On Tuesday, August 21, 2012, the United States Court of Appeals for the District of Columbia Circuit ("D.C. Circuit") vacated the Cross-State Air Pollution Rule (the "Transport Rule"). In a 2-1 decision, written by Judge Kavanaugh and joined by Judge Griffith, the D.C. Circuit held that the United States Environmental Protection Agency ("EPA") exceeded its statutory authority under the Clean Air Act when it issued the Transport Rule.
EPA issued the final Transport Rule in August 2011 to address air pollution (specifically sulfur dioxide ("SO2") and nitrogen oxide ("NOx")) that crosses state lines. EPA identified 28 States that had air pollution sources which negatively impacted air pollution levels in downwind States. EPA targeted coal and gas-fired power plants as the primary sources of air pollution which was traveling to downwind states and set standards for emission reductions at these power plants. In addition, EPA issued Federal Implementation Plans ("FIPs"), which specified how the emission reductions would be implemented. The Transport Rule was challenged by numerous States and private companies. Although the Transport Rule was set to take effect on January 1, 2012, the D.C. Circuit had previously stayed implementation of the rule while it considered these legal challenges.
In striking down the Transport Rule, the D.C. Circuit held that EPA exceeded its authority in two independent aspects. The first problem identified by the court was that the Transport Rule mandated specific air pollution reductions in upwind States that may require the upwind States to reduce emissions by more than their own contribution to a downwind State's air pollution problem. Second, the court held that the Clean Air Act requires that EPA give States the initial opportunity to design State Implementation Plans ("SIPs") as a means to achieve the standards set by EPA. Here, EPA did not allow the States to design SIPs, and instead created FIPs that the States would have been required to follow.
The court therefore vacated the Transport Rule and remanded it back to EPA for further proceedings. EPA’s earlier attempt to regulate cross-state air pollution, the Clean Air Interstate Rule (“CAIR”) had previously been found to have been promulgated in a manner that exceeded EPA's authority under the Clean Air Act although the court did not vacate the rule. Instead, the court ordered EPA to promulgate a new rule which it attempted to do via the Transport Rule. In light of the court's decision here which vacated the Transport Rule, EPA will be required to continue to administer CAIR pending the promulgation of a valid replacement. Under CAIR, EPA created a cap and trade system for emissions of SO2 and NOx covering 27 States and the District of Columbia. EPA has set required emissions reductions for each State, and the States must achieve those reductions by either (1) requiring power plants to participate in the EPA-administered interstate cap and trade system, or (2) meet an individual State emissions budget through measures of the State’s choosing. We will continue to track EPA's efforts to implement CAIR while at the same time promulgating a replacement for the Transport Rule.
A copy of the D.C. Circuit's ruling in EME Homer City Generation, LP v. Environmental Protection Agency, et. al, Case No. 11-1302, is available here.