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Here is from the horses' mouth itself (http://quest.arc.nasa.gov/people/journals/space/katnik/sts87-12-23.html): "During the STS-87 mission, there was a change made on the external tank. Because of NASA's goal to use environmentally friendly products, a new method of "foaming" the external tank had been used for this mission and the STS-86 mission. It is suspected that large amounts of foam separated from the external tank and impacted the orbiter. This caused significant damage to the protective tiles of the orbiter. Foam cause damage to a ceramic tile?! That seems unlikely, however when that foam is combined with a flight velocity between speeds of MACH two to MACH four, it becomes a projectile with incredible damage potential. The big question? At what phase of the flight did it happen and what changes need to be made to correct this for future missions? I will explain the entire process."

Yeah, that was also covered in the CAIB report. The huge losses, which show up as a spike on the graph in appendix F.5, were reduced to the same level as before by helping to degas the foam better.

It was still NASA's choice to launch though. NASA designs a space program, not the EPA. If the EPA was interfering too much, NASA could have canceled all launches and I'm sure Congress would have given them a waiver. They chose not to.