A three-judge panel of the U.S. Court of Appeals for the District of Columbia, on June 26, 2012, dismissed challenges by various states and industry petitioners to the U.S. EPA's greenhouse gas regulations in a per curiam opinion, which reaffirmed each of the challenged rules in their entirety. Coalition for Responsible Regulation v. EPA, D.C. Cir., No. 09-1322, 6/26/12. At issue in these consolidated cases was a cascading series of rulemakings issued by EPA in response to the U.S. Supreme Court's decision in Massachusetts v. EPA, 549 U.S. 497 (2007), which held that greenhouse gases are an "air pollutant" subject to regulation under the Clean Air Act.

The challenged EPA actions were: (i) an "Endangerment Finding," in which EPA determined that greenhouse gases may "reasonably be anticipated to endanger public health or welfare"; (ii) the "Tailpipe Rule," which set emission standards for cars and light trucks; (iii) the "Timing Rule," which concluded that under its longstanding interpretation of the Act, once greenhouse gases became an "air pollutant" that is "subject to regulation" under Act via the Tailpipe Rule, major stationary source emitters of greenhouse gases would be subject to Prevention of Significant Deterioration ("PSD") and Title V programs on the date the Tailpipe Rule became effective (January 2, 2011); and (iv) the "Tailoring Rule," wherein EPA determined that because greenhouse gas emission from millions of industrial, residential, and commercial sources exceed the Act's 100/250 ton per year ("tpy") thresholds for permitting, which would place severe burdens and costs on both emitters and permitting authorities, EPA should depart from the statutory thresholds and initially apply alternative greenhouse gas thresholds (75,000 or 100,000 tpy) that only the largest emitters would trigger. As described below, the challengers contended that the Agency misconstrued the statute and otherwise acted arbitrarily and capriciously.

Endangerment Finding

The state and industry petitioners challenged several aspects of the Endangerment Finding, including (i) EPA's interpretation of § 202(a)(1) of the Clean Air Act, which sets out the endangerment finding standard; (ii) the adequacy of the scientific record supporting the Endangerment Finding; (iii) EPA's decision not to "quantify" the risk of endangerment to public health or welfare created by climate change; (iv) EPA's choice to aggregate six distinct greenhouse gases into a single defined "air pollutant"; (v) EPA's failure to consult its Science Advisory Board before issuing the Endangerment Finding; and (vi) EPA's denial of all petitions for reconsideration of the Endangerment Finding. The Court of Appeals rejected each of these arguments, ultimately concluding that the Endangerment Finding was consistent with Massachusetts v. EPA and the text and structure of the Act, and was adequately supported by the administrative record.

Tailpipe Rule

The state and industry petitioners did not challenge the substantive standards of the Tailpipe Rule, but instead contended that in promulgating the rule, EPA again relied on an improper interpretation of § 202(a)(1) of the Act and was arbitrary and capricious in failing to justify and consider the immense costs that would necessarily flow from the Agency's conclusion that adopting the Tailpipe Rule would also trigger stationary-source regulation under the Act's PSD and Title V provisions. The petitioners maintained that if EPA had considered these cost impacts, the Agency would have been required to either exclude carbon dioxide from the scope of the Tailpipe Rule, decline to issue the rule entirely, or apply an "avoidance of absurd results" approach "to interpret the statute so as not to automatically trigger stationary source regulation." The Court of Appeals concluded, however, that both the plain text of § 202(a) and legal precedent, including the decision in Massachusetts v. EPA, refuted the petitioners' contentions.

Timing Rule and Tailoring Rules

Once the Court of Appeals resolved the challenges to the Endangerment Finding and the Tailpipe Rule, it then addressed the heart of the petitioners' challenge: application of the Clean Air Act's stationary source permitting requirements to major greenhouse gas emitting facilities.

