Each of the factory
owners that felt that pollution was a severe problem wanted a drastically reformed system of industrial waste disposal in the area.
(A) owners that felt that pollution was a severe problem -> why do we say, owners that..., it is better to use, who. Incorrect.
(B) owners which felt that pollution was a severe problem-> Same as A.
(C) owners who felt that pollution was a severe problem -> It is better. Let's keep it.
(D) owners who felt that pollution to be a severe problem -> after "that", we need a subordinate clause. It is not there. Incorrect.
(E) owners, feeling that pollution was a problem quite severe, -> Meaning changed. Incorrect.
So, I think C.