United States: D.C. Circuit To Hear Consolidated Challenges To EPA's New Startup-Shutdown-Malfunction Rule

On May 22, 2015, the U.S. Environmental Protection Agency ("EPA") issued a final rule requiring 36 states to revise their State Implementation Plans ("SIPs") under the Clean Air Act ("CAA"). See 80 Fed. Reg. 33839 (June 12, 2015).

The rule requires states to revise their plans to disallow "affirmative defense" provisions, which protect industrial facilities from civil penalties for violations of the National Ambient Air Quality Standards ("NAAQS") that occur during periods of equipment startup, shutdown, or malfunction ("SSM").

The rule was issued in response to a 2011 Sierra Club petition. EPA promulgated the rule under § 110(k)(5) of the CAA, which provides a mechanism, commonly referred to as a "SIP call," allowing EPA to require states to revise SIPs that the Administrator of the EPA finds to be "substantially inadequate to meet CAA requirements." The new rule gives states until November 22, 2016 to revise their SIPs.

The rule is a change of course in the long-standing EPA practice of allowing SIPs to include affirmative defenses, or provide automatic exemptions from emissions limits, during SSM periods. EPA stated that the decision to eliminate SSM affirmative defenses from SIPs arose out of the April 2014 case NRDC v. EPA, 749 F.3d 1055 (D.C. Cir. 2014). There, the U.S. Court of Appeals for the District of Columbia ruled that EPA lacked authority under the CAA to grant affirmative defenses to manufacturers of Portland cement that exceeded emissions limits during SSM periods. The court held that such affirmative defenses must be heard at the judicial level, and thus EPA exceeded its statutory authority by including affirmative defense provisions in the regulations. Following the decision in NRDC, EPA adopted the position that the CAA does not permit the agency to include affirmative defense provisions in its regulations. In this most recent rule, the EPA extended its position to SIPs.

Not surprisingly, the rule was met with legal challenges by both states and industry. On August 11, 2015, 17 states filed a petition for review of EPA's SSM rule in the D.C. Circuit Court of Appeals, arguing that the rule impermissibly usurps the authority that the CAA gives states to develop SIPs. Thus, the D.C. Circuit must decide whether to agree with EPA that the reasoning in NRDC extends to affirmative defenses in SIPs, or to limit NRDC's reach to EPA regulations because states have broader authority in enacting SIPs than EPA does in promulgating regulations.

Separately, on June 16, 2015, Texas and several industrial companies and organizations located in Texas challenged the SSM rule in the U.S. Court of Appeals for the Fifth Circuit. On July 17, 2015, EPA objected to the jurisdiction of the Fifth Circuit to hear the case and requested that the court dismiss the case or, in the alternative, transfer it to the D.C. Circuit. In support of its argument, EPA pointed to a provision of the CAA requiring that petitions for review of "nationally applicable" agency action be filed in the D.C. Circuit. See 42 U.S.C. § 7607(b).

In response, petitioners argued that the Fifth Circuit was the appropriate forum because petitioners presented a "narrow challenge" to only those portions of the rule that applied to Texas and regulated entities in Texas. EPA countered that petitioners mischaracterized the issue: "The fact that EPA's national action may apply to individual states, or individual petitioners within those states, differently based on state-specific circumstances is not determinative."

The Fifth Circuit agreed with EPA and, on August 28, 2015, transferred the Texas case to the D.C. Circuit. Petitioners then requested that the D.C. Circuit send their claims back to the Fifth Circuit, because, according to petitioners, the claims they present are unique to Texas. On October 27, 2015, the D.C. Circuit denied petitioners' motion, ruling that "Texas petitioners have demonstrated no need to depart from the court's usual practice of consolidating 'all petitions for review of agency orders entered in the same administrative proceeding.'"

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