WASHINGTON -- In a blow to municipalities that rely on resource recovery plants to dispose of household trash, the Supreme Court yesterday ruled that toxic residue ash produced by such plants must be treated as hazardous waste under more stringent federal regulations.

The Environmental Protection Agency and municipal interests say treating the ash as hazardous will dramatically raise disposal costs and increase reliance on scarce hazardous waste landfill capacity.

The EPA estimates that disposal costs for municipal solid waste, if regulated as hazardous, would average $453 per ton, compared with an average $42 per ton if the same waste were exempt from such regulation.

But environmental groups say such predictions are exaggerated and do not accurately reflect the economics of the waste disposal market.

"I don't think the ruling is a major catastrophe," said Elliot Friedman, municipal bond analyst with Greenwich Partners Inc. of Greenwich, Conn. "People should hold their bonds" backing resource recovery facilities. "This is something the industry will deal with in an economical way."

Under the ruling, only ash that fails an EPA toxicity test would be deemed hazardous. EPA is expected to make the test less stringent, and incinerator operators are expected to adopt more effective disposal methods, Friedman said.

The 7-2 ruling in City of Chicago v. Environmental Defense Fund held that the Resource Conservation and Recovery Act of 1976, which provides the main framework for regulating solid waste disposal, does not exempt from hazardous waste regulation the ash that results from combustion of municipal solid waste.

Justice Antonin Scalia, writing for the majority, relied on the "plain meaning" of the law to affirm a ruling by the U.S. Court of Appeals for the Seventh Circuit that the exemption for ash does not exist.

The case arose out of a 1988 lawsuit filed against Chicago by the Environmental Defense Fund and Citizens for a Better Environment in connection with the city's ownership and operation of an incinerator, the Northwest Waste-to-Energy Facility, which burns solid waste and recovers energy.

The city treated the ash as non-hazardous under a 1980 amendment to the solid waste law that exempted household waste from hazardous waste regulation. The exemption applies to facilities "deemed to be treating, storing, disposing of, or otherwise managing hazardous wastes."

But the environmental groups contended there was enough dangerous cadmium and lead in the ash to classify the material as hazardous.

The litigation revolved around the legal question of whether Congress intended to include "generation" of hazardous waste by waste-to-energy and other resource recovery facilities in the household waste exemption.

"We think it follows from the carefully constructed text...that while a resource recovery facility's management activities are excluded from [hazardous waste] regulation, its generation of toxic ash is not," the court said.

The decision "creates some very difficult choices for cities currently using resource recovery facilities," said Richard Ruda, chief counsel for the State and Local Legal Center in Washington, D.C. The center filed a friend-of-the-court brief supporting Chicago on behalf of the National League of Cities, the U.S. Conference of Mayors, the National Governors' Association, and other groups representing municipal interests.

Municipalities "are going to have to pay a whole lot more to dispose of the ash insofar as it is hazardous, or they are going to have to cease the process of generating the ash," Ruda said. "The decision today can only discourage cities from continuing efforts at resource recovery."

As of November 1992, there were 176 resource recovery facilities and incinerators that burn almost 34 million tons of municipal solid waste a year, representing 17% of the nation's municipal waste stream, according to the center.

The solid waste law was intended to foster resource recovery. Ruda said. The EPA relied on this goal when it issued a policy statement in 1992 saying that the household waste exemption applied to municipal ash. But the court rejected a request by the Clinton Administration to defer to the EPA interpretation.

"It is not unusual for legislation to contain diverse purposes that must be reconciled, and the most reliable guide for that task is the enacted text," the court said. "Here that requires us to reject the solicitor general's plea for deference to the EPA's interpretation," Scalia said.

Mardell Nereim, an attorney representing Chicago, said "we are not certain about" the practical effect of the ruling on Chicago. The Northwest plant handles 14% of the city's municipal solid waste, producing about 110,000 to 140,000 tons of ash a year. Chicago officials could not be reached for further comment.

Richard J. Lazarus, the attorney representing the two environmental groups, said that predictions of dire effects of the ruling on disposal costs and use of alternatives, including greater reliance on landfills, are exaggerated. "This is not going to have such a dramatic economic impact on them."

Incinerator operators of municipal plants can use different and relatively inexpensive disposal methods to comply with hazardous waste provisions, Lazarus said. Plants burning municipal garbage generate two kinds of ash: fly ash, representing about 10% by weight of the burned trash, and bottom ash, representing about 90%, he said. The heavy metals are contained only in the fly ash, but operators have mixed the fly and bottom ash, making the entire waste product hazardous, he said.

If operators do not mix the two kinds of ash, they would significantly reduce the amount of waste subject to hazardous waste regulation, he said.

Lazarus does not believe operators will rely more on the use of landfills because they must meet contractual commitments to keep incinerators running. Lazarus said his argument is buttressed by another pending case, C&A Carbone v. Clarkstown, N.Y., which involves the need for disposal facilities to maintain a steady waste supply. The waste stream is needed to generate revenue to pay debt service on tax-exempt revenue bonds that are typically used to finance municipal disposal facilities.

The competition for waste supply demonstrates excess incinerator capacity, and the need for a waste stream to guarantee revenue means waste-to-energy plants will not shut down as a result of the Chicago ruling, Lazarus said.

"If EDF had thought this would lead to more environmental harm," it would not have brought the suit, Lazarus said.

Justice John Paul Stevens was joined by Justice Sandra Day O'Connor in a dissent that said the majority's decision invalidates the 1980 household waste exclusion "on which municipalities throughout the nation have reasonably relied for over a decade." The EPA's position "was and remains a correct and permissible interpretation of the agency's broad congressional mandate" under the waste law, they said.

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