Breaking the sentence –
Electric Boats(subject 1 - plural) have eliminated (verb 1, present perfect - plural) the noise pollution(object 1) that(relative pronoun referring to pollution) conventional powerboats(subject 3) made(verb 3 – simple past) and(conjunction) reduce(verb 2 simple present - plural) the loathsome discharges of oil(object 2) that (relative pronoun referring to object 2) foul(verb 4 – simple present) American rivers and lakes(object 3), threatening fish and bird life(verb + ing modifier).
The meaning of sentence is that Electric boats did two things first they eliminated pollution made by conventional powerboats, second they reduced discharges of oil so these must be parallel using ‘and’. Further the sentence presents the problem associated with the discharge of oil which was threatening the fish and bird life.
A. reduce the loathsome discharges of oil that foul American rivers and lakes, threatening fish and bird life. – WRONG. Simple Past of verb ‘reduced’ must be there instead ‘reduce’ so S – V mismatch.
B. reduce the loathsome discharges of oil that foul American rivers and lakes, threaten fish and bird life. – WRONG. Similar S - V error as that of option ‘A’. Also ‘threaten’ acts as a third verb(plural) or plural subject ‘Electric Boats’ so the option changes the meaning of the sentence.
C. reduce the loathsome discharges of oil that foul American rivers and lakes, to threaten fish and bird life. – WRONG. Similar S - V error as that of option ‘A’. Intentional verb ‘to threaten’ changes the meaning of the sentence as fouling would cause problems for fish and bird life.
D. reduced the loathsome discharges of oil that fouled American rivers and lakes, to threaten fish and bird life. – WRONG. Simple Past of verb ‘reduced’ is matched and parallel to eliminated. Intentional verb ‘to threaten’ is similar an error as that of option ‘C’.
E. reduced the loathsome discharges of oil that fouled American rivers and lakes, threatening fish and bird life. – CORRECT. Simple Past of verb ‘reduced’ is matched and parallel to eliminated. Modifier ‘threatening fish and bird life’ properly modifies previous clause implying proper meaning.
IMO Answer (E).