On April 29, 2014, the Supreme Court by a 6-2 vote reversed the D.C. Circuit and upheld the Environmental Protection Agency’s Transport Rule, which imposed specific Clean Air Act limits on emissions in certain states to prevent them from “contribut[ing] significantly” to failure to attain air quality standards in other states. See EPA v. EME Homer City Generation, L.P., Case No. 12-1182, 2014 WL 1672044 (U.S. Apr. 29, 2014).

The Clean Air Act’s Cooperative Federalism Model

The case involves a portion of the Clean Air Act that follows a “cooperative federalism” model for reducing air pollution. It charges states in the first instance with establishing plans to achieve national ambient air quality standards (NAAQS) set by EPA. See 42 U.S.C. §§ 7408, 7409.

Once EPA sets such a standard, each state must submit to EPA a State Implementation Plan, or SIP, to EPA to attain it. Id. § 7410(a)(1). A SIP must also “contain adequate provisions . . . prohibiting . . . any source or other type of emissions activity within the State from emitting any air pollutant in amounts which will . . . contribute significantly to nonattainment in, or interfere with maintenance by, any other State with respect to any [NAAQS].” Id. § 7410(a)(2)(D) (emphasis added). If EPA determines that a SIP is inadequate, EPA has two years to issue a superseding Federal Implementation Plan for the state. Id. § 7410(c)(1).

EPA’s Arguably Less Than Fully Cooperative Approach for Addressing Cross-Border Air Pollutants

In August 2011, EPA issued the Cross-State Air Pollution Rule (dubbed the “Transport Rule” by the Supreme Court), which interpreted when upwind states emitted air pollutants in “amounts which will . . . contribute significantly” to nonattainment or interference with maintenance of NAAQS by a downwind state, thus requiring the upwind states to reduce the offending emissions. See 76 Fed. Reg. 48,208-01, 48,254 (Aug. 8, 2011). EPA set forth a “two-step approach” under which an upwind state must reduce emissions of exported pollution that both (1) exceeds an initial threshold of air quality impact in neighboring states, and (2) could be eliminated cost- effectively, as determined by EPA. See id. at 48,254.

Applying this standard, EPA determined that 27 states had failed to submit SIPs that sufficiently reduced their cross-state emissions. Rather than allowing each state to revise its SIP to comply with its interstate pollution obligations set forth in the Transport Rule, however, EPA issued a Federal Implementation Plan for each state contemporaneously with the Transport Rule. Each state was thus denied an opportunity to allocate its emission budget among its in-state sources.

Reversing a D.C. Circuit Decision, the Supreme Court Upheld the Transport Rule

A group of state and local governments and several industry and labor groups petitioned for review of the Transport Rule in the D.C. Circuit. The D.C. Circuit invalidated the rule. The court held that EPA had exceeded its statutory authority in two respects. First, the court held that EPA had failed to give states a reasonable opportunity to allocate their emission budgets before issuing Federal Implementation Plans. Second, the court found EPA’s approach untenable, since the Clean Air Act’s Good Neighbor Provision required EPA to disregard costs and consider exclusively each upwind state’s physically proportionate responsibility for air quality problems in downwind states.

But the Supreme Court reversed the D.C. Circuit and reinstated the Transport Rule. The Court held that the statute was ambiguous and thus the agency’s interpretation should prevail. Specifically, the Court held that the terms “contribute significantly” and “amounts” in the Good Neighbor Provision were open to interpretation and did not prevent EPA from allocating emission reduction obligations to the states that could achieve them most cost-effectively, once a threshold level of air quality impact had been reached. As the Court explained, there are different ways to reduce emissions in upwind states to protect air quality in downwind states, and EPA’s approach was permissible under the statute.

The Court also held that the Clean Air Act’s plain language does not require EPA to give states a reasonable opportunity to file a SIP after EPA has quantified the state’s interstate pollution obligations and found the SIP inadequate.

The Decision’s Impacts

This decision does not break new doctrinal ground. But it will eventually allow new and tighter emissions standards to take effect for power plants in much of the country. More importantly in the long run, the decision emphatically restates the duty of courts to defer to agency regulatory decisions in ambiguous cases.

Some obstacles to full implementation still remain. Given the litigation delay, some compliance dates in the rule may need adjustment. And various secondary legal challenges to the Transport Rule, held in limbo while the Supreme Court issues were addressed, now will need resolution.