Bp Exploration & Oil, Inc. v. United States Environmental Protection Agency

In these consolidated cases, petitioners BP Exploration & Oil, Inc., American Petroleum Institute, Conoco Inc., Marathon Oil Co., Natural Resources Defense Council, Inc., and Svedala Industries, Inc., challenge the effluent limitations promulgated for the offshore oil and gas industry by the United States Environmental Protection Agency under the Clean Water Act. For the reasons that follow, we affirm the effluent limitations promulgated by the Environmental Protection Agency (EPA) for the offshore oil and gas industry.

The disputed effluent limitations guidelines are the final regulations and standards of performance for the "Offshore Subcategory of the Oil and Gas Extraction Point Source Category,"1 published pursuant to sections 301, 304, and 306 of the Clean Water Act (CWA or "Act"). 33 U.S.C.A. Secs. 1311, 1314, 1316 (West 1986) (hereinafter "Sec. ___").2 These regulations (the "Final Rule") were also formulated in response to a Consent Decree entered on April 5, 1990, in NRDC v. Reilly, C.A. No. 79-3442 (D.D.C.) (subsequently modified on May 28, 1992). The Final Rule3 became effective on April 5, 1993, ending a process that began in 1975 with EPA's publication of interim guidelines for the offshore oil and gas industry.

Petitioners BP Exploration & Oil, Inc., American Petroleum Institute, Conoco Inc., Marathon Oil Co., and Svedala, Inc. (hereinafter referred to as "Industry petitioners"), contend that the effluent standards are too stringent. Generally, Industry petitioners allege that the Environmental Protection Agency (EPA) violated the CWA by (1) setting an unreasonable standard for the discharge of oil and grease in effluent discharges, (2) prohibiting the discharge of certain drilling wastes within three miles of shore, and (3) banning the discharge of contaminated sand. At the other end of the spectrum, petitioner Natural Resources Defense Council, Inc. (NRDC), representing environmental interests, contends that EPA violated the CWA by promulgating effluent standards that are generally too lenient. In short, NRDC alleges that EPA (1) illegally rejected zero discharge of drilling wastes, (2) violated the Act by failing to regulate radioactive pollutants in discharged water, and (3) should have required reinjection of polluted water.

The objective of the CWA "is to restore and maintain the chemical, physical, and biological integrity of the Nation's waters." Sec. 1251. Congress' original goal was for the discharge of all pollutants into navigable waters to be eliminated by the year 1985. Sec. 1251(a)(1). Consequently, the discharge of any pollutant is illegal unless made in compliance with the provisions of the CWA. Because numerous other courts have fully described the CWA, see E.I. du Pont de Nemours & Co. v. Train, 430 U.S. 112, 97 S.Ct. 965, 51 L.Ed.2d 204 (1977), it is unnecessary here to include more than an outline of the statutory structure for promulgating effluent limitations.

The CWA directs EPA to formulate national effluent limitation guidelines for those entities that discharge pollutants into the navigable waters of the United States. In formulating these guidelines, the CWA directs EPA to institute progressively more stringent effluent discharge guidelines in stages. Congress intended EPA to consider numerous factors in addition to pollution reduction: "The Committee believes that there must be a reasonable relationship between costs and benefits if there is to be an effective and workable program." Clean Water Act of 1972, Pub.L. No. 92-500, 1972 U.S.C.C.A.N. (86 Stat.) 3713.

At the first stage of pollutant reduction, EPA is to determine the level of effluent reduction achievable within an industry with the implementation of the "best practicable control technology currently available" (BPT). Sec. 1314(b)(1)(A). In general, BPT is the average of the best existing performances by industrial plants of various sizes, ages, and unit processes within the point source category or subcategory. In arriving at BPT for an industry, EPA is to consider several factors, including the total cost of the application of the technology in relation to the effluent reduction benefits to be achieved from such application.4 For the offshore oil and gas subcategory, BPT was to be achieved by July 1, 1977. Sec. 1311(b)(1)(A).

