On Friday, October 5, 2012, the United States Environmental Protection Agency petitioned the full U.S. Court of Appeals for the D.C. Circuit for rehearing en banc of the decision in August 2012 by a three-judge panel of the Court to vacate the Agency’s Cross-State Air Pollution Rule (CSAPR) in EME Homer City Generation, LLP v. EPA, No. 11-1302 (“EME”).

CSAPR would have required significant reductions in emissions from power plants in certain states that contributed to “downwind” ozone or fine particle pollution in other states. In a 2-1 decision, the panel majority (in an opinion filed by Judge Kavanaugh, joined by Judge Griffith) ruled that EPA, in promulgating CSAPR, had exceeded its statutory authority under the Clean Air Act by: (1) requiring upwind states to reduce their emissions by more than their own significant contributions to a downwind state’s nonattainment; and (2) not giving states the opportunity to initially implement a system for reductions for sources within their boundaries (i.e., by preparing a State Implementation Plan, or SIP) before imposing an EPA-designed Federal Implementation Plan (FIP). Judge Rogers filed a lengthy dissent. For more information about the D.C. Circuit panel’s decision, please see our previous Clients & Friends Alert available here.

In its petition for rehearing, EPA (relying heavily on Judge Rogers’ dissent) advanced four arguments. First, EPA argued that the panel lacked jurisdiction to hold that EPA had no authority to promulgate FIPs, because any such challenge had either been previously waived or was not before the panel. EPA cited statutory authority as well as case law demanding “strict adherence” to this jurisdictional limit. Second, and as a related matter, EPA argued that the panel ignored the plain language of the Clean Air Act requiring states to submit SIPs by a certain date (within three years of promulgation of a National Ambient Air Quality Standard, or NAAQS) or else be subject to an EPA-designed FIP. Third, EPA argued that the panel’s “significant contribution” analysis relied on arguments made by the challengers to the Rule for the first time in their D.C. Circuit case (rather than in the extensive administrative proceedings pre-dating the court challenge), thereby violating well-settled waiver and exhaustion principles. And fourth, EPA argued that the panel wrongfully chose its own construction of the ambiguous statutory term “contribute significantly” over EPA’s own construction, which had previously been upheld in an earlier decision of the Court.

State and Municipal Intervenors in the matter petitioned in support of the EPA request for rehearing, arguing that the panel’s decision would severely impede downwind states’ ability to limit pollution by allowing upwind states to avoid their obligation under the Clean Air Act to abate emissions that contribute to pollution in other states. Public Health Intervenors in the matter also submitted a petition in support of the EPA position, arguing that CSAPR would save tens of thousands of lives per year and improve air quality for 240 million Americans, in addition to saving $110 to $280 billion in annual net social benefits.

Lastly, industry respondents Calpine and Exelon petitioned for rehearing arguing that they are power generators who relied upon Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000), and North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008), investing in cleaner generation and emissions control technologies to prepare for a market-based program that reduces emissions of NOx and SO2 consistent with those decisions. Industry respondents contend the D.C. Circuit’s decision in EME establishes new criteria that make it impossible for EPA to design a cost-effective program to address interstate emissions, and that EME conflicts with past rulings which acknowledged the propriety of using market-based trading programs to satisfy the CAA’s “Good Neighbor” provision, 42 U.S.C. § 7410(a)(2)(D).

On October 12, 2012, the Court ordered State and Local Government petitioners, and Industry and Labor Non-Government petitioners to file responses to the petitions for rehearing en banc within 15 days. The order is available here. A rehearing en banc “is not favored”, but may be granted if a majority of the circuit judges in active service are in favor.