In a trio of recent decisions, several federal circuit courts of appeal are holding U.S. EPA in check on an expansive view of its regulatory powers. While each of the following cases address a diverse range of issues, these decisions, coupled with a spate of favorable environmental cases issued by the U.S. Supreme Court, may portend additional opportunities to challenge the extent of U.S. EPA regulation.

Summit Petroleum v. EPA

The first decision was issued on August 7, 2012, by the U.S. Court of Appeals for the Sixth Circuit, which covers Michigan, Ohio, Kentucky and Tennessee, in Summit Petroleum v. EPA, 6th Cir. Nos. 09-4348, 10-4572. The court addressed under what circumstances multiple, separate sources of air pollution constitute a single facility for purposes of an air permit. Often, EPA aggregates multiple sources of pollution owned by a single entity when the sources are contiguous or adjacent to each other.

At issue was a natural gas sweetening plant operated by Summit Petroleum in Rosebush, Michigan, as well as production wells, flares, and subsurface pipelines that are connected to the plant. The wells are various distances from the plant, from a range of five hundred feet to over eight miles away. Significantly, Summit does not own the land between the individual wells and the plant, or the property between the wells. In addition, there is no common boundary among the wells or in between the wells.

EPA had asserted to Summit Petroleum that because the sweetening plant, production wells, and flares were all connected and dependent upon each other, that various sources of air pollution were “adjacent” and therefore Summit Petroleum needed to obtain a much more onerous air pollution permit, known as a Title V permit. Summit Petroleum disagreed, and argued that the production wells and flares should not be considered together with the plant, and therefore the plant should have a permit separate from the auxiliary sources of air pollutants.

The Sixth Circuit agreed with Summit Petroleum in a 2 to 1 decision. The court determined that the meaning of the word “adjacent” is unambiguous, and should be accorded a plain, dictionary meaning in the regulation on what constitutes a “facility.” Thus, the court concluded that adjacency truly relates to physical proximity and ordered that Summit’s facilities should be assessed for purposes of aggregation under the ordinary understanding of the requirement that plants and facilities be located on adjacent (i.e., physically proximate) properties. Under the court’s decision, EPA will have to reconsider whether Summit is required to obtain one permit for its plant, production wells, and flares.

Texas v. EPA

The second decision comes from the U.S. Court of Appeals for the Fifth Circuit, which covers Louisiana, Mississippi, and Texas. In Texas v. EPA, 5th Cir. No. 10-60614, the court overruled the rejection by EPA of a novel air permitting program that had been perceived as less burdensome by the business community.

Texas first proposed the flexible permit program for approval by EPA in 1994. The program allows a facility, which is a minor source of emissions, to obtain a permit with a set emissions cap. So long as the facility does not exceed the aggregate limit identified in the permit, the facility may make modifications without additional regulatory review. After a 15-year delay, and legal action to force EPA to make a decision, EPA finally proposed disapproving the program in 2009 and issued final disapproval of the program on July 15, 2010. However, because numerous flexible permits were issued to facilities since 1994, the disapproval raised the possibility that each of those facilities could face fines or other enforcement actions without regard to emissions levels.

Texas sought review of the disapproval by the Fifth Circuit. Over a dissent, two judges agreed with Texas that EPA should not have disapproved the flexible permit program. The court took EPA to task on several aspects of its treatment of the request for approval by Texas.

First, the court emphasized that the regulation of air pollution under the Clean Air Act is a system of mutual federal and state cooperation. As noted by the court, the federal government supplies “the goals and basic requirements” of pollution control plans, “but the states have broad authority to determine the methods and particular control strategies they will use to achieve the statutory requirements.” Thus, “the prevention and control of air pollution are ‘the primary responsibility of States and local governments.’”

Second, the court excoriated EPA for not timely making a decision on the flexible permit program. Under the Clean Air Act, EPA is required to make a decision within 18 months of its submission.

