EPA's court follies sow doubt, delay

WASHINGTON - The judge cocked her head sideways as the young government lawyer tried to justify what the EPA had done: Not much.

U.S. District Court Judge Rosemary Collyer could barely contain her disgust. The EPA had repeatedly failed to set pollution limits for diesel ships entering U.S. ports, including Camden and Philadelphia. Following lawsuits, the EPA had promised that it would do so by 2003, then by 2007. Now, in April 2008, EPA was saying it might - might - follow the law and do it by 2009.

Collyer was no liberal. A Bush appointee, she had held two political posts during the Reagan administration. But now she cast a wary eye at the lawyer for the EPA.

"So you're saying EPA could just keep granting itself extensions?" Collyer asked.

Yes, the lawyer said.

The judge shook her head and invoked Peter Pan.

"It's Never-Never Land," she said.

The lawyer insisted that the EPA was working on the problem.

Incredulous, Collyer held up a thumb and index finger an inch apart. "This -" she said, holding her fingers aloft - "this is how much EPA has done."

The judge's exasperation with the EPA's manipulation of air pollution rules mirrored reactions in cases by other federal judges.

In a dozen cases since 2001, federal judges in Washington have used increasingly caustic language to throw out EPA regulations, chastising the Bush administration for illegally changing U.S. environmental rules. Most decisions were rendered by the conservative U.S. Court of Appeals for the District of Columbia.

The result: The EPA's most significant new air-pollution initiatives lie in tatters, creating uncertainty for those who worry about the environment and human health, as well as for businesses that have spent billions to meet new EPA standards that no longer exist. When the courts killed one Bush rule in July, the decision triggered immediate market losses that cost at least one Pennsylvania power company, PPL Corp. of Allentown, $33 million.

Taxpayers are losers, too. According to the EPA's own figures, the agency spent at least $53 million to create these now-defunct rules.

Most of the court decisions against the EPA were not close calls. Nearly every key appellate ruling on air pollution was unanimous and bipartisan. Two-thirds of the votes against the EPA were cast by judges appointed by Republican presidents, according to an Inquirer analysis.

"In modern environmental law, this is absolutely unprecedented," said James R. May, a Widener University law professor and chair of the American Bar Association's annual Environment and Energy Resources conference. "All across the spectrum, judges are finding that virtually every environmental initiative of the Bush administration is illegal."

An Inquirer analysis also shows that when the EPA is sued, it appears to treat industry as a friendlier foe than environmental groups.

Of the four dozen pollution cases filed in federal court in Washington, the EPA settled 80 percent of the lawsuits brought by industry. By contrast, the EPA settled only 15 percent of the cases brought by environmental groups.

In one case - in which utility companies challenged states' authority on pollution enforcement - the EPA settled with the utilities and then went one step further. The EPA rewrote the rule to take the industry position. The courts later said that the EPA acted wrongly, and threw out the revised rule.

Bush's senior environmental adviser, James Connaughton, said most of the decisions the EPA has lost have not been about the substance of the environmental rules, but about the legal process.

"You look at those cases and they have nothing to do with whether the air is getting cleaner," he said. "The EPA is pursuing flexible approaches that allow for even greater economic growth and development as we dramatically improve air quality."

Nearly all cases have been decided by the powerful D.C. Circuit Court of Appeals, which hears most challenges to newly minted agency rules.

Those judges have repeatedly called the EPA's legal justifications thin, some so laughable they would only make sense if presented in a fairy tale:

When the EPA tried to argue that the word any in existing air pollution law did not literally mean "any," the court said that would make sense "only in a Humpty Dumpty world."

When the EPA tried to alter mercury emission controls on certain power plants, the court compared its legal logic to the Queen of Hearts, the Alice in Wonderland character who makes one arbitrary decision after another.

When the EPA essentially lowered a water pollution limit by reinterpreting a law requiring "daily" monitoring to allow "seasonal or annual" monitoring, the court said this was absurd: "Daily means daily, nothing else."

The EPA's biggest loss in the courts came last year in the case brought by Massachusetts on climate change. The agency had argued that it did not have the authority under the Clean Air Act to regulate carbon emissions and other greenhouse gases, and therefore could not use the law to combat global warming.

The U.S. Supreme Court rejected that contention, saying the evidence of climate change was overwhelming and that the EPA did have the authority to regulate greenhouse gases, regardless of doubts about causes and effects.