At the second stage, EPA is to set generally more stringent standards for toxic and conventional pollutants. For toxic pollutants,5 EPA is to set the standard for the "best available technology economically achievable" (BAT). BAT represents, at a minimum, the best economically achievable performance in the industrial category or subcategory. NRDC, Inc. v. EPA, 863 F.2d 1420, 1426 (9th Cir.1988) (citing EPA v. National Crushed Stone Ass'n., 449 U.S. 64, 74, 101 S.Ct. 295, 302, 66 L.Ed.2d 268 (1980)). Compared to BPT, BAT calls for more stringent control technology that is both technically available and economically achievable. Among the factors6 that EPA must consider and take into account when setting BAT are the cost of achieving such effluent reduction and the non-water quality environmental impact including the energy requirements of the technology. Sec. 1314(b)(2)(B). For the offshore oil and gas subcategory, BAT was to be achieved by July 1, 1987.7 Sec. 1311(b)(2)(A).

Conventional pollutants8 are treated differently from toxics under the CWA. Pursuant to 1977 amendments to the Act, a new standard was conceived for conventional pollutants entitled "best conventional pollutant control technology" (BCT). This standard is designed to control conventional pollutants about which much is known but for which stringent BAT standards might require unnecessary treatment. Congress intended for BCT to prevent the implementation of technology for technology's sake. BCT is not an additional level of control, but replaces BAT for conventional pollutants.

Consequently, the technology chosen as BCT must pass a two-part "cost reasonableness" test. American Paper Institute v. EPA, 660 F.2d 954 (4th Cir.1981). According to the Act, the Administrator shall include in the determination of BCT

[a] consideration of the reasonableness of the relationship between the costs of attaining a reduction in effluents and the effluent reduction benefits derived, and the comparison of the cost and level of reduction of such pollutants from the discharge from publicly owned treatment works [POTWs] to the cost and level of reduction of such pollutants from a class or category of industrial sources....

Sec. 1314(b)(4)(B). The first part of the BCT cost test is referred to as the "industry cost-effectiveness test"; the second part is known as the "POTW test."

Finally, the CWA directs EPA to establish a separate standard for new sources of pollutants. These "new source performance standards" (NSPS) require application of the technology chosen as BAT to remove all types of pollutants from new sources within each category. Sec. 1316. Factors to be considered in formulating NSPS include the cost of achieving such effluent reduction and any non-water quality environmental impact and energy requirements. Sec. 1316(b)(1)(B).

The development of the Final Rule began on September 15, 1975, when EPA promulgated interim final BPT effluent limitation guidelines and proposed BAT and NSPS regulations for offshore oil and gas producers. 40 Fed.Reg. 42,543 (1975), 40 Fed.Reg. 42,572 (1975). On April 13, 1979, EPA promulgated the final BPT regulations but deferred action on BAT and NSPS. 44 Fed.Reg. 22,069 (1979). EPA's deferral of action on NSPS led the NRDC to file suit against EPA on December 29, 1979. In settlement of the suit, a consent decree was issued in which EPA acknowledged its statutory duty to promulgate final NSPS for the offshore industry and agreed to take steps to issue such standards. NRDC v. Reilly, C.A. No. 79-3442 (D.D.C.) (as modified May 28, 1992).

On August 26, 1985, EPA proposed new BAT and BCT effluent limitation guidelines and NSPS for the offshore category, 50 Fed.Reg. 34,592 (1985). (EPA had abandoned its previously proposed BAT and NSPS due to the long lapse of time.) On October 21, 1988, EPA issued a Notice of Data Availability concerning the development of NSPS, BAT, and BCT regulations for drilling fluids and drill cuttings waste streams. 53 Fed.Reg. 41,356 (1988). On January 9, 1989, EPA published a Correction to the Notice of Data Availability. 54 Fed.Reg. 634 (1989). On November 26, 1990, EPA published a notice and a reproposal announcing the major BCT, BAT, and NSPS regulatory options under consideration for control of drilling fluids, drill cuttings, produced water, and produced sand. 55 Fed.Reg. 49,094 (1990). A second notice proposing BAT, BCT, and NSPS was published by EPA on March 13, 1991. 56 Fed.Reg. 10,664 (1991). According to EPA, the 1990 and 1991 notices did not supersede the 1985 proposal but merely revised it in certain areas. EPA received public and industry comments after each of these five documents was published. On January 15, 1993, EPA issued its response to those comments.

