On July 28, 2015, the D.C. Circuit held that emissions limits imposed by the Environmental Protection Agency (EPA) on 13 states under its Cross-State Air Pollution Rule were unlawful. EPA “overstepped its authority,” the three-judge panel unanimously held, by requiring states to cut emissions more than necessary to ensure other states meet air-quality standards.
The Clean Air Act’s “Good Neighbor” provision (42 U.S.C. § 7410(a)(2)(D)(i)) limits States’ emission of pollutants that contribute to substandard air quality in other states. The Act prohibits upwind emissions that cross state lines and “contribute significantly” to a downwind state’s failure to attain or maintain national air-quality standards.
Invoking this authority, EPA in 2011 finalized the Cross-State Air Pollution Rule (the Rule) and imposed emission “budgets” on 27 “upwind” states whose emission of SO2 or NOX significantly contributed, in EPA’s view, to particulate matter and ozone formation in “downwind” states. Affected States, utilities and labor groups appealed, contending that EPA’s proposed emissions reductions exceeded EPA’s authority. The D.C. Circuit initially stayed the Rule prior to its implementation. Then, in 2012, the court held in a 2-1 decision that Congress authorized EPA to regulate only in proportion to each upwind state’s contribution to downwind air-quality problems and vacated the Rule in its entirety. In 2013, the Supreme Court reversed this aspect of the D.C. Circuit’s decision and held in a 6-2 decision that EPA did not need to require reduction obligations in “proportion” to each upwind state’s contribution to downwind non-attainment. But it agreed with the D.C. Circuit that EPA may not “overcontrol” upwind States and require reductions greater than necessary for downwind states to achieve air-quality standards. The Supreme Court remanded for the D.C. Circuit to consider individual States’ “as-applied” challenges to overcontrol imposed by EPA’s State-specific emission budgets.
On remand, the D.C. Circuit held that, with regard to 13 States, EPA had in fact regulated emissions beyond the level authorized by the statute and justified by downwind air quality needs. The Court rejected other arguments, directed at the air-quality models EPA relied on and the procedures it used to impose state budgets, that would have invalidated the Rule more broadly. Rather than vacating the Rule, the court remanded to EPA with instructions to promptly correct its errors.
Below are five highlights from the D.C. Circuit’s decision.
EPA’s Good Neighbor Authority Is Strictly Limited to State-Specific Emissions.Judge Kavanaugh’s unanimous opinion soundly rejected EPA’s “Good Neighbor” authority to regulate state emissions even when not strictly necessary to attaining adequate air quality elsewhere. Rather, the Clean Air Act requires EPA’s rulemaking to focus on specific upwind-state contributions to specific downwind-state non-attainment. EPA contended, first, that some degree of overcontrol was appropriate for regulated upwind states which otherwise could “free-ride” off the positive effects of emission reductions achieved by other states. This approach, the D.C. Circuit noted, contradicted EPA’s limited grant of authority under the Clean Air Act, which extended only to reductions necessary to achieve downwind attainment. Second, EPA cannot impose “uniform” reduction thresholds on States where such uniform reductions over-control some States. The Supreme Court’s call for State-specific as-applied challenges, the D.C. Circuit held, “necessarily mean[t] a lack of uniformity” in EPA’s regulation of different States when some States would be over-controlled. Thus EPA may not, for example, require every Texas source to adopt emissions controls costing $500/ton of pollutant when EPA’s own data show that controls of only $100/ton would eliminate any significant Texas contribution to downwind non-attainment.
EPA Has Limited Authority to “Correct” State Implementation Plans—at Least in This Instance. Under the Clean Air Act’s system of cooperative federal-state regulation, States have primary responsibility for ensuring adequate air quality. If the States fail to do so, EPA may step in to ensure federal standards are met. Here, EPA invoked its authority to “correct” State implementation plans EPA previously approved under a predecessor rule without first providing further process to the States to revise their implementation plans for satisfying the Good Neighbor provision. The D.C. Circuit held this approach was acceptable in this context because the predecessor rule was struck down in a previous D.C. Circuit decision (North Carolina v. EPA). Given “the unusual circumstances here, in which a federal court says that EPA lacked statutory authority at the time to approve a [state plan],” EPA was justified in using its “correction” authority. But in general, the Court clarified, EPA must still give States the first opportunity to correct any inadequacies in their emission plans.
Deference for EPA’s Modeling. The Court further afforded deference to EPA’s use of models. Arguments that EPA failed to account for real-world data that contradicted its model’s air-quality projections did not persuade the D.C. Circuit that the Rule was inherently flawed. Neither did discrepancies identified by the Rule’s challengers between the model’s predictions and actual results. The Court observed that possible discrepancies between facts and projections are inherent in the use of predictive models. The D.C. Circuit reiterated that it will reject EPA’s projections when “the model bears no rational relationship to the characteristics of the data to which it is applied,” a standard it did not find that petitioners met in this case.
Requiring Strict Adherence to Supreme Court Direction. The D.C. Circuit’s opinion repeatedly concluded that the Supreme Court’s interpretation of the Good Neighbor provision in this case precluded EPA’s defenses of its Rule in the D