Previously published by New York Law Journal, October 25, 2012.
On Aug. 21, 2012, the U.S. Court of Appeals for the D.C. Circuit vacated the most recent regulation adopted by the U.S. Environmental Protection Agency (EPA) to reduce cross-state air pollution from the electric generating sector. The purpose of the regulation was to aid downwind states in achieving attainment of the National Ambient Air Quality Standards (NAAQS) for ozone and fine particulate matter under the Clean Air Act (CAA).
In a 2-1 decision, the D.C. Circuit held that EPA exceeded its statutory authority in adopting the Cross-State Air Pollution Rule (CSAPR or Transport Rule) because (a) the rule would require some upwind states to reduce emissions by more than the states' contribution to air quality exceedances—e.g., ambient air quality that exceeds National Ambient Air Quality Standards—in downwind states (the "good neighbor" provision)1 and (b) the rule denied states the first opportunity to develop regulations to be incorporated into State Implementation Plans (SIPs) to address precursors to ozone and fine particulate emissions in neighboring states prior to EPA's imposing Federal Implementation Plans (FIPs) on each state. See EME Homer City Generation v. EPA, 2012 WL 3570721 (D.C. Cir. Aug. 21, 2012).
The Transport Rule
On July 6, 2011, EPA adopted CSAPR to replace the Bush Administration's Clean Air Interstate Rule (CAIR), which the D.C. Circuit had found unlawful in 2008.2 CSAPR was intended to address the deficiencies identified by the D.C. Circuit in CAIR and would have required 27 states to improve air quality by reducing power plant emissions that contribute to ozone and fine particulates in other states (referred to as the CAA's "good neighbor" provision). Emission reductions were to take effect on Jan. 1, 2012, for sulfur dioxide and annual nitrogen oxide (NOx) emissions, and May 1, 2012, for ozone season NOx emissions.3
'EME Homer City Generation'
Judge Brett Kavanaugh, joined by Judge Thomas Griffith, found that CSAPR violated EPA's statutory authority to implement the good neighbor provision in three different ways. First, the court found that the emissions reduction requirement imposed on upwind states was disproportionate to each upwind state's actual contribution to downwind air quality. Under EPA's method, EPA would first determine if the upwind state was subject to the good neighbor provision by examining whether the state contributed at least a certain threshold amount to air pollution in the downwind state, which the court referred to as the "floor." Pollution below this threshold was not considered a "significant contribution" to the downwind state's nonattainment by EPA. The court believed that the absence of the state's floor would likely require an upwind state to reduce emissions by more than its actual contribution, violating the statute.4
Second, the court reiterated that EPA has no authority to require an upwind state to share the burden of reducing other upwind states' emissions. The court explained that its holding in Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000), permits EPA to consider cost-effectiveness factors to allow some upwind states to eliminate less than their fair share. However, the court warned that EPA has no authority to force an upwind state to clean up more than its own contribution. The court found that EPA should have taken into account the contributions from other upwind states to the downwind state's nonattainment problems. Similarly, the court observed that the Transport Rule also failed to account for the downwind state's contributions to its own nonattainment problem in calculating the upwind state's required reductions.5
Third, the court determined that EPA did not take any measures to limit unnecessary over-control in the downwind states. EPA's authority is limited to attaining the NAAQS in the downwind states, according to the court, and therefore EPA may not require upwind states to do more than necessary to help downwind states achieve the NAAQS. After examining the Transport Rule, the court ruled that EPA did not use any safeguards to ensure that upwind states were not cleaning up the air more than the amount required for the downwind state to achieve attainment.6
The second problem with the Transport Rule, according to the D.C. Circuit, is that EPA exceeded its authority by issuing FIPs for each state without giving each state an initial opportunity to implement the regulation through SIPs. The court explained that while the CAA requires the federal government to set clean air standards, the statute provides that the states themselves are responsible for determining how to achieve those standards.
The D.C. Circuit found that EPA required each state to account for its own good neighbor obligation before EPA quantified the state's good neighbor obligation, which the court deemed unacceptable. The court commented that in the past, EPA had allowed states the opportunity to revise their current SIPs or submit a new SIP once EPA had set the relevant emissions budgets for each state. According to the court, EPA's announcement of the state's emissions budget was the triggering event requiring the state to submit a new SIP or to revise its current SIP. Here, however, the court revealed that EPA disapproved state SIP submissions for good neighbor obligation "deficiencies" before EPA ever announced the states' good neighbor obligations, thereby allowing EPA to immediately implement the FIP.
Practically speaking, EPA's procedure removed the state's "first shot" to conform to EPA standards in the SIP, which allowed EPA to immediately impose the FIP. The court reminded EPA that it is the state, and not EPA, that bears primary responsibility for attaining, maintaining, and enforcing EPA standards. As a result, the court held that states must be given the opportunity to submit SIPs which include good neighbor obligation provisions before EPA can step in and implement its own FIP.7
In a lengthy dissent, Judge Judith Rogers argued that the court did not have jurisdiction under the CAA to hear the case on the merits. Rogers first pointed to the final FIPs, which were promulgated over a year before CSAPR was adopted.8 In the final FIPs, EPA published findings that 29 states had failed to submit SIPs containing the required "good neighbor" provisions. Pursuant to the CAA, those states' objecting to the final FIPs should have filed a petition for judicial review within 60 days. Those states were on notice that, not only had they failed to submit the appropriate SIP, but also that they had 60 days to object to EPA's final FIPs. Because that 60-day window had long passed, Rogers argued that the court lacked jurisdiction to hear the case on the merits.
