On July 28, 2015, the US Court of Appeals for the D.C. Circuit remanded part of the Cross-State Air Pollution Rule (CSAPR) to USEPA for reconsideration, finding that the Agency had erred in 2014 sulfur dioxide and ozone budgets for 13 states.  The next opportunity to influence outcome will be US EPA’s rulemaking process for re-setting budgets for these 13 states disproportionately burdened by the prior budget methodology.  The Court reasoned that these states’ budgets in CSAPR “required states to reduce pollutants beyond the point necessary” to achieve the desired air pollutant reduction in downwind states.

As previously reported, CSAPR was promulgated in 2011 as USEPA’s second attempt at implementing the “Good Neighbor” provision following the Clean Air Interstate Rule (CAIR), which was invalidated in 2010.  The Good Neighbor provision in the Clean Air Act (Act) provides that inter-state transport of certain air pollutants are to be reduced to levels that do not contribute significantly to downwind nonattainment of the National Ambient Air Quality Standards (NAAQS).  USEPA interprets the significance threshold as 1% impact to downwind receptors and it identified 27 states whose emissions exceeded the significance threshold.  However, due to the complexity of assessing the relative amount of each upwind state’s contribution, USEPA imposed uniform emissions reductions—effectively mandating “over-control” in several instances.

Previously, the D.C. Circuit invalidated the Rule in part due to this potential for over-control.  Although the US Supreme Court agreed that CSAPR violates the Act when it “requires an upwind State to reduce emissions more than the amount necessary to achieve attainment in every downwind State to which it is linked,” it did not invalidate the Rule.  Rather, the Court clarified that over-control in individual upwind States could be contested through “particularized, as-applied challenges.”  These as-applied challenges have led to the current decision.

In the current decision, the Court directs USEPA on remand to eliminate over-control, based on the high Court’s determination that this occurs when “downwind locations would achieve attainment even if less stringent emissions limits were imposed on the upwind States linked to those locations.”  The Court reviewed the individualized challenges of the various states as to the 2014 SO2 emissions budgets for those states, and NOx budgets for the 1997 8-hour ozone NAAQS.  Under this framework, the Court confirmed that over-control was “precisely what we have here.”

The Court’s remedy was to remand without vacatur the 2014 emissions budgets for the challenger states.  The Court explicitly observed that parties may provide new evidence, data or calculations to USEPA in consideration of the remand.  Although the previous CSAPR budgets will remain in place as the Agency reconsiders them, the Court admonished USEPA to “move promptly” on remand, calling out the risk that USEPA could “drag its feet” and keep in place an unlawful Agency rule.  Accordingly, further opportunities to weigh in on the revised budgets are expected, but this window may be narrow.

The decision is a welcome victory for the challenger states and affected industries.  The win should result in revised budgets that will ease restrictions on upwind states and their electric generating units.  However, even while CSAPR requirements are being eased, the Obama Administration is moving forward with its final Clean Power Plan, which continues the Administration’s ongoing efforts to incentivize use of renewables and discourage use of coal.  Utilities and energy-intensive industries should continue to monitor events closely and work with counsel to develop strategies for participation in this important regulatory development.