Finally, the court rejected the substantive reasoning offered by EPA for disapproval. According to EPA, the flexible permit program conceivably could allow a facility that is a major source of emissions to evade major source permitting and instead obtain a flexible permit. EPA wanted Texas to include in its state laws an affirmative statement that the flexible permit program does not apply to major sources of air pollution. The court disagreed with EPA, concluding that the flexible permit program affirmatively required facilities to comply with major source permitting if that permitting was applicable to the facility. The court furthermore concluded that EPA cannot require a state to comport with a certain style of regulatory drafting that required express negative statements. In the opinion of the court, to require such regulatory drafting would infringe upon the cooperative federalism set forth in the Clean Air Act.

As a consequence, the court sent Texas’s flexible permit back to EPA for further consideration and possible approval based on the directives in its opinion.

EME Homer City Generation v. EPA

The most recent decision was issued by the U.S. Court of Appeals for the Circuit of the District of Columbia on August 21, 2012, in EME Homer City Generation v. EPA, D.C. Cir. No. 11-1302. The D.C. Circuit Court of Appeals often issues decisions on environmental matters that impact the nation as a whole. The EME Homer City Generation decision addresses the legality of EPA’s most recent attempt to regulate sulfur dioxide and nitrogen oxides produced mostly by coal-fired electric generating power plants in states roughly east of the Mississippi River. This regulation, known alternatively as the Transport Rule, the Cross-State Air Pollution Rule, or most affectionately, the ghoulish “CSAPR,” was designed to replace the George W. Bush-era Clean Air Interstate Rule, or “CAIR,” which had been previously rejected by the appellate court. In turn, CAIR had been designed to replace the 1990’s-era NOx SIP Call rule.

A number of industry groups, and most significantly the State of Texas, challenged EPA on whether it exceeded its statutory authority to issue CSAPR. In a lengthy opinion, the appellate court agreed with those challenges, and rejected and vacated CSAPR, with one judge dissenting.

In its opinion, the court determined that CSAPR exceeded the statutory authority given to EPA by Congress in two ways. First, the Clean Air Act permits EPA to only require an upwind state to reduce its own significant contribution to a downwind state’s inability or difficulty to comply with pollution reduction. Instead of doing this, EPA attempted to require upwind states to reduce more than its significant contribution of air pollution in order to compensate for other downward states.

Second, under the Clean Air Act, states are authorized in the first instance to create their own solutions to implement reductions to air pollution within the broad outlines of a program instituted by EPA. Instead, under CSAPR, EPA promulgated a program and immediately attempted to implement it with federal programs, without permitting states to choose their own implementation program. As succinctly noted by the court, “Whatever its merits as a policy matter, EPA’s Transport Rule violates the [Clean Air Act].”

The D.C. Circuit Court clearly scrutinized EPA for its failure to observe the cooperative relationship between the states and the federal government that is mandated in the Clean Air Act. The court observed:

Congress set up a federalism-based system of air pollution control. Under this cooperative federalism approach, both the Federal Government and the States play significant roles. The Federal Government sets air quality standards for pollutants. The States have the primary responsibility for determining how to meet those standards and regulating sources within their borders.

Recognizing that EPA failed to respect these principles, the court completely vacated CSAPR and ordered EPA to design a completely new rule. In the interim, the court ordered EPA to continue administering the formerly vacated CAIR, which, while considered unlawful, is the best alternative until EPA proposes a rule that meets statutory muster.

Conclusion

As these decisions demonstrate, a trend is evolving with federal appellate courts requiring EPA to operate within the confines of its statutory power, essentially rejecting the proposition that environmental regulation should consist of the ends justifying the means. These decisions further come on the heels of the U.S. Supreme Court’s decision in Sackett v. EPA, which also circumscribed the ability of EPA to exceed its enforcement authority. The way in which EPA responds to the orders of each of these courts to reconsider its decisions and revise them to comply with the Clean Air Act and its associated regulations will be revealing as to strategies going forward for regulated entities, both states and businesses alike, on ways that are compliant with the law, but also cost-effective and efficient.