Furthermore, Rogers contended that even if the court did have jurisdiction to hear this issue on the merits, it erred when reading the plain language of the statute. According to Rogers, the plain text of the CAA clearly required states to account for adequate good neighbor provisions in their SIPs, even prior to the release of EPA's good neighbor obligation calculations. Moreover, even if the statute was ambiguous, she argued that canons of statutory interpretation would require the court to defer to EPA's interpretation, which gave states an independent obligation to submit good neighbor SIPs regardless of EPA's good neighbor calculation efforts. She found that states themselves are fully capable of measuring interstate transport of emissions by conducting models, and remarked that no state suggested that it lacked the capability to measure its own interstate emission of pollutants.
The dissent also noted that the court was without jurisdiction to determine whether EPA's two-step approach to defining "significant contribution" violated the CAA because it was not raised in public comments during the rulemaking process. Rogers stated that while both Tennessee and Wisconsin raised comments during the applicable period, neither comment relating to this issue contained the requisite specificity that the court had required in the past.9
Impact of 'EME Homer City'
The D.C. Circuit's vacatur of the entire rule was unexpected and leaves businesses and states with uncertainty about how to plan for future reductions in air emissions. In the meantime, the Bush-era CAIR remains in effect (which itself requires a decrease in the annual budget for sulfur dioxide among the affected states starting in 2015).
On Oct. 5, 2012, EPA filed a petition for rehearing en banc with the D.C. Circuit.10 EPA's arguments echoed those initially raised by Rogers in her dissent. EPA argued that the panel lacked jurisdiction to decide that states were not required to submit transport SIPs because states did not bring the action within 60 days of Federal Register publication of the FIPs, as required by the CAA. EPA further argued that the panel erroneously rewrote an unambiguous provision of the CAA to exempt states from the clear requirement that states submit SIPs regardless of whether EPA had quantified the states' good neighbor obligations.
Additionally, EPA objected to the panel's "significant contribution" analysis, arguing that the panel premised its analysis on comments raised in the CAIR rulemaking years earlier, and not in comments raised during the Transport Rule rulemaking, violating the clear directives in the CAA. Finally, EPA argued that the panel's "proportionality" framework to significant contribution cannot be reconciled with any precedent, and that therefore, the court wrongly adopted its own construction of an ambiguous term rather than following its prior decisions upholding EPA's construction.
The impact of the vacatur of CSAPR will be felt by those states that had relied on CSAPR to achieve attainment of the ozone and fine particulate matter NAAQS. The D.C. Circuit's decision means that the necessary reductions needed by upwind neighboring states might not happen on the schedule provided by EPA, which could then delay EPA or state decisions to re-designate areas as meeting the ozone or fine particulate NAAQS. Such delay has economic ramifications because manufacturing and other businesses located in areas designated as nonattainment may not be able to expand.
For instance, because there are very few emission reduction credits for fine particulate, a facility in a nonattainment area is generally limited to expansions that do not exceed 10 tons per year of particulate emissions, a very small number that may result in plants foregoing decisions to expand or modernize. Also, businesses in non-attainment areas are subject to more stringent emissions controls than those in attainment areas. Without CSAPR and the mechanism that rule provided for helping downwind states to attain NAAQS, economic growth may be stifled in those eastern states that continue to be designated as nonattainment.
1 When an area within a state has existing ambient air quality that exceeds National Ambient Air Quality Standards, meaning the air quality does not meet public health standards, that area within the state is defined as nonattainment. Pollution generally disperses with the wind, and as wind streams often travel from west to east, states in the Midwest (referred to as "upwind") may add air pollutants to states on the east coast (referred to as "downwind"). However, for the Air Transport Rule's purpose, multiple states will generally contribute air pollutants with neighboring states located east or west, such that an upwind state is the state causing the air pollution in the downwind state and the downwind state is the state impacted by the neighboring state's air pollution.
2 North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008) (vacating CAIR, in part, because upwind states could purchase allowances and EPA's rule did not provide sufficient proof to ensure upwind emissions would not contribute to a neighboring state's non-attainment).
3 76 Fed. Reg. 48,208 (Aug. 8, 2011); EPA fact sheet is available at http://www.epa.gov/airtransport/pdfs/CSAPRFactsheet.pdf .
4 EME Homer City Generation v. EPA, 2012 WL 3570721, at *12-14 (D.C. Cir. Aug. 21, 2012).
5 Id. at *14.
6 Id. at *14-15.
7 Id. at *17-22.
8 75 Fed. Reg. 32,673 (June 9, 2010).
9 EME Homer City Generation, 2012 WL 3570721, at *24-44 (D.C. Cir. Aug. 21, 2012) (Rogers, J., dissenting).
10 Petition for Rehearing En Banc, EME Homer City Generation v. EPA, No. 11-1302 (D.C. Cir. Oct. 5, 2012).
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