"That EPA would prefer not to regulate greenhouse gases because of some residual uncertainty . . . is irrelevant," the court wrote.

James Pew, a Gladwyne native and a lawyer for Earthjustice, a firm that represents environmental groups, said the EPA was prone to issue rules that courts later would find arbitrary.

"I think EPA was being reckless," he said. "There were only a few outcomes, and all of them were good for industry. If they managed to get a rule passed through judicial review, they would get an industry-friendly rule on the books. If it got thrown out, industry would get a delay in having to clean up its emissions, and that would be good for industry."

Either way, the consequences were severe, said Pew. "Whenever EPA loses one of these cases, the people who have to breathe toxic air take the hit because EPA has to go back and write another rule. Years go by."

Rep. Henry Waxman (D., Calif.), who chairs the House Oversight Committee, said: "This administration's pattern of issuing rules that don't stand up in court has caused multiple serious harms" - to public health, taxpayers and industry.

Jeffrey Holmstead, a former EPA assistant administrator who was a chief architect of the Bush air pollution agenda, said the courts ruled incorrectly.

The losses, Holmstead said, were unexpected, in part because the courts had historically deferred to EPA rulemaking, except in extreme circumstances.

"If the D.C. Circuit had reviewed these cases the way they had done in the previous 15 years, those rules would have been upheld," he said. "Some of the decisions were not only a surprise but don't make any sense as a matter of administrative law."

But three former EPA political appointees, including former Administrator Christine Todd Whitman, said many court decisions did not come as a surprise. They said lawyers in the EPA's Office of General Counsel had warned that several administrative rules were too arbitrary to survive a court challenge.

"The General Counsel's Office offered very frank advice," former Associate Deputy Administrator Jason Burnett recalled.

EPA Administrator Stephen L. Johnson, who signed many of the rules that the courts have thrown out, blames a Democratic-controlled Congress for failing to adopt a comprehensive new pollution law. If Congress does not adopt new laws to address 21st-century pollution issues, Johnson said, the EPA will continue to be caught in a cycle in which it writes administrative regulations that are inevitably challenged in court by industry or environmental groups.

"EPA can do it reg by reg, year by year, but as I look as to what's best for the nation, let's have Congress cut to the chase, make some important decisions," he said. Otherwise, "it will be decades before our nation fully addresses these, given the litigation issues, and I have grave concern."

Sen. Tom Carper (D., Del.), who chairs the Senate's clean air subcommittee, said comprehensive legislation could have been passed, but the Bush administration simply refused to compromise.

"Eight years have gone by without any meaningful, substantive action on the clean-air debate," he said. "I hope this offends everyone as much as it does me."

It certainly seemed to offend U.S. District Judge Paul Friedman, a Clinton appointee. In 2006, Friedman directly accused the Bush administration of ignoring its environmental obligations under the law to promote the interests of industry.

The case involved accusations that the EPA failed to meet a 2000 deadline set by Congress to enact rules for dozens of hazardous air pollutants.

In his ruling, Friedman appeared annoyed by the EPA's argument that it had been too busy to comply with the law. The EPA had certainly found time, the judge noted, to issue new rules that fit the Bush administration's political agenda.

"EPA currently devotes substantial resources to discretionary rulemakings, many of which make existing regulations more congenial to industry, and several of which since have been found unlawful," the judge wrote. "By all appearances, EPA's failure to promulgate the required standards owes less to the magnitude of the task at hand than to the foot-dragging efforts of a delinquent agency."

The Bush strategy of using administrative rules to change environmental policy can be traced to the early days of the administration, according to documents and interviews with Republican political appointees.

One of the bluntest accounts of this agenda can be found in a 2001 transcript of a private presentation by electric industry lobbyist Quin Shea to utility, mining and rail executives. Shea did not know that a young trade association aide was taping his remarks, but said recently that the transcript captured the essence of what he said.

He addressed the power company executives' biggest concern. As their industry is one of the nation's largest air polluters and contributors to greenhouse gases, they realized that new regulation was inevitable. They simply hoped that Bush could ease or delay the pain.

Shea told the executives that he had just come from White House meetings, and reported that Bush intended to bypass an unfriendly Congress and use EPA administrative rules to make pro-industry changes.

