United States: Railroads Seek To Avoid A Patchwork Quilt Of Regulatory Requirements

Highlights

• The Clean Water Act imposes permitting obligations on "point sources."
• Should those obligations apply to railroad cars, which move freely from state to state?
• The U.S. railroad industry has asked the Surface Transportation Board to take up the question and to rule that any CWA permitting obligations are preempted by the ICC Termination Act.

Imagine that every state along the interstate highway network were legally empowered to establish its own individual environmental standards for motor carriers when operating in that state. That's a good analogy for a specter haunting the freight rail industry today following a district court decision in 2016. A U.S. District Court in Washington State held that the federal Clean Water Act prohibited the "discharge" of any quantity of coal dust from a rail car into a waterway. That case was brought by the Sierra Club against BNSF Railway, but all legal issues were not resolved. Sierra Club v. BNSF Ry. Co., Docket C13-967-JCC (W.D. Wash. Oct. 25, 2016) The parties settled before the court could decide whether the Clean Water Act would be preempted by another law specifically regulating railroads, and whether that same railroad law would preempt the state-by-state "point source" permitting system that allows most industries to secure a permit to discharge specified quantities of materials into waterways.

Hoping to avoid the specter just described, the rail industry through its trade association, the Association of American Railroads (AAR), has filed a petition for a declaratory order with the Surface Transportation Board (STB) seeking to establish that the statute giving the STB exclusive jurisdiction over the rail industry preempts any effort by a state to establish permitting requirements governing release of materials from railcars.

Here's how the regulatory scheme works for a typical factory: the Clean Water Act prohibits the factory owner from discharging any pollutants into a nearby stream. However, the National Pollutant Discharge Elimination System has a permitting process that will create a safe harbor for the factory. The owner goes to the state environmental protection agency and applies for a permit to discharge a given quantity of pollutants into the water. After some negotiation, the state EPA and the company reach an agreement on amount (or technology to be used), and the state EPA issues a permit. As long as the company does not exceed that permitted amount (or applies the technology required in the permit) it is within the law.

Now, a factory owner in Ohio might have a very similar factory in Georgia. The permits negotiated with each state might call for different limits on discharge. This is a manageable problem for the factory owner. It can structure its operations at each facility to meet the permit applicable to its factory in that state. In the worst case, if Ohio imposes an unachievable permit limit, it can close that plant and shift all production to Georgia. The Georgia plant doesn't have to meet Ohio's standards, because it never operates in Ohio.

Railroad cars are very different from factories. They move from one state to another. The ability to move anywhere within the rail network is essential to proper utilization of this huge capital investment; and to the efficient operation of the rail transportation system. In its multi-decade lifetime, any given freight car may spend some of its time in every one of the contiguous 48 states.

Many types of railcars are open tops, such as coal hoppers, gondolas, and aggregate cars. Boxcars and covered steel coil cars are not open to the elements, but are hardly hermetically sealed. Zero leakage of something is simply not an option. So, if the Clean Water Act applied to railcars in interstate transportation, a "point source" type permit would be necessary – but totally infeasible.

The situation is further complicated by the fact that any given freight train may contain a mixture of cars owned by the railroad operating the train, another railroad, a shipper, a receiver, or a leasing company. Which of these would be subject to the permitting requirements, and for compliance with the permits once issued? The disruption to the railroad transportation network from a patchwork quilt of regulatory requirements – possibly inconsistent ones – is apparent.

Even though no state has yet moved to attempt to impose permitting requirements, the Clean Water Act contains a provision for "citizen suits." Almost any environmental group can bring a case seeking to impose liability for unpermitted discharges. That's exactly what happened in the 2016 case in Washington State.

So, the railroads have asked the STB to issue a declaratory order that the section of the Interstate Commerce Commission Termination Act that states that the authority of the STB over "transportation by rail carriers," including rail practices and the operation of rail facilities, is "exclusive". 49 USC Sec. 10501(b) Several members of Congress and the Railway Supply Institute, which represents companies that manufacture railcars and lease over 700,000 cars in service today, have weighed in asking the STB to act favorably on the railroads' petition. With that kind of support, it is likely that the STB will open a proceeding to consider the matter.

The proceeding is docketed as Surface Transportation Board Finance Docket No. 36369, Association of American Railroads – Petition for Declaratory Order.

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