The D.C. Circuit Court of Appeals recently vacated the EPA’s rule that required 32 states to revise their state implementation plans (SIPs) due to exemptions that allowed for excess emissions from facilities resulting from startups, shutdowns, or malfunctions (SSMs).

“The agency exceeded its statutory authority in calling for a blanket removal of these ‘SSM’ exemptions from the state plans … without demonstrating that the exemptions materially impede compliance with Clean Air Act (CAA) requirements, a three-judge panel on the US Court of Appeals for the D.C. Circuit said in a per curiam opinion,” according to Bloomberg Law.

Moving forward, regulated entities will now have “operational flexibility” to use SSM exemptions/affirmative defenses in states that still have these or revert to allowing these options, notes Sidley Austin LLP. “However, stakeholders should track the actions of their individual states and keep close watch on whether EPA or environmental groups seek rehearing or appeal the ruling.”

Background

SIPs are a collection of regulations and documents used by a state, territory, or local air district to implement, maintain, and enforce the National Ambient Air Quality Standards (NAAQS) and to fulfill other requirements of the CAA. Once a SIP is approved, states enforce NAAQS levels within their borders.

In state air rules, many states include exemptions or affirmative defense measures for SSM events.

The Sierra Club petitioned the EPA in June 2011 to make the argument that SSM exemptions and affirmative defenses are illegal under the CAA and requested that the EPA perform a SIP call to require states to do away with them.

“Environmental groups [also] sued EPA to rescind a similar affirmative defense provision in federal Portland Cement [CAA] regulations and won,” Sidley Austin notes.

When the EPA lost the case, it began purging these exemptions and defenses from federal regulations and initiated a SIP call to states with these provisions in June 2015. When Former President Donald Trump took office, the SIP call campaign was halted but resumed when President Joe Biden was elected.

The 2015 SIP call included 35 states and the District of Columbia, although the EPA later withdrew the SIP calls to Iowa, North Carolina, and Texas.

A coalition of those states and impacted industry groups petitioned the D.C. Circuit to review EPA authority in the matter.

D.C. Circuit Court opinion

“After rejecting the Petitioners’ four primary arguments asserting that EPA lacked authority to issue the SIP Call without satisfying various procedural and substantive requirements, the D.C. Circuit turned to EPA’s claim that the various exemptions and affirmative defenses in SIPs (all of which EPA approved before 2011) violated the [CAA],” Sidley says. “The court found that most of these provisions are compatible with the [CAA].”

The court categorized four types of SSM provisions in SIPs:

• Automatic exemptions: These exclude SSM periods from otherwise applicable CAA emissions rules.
• Director’s discretion: These provisions allow state officials to “independently and conclusively” determine that excess emissions during SSM events aren’t violations.
• Overbroad enforcement discretion: These provisions allow state officials to recognize a violation occurred yet still bar enforcement.
• Affirmative defenses: Some affirmative defenses protect sources against all liability, while others protect only against certain forms of relief. As an example, the court cited an Arizona code that provides an affirmative defense except in a “judicial action seeking injunctive relief.”

The petitioners in this case challenged the EPA SIP calls in two areas:

• They argued that the EPA misinterpreted its SIP call authority under Section 7410(k)(5) of the CAA.
• They claimed the EPA incorrectly interpreted the act, as well as the SIPs in question, when it issued SIP calls due to a SIP containing at least one of four types of SSM provisions.

The court’s opinion rules that the EPA doesn’t overstep its authority in making SIP calls on plans that the Agency deems inadequate under the CAA. However, the ruling also “limits the EPA’s ability to broadly call for the removal of all SSM exemptions without tailored justification,” Bloomberg says.

The court noted that, within the CAA, Congress provided the EPA with authority to issue a SIP call for three reasons:

• “[T]o attain or maintain the relevant standard,”
• “[T]o mitigate adequately the interstate pollutant transport,” or
• “[T]o otherwise comply with any requirement” of the act.

Regarding the SIP calls, the court concluded that the EPA issued them on the third ground stated above—the Agency concluded that the SIPs were substantially inadequate to comply with the CAA’s requirement for emissions limitations because, at face value, the SIPs conflicted with the act’s legal requirements.

The court’s opinion states:
“In sum, we hold that when EPA calls a SIP for a substantial legal inadequacy, it need only identify the deficiency and explain why it is substantial. Whether a SIP is ‘substantially inadequate’ to comply with the Act may depend on the particular circumstances of the SIP Call at issue, including the nature of the [CAA] provisions the SIP violates, as well as the extent of its noncompliance. We further hold that the Act does not categorically require EPA, when calling a SIP for a substantial legal inadequacy, to make specific factual findings of actual or projected harm to the Act’s objectives as a result of that deficiency.”

After all, “[a]n agency need not suffer the flood before building the levee,” the opinion says, quoting Stilwell v. Off. of Thrift Supervision.

However, the court concluded that the EPA can’t reject a SIP merely because of an SSM provision within its SIP.

The EPA SIP call in question presumed that all such SSM exemptions must be considered “emissions limitations," meaning they’re continuously applicable.

“This argument suggests that a state’s primary concern is to abide by the technical label of emission limitations, rather than the substantive content of their emissions restrictions, the judges said,” Bloomberg adds.

Rejecting a SIP due to an automatic exemption serves “no purpose other than a semantic one: advising the state that it cannot accurately refer to its emissions restrictions by using the statutory term of art ‘emission limitations,’” the opinion states.

“The EPA can’t reject a state’s SIP ‘for that sort of language-policing reason,’ it said,” according to Bloomberg. “SIPs are required to include enforceable emissions limitations and ‘other control measures’ to meet [the NAAQS]. But the agency didn’t sufficiently consider whether some of the emissions provisions could be seen as ‘other control measures’—which might not require continuous application, the judges said.”

The panel also concluded that some SSM provisions aren’t allowed in keeping with the CAA.

“Tennessee’s enforcement discretion provision was ambiguous enough to be read as purporting to prohibit federal and citizen suit enforcement actions and that EPA can prohibit that provision even where it is susceptible to differing interpretations,” Sidley notes. “It further explained that its 2014 NRDC decision held that, once liability is established, courts have the exclusive authority to decide what relief is appropriate. EPA’s former affirmative defense to civil penalties for Portland cement plants encroached on this authority, and the reasoning is just as applicable to state agencies.”

It remains to be seen whether the EPA and/or environmental groups will seek a rehearing or an appeal. And, as many states were in the process of rewriting their SIPs due to the EPA call, some may choose to remove the exemptions entirely, while others may choose to allow SSM exemptions and affirmative defenses.