First, the court analyzed the petitioners' challenge to EPA's interpretation of the Act's § 165(a) stationary source permitting requirements for major emitting facilities located in areas in attainment for a particular National Ambient Air Quality Standard (or in areas that are unclassifiable for such a standard). "Major emitting facilities" are defined under § 169(1) of the Act as "any…stationary sources of air pollutants which emit, or have the potential to emit, one hundred tons per year or more of any air pollutant." EPA has interpreted "any air pollutant" to mean any air pollutant regulated under the Clean Air Act. Thus, under this interpretation, once greenhouse gases were defined as a pollutant and regulated under the Tailpipe Rule, the Act's stationary source requirements were also triggered for greenhouse gases.

Before reaching the merits of the challenge, the court addressed its timeliness. Observing that EPA first interpreted the relevant statutory provisions in a 1978 rule (and then reiterated its position in subsequent 1980 and 2002 rules), the court noted that under the Clean Air Act, a rule can be challenged only within 60 days of its promulgation unless new grounds arise after those 60 days. The petitioners argued that the Tailpipe Rule was just such a new ground. The court agreed, because at least two of the petitioners were not subject to the stationary source permitting requirements prior to the Tailpipe Rule and thus only now had ripened claims to challenge EPA's statutory interpretation.

After determining that the challenges were timely, the Court of Appeals turned to the merits of the petitioners' challenge. The petitioners argued that the Act could have been interpreted to avoid extending permitting to greenhouse gas emitters and provided three alternative interpretations of the statute. The court was unpersuaded by all three of the alternatives and held that, based on the plain language of the statute, the use of the term "air pollutant" in other sections of the Act, and the Supreme Court's holding in Massachusetts v. EPA that the greenhouse gases are pollutants under the Act, the term "any air pollutant" appearing in the stationary source permitting provisions must include any regulated air pollutant, including greenhouse gases.

After upholding EPA's interpretation of the stationary source permitting requirements, the court finally addressed the petitioners' challenges to the Timing and Tailoring Rules. The petitioners argued that EPA is not allowed to depart from statutory requirements that require any major emitting facility with the potential to emit more than 100 tons per year to obtain construction and operating permits. EPA justified its departure from the statutory thresholds by arguing that (i) applying the permitting requirements to all greenhouse gas emitters would cause "absurd results" not intended by Congress; (ii) a phased approach was an administrative necessity to prevent overburdening EPA and state regulators with greenhouse gas permit applications, and (iii) the judicial doctrine of "one-step-at-a-time" allows agencies to implement regulatory programs one piece at a time.

The Court of Appeals, however, never reached the merits of this argument because it found that the petitioners could not prove that the Tailoring Rule had caused them any harm that could be redressed by the court, and thus lacked standing to bring the claim. The petitioners argued that, as a result of the Timing and Tailoring Rules, they were now subject to regulation of their greenhouse gas emissions and/or must obtain permits for new greenhouse gas sources. The court rejected this argument, holding that this injury was not a result of the Timing and Tailoring Rule, but instead resulted from the automatic operation of the Act itself. In fact, the court noted the Timing and Tailoring Rules actually mitigated those damages by reducing the number of sources initially subject to the requirements.

In an attempt to avoid the industry petitioners' jurisdictional defect, the state petitioners presented two alternative standing arguments, both of which were rejected by the Court of Appeals. First, the state petitioners argued that they had standing because vacating the rules—thereby causing EPA to extend greenhouse gas permitting requirements to millions of small emitters—would cause Congress to act and mitigate their injuries. The court disagreed, stating that there was no certainty that Congress would act to address their injuries. Second, the state petitioners argued that they had standing under Massachusetts v. EPA based on EPA's failure to regulate greenhouse gas emissions sooner. The court rejected this argument because the state petitioners raised it only in their reply brief and failed to present any evidence that they are adversely affected by climate change.

It seems relatively safe to predict that the petitioners are likely to seek further review in the D.C. Circuit and/or the U.S. Supreme Court. For now, however, EPA's greenhouse gas regulatory program will be the legal framework with which states and industry will be required to deal.