On April 5, 1991, EPA also published notification of public workshops for the guidelines proposed in the 1991 Notice and extended the comment period for the proposed rule. 56 Fed.Reg. 14,049 (1991).

On January 15, 1993, EPA issued a development document, providing a detailed technical study of pollution control in the industry. The Final Rule was published on March 4, 1993. 58 Fed.Reg. 12,454 (1993). The petitioners in this case timely filed petitions for review.

EPA identified a total of 2,550 offshore structures that will be affected by the Final Rule. Of these structures, 2,517 are located in the Gulf of Mexico, 32 are located off the coast of California, and one is located off the coast of Alaska. Petitioners challenge those portions of EPA's Final Rule relating to (1) produced water, (2) drilling fluids and drill cuttings, and (3) produced sand. Although wastewater originates both from the exploration and development process and from the production phase of the oil and gas industry's offshore operations, drilling fluids make up the majority of the effluent produced from exploration and development, and produced water represents a majority of the effluent from production. Produced sand is a minimal component of the effluent from production.

When a court reviews an agency's construction of a statute, it is confronted with two inquiries. First and foremost is whether Congress has directly spoken to the matter at issue. Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 842, 104 S.Ct. 2778, 2781, 81 L.Ed.2d 694 (1984). "If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Id. at 842-43, 104 S.Ct. at 2781-82 (footnote omitted). If the court decides that Congress has not directly addressed the precise issue at hand, however, the court may not simply dictate its own construction of the statute. Id. at 843, 104 S.Ct. at 2782. "Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." Id. (footnote omitted).

The language of the Act clearly manifests Congress' intention that EPA formulate BPT, BAT, BCT, and NSPS within certain time deadlines and having considered various factors. Sec. 1311(b). Congress set forth the goal of the Act and left its implementation and details to the EPA. In construing regulations promulgated by EPA, we heed the wide latitude given the Secretary by the CWA. Cf. Babbitt v. Sweet Home Chapter, --- U.S. ----, ----, 115 S.Ct. 2407, 2416, 132 L.Ed.2d 597 (1995) (interpreting the Endangered Species Act). It has long been recognized that a great deal of deference should be given to an agency's construction of a statutory scheme that it is entrusted to administer. Chevron, 467 U.S. at 844, 104 S.Ct. at 2782-83; Aluminum Co. of America v. Central Lincoln Peoples' Util. Dist., 467 U.S. 380, 389, 104 S.Ct. 2472, 2479, 81 L.Ed.2d 301 (1984); Blum v. Bacon, 457 U.S. 132, 141, 102 S.Ct. 2355, 2361, 72 L.Ed.2d 728 (1982). Along with the regulatory expertise required to enforce the CWA, "we owe some degree of deference to the Secretary's reasonable interpretation." Babbitt, --- U.S. at ----, 115 S.Ct. at 2416 (citation omitted).

EPA promulgated the 1993 effluent guidelines through informal rulemaking. The scope of review over the informal rulemaking process is generally governed by section 10(2)(e) of the Administrative Procedure Act (APA), 5 U.S.C.A. Sec. 706(2) (West 1977); Weyerhaeuser Co. v. Costle, 590 F.2d 1011, 1024 (D.C.Cir.1978). According to this section, a court must "hold unlawful and set aside agency action, findings, and conclusions found to be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law...." 5 U.S.C. Sec. 706(2)(A). See generally Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415-17, 91 S.Ct. 814, 823-24, 28 L.Ed.2d 136 (1971). The D.C. Circuit has described the court's administrative review function as divisible into three categories: statutory, procedural, and substantive. Weyerhaeuser, 590 F.2d at 1024.

In the present case, neither EPA's statutory authority nor the procedural steps taken has been challenged. Only substantive aspects of the Final Rule are being challenged. Consequently, this Court must determine "whether the agency 'abuse[d its] discretion' (or was 'arbitrary' or 'capricious') in exercising the quasi-legislative authority delegated to it by Congress, or, on the other hand, whether its 'decision was based on a consideration of the relevant factors and [was not the product of] a clear error of judgment.' " Weyerhaeuser, 590 F.2d at 1025 (quoting Citizens to Preserve Overton Park, 401 U.S. at 416, 91 S.Ct. at 823-24).