The smart move, the lobbyist said, would be to take a preemptive approach - create pollution controls that would be as palatable as possible for industry.

"The president is prepared to do this administratively," Shea said, according to the transcript. "The goal here will be to gain a foothold, an irreversible foothold, on the next generation of reasonable cost-effective sulfur dioxide and nitrogen oxide reduction, plus air toxics, that we can all live with and that someone else can't undo."

Holmstead, the assistant administrator for air from 2002 to 2006, said that when it became clear that Congress would not cooperate with the Bush agenda, it made sense for the administration to employ administrative rules.

"We knew early on that we needed various reductions from coal-fired power plants, and that we had to deal with mercury, we had analysis that showed you could achieve a lot if you did it together at a lower cost," Holmstead said.

Environmental advocates said that Bush, Johnson and Holmstead pursued a strategy in which they would appear to improve air quality, but in reality would make incremental moves and delay substantive changes for years, if not decades.

"They have been very clever in the way they changed the debate, and were able to push the deadlines far back from where they should have been," said Bill Becker, executive director of the National Association of Clean Air Agencies.

Looking back, Shea said in a recent interview, industry and EPA lawyers took their best shot to change the rules.

"I think they were being as aggressive and creative as they could," he said.

One of the first such attempts at aggressiveness and creativity came in 2003, and led to at least two high-profile EPA resignations.

It involved a process called New Source Review, a 1977 amendment to the Clean Air Act. New Source Review requires the nation's 17,000 power plants, oil refineries, paper mills and other factories to submit to an EPA pollution analysis whenever they expanded or modernized in a way that increased pollution emissions. Often, that analysis triggered more pollution controls that cost millions.

Industry found New Source Review onerous and expensive, and during its first term the Bush administration announced that EPA would change cost thresholds, essentially exempting certain plant modifications, thereby weakening the rule.

"They overreached wildly, and put in thresholds that meant almost no one would have to comply," said Bruce Buckheit, then EPA director of air enforcement. Buckheit resigned the following year after being ordered to drop 75 already active New Source Review investigations, 17 of which were so serious they had been referred to the Justice Department.

Whitman, the former New Jersey governor who was EPA administrator at the time, publicly supported Bush's revisions to New Source Review. Privately, she later said, she found it so outrageous that she refused to sign it.

"The devil's in the details, where you set the numbers." Whitman said. "They set the numbers far too low."

She resigned, though she would not say why for years.

"You could tell they were going to lose in court, but that was the attitude," Whitman said. "Clearly, there were those in industry who said, 'Go ahead and do that, because every day that you don't tighten these regulations, I make money.' "

Three years later, in New York v. EPA, the D.C. Circuit ruled as Whitman and EPA career lawyers predicted.

The court wrote that the EPA's new lowered thresholds violated the plain language of the Clean Air Act, which called for stringent pollution rules to kick in whenever a factory undergoes "any physical change."

The EPA had argued that the word any in the law was ambiguous. Therefore, it reasoned, there could be exceptions.

The court disagreed, and took the unusual step of mocking the EPA with a reference to Lewis Carroll's Through the Looking-Glass:

"Only in a Humpty Dumpty world would Congress be required to use superfluous words while an agency could ignore an expansive word that Congress did use. We decline to adopt such a world view."

Whitman said part of the reason Bush's EPA lost so many court cases was because circuit judges in Washington were well aware of the administration's penchant for distorting science and pushing legal envelopes.

"The assumption was always that this group was going to try to fudge facts or manipulate data," Whitman said.

For example, in a related New Source Review case, the D.C. Circuit threw out portions of a Bush EPA rule that allowed some factory owners who modified their facilities to dispense with record-keeping. The EPA had reasoned that this was OK, so long as the factories didn't expect the changes to increase emissions.

The court said that made no sense: If nobody kept records, how could the EPA ever determine if emissions stayed the same?

A major part of the Bush strategy was to try to dramatically change the existing Clean Air Act - the umbrella law that set a foundation for national air pollution regulation - with sweeping legislation called Clear Skies.

Clear Skies would have created, in many cases, new air pollution and mercury controls for power plants. Bush aides said these standards were more stringent; critics said they would have delayed meaningful health benefits for years. Robert F. Kennedy Jr. and other environmentalists called Bush's proposal "Clear Lies."

When the Senate killed the proposed Clear Skies bill in 2005, Bush's EPA turned to rule-making.

