In an Environmental E-Flash in July, Reed Smith reported that the Court of Appeals for the District of Columbia Circuit had vacated the United States Environmental Protection Agency’s Clean Air Interstate Rule (“CAIR”), North Carolina v. Environmental Protection Agency, 531 F.3d 896 (D.C. Cir. 2008) (finding that CAIR had “more than several fatal flaws”).

EPA’s Arguments in Petition for Rehearing

On Friday, Sept. 26, 2008, the EPA filed a Petition for Rehearing or Rehearing, en banc of the decision, contending that the panel committed four serious errors warranting withdrawal of the original panel and a new look at the issues either by the three-judge panel, or by the entire Circuit Court of Appeals en banc.

First, the court had imposed a remedy unsought (and not briefed) by the parties. As we observed in our July E-flash, none of the petitioners had asked the court to vacate CAIR in its entirety. Accordingly, the EPA had not briefed the issue, and in the Petition for Rehearing, asks for the opportunity to do so now. The EPA hopes to show that remanding CAIR would be a preferred remedy.

Second, the court erred by finding CAIR inconsistent with the Act although it had affirmed other, similar programs. The court had invalidated CAIR because the rule envisaged controlling the upwind generation of sulfur dioxide (SO2) and nitrogen oxides (NOx) – the chemical precursors of small particulates (PM2.5) and ozone – by a cap and trade scheme within multistate regions. The court found that this approach was inconsistent with the Clean Air Act (“Act”), because it failed to ensure that the proposed trading program would prohibit sources within a particular upwind state from contributing significantly to nonattainment or interfering with maintenance of attainment of National Ambient Air Quality Standards (NAAQS) in affected downwind states.

In its Petition for Rehearing, the EPA contends that the court had erred because the CAIR approach was consistent with the Act, and the court had approved a similar regional cap and trade approach in Michigan v. Environmental Protection Agency, 213 F.3d 663 (D.C. Cir. 2000), which addressed a challenge to the EPA’s NOx SIP call.

Third, the court erred by holding that the EPA lacked authority to interfere with SO2 allowances. The EPA asks for reconsideration of the court’s determination that in mandating the retirement of SO2 allowances under the acid rain program established by Title IV of the Act, CAIR interfered with a congressionally mandated program. The EPA contends that the Act allows for further regulation of SO2 pursuant to other Titles of the Act.

Fourth, the court erred by rejecting EPA’s approach to allocating NOx allowances. The EPA is asking the Court to reconsider its finding that CAIR’s approach to allocating initial state NOx allowances – in part based on the mix of fuels used by electrical generating facilities within a state – was based on impermissible considerations.

Certain Holdings Not Challenged by EPA

Three aspects of the original North Carolina decision are unchallenged, although they could be changed if rehearing is granted. These are: (i) the court’s ruling that EPA must consider the effect of upwind SO2 and NOx on interference with the ability of downwind states to maintain compliance with NAAQS; (ii) the 2015 final date for implementation of CAIR, which the court found arbitrary because downwind states were required to meet their NAAQS targets by 2010; and (iii) reconsideration of the inclusion of Minnesota within CAIR. The EPA argues that the case should be remanded so that CAIR can be appropriately revised, but asserts that the original rule should be restored in the interim because of the effect that the vacation of CAIR will have on health, the environment and the economy.

Rehearing Process

The great majority of petitions for panel rehearing and petitions for rehearing en banc are denied. Under the Federal Rules of Appellate Procedure, the opposing parties are not permitted to file a response to the petition unless it is requested by the court. The court does not normally grant rehearing without giving the parties who prevailed originally the opportunity to respond.

The Possibility of a Legislative Solution

While there is substantial bipartisan support in Congress for a legislative solution, especially one that will authorize the first round of CAIR-mandated emission reductions to go forward, EPA’s representatives are pessimistic that any such legislation will emerge in this session of Congress or in the next. Meanwhile the Clean Air Act’s deadline for health-based standards is less than two years in the future, so it is possible – even likely – that in the absence of CAIR, the states will impose their own emission limits on electrical generating units.