Finally, this Court will defer in large part to EPA's scientific findings. "In assessing difficult issues of scientific method and laboratory procedure, we must defer to a great extent to the expertise of the EPA." NRDC, Inc. v. EPA, 863 F.2d 1420, 1430 (9th Cir.1988) (citing Baltimore Gas & Elec. Co. v. NRDC, Inc., 462 U.S. 87, 103, 103 S.Ct. 2246, 2255, 76 L.Ed.2d 437 (1983)). In Baltimore Gas & Elec. Co., "the Supreme Court recognized that a reviewing court should be at its most deferential in reviewing an agency's scientific determinations in an area within the agency's expertise." NRDC v. EPA, 863 F.2d at 1430.

The bulk of produced water is water trapped in underground reservoirs along with oil and gas that eventually rises to the surface with the produced oil and gas. Most of the oil and gas in the produced water is separated as part of the oil and gas extraction process. The remaining produced water, still containing some oil and grease, is then discharged overboard or otherwise disposed of. Produced water also includes the injection water used for secondary oil recovery and various well treatment chemicals added during production and oil and gas extraction. Produced water is the highest volume waste source in the offshore oil and gas industry.

Under the Final Rule, EPA determined that BAT and NSPS would be set to limit the discharge of oil and grease9 in produced water to a daily maximum of 42 mg/l and a monthly average of 29 mg/l, based on the improved operating performance of gas flotation technology (otherwise referred to as improved gas flotation). BCT for produced water was set by the Final Rule to equal current BPT limitations (72 mg/l daily maximum, 48 mg/l 30-day average).

Gas flotation is a technology that forces small gas bubbles into the wastewater to be treated. As the bubbles rise through the produced water, they attach themselves to any oil droplets in their paths. As the gas and oil are separated from the wastewater, they rise to the surface, where they are skimmed away. EPA characterizes "improved performance" gas flotation as the gas flotation technology enhanced through improved operation and maintenance, more operator attention to treatment systems operations, chemical pretreatment to enhance system effectiveness, and possible resizing of certain treatment system components for increased treatment efficiency.

Industry petitioners contest the BAT and NSPS limits set by EPA for produced water. According to the Final Rule, BAT and NSPS limit the discharge of oil and grease to a 30-day average of 29 mg/l and a daily maximum of 42 mg/l by using improved performance gas flotation. Industry petitioners do not contest the use of improved gas flotation for obtaining BAT and NSPS; in fact, they approve of that technology and previously encouraged EPA to adopt gas flotation during the rulemaking process. However, Industry petitioners maintain that improved gas flotation removes only dispersed oil and grease from produced water; allegedly, the technology cannot remove dissolved oil from produced water. EPA has chosen to use a process known as EPA Method 413.1 to measure the levels of oil and grease in produced water, and therein lies the problem. According to Industry petitioners, Method 413.1 measures the content in the produced water of both the dispersed oil and grease, which the improved gas flotation technology can remove, and the dissolved oil, which the technology cannot remove, and it is not feasible to achieve the requisite BAT and NSPS levels using the total oil and grease content of the produced water as measured by Method 413.1.

When promulgating the Final Rule, EPA identified two methods of measuring oil and grease in produced water. EPA Method 413.1 mixes freon with a produced water sample. The freon and water then separate and the freon, which has attached to oil and grease in the water, is removed from the sample. The freon is then distilled out by heating, leaving a residue which, when weighed, indicates how much oil and grease was contained in the produced water sample. Standard Method 503E follows the same steps as Method 413.1; however, before the freon is distilled, a silica gel is added, which adsorbs water-soluble polar material.10 The silica gel is then removed from the freon, the freon is distilled, and the residue is weighed to derive the level of oil and grease. Industry petitioners contend that because Method 503E does not measure dissolved oil, EPA should use Method 503E rather than Method 413.1 which does measure dissolved oil. EPA disputes that the silica gel used in Method 503E actually removes "dissolved" oil per se. EPA argues that the polar matter removed by the silica gel is made up of some of the soluble matter in produced water, but not necessarily all the "dissolved" oil in produced water.