"We moved to Plan B," said Connaughton, Bush's senior aide.

That spring, Johnson signed two of EPA's most significant administrative rules. Both closely tracked elements of the failed Clear Skies agenda.

The first was called the Clean Air Interstate Rule (CAIR). It became a cornerstone of the Bush administration's environmental policies, and was based in part on EPA's successful Acid Rain program of the 1990s.

EPA said CAIR would have reduced total sulfur dioxide and nitrogen oxide emissions from power plants in 28 states by 70 percent. CAIR involved a market-based system called cap-and-trade that set a limit for the total amount of pollution from all plants.

Under cap-and-trade, factories whose pollution fell below EPA limits would earn so-called allowances. Plants whose pollution exceeded EPA limits could then purchase these allowances. In other words, utilities faced a choice: invest in expensive pollution control "scrubbers," or make arrangements to buy pollution allowances from a company that had.

The Bush administration said CAIR would trigger almost immediate pollution reductions, but environmental groups said that in reality the program would delay serious pollution controls for 10 to 20 years.

EPA projected that CAIR would prevent 17,000 premature deaths annually by 2015, and trigger related health benefits of $70 billion.

Power companies and others in industry did not relish spending billions to erect scrubbers, but they favored the Clear Skies element of CAIR that created the cap-and-trade program because it offered more flexibility and time to meet the coming regulations.

Environmental advocates thought CAIR set weak long-term goals but nonetheless were eager to see the scrubbers installed.

Shortly after Johnson signed CAIR in March 2005, he issued the second key EPA regulation, the Clean Air Mercury Rule.

That rule, which targeted the nation's coal-fired power plants, was far more controversial. Like the CAIR provision, it created a cap-and-trade market for mercury pollution. This alarmed environmentalists because it meant some communities would be more exposed to mercury, a dangerous neurotoxin, than others.

The EPA defended its mercury calculations and projections. They said the numbers were based on sound economic principles.

But an EPA inspector general's report said the EPA's process was flawed.

Investigators found that the EPA's political staff instructed career scientists to flatly set mercury levels at 34 tons nationally per year, instead of using existing best-technology data to determine an appropriate level.

Thirty-four tons, it turned out, was the amount of mercury power plants expected to emit anyway under the related CAIR rule. The EPA, the inspector general said, should try again, and make an "unbiased determination."

"It was so clearly an ass-backward way of doing it, so transparently political," said Temple University environmental law professor Amy Sinden. "That's why EPA has had the kind of record it's had in the courts."

Burnett, the former associate deputy administrator who worked on the mercury rule, conceded that the EPA's own lawyers had warned the agency that it was likely to lose in court.

"On the mercury rule, we were told in no uncertain terms about the legal vulnerability," Burnett said. "But the decision was to risk this, given the strongly desired policy outcome."

This year, the federal appeals court threw out the mercury and CAIR rules.

The mercury case, New Jersey v. EPA, was decided in February.

The court took particular offense at the way the EPA had implemented the new rule. Bush's EPA had simply revamped a Clinton-era finding that mercury from coal-fired power plants should be regulated facility by facility.

As the court put it, one day the EPA found it "appropriate and necessary" - the legal standard - to regulate mercury this way. The next day, it did not.

"This explanation deploys the logic of the Queen of Hearts," the court wrote, referring to the character whose signature phrase is "Off with their head!"

EPA has appealed the mercury decision to the U.S. Supreme Court, which means the matter won't be resolved until at least early next year.

The CAIR case on power plants, North Carolina v. EPA, was decided in July.

The ruling surprised many, and upset nearly everyone - from environmentalists to power companies - because it sent the EPA back to the drawing board on its most significant air pollution program.

"It left a huge regulatory hole," said Eric Svenson, vice president of PSEG, New Jersey's largest electric utility.

Environmentalists, Duke Energy and the State of North Carolina had only challenged certain portions of CAIR. Few had expected the court to find so many faults that it would throw out the whole rule.

The 60-page ruling was complex, but the bottom line was that the court voided the EPA's most ambitious air-pollution program in eight years. The court stated six reasons for killing CAIR, including that the EPA used a flawed method to create the market-based system.

"No amount of tinkering with the rule or revising of the explanations will transform CAIR, as written, into an acceptable rule," the court said.

