On October 5, 2012, the Environmental Protection Agency (EPA) filed a petition in the D.C. Circuit Court of Appeals seeking a rehearing by the entire court of the decision from a three-judge panel on August 21, 2012, which vacated the EPA’s Cross-State Air Pollution Rule (known as the Transport Rule or CSPAR).

By way of background, in July 2011, U.S. EPA issued the Transport Rule with the design to reduce long-distance transport of air pollution across 28 eastern states, including Ohio, that significantly adds to pollution in downwind states, preventing them from attaining the national ambient air quality standards for smog and soot.  The Rule would have required more than 3,000 power plants to reduce nitrogen dioxide, sulfur dioxide and particulates that cross state lines.

Various industry groups, companies and states filed suit to challenge the Transport Rule, arguing it violated federal law.  The August 21 panel decision found that EPA did exceed its authority under the Clean Air Act by instituting emission reduction obligations through federal implementation plans (FIPs) before states had an opportunity to carry out the reductions through their own state implementation plans (SIPs).  The panel also held that EPA’s rulemaking did not assure a close enough correlation between each state’s degree of contribution and the required controls.

In filing its petition for a rehearing, EPA followed the lead of the Dissenting Judge and argued that the Court lacked jurisdiction to address the entire issue because the protesting states and industry groups failed to raise these issues during the public comment period for the Transport Rule.  EPA also argued that even if the Court had standing to review this rulemaking, its interpretation of the relevant Clean Air Act provisions is at odds with prior precedent of the D.C. Circuit.

If the petition for rehearing is denied by the Court, EPA will have to redo its analysis of interstate air pollution from power plants and go through another full notice-and-comment process to finalize a replacement rule.  Once a new rule is finalized, EPA will need to give states at least two years to comply - making the realistic time frame for compliance with a new rule no earlier than 2016.

Importantly, that may well mean that the compliance deadlines for EPA’s new “Mercury and Air Toxics Standards” (MATS) will likely arrive before any new rule to replace the Transport Rule.  MATS is designed to reduce hazardous air pollutants (in particular, mercury) from power plants and is seen as most directly affecting coal-fired power plants.  Many experts have suggested that MATS is a more significant rule due to its cost of compliance and the technical challenges associated with the rule.

The status and implementation of these new EPA rules, in addition to the direction of the market for natural gas, all significantly affect the future of coal-fired power plants, as well as coal providers.  Should the D.C. Circuit grant the EPA’s petition for rehearing of the ruling striking down the Transport Rule, the issues are likely to be briefed again in part, then argued before the Court and a new decision rendered.  Should the Rule be reinstated, the battle will move immediately to the MATS litigation and rule implementation.  What is clear from all of these developments is that the certainty in air regulation that all sides of this debate seeks is once again put off.  Rather than a clear path and timeframe for compliance with the Transport and MATS rules, additional months, and perhaps years, of uncertainty continue.