On June 26, 2012, the D.C. Circuit awarded US EPA a striking victory in the first round of extensive litigation over its efforts to regulate greenhouse gases (GHGs). The case, Coalition for Responsible Regulation v. EPA, is a challenge to: (1) US EPA’s “Endangerment Finding,” which concluded that GHGs may “reasonably be anticipated to endanger public health or welfare,” (2) US EPA’s “Tailpipe Rule,” which sets emissions standards for cars and light trucks, and (3) US EPA’s “Timing and Tailoring Rules,” which establish the thresholds and timing for regulating GHG emissions from stationary sources. US EPA’s rules were under fire from all directions, including industry groups, individual states and environmental organizations. However, despite the wide array of challenges, the D.C. Circuit issued an across-the-board reaffirmation of US EPA’s rules in strong language.

The Endangerment Finding

The Endangerment Finding stems from the US Supreme Court’s 2007 decision in Massachusetts v. EPA, which deemed GHGs “regulated pollutants” under the Clean Air Act (CAA) and directed US EPA to determine whether GHGs from vehicles may “reasonably be anticipated to endanger public health or welfare.” In response, US EPA concluded that motor vehicle emissions contributed to climate change which was “reasonably anticipated to endanger public health and welfare.” Petitioners in Coalition for Responsible Regulation challenged that determination on two primary grounds: (1) failure to properly consider policy concerns, and (2) inadequate scientific basis.

The D.C. Circuit found that the CAA’s plain language and the Massachusetts decision precluded US EPA from considering policy issues when it made the Endangerment Finding. The Court then rejected petitioners’ “inadequate science” arguments by endorsing the climate change science US EPA relied upon and noting that the Agency was entitled to substantial deference when making complex scientific decisions. Significantly, the Court upheld US EPA’s authority to act even if there was still “some residual uncertainty” in the scientific record and the Agency did not provide a “rigorous step-by-step proof of cause and effect.”

The Tailpipe Rule

EPA’s “Tailpipe Rule” similarly flowed from the Supreme Court’s decision in Massachusetts which found that if US EPA determined that GHG emissions from vehicles created an “endangerment” then those emissions must be regulated. The D.C. Circuit rejected the challenges to the Tailpipe Rule, on the grounds that the CAA and the Massachusetts decision left no statutory basis for “further inaction.” Instead, the Court deemed US EPA’s interpretation of the governing provisions “unambiguously correct” and upheld its resulting vehicle regulations.

The Timing and Tailoring Rules

The Court then turned to the most critical issue for industry – the impact of US EPA’s Endangerment Finding and Tailpipe Rule on stationary sources. US EPA determined that, once GHG’s were actively regulated under the CAA, that necessarily triggered both preconstruction and operating permit obligations for major stationary sources of GHGs. US EPA’s Timing Rule concluded that GHGs became “regulated air pollutants” on January 2, 2011, when the Tailpipe Rule first imposed requirements on car manufacturers. The Tailoring Rule then sought to modify existing statutory language in order to limit permit requirements to large sources on a phased schedule. Industry and state petitioners attacked every aspect of those determinations.

The D.C. Circuit held that both the CAA and Massachusetts supported US EPA’s determination that GHGs were “air pollutants” subject to permitting requirements. The Court then made the controversial ruling that state and industry petitioners lacked standing to challenge the Timing and Tailoring rules. Specifically, the panel explained that the petitioners could not establish harm by the Timing and Tailoring Rules because those rules were only limited to otherwise existing obligations to secure GHG permits. Thus, the Court never reached the key issue of whether US EPA could unilaterally modify the statutory permitting thresholds based on administrative and policy concerns.

So What Happens Next?

This decision sets the stage for an almost certain request for US Supreme Court review. But, several factors suggest that will be an uphill battle including: (1) the fact the D.C. Circuit’s decision was unanimous; (2) the opinion’s heavy reliance on plain statutory language and agency deference; (3) extensive use of the US Supreme Court’s recent decision in Massachusetts; and (4) expected opposition from the Obama Administration. Further, by avoiding the merits of US EPA’s controversial determinations in the Tailoring Rule, and focusing on the challenger’s “standing”, the D.C. Circuit deflected a key issue that might otherwise have intrigued the Supreme Court. Instead, any petition for Supreme Court review would need to focus on the holding that neither state nor industry petitioners have standing to challenge the Tailoring Rule due to lack of injury.

Key Implications

Invalidation of US EPA’s GHG permitting rules would have created renewed chaos but also relief for large GHG sources currently in the permitting pipeline or considering new projects. Instead, the D.C. Circuit’s decision continues the “new normal”, with sources obligated to struggle through PSD permitting for GHGs and obtain Title V permits with GHG obligations. However, the decision will not leave the regulatory landscape totally unchanged. Instead, US EPA (and environmentalists) will likely be emboldened to press forward with other GHG regulations. In particular, they may view the Court’s decision as support for ongoing efforts to develop New Source Performance Standards and Emissions Guidelines for large source categories.

Additionally, the Court’s statement that US EPA can act proactively to take “precautionary” steps despite scientific uncertainty may have lasting significance. While that statement was tied to specific CAA language, it will be cited by environmentalists as authority that US EPA can regulate based on the “precautionary principle,” which would allow government to curtail business activity unless it can be proven safe.