For the second time in consecutive administrations, the U.S. Court of Appeals for the DC Circuit has thrown out an EPA rule intended to limit cross-state air pollution that foils efforts by downwind states to attain the national ambient air quality standards (NAAQS) for criteria air pollutants such as ozone and particulate matter. As EPA officials plan their next step, they are probably pondering their inability to develop a rule that satisfies the DC Circuit's understanding of how upwind pollution "contributes significantly" to downwind nonattainment and what level of authority the Clean Air Act (CAA) grants the Agency to control it.

Majority decision

In its 2 to 1 majority decision in EME Homer City Generation, L.P. v. EPA, the DC Circuit vacated EPA's July 2011 Cross State Air Pollution Rule (CSAPR). That rule was issued by the Obama EPA as a remedy to the G.W. Bush EPA's Clean Air Interstate Rule (CAIR), which the court also found illegal. Among its reasons for rejecting CAIR in North Carolina v. EPA (North Carolina), the DC Circuit stated that the rule strayed from the CAA by employing a regional air pollution reduction approach that failed to measure each upwind state's significant contribution to downwind pollution. The court allowed CAIR to remain in force while the EPA developed an acceptable replacement.

"Insignificant" contributions

The CSAPR was challenged by an array of power companies, coal companies, labor unions, trade associations, states, and local governments. The petitioners presented two main arguments. The first is that the CSAPR required states to reduce "insignificant" contributions to downwind nonattainment in contravention of CAA's significant contribution provision.

The majority agreed. According to the opinion, the CSAPR established threshold levels of air pollution that, when exceeded, indicated that the upwind state was significantly contributing to downwind nonattainment. Those exceedances are lawfully addressed in the CSAPR, says the majority. However, the CSAPR goes on to compel states to control pollution below that threshold. The majority sees this as an attempt by the EPA to compel states to clean up another upwind state's "share of the mess" in the downwind state. "Under the statute and North Carolina, that is impermissible," states the majority. Also regarding significant contribution, the majority asserts that the CSAPR failed to properly factor in the downwind state's own contribution to nonattainment.

In terms of its effect on industry, the majority saw the CSAPR as an attempt by the EPA to require major sources of air pollution in upwind states to install all pollution controls that are cost-effective as a way of reducing pollution that would never reach downwind states. Again, the majority saw that as impermissible under the relevant CAA provisions.

States first

In their second major argument, the petitioners claimed that the EPA went astray of CAA's provision that gives the states the initial opportunity to implement reductions through new or revised state implementation plans (SIPs). But instead of giving states the SIP-first opportunity, the EPA promulgated federal implementation plans (FIPs) simultaneously with the CSAPR. FIPs require power plants in covered upwind states to make the SO2 and NOx reductions needed to comply with each upwind state's emissions budget as defined by EPA and created an interstate emissions allowance trading program.

"EPA's theory – that EPA can define the end goals for the good neighbor provision and simultaneously issue federal plans to implement them – upends that process and places the Federal Government firmly in the driver's seat at both steps," writes the majority. "The FIP-first approach is incompatible with the basic text and structure of the Clean Air Act." Thus the majority invalidated the CSAPR on these grounds as well.

The majority ordered the EPA to continue to implement CAIR pending promulgation of a valid replacement.

Dissent

In a dissenting opinion, Judge Rogers states that the challenge to EPA's approach to the significant contribution issue as well as the issuance of FIPs were not properly before the court because neither topic was raised at the appropriate time in the rulemaking process. Rogers states: "The result [of the majority opinion] is the endorsement of a 'maximum delay' strategy for regulated entities, rewarding States and industry for cloaking their objections throughout years of administrative rulemaking procedures and blindsiding the agency with both a collateral attack on its interpretation of section 110(a) [state implementation plans] and an objection raised for the first time in this court, despite the court’s previous decisions declining to disturb the approach EPA adopted in the [CSAPR]."

Read EME Homer City Generation, L.P. v. EPA.