This past September, in a case currently up on appeal before the Third Circuit, the U.S. District Court for the Middle District of Pennsylvania rejected a challenge to the Chesapeake Bay Total Maximum Daily Load (“Bay TMDL”) brought by several industry groups. I previously discussed that decision here. Late last week, the U.S. District Court for the District of Columbia dismissed a second challenge to the Bay TMDL – this time to its references to water quality trading and offsetting — brought by a couple of environmental groups.
The Bay TMDL established the total maximum daily loads of nitrogen, phosphorous and sediment that the Chesapeake Bay can assimilate from all sources within the Chesapeake Bay watershed and still meet water quality standards (WQS). The Bay TMDL referenced trading and offsetting programs as possible vehicles for the states to accommodate new or increased pollutant loadings associated with future population growth. The Bay TMDL defined offsetting as “compensating for the loading of a pollutant of concern from a point or nonpoint source with a reduction in the loading from a different source or sources, in a manner consistent with meeting WQS.” The U.S. Environmental Protection Agency (EPA) has defined trading as “allow[ing] one source to meet its regulatory obligations by using pollutant reductions created by another source that has lower pollution control costs.”
In Food and Water Watch, et al. v. EPA, et al., No. 12-1639 (D.D.C., Mem. Op. issued Dec. 13, 2013), plaintiffs alleged that the Bay TMDL authorized trading and offsetting and that such “authorization” was contrary to the Clean Water Act (CWA) and in violation of the Administrative Procedure Act (APA). EPA and industry intervenors moved to dismiss plaintiffs’ complaint, alleging both that the court lacked subject matter jurisdiction because plaintiffs were without standing to assert these claims and that the complaint failed to state a claim because plaintiffs did not challenge a final agency action. The court granted the motion to dismiss on both grounds.
In order to demonstrate Article III standing, a plaintiff must prove three elements: injury, traceability, and redressability. In this case, plaintiffs struck out on all three.
First, the court found that plaintiffs lacked an actual or imminent injury (this finding also formed the principal basis for an independent determination that plaintiffs’ claims were not ripe for adjudication). The court concluded that the creation of “hotspots,” which plaintiffs described as areas “where increased discharges of pollutants will occur resulting in water quality that is worse than other areas in the watershed,” was “highly speculative.” The court noted that the Bay TMDL expressly provides that any trading and offsetting programs must comply with the requirements of the CWA and the TMDL itself (e.g., that trades and offsets “do not cause or contribute to an exceedance of WQS in either [the] receiving segment or anywhere else in the Bay watershed”).
Next, the court found that plaintiffs’ alleged injury could not be traced to the Bay TMDL’s references to trading and offsetting. Notwithstanding these references, the court found that the Bay TMDL does not authorize trading or offsetting programs, which the court observed had already been approved by EPA since (at the latest) 2003, when EPA issued its final water quality trading policy. The court also concluded that it is the states, and not EPA, that will ultimately decide whether or not to implement trading and offsetting programs. The court rejected an argument that the Bay TMDL coerced the states to do so.
Finally, the court found that plaintiffs’ injury would not be redressed by a favorable decision. Even if the court ordered all references to trading and offsetting removed from the Bay TMDL, “such an order would not change the legal landscape” because it would have no legal effect on existing EPA policies or on the states’ authority to implement trading and offsetting programs.
Final Agency Action
To be reviewable under the APA, agency action must be final. In this case, the court found that plaintiffs failed to challenge a final agency action. The court concluded that the Bay TMDL’s references to trading and offsetting “do not impose any binding or legal obligations on any actor.” The court noted that the CWA does not authorize EPA to require states to take specific actions to implement a TMDL and that the states will ultimately determine whether or not to implement trading and offsetting programs to comply with the Bay TMDL. “To be sure,” the court observed, “a State has limited options if it wishes to implement the Bay TMDL, continue to comply with the CWA, accommodate population growth, and encourage economic expansion. But limited options does not mean no options.”
When properly designed and implemented, trading and offsetting programs can, without compromising the restoration and protection of the Chesapeake Bay and its tributaries, help states accommodate growth and dischargers comply with their regulatory obligations in a cost-effective manner. In attempting to exploit the Bay TMDL’s references to trading and offsetting in order to challenge these practices as contrary to the CWA in one lawsuit, plaintiffs were clearly trying to litigate this issue in a cost-effective manner. There is a certain poetic justice in the court rejecting an attempt to cost-effectively challenge cost-effective programs.
Although dismissing plaintiffs’ claims in this lawsuit, the court acknowledged in a footnote that its ruling did not prohibit plaintiffs from bringing subsequent permit appeals or enforcement actions to challenge individual trades or offsets that they allege violate the CWA. I would not be at all surprised if plaintiffs used these challenges of individual trades and offsets as a vehicle to renew their arguments that trading and offsetting are contrary to the CWA. Plaintiffs have indicated as much in remarks to Bloomberg BNA immediately following the decision. For this reason, dischargers intending to use trades and offsets to comply with their regulatory obligations should be prepared to defend those trades and offsets as well as the programs that authorize them. EPA may have won the first battle over water quality trading and offsetting, but there are likely more battles to be fought before the war is won.