The Clean Air Act (CAA) requires the Environmental Protection Agency (EPA) to establish national ambient air quality standards (NAAQS) for pollutants at levels that will protect public health. Once EPA has established NAAQS, it must designate “nonattainment” areas, which are locations where concentrations of regulated pollutants exceed NAAQS. States must adopt state implementation plans, or SIPs, showing how they will both meet NAAQS within their boundaries and comply with the CAA’s Good Neighbor Provision by prohibiting in-state emission sources from emitting regulated pollutants in amounts that contribute significantly to nonattainment of NAAQS in neighboring states. If EPA deems a SIP inadequate to comply with the Good Neighbor Provision, the CAA provides that EPA must adopt a federal implementation plan (FIP) within two years. 

EPA adopted the Cross-State Air Pollution Rule to curb nitrogen oxide and sulfur dioxide emissions in 27 upwind states to achieve downwind attainment of three NAAQS. EPA determined that an upwind state contributed significantly to downwind nonattainment and, therefore, violate the Good Neighbor Provision, if its exported pollution both (1) produced one percent or more of a NAAQS in at least one downwind State and (2) could be eliminated cost effectively, as determined by EPA. Upwind states must eliminate only emissions that meet both of these criteria. EPA then created an annual emission budget for each regulated state upwind, setting the total quantity of pollution an upwind state could produce each year. It also adopted FIPs for states whose SIPs had been deemed inadequate, allocating each state’s emissions budgets among its in-state pollution sources. 

The United States Court of Appeals for the D.C. Circuit invalidated the Cross-State Air Pollution Rule, which was challenged by a group of state and local government and industry representatives. The court held that EPA had exceeded its authority under the CAA by adopting FIPs before giving the states a reasonable opportunity to allocate their emissions budgets, and that EPA’s two part criteria for finding violations of the Good Neighbor Provision was unreasonable. 

The United States Supreme Court reversed. It held that the CAA did not require EPA to furnish upwind states with information about their good neighbor obligations before issuing a FIP and expressly obligates EPA to adopt a FIP within two years after a state SIP has been deemed inadequate. The Court also held that, consistent with the Court’s 1984 decision in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., EPA’s reasonable interpretation of the CAA’s ambiguous Good Neighbor Provision was to be afforded deference. Thus, EPA did not have to interpret the CAA’s requirement that states eliminate those amounts of pollution that contribute significantly to nonattainment in downward states as mandating the allocation of responsibility for reducing emissions in a manner strictly proportional to each state’s contribution to the downwind NAAQS exceedences without consideration of costs. Noting that the concept of proportionality is elusive with respect to a states’ contribution to one or more downwind receptors, the Court held that it was proper for EPA to allocate emissions budgets by considering both the magnitude of upwind states’ contributions to nonattainment and the cost associated with eliminating them. 

As a result of the Court’s decision, 27 states will have to reduce their nitrogen oxide and sulfur dioxide emissions. The Cross-State Air Pollution Rule is one of several EPA rules aimed to reduce emissions. Last September, EPA proposed a new rule limiting carbon emissions from new coal- and gas-fired power plants (http://www.kramerlevin.com/64/s2969/en-US/blog.aspx?entry=197).  In June, EPA is expected to issue a proposed rule limiting the amount of carbon pollution from existing power plants.