EPA contends that the use of Method 413.1 provides more accurate and complete data to assess the treatment system. As EPA points out, it has consistently used Method 413.1 throughout the rulemaking process, including the calculation of all produced water levels that are set by the Final Rule. Furthermore, EPA also contends that improved gas flotation can be used to remove dissolved oil.11

According to Industry petitioners, EPA's use of Method 413.1 violates both the CWA and the APA by ignoring relevant factors. The CWA requires BAT and NSPS to be based, in part, on approximately seven factors, including cost and nonwater quality environmental impacts. Industry petitioners contend that EPA has failed to demonstrate that improved gas flotation is "available" and "achievable" because the agency failed to consider the dissolved oil component of produced water. In another case challenging EPA effluent limitations, Association of Pacific Fisheries v. EPA, 615 F.2d 794 (9th Cir.1980), the Ninth Circuit remanded an EPA regulation to the agency for further findings because EPA had relied on a study that failed to demonstrate the effectiveness of the required technology. Id. at 819. The Ninth Circuit found that EPA had failed in its duty to articulate the reasons for its determination and had therefore failed to satisfy the requirements of the CWA in setting the effluent guidelines. Id. (citing Appalachian Power Co. v. EPA, 477 F.2d 495, 507 (4th Cir.1973)).

In the present case, however, EPA has pointed to empirical data in the rulemaking record showing that so-called "dissolved oil" is treated and removed by improved gas flotation. EPA points to a study entitled "Oil Content in Produced Brine on Ten Louisiana Production Platforms" ("the Ten Platform Study"), which documented oil and grease measurements under both Method 413.1 and Method 503E. Using the Ten Platform Study, EPA estimated the percentage of oil and grease removed by the gas flotation technique. According to EPA's estimates, gas flotation was used to remove "dissolved" oil ranging from a low of 58 percent up to a high of 98 percent. Unlike the situation in Association of Pacific Fisheries, therefore, here, EPA has relied on studies demonstrating that improved gas flotation is effective.

Industry petitioners point to numerous other sources within the record providing evidence that dissolved oil is not removable by improved gas flotation. Despite this evidence, however, we cannot find that EPA has failed to produce scientific data to support the agency's counterargument that gas flotation does remove at least some dissolved oil from produced water. This Court must defer to EPA's discretionary judgment when EPA has made a reasonable decision based on reliable data.

We are also persuaded by the fact that Method 413.1 was the method used when setting the BAT and NSPS limits. In setting the limits, EPA used the "median" platform from the 83 Platform Composite Study.12 In other words, 50 percent of the platforms in the study discharged higher levels of pollutant, and 50 percent of the platforms discharged lower levels of pollutant. The daily maximum limitation was set so that there would be a 99 percent likelihood that a physical composite sample taken from the median platform would have a total oil and grease measurement less than or equal to that limitation. The monthly average was set so that there would be a 95 percent probability that a monthly average taken from the median platform would also be less than or equal to that limitation. EPA estimates that 60 percent of the platforms in the composite of 83 platforms already meet the new BAT limitations. For those platforms that do not already meet the new BAT standard, chemical coagulants can be used to improve the removal of dissolved or soluble oil.13

In light of the deference due the EPA, especially concerning scientific and technical data, Industry petitioners have not proven their claim that improved gas flotation does not remove "dissolved" oil or that EPA violated either the CWA or the APA by using Method 413.1 to measure oil and grease in produced water.

Also in relation to produced water, petitioner NRDC argues that EPA illegally refused to regulate radioactive pollutants in produced water, despite NRDC's contention that ample record evidence proves the presence and negative impacts of radionuclides. In contrast, EPA maintains that the agency was justified in its decision not to regulate radionuclides in produced water because inadequate information existed to issue rules regarding the radionuclides, Radium 226 and Radium 228 (referred to as NORM). According to the EPA, the CWA does not require the promulgation or implementation of regulations if there is not sufficient evidence on which to base those regulations. As EPA argues, the agency is continuing to gather information on radionuclides and could issue regulations in the future if the compiled information shows a need for such regulation. See Sec. 1314(e). In fact, EPA has stated its intent to require radium monitoring as part of the permitting process for offshore oil and gas producers.

