In April 2014, the Supreme Court and the U.S. Court of Appeals for the D.C. Circuit upheld the Cross-State Air Pollution Rule (CSAPR or the Transport Rule) and the Mercury and Toxics Rule (MATS), respectively. In doing so, the Courts signaled substantial agreement with the EPA’s energy policies under the Clean Air Act. Both rules will affect the reliability and cost of electricity in Kentucky and Indiana.

U.S. Supreme Court Upholds Cross-State Air Pollution Rule

On April 29, 2014, the Supreme Court, in a 6-2 ruling, reversed an August 2012 decision by the U.S. Court of Appeals for the D.C. Circuit, reinstating the Transport Rule. The Transport Rule was developed to replace EPA’s 2005 Clean Air Interstate Rule (CAIR) in response to a 2008 court decision that found CAIR to be flawed. The Transport Rule, finalized in July 2011, requires 28 states in the eastern half of the United States, including Indiana and Kentucky, to reduce annual sulfur dioxide (SO2) emissions, annual nitrogen oxide (NOx) emissions and/or seasonal NOx emissions to assist in attaining the 1997 ozone and fine particle and 2006 fine particle National Ambient Air Quality Standards (NAAQS). The Transport Rule also requires a reduction of emissions from power plants, among other sources, that cross state lines and contribute to ground-level ozone and fine particle pollution in other states. EPA promulgated Federal Implementation Plans (FIPs) for each of the states covered by the rule to assure emissions reductions. 

In August 2012, the U.S. Court of Appeals for the D.C. Circuit invalidated the Transport Rule. The Supreme Court granted certiorari and held that “the [Clean Air Act] does not command that States be given a second opportunity to file a [State Implementation Plan] after EPA has quantified the State’s interstate pollution obligations.” The Court further concluded that the Clean Air Act Good Neighbor Provision “does not require EPA to disregard costs and consider exclusively each upwind State’s physically proportionate responsibility for each downwind air quality problem” and that “EPA’s cost-effective allocation of emissions reductions among upwind States”…“is a permissible, workable, and equitable interpretation of the Good Neighbor Provision.” 

Even though the Supreme Court’s decision reinstates CSAPR, EPA will likely need to take further administrative action before the rule can be fully implemented. For example, the rule’s original 2012 implementation deadline has passed and a number of coal-fired power plants have closed or have announced future closures since the modeling for the rule was conducted, which may mean changes are required to the FIPs EPA developed to implement the rule. However, the reinstatement of the rule potentially could require remaining coal-fired power plants in affected states to install new controls to reduce their emissions of NOx and SO2. In wake of the Supreme Court’s ruling, the D.C. Circuit Court of Appeals is still considering several remaining challenges to CSAPR and its implementation, including the emissions modeling used to develop the program, EPA’s notice and comment procedures and other issues. Also pending are several state-lead suits challenging EPA’s finding that their SIPs were inadequate for meeting the “good neighbor” provision of the Clean Air Act and requiring the states to ensure their air pollution transported into neighboring states does not prevent those states from attaining federal air standards.

Utility Mercury and Air Toxics Rule Upheld by D.C. Circuit Court of Appeals

On April 15, 2014, the U.S. Court of Appeals for the D.C. Circuit upheld the MATS rule. This rule was established by EPA under Section 112 of the Clean Air Act to control emissions of mercury and other hazardous air pollutants (HAPs) from existing electric utility steam generating units (EGUs). 

The primary challenges to the MATS rule, posed by consolidated petitions for review from state, industry and labor union petitioners, were that EPA erred in its interpretation of the “appropriate and necessary” threshold finding required for regulation under Section 112(n)(a)(1)(A). In addressing these challenges, the D.C. Circuit followed a traditional Chevron analysis and ultimately concluded that EPA’s interpretations were reasonable and permissible. Perhaps the two most prominent interpretative issues raised by the petitioners involved EPA’s reliance upon the Section 112 delisting criteria in evaluating the public health hazards of EGU HAP emissions and EPA’s exclusion of consideration of costs of regulation from its assessment of whether regulation was “appropriate and necessary.”

Whether or not a petition for certiorari to the U.S. Supreme Court is filed, the MATS rule will be likely to continue to be a factor in influencing utilities to shutter older power plants which would not cost effectively shoulder the compliance costs of this and numerous other recent or pending environmental rules.