The court seemed particularly upset about the market-based approach that allowed power companies to distribute pollution unevenly from state to state.

"CAIR may be one of the few examples where the Bush administration tried to do the right thing, but for the wrong reasons," said Eric Schaeffer, a former senior EPA enforcement official who is now executive director of the Environmental Integrity Project.

"The Bush administration's fascination with emissions trading may have blinded it to what the law actually required."

The three-judge appeals panel - the conservatives David Sentelle and Janice Rogers Brown and "Humpty Dumpty" opinion author Judith Rogers - expressed exasperation with the EPA's legal reasoning.

After years of vacating rule after rule as illogically and illegally conceived, the judges began to openly question the EPA's true intentions.

In a sarcastic footnote, the judges noted the similarities between the emission cap levels in the CAIR administrative rule and the "Clear Skies" legislation Bush failed to move through Congress.

What a coincidence, the court said. The numbers were the same.

The CAIR court decision on power plants took a big anti-pollution rule off the books - the one that the EPA believed could prevent thousands of premature deaths annually. But it also hit utility companies hard.

In 24 hours, the spot market for sulfur dioxide emissions trading fell from $300 per ton to $100 per ton, triggering huge losses for those who had invested in allowances. PPL Corp., one of the nation's 10 largest electric companies, reported a related $33 million loss in November. A spokesman said as much as $77 million more in trade allowances remains at risk.

PPL had already invested $1.5 billion to construct scrubbers at two Pennsylvania plants that generate wholesale electricity for Eastern Pennsylvania, New Jersey and Maryland. Each project doubled the size of the existing plant.

"I've been in the business 30 years," said PPL vice president Dennis Murphy. "This is the first time EPA has said, this is exactly what you have to do, and then while we're in the process of building it to meet the rule, a court comes in and says it's totally gone - never mind."

A $750 million project in Montour, Pa., south of Williamsport, was already online. PPL's second $750 million scrubber project is nearing completion at a power plant south of Harrisburg, on Brunner Island in the Susquehanna River.

Twelve thousand tons of coal arrive by railcar daily at the 1960s-era PPL Brunner Island plant, and, until the scrubber goes online, it will continue to spew sulfur dioxide and particulate matter into the air. The pollution wafts from a 600-foot-high smokestack and drifts east toward Philadelphia.

"We're in compliance with our permits, but man, we don't like it," said PPL engineer Ross Magee. He oversees the scrubber project, a "clean coal" system that PPL says can reduce sulfur emissions by 97 percent and decrease mercury output.

Scrubber projects are major endeavors, consisting of sophisticated new buildings, enormous filters, and state-of-the-art smokestacks. They take years to design and construct, and trigger a shift to cheaper coal, which is purchased well in advance. So when EPA put out the CAIR rule in 2005, power companies had to make a significant business decision: Start building scrubbers or wait to see what the courts would do.

Murphy said PPL decided to build immediately because if it didn't and the courts had upheld CAIR, the company would have been forced to buy expensive allowances on the trading market to comply with the rule.

"When we looked at it, by 2010, we figured we would be able to be ahead environmentally and have allowances that were tradeable," Murphy said.

Now, in the wake of the CAIR ruling, PPL also faces competition from power plants that have not yet built scrubbers.

Shortly after the CAIR ruling, PPL and other companies - as well as states and environmental advocates - asked Congress for a quick fix, one that would temporarily reinstate the CAIR rule by law.

But in an election year, Democrats and Republicans couldn't come to a fast agreement, and a proposed bill didn't even get introduced.

Bush may be a lame duck, but the EPA court and regulatory battles continue, even in the final weeks of his presidency.

Last week, the U.S. Supreme Court heard an appeal on a new EPA rule related to fish-kills near power plants. A lower court, ruling for the environmental group Riverkeeper, had struck down the EPA's methods because they employed cost-benefit analysis. In that case, the EPA joined a power company's appeal.

The EPA also issued two new rules last week.

First, the agency proposed new air pollution standards for medical waste incinerators, pleasantly surprising environmentalists.

"It's great news that has us scratching our heads," said Pew, the Earthjustice lawyer. "It's an encouraging sign that EPA can do the right thing, if it wants."

But then the EPA made another announcement. The EPA and the White House made it easier for mountain-top strip-mining operations, including coal suppliers, to dump debris into streams and rivers.

Environmental groups said they plan to take the EPA to court.