NRDC claims that EPA already has adequate data to formulate regulations on radionuclides in produced water, pointing to the fact that EPA regulated produced sand based in part on the radionuclides present in that sand. As EPA counters, however, the only reason the agency considered the presence of radionuclides in produced sand was to accommodate fully the higher cost of disposing of produced sand containing NORM. The occasional presence of radionuclides in produced sand was not an important element of the Final Rule. However, once EPA set an effluent limitation for produced sand, it was required by the CWA to calculate the cost of disposing of such pollutant, and the high cost of radionuclides disposal required EPA's attention with regard to produced sand.

Finally, NRDC also points out that fewer wells were tested for the presence of oil and gas in produced water than were tested for the presence of NORM in produced water. Consequently, the NRDC argues, EPA must have enough data to formulate regulations of radionuclides in produced water because regulations were promulgated for oil and grease in produced water. The error in NRDC's argument, however, is that unlike the pollutants oil and grease, radionuclides are not linked to the production and development of oil and gas. Oil and grease will always be present in produced water. Consequently, EPA can determine on the basis of fewer samples what concentration of oil and grease will be present in produced water. However, the data available on radionuclides shows wide variation in the concentration of radionuclides in produced water.

The present case is unlike NRDC v. EPA, in which the Ninth Circuit concluded that EPA should not delay requiring such technologically feasible limitations as BAT in order to wait for precise cost figures. NRDC v. EPA, 863 F.2d at 1426. In this case, EPA has legitimately declined to regulate radionuclides in produced water due to the lack of data on radionuclides in produced water--particularly information on the environmental and health harms presented by NORM. In light of EPA's discretion to promulgate this Final Rule, we agree that EPA reasonably decided that insufficient evidence existed to regulate this pollutant in produced water at this time.

The NRDC also contends that EPA illegally refused to require zero discharge of produced waters through reinjection because record evidence shows that reinjection is technologically and economically feasible. The NRDC further contends that EPA's decision not to require reinjection of produced waters is based on energy impacts that are not supported by the requisite statutory findings, and the agency's decision is therefore illegal. The NRDC mistakenly asserts that BAT must be based on the "best single performer in an industry." To the contrary, the CWA's requirement that EPA choose the "best" technology does not mean that the chosen technology must be the best pollutant removal. Obviously, BAT and NSPS must be acceptable on the basis of numerous factors, only one of which is pollution control.

NRDC ignores the statutory language, which sets up a " 'limited' balancing test." Weyerhaeuser, 590 F.2d at 1045 (citing Senator Muskie's remarks during debate on the CWA). In enacting the CWA, "Congress did not mandate any particular structure or weight for the many consideration factors. Rather, it left EPA with discretion to decide how to account for the consideration factors, and how much weight to give each factor." Id. Consequently, NRDC is wrong to contend that EPA is not permitted to balance factors such as cost against effluent reduction benefits.

Finally, NRDC again misstates EPA's burden in promulgating the Final Rule by claiming that EPA is required to select reinjection as its BAT technology unless the costs of achieving that technology are "wholly disproportionate" to effluent reduction benefits. EPA is governed by a standard of reasonableness in considering the factors to be balanced. American Iron & Steel Inst. v. EPA, 526 F.2d at 1051. As EPA elucidates, Chevron requires that agencies are given significant discretion, on a case-by-case basis, in weighing factors, provided the agency's regulations are not "manifestly contrary to the statute." Chevron, 467 U.S. at 844, 104 S.Ct. at 2782.

EPA admits that reinjection may be technologically feasible.14 The only evidence that reinjection may not be feasible is the possibility that geographic formations in some areas may preclude reinjection. However, EPA's rejection of reinjection as a BAT, while based in part on concerns regarding feasibility, was, more importantly, based on several relevant factors, such as unacceptably high economic and nonwater quality environmental impacts.

EPA estimates the cost of implementing reinjection as BAT and NSPS would exceed several billion dollars.15 The extraordinary cost was one basis for rejecting reinjection, although NRDC is correct that EPA did not conclusively determine that reinjection was not economic