On February 8, 2008 the District of Columbia Circuit Court of Appeals issued its decision in New Jersey v. EPA vacating: (1) EPA's rulemaking removing power plants from maximum achievable control technology (MACT) regulation under the Clean Air Act Section 112 and (2) EPA's related Clean Air Mercury Rule, which had established a cap-and-trade system for power plant mercury emissions.

During the waning days of the Clinton administration, EPA concluded that it was "appropriate and necessary" to regulate mercury emissions from coal- and oil-fired power plants under Clean Air Act Section 112. Such designations typically lead to stringent, technology-driven MACT standards. However, in 2005 EPA decided to reconsider that listing determination. EPA concluded that its initial listing of power plants was inappropriate and "delisted" them. Instead, EPA promulgated the Clean Air Mercury Rule (CAMR) under the more flexible Clean Air Act (CAA) Section 111, enabling the agency to establish a mercury cap-and-trade system.

Those rulemakings were promptly appealed by 15 states and several environmental organizations that argued that EPA was obligated to (and did not) follow certain delisting procedures. The DC Circuit agreed, concluding, "EPA's removal of these EGUs from the Section 112 list violates the CAA because Section 112(c)(9) requires EPA to make specific findings before removing a source listed under Section 112." The court found that EPA was only entitled to delist power plants if it found that "emissions from no source in the category...exceed a level which is adequate to protect public health with an ample margin of safety and no adverse environmental effect will result from any source." CAA 112(c)(9). The court also held that, "under EPA's own interpretation" Section 111 (the basis for the CAMR regulations) "cannot be used to regulate sources listed under Section 112." Thus, the court vacated the CAMR rule too.

In light of prior studies finding "a plausible link between anthropogenic releases of mercury from industrial and combustion sources in the Unites States and methylmercury in fish" and that "mercury emissions from EGUs may add to the existing environmental burden," it will be very difficult for EPA to make the delisting finding now required by the DC Circuit. Thus, it is likely that EPA will be forced to move forward with the development of MACT rules governing mercury and other hazardous air pollutant emissions from power plants. This also raises the possibility that industry will resume its legal challenge to EPA's initial determination that MACT regulation of mercury emissions from power plants was "appropriate and necessary." As EPA's impending MACT rules will impact both new and existing sources with capacities in excess of 25 MW, the majority of the fossil fuel-fired electric generating capacity in the United States will likely be affected.

The timing of this impact may depend upon state actions. Based on our recent experience with a court decision to vacate the Boiler MACT rule, some states are expected to take the position that the MACT Hammer provisions in CAA Section 112(j) trigger an obligation to implement source-specific MACT limits for EGUs through state permit actions. States that aggressively implement the MACT Hammer can expect legal challenges because the applicability of Section 112(j) in this context has not been established.