On August 21, 2012, the US Court of Appeals for the DC Circuit, in a 2-1 ruling, issued a critical rebuke of US EPA’s “Transport” or Cross-State Air Pollution Rule (CSAPR). See EME Homer City Generation, L.P. v. US EPA, et al., Case No. 11-1302 (August 21, 2012). The court found that CSAPR exceeded the agency’s statutory authority under the Clean Air Act (CAA). The CAA requires that emissions from one state must not “contribute significantly” to any other state’s inability to meet air quality standards. The CSAPR was adopted by US EPA in an effort to control air pollution that travels across state boundaries. The rule was a replacement for the Clean Air Interstate Rule (CAIR), a previous rule addressing interstate transport of air pollution that was remanded to US EPA in 2008. See N.C. v. EPA, 531 F.3d 896 (D.C. Cir. 2008). The CSAPR would have required significant emission reductions from power-producing states, including reduction of sulfur dioxide emissions from 2005 levels by 73 percent and nitrogen oxide by 54 percent at coal-fired power plants.

CSAPR’s adoption, however, sparked numerous petitions for review from upwind states, local governments and various industry and labor groups, while several downwind states and environmental groups intervened on US EPA’s behalf. In vacating CSAPR, the DC Circuit determined that the rule exceeds the agency’s statutory authority in two independent respects: 1) CSAPR requires “massive” emissions reductions from upwind states without regard to the amount or proportion of a state’s contribution to downwind nonattainment, and 2) CSAPR violates the principle of cooperative federalism between the states and US EPA.

Proportionality

US EPA’s methodology required upwind states to reduce emissions by more than their “fair share.” However, under the CAA, “the collective burden must be allocated among the upwind states in proportion to the size of their contributions to the downwind state’s nonattainment.” Thus, the DC Circuit found that the CAA is not a “blank check,” nor a “free-standing tool” for US EPA to seek reductions to levels well below the national air quality standards. Instead, the court held that US EPA has “no authority to force an upwind state to share the burden of reducing other upwind states’ emissions.” Further, US EPA must ensure that the collective obligations of upwind states, when aggregated, do not unnecessarily over-control emissions either.

Cooperative Federalism

US EPA also violated federalism principles by issuing Federal Implementation Plans (FIPs) before giving states an opportunity to develop their own plans to implement the CSAPR requirements. Thus, the FIPs disregarded the states' primary role in implementing air quality determinations under the CAA, where US EPA is authorized to establish the standards, but states retain the right to develop the strategy for meeting them within their borders.

In its rebuke, the court also found that US EPA failed to first establish a numeric standard under the CSAPR before mandating with the FIPs how states were to achieve reductions – a factor that was key to the DC Court’s rejection of US EPA’s approach. Instead, the DC Circuit declined to follow US EPA’s argument “down the rabbit hole to a wonderland where EPA defines the target after the states’ chance to comply with the target has already passed.”

Implications

The immediate question is whether the DC Circuit’s decision will stand. The decision was not unanimous and included a 44-page dissent that called the majority’s decision a “redesign of Congress’s vision of cooperative federalism.” In fact, based largely upon the objections framed in the dissent, US EPA filed a petition for rehearing on October 5, 2012 seeking to reinstate the rule.

Until the rehearing is decided, however, the court’s decision allows CAIR to remain in place, thereby extending the life of a rule deemed invalid in 2008. Despite its “fundamental flaws,” the court found that preserving CAIR on an interim basis “would at least temporarily preserve the environmental values covered by CAIR.” If the rule is not reinstated on appeal, US EPA has work to do and will be obligated to go back to the drawing board and develop a new rule. That is no simple matter and would likely take years, even before the time necessary for full notice-and-comment period. Further, given US EPA’s failed attempts at both CAIR and CSAPR, it is unclear whether US EPA would stay the course in terms of its market-based trading approach, or revert to a more traditional commandand-control approach. Many factors may influence this decision not the least of which may be a potential shift in the political landscape after November.

However, one thing is certain: this decision will have a ripple-effect on many other US EPA rules. One example is in the Regional Haze Program, where US EPA just recently determined that states could use CSAPR to satisfy regional haze requirements through emissions trading rather than by installing Best Available Retrofit Technology (BART). For many affected states, US EPA also engaged in a FIP process strikingly similar to that criticized in the decision. Another example is US EPA’s use of the rule to support attainment redesignations for the ozone and PM2.5 NAAQS in several areas of the country. It is unclear whether these designations will stand in the wake of the DC Circuit’s decision. The battle on this front is already underway in the Third and Eighth Circuits, where both parties are challenging US EPA’s approval of state regional haze plans that rely on CSAPR.