On August 21, 2012, the U.S. Court of Appeals for the D.C. Circuit, in a 2-1 ruling, issued a critical rebuke of USEPA’s “Transport” or Cross-State Air Pollution Rule (“CSAPR”).1   The court found that CSAPR finding that the rule exceeded the agency’s statutory authority under the Clean Air Act (“CAA”).

The CAA requires that emissions from one state must not “contribute significantly” to any other state’s inability to meet air quality standards.  The CSAPR was adopted by USEPA in an effort to control air pollution that travels across State boundaries. The rule was a replacement for the Clean Air Interstate Rule (“CAIR”), a previous rule addressing interstate transport of air pollution that was remanded to USEPA in 2008.2   The CSAPR would have required significant emission reductions from power-producing states, including reduction of sulfur dioxide emissions from 2005 levels by 73 percent and nitrogen oxide by 54 percent at coal-fired power plants..

However, CSAPR’s adoption sparked numerous petitions for review from upwind states, local governments, and various industry and labor groups, while several downwind states and environmental groups intervened on behalf of USEPA.   

In vacating CSAPR, the D.C. Circuit determined that the rule exceeds the agency’s statutory authority in two independent respects: 1) CSAPR requires “massive” emissions reductions from upwind States without regard to the amount or proportion of a state’s contribution to downwind nonattainment and 2) CSAPR violates the principle of cooperative federalism between the States and USEPA.

 Proportionality

USEPA’s methodology required upwind states to reduce emissions by more than their “fair share.” However, under the CAA, “the collective burden must be allocated among the upwind states in proportion to the size of their contributions to the downwind State’s nonattainment.” Thus, the D.C. Circuit found that the CAA is not a “blank check,” nor a “free-standing tool” for USEPA to seek reductions to levels well below the national air quality standards.

Instead, the Court held that USEPA has “no authority to force an upwind state to share the burden of reducing other upwind states’ emissions.”  Further, USEPA must ensure that the collective obligations of upwind states, when aggregated, do not unnecessarily over-control emissions either.

­­­­­­Cooperative Federalism

USEPA also violated federalism principles by issuing Federal Implementation Plans (“FIPs”) to upwind states before giving these states an opportunity to develop their own plans to implement the CSAPR requirements. Thus, the FIPs disregarded the states’ primary role in implementing air quality determinations under the CAA, where USEPA is authorized to establish the standards, but states retain the right to develop the strategy for meeting them within their borders.

In its rebuke, the Court also found that USEPA failed to first establish a numeric standard under the CSAPR before mandating with the FIPS how states were to achieve reductions—a factor that was key to the D.C. Court’s rejection of USEPA’s approach. Instead, the D.C. Circuit declined to follow USEPA’s argument “down the rabbit hole to a wonderland where EPA defines the target after the States’ chance to comply with the target has already passed.”

Implications

The immediate question is whether the D.C. Circuit’s decision will stand. The decision was not unanimous and included a forty-four page dissent that called the majority’s decision a “redesign of Congress’s vision of cooperative federalism.” On October 5, 2012, USEPA filed a petition for rehearing en banc seeking to reinstate the rule and based largely upon the objections framed in the dissent.

Until the rehearing is decided, the court’s decision allows CAIR to remain in place, thereby extending the life of a rule deemed invalid in 2008. Despite its “fundamental flaws,” the court found that preserving CAIR on an interim basis “would at least temporarily preserve the environmental values covered by CAIR.”

Further, assuming the rule is not reinstated on appeal, USEPA is left with a decision to make.  On the one hand, it could choose to do nothing and allow CAIR to remain in place.  However, leaving CAIR in place indefinitely would open itself up to yet another court challenge.      Alternatively, USEPA could go back to the drawing board and develop a new rule. This alternative would likely be no simple matter and would take months or even years to develop, including the time necessary for full notice-and-comment and for states to develop plans to implement the rule.  Further, given USEPA’s failed attempts at both CAIR and CSAPR, it is unclear whether USEPA would stay the course in terms of its market-based trading approach, or revert to a more traditional command-and-control approach. Many factors may influence this decision not the least of which may be a potential shift in the political landscape after November.

However, one thing is certain: this decision will have a ripple-effect on many other USEPA rules. One example is in the regional haze program, where USEPA just recently determined that states could use CSAPR to satisfy regional haze requirements through emissions trading rather than by installing Best Available Retrofit Technology. For many affected states, USEPA also engaged in a FIP process strikingly similar to that criticized in the decision. Another example is USEPA’s use of the rule to support attainment redesignations for the ozone and PM2.5 NAAQS in several areas of the country. It is unclear whether these designations will stand in the wake of the D.C. Circuit’s decision.  The battle on this front is already underway in the Third Circuit, where both environmentalists and industry have brought suit to challenge USEPA’s approval of Pennsylvania’s regional haze plan that relies on CSAPR.  More litigation is likely to follow in other states.

[1] EME Homer City Generation, L.P. v. EPA, et al., Case No. 11-1302 (August 21, 2012).

2 North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008)