Industry petitioners' second objection is that EPA erred in enumerating an exclusive list. EPA chose this approach because it was concerned that including a catch-all provision would open a loophole and defeat the purpose of the penalty scheme. 45 Fed.Reg. 50,096 (1980). While we agree with EPA that eligibility for this exemption should be determined by regulation rather than by adjudication, we find that in relying on an exclusive list of factors to trigger the exemption, EPA has overstepped Congress' intent. 115 Although Congress intended the exemption to be narrowly limited, it also required that some flexibility be written into the regulations. See 1977 HOUSE REPORT at 76, reprinted in 4 1977 LEGISLATIVE HISTORY at 2543. EPA argues that this requirement of flexibility is fully met by its power to expand in the future the list of situations that constitute inability to comply should this become necessary to prevent inequity in a particular case. 45 Fed.Reg. 50,096 (1980). EPA fails, however, to specify whether its power to prevent inequity has prospective application only. We hold that it cannot and that EPA must include in its enumerated factors a provision that allows it, in its discretion, to exempt a source in the first instance in which such circumstances arise. Without such a provision, the regulations lack the flexibility that the Act mandates. 116 There is no need for this provision to become the loophole EPA fears. The burden of proof is on a source to demonstrate that it meets the conditions of the exemption, which include a showing that the inability resulted from a factor entirely beyond the source's control. This is a heavy burden indeed, not subject to easy exploitation from sources claiming the exemption on spurious grounds. 117 We therefore remand the regulations to EPA insofar as they strictly enumerate an exclusive list of factors that will trigger the inability to comply exemption. We leave to the agency the fashioning of an additional provision to meet the congressional design. 118
119 To invoke the inability to comply exemption, a source must show that its inability was entirely beyond not only its own control, but also the control of those entities controlling it. In the language of section 120, the source must show that the inability results from reasons entirely beyond the control of the owner or operator of such source or of any entity controlling, controlled by, or under common control with the owner or operator of such source. Sec. 120(a)(2)(B)(iv). 120 EPA's implementing regulations look to management structure to interpret this requirement. EPA defines control as follows: 121 Control (including the terms controlling, controlled by, and under common control with) means the power to direct or cause the direction of the management and policies of a person or organization, whether by the ownership of stock, voting rights, by contract, or otherwise. 122 40 C.F.R. Sec. 66.3(f) (1981). The regulations provide that the source must demonstrate inability beyond its own control as well as the control of any affiliated entity. Id. Sec. 66.31(a)(4). Affiliated entity is in turn defined in terms of direct or indirect control: a person who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the owner or operator of a source. Id. Sec. 66.3(b). 123 Petitioners claim that these definitions make no distinction between actual and ostensible control. They argue that it is not clear how much influence constitutes control and that EPA should have defined the terms management and policies. Accordingly, they ask that we vacate and remand the regulations to EPA for an identification of the basis for so broad a definition of control. 124 We disagree. The relevant issue in terms of the inability to comply exemption is fact oriented, focusing on the source's actual use of, or failure to use, its power. It is neither feasible nor desirable to force EPA to define in the abstract regulations for all possible factual circumstances. The question of whether a source, or an affiliated entity, used its power to create its inability to comply or could have so used its power to comply is properly left to the factfinder. Therefore, we affirm the regulations as to these definitions.
125 The second condition that a source must fulfill to qualify for the inability to comply exemption is that it must have received a delayed compliance order under section 113(d). EPA's regulations provide that a source may not receive the exemption unless it has already received such an order, or the equivalent in the form of a consent decree. 40 C.F.R. Sec. 66.31(a)(4) (1981). Industry petitioners object, claiming that they should be entitled to an exemption if they have petitioned for a delayed compliance order and their petition appears meritorious. 126 We affirm EPA's determination that a source must already have received a delayed compliance order to qualify for the exemption. The statutory language is unequivocal: for which inability the source has received an order under section 113(d). Sec. 120(a)(2)(B)(iv). The choice of the past tense is clear indication that Congress meant to limit the exemption to cases in which a source had passed through the carefully defined procedures of section 113, and we affirm.
127 The other mandatory exemption which petitioners challenge allows for an exemption if the failure of the source to comply is due solely to the conditions by reason of which a temporary emergency suspension is authorized under [section 110(f) or (g) ]. Sec. 120(a)(2)(B)(v). The sections in question--Secs. 110(f), (g)--authorize suspensions of state implementation plans by the President or the governor in case of an energy or economic emergency. EPA's regulations implementing this exemption, 40 C.F.R. Sec. 66.31(a)(5), (b) (1981), limit the applicability of the exemption to instances when the suspensions have issued. 128 Industry petitioners object to the regulations and argue that the statute mandates the exemption whenever a suspension could be granted. Such an interpretation would create an administrative nightmare, forcing EPA to second-guess governors or the President. EPA's regulations, on the other hand, requiring that the suspension actually have been granted, are a reasonable interpretation of the statute given that what authorizes a suspension is the executive decision to issue it. Therefore, we affirm EPA regulations 40 C.F.R. Sec. 66.31(a)(5), (b) (1981).
129 The final exemption challenged is the de minimis exemption. Section 120 of the Act provides that: 130 [t]he Administrator may, after notice and opportunity for public hearing, exempt any source from the requirements of this section with respect to a particular instance of noncompliance if he finds that such instance of noncompliance is de minimis in nature and in duration. 131 Sec. 120(a)(2)(C). EPA's regulations, 40 C.F.R. Secs. 66.32, 66.33 (1981), define the phrase de minimis in nature and duration, by setting out those factors EPA will consider in assessing a request for the exemption. These include the magnitude and recurring nature of the violation, the steps being taken to prevent recurrence, the potential economic benefit, the character and impact of the violations, and the duration. Id. Sec. 66.32(c)(1)-(5) (1981). There is also a list of factors to be considered specifically in the case of equipment malfunction. Id. Sec. 66.33 (1981). 132 Industry petitioners argue that the statute limits EPA to two criteria in ruling on an application for noncompliance: the duration and the nature of the incident causing the noncompliance. They claim that if these two criteria are met the EPA Administrator must grant an exemption. Accordingly, they argue that EPA, by specifying additional criteria for the Administrator to consider, has gone beyond its statutory mandate. 133 Petitioners' argument simply turns the statute upside down. The congressional intent is clear that, unlike the exemptions discussed in parts III A and III B of this opinion, the de minimis exemption is discretionary. Whereas the exemptions listed in section 120(a)(2)(B) shall be granted if the requirements are met, the de minimis exemption may be granted if the requirements are met. Congress' intent is also clear from the type of hearing it established. Section 120(b)(5), which applies to the mandatory exemptions in section 120(a)(2)(B), requires the Administrator to provide a hearing on the record. Section 120(a)(2)(C), which applies to the de minimis exemption, merely requires that there be notice and opportunity for public hearing. Moreover, EPA's regulations relate directly to the objectives of the Act and section 120 because they look at the air quality impact and the associated economic benefit of each violation. As such, they are reasonable characterizations of the nature of a violation for determining whether it should be viewed as de minimis. For the foregoing reasons, we affirm the EPA's regulations, 40 C.F.R. Secs. 66.32, 66.33 (1981), that deal with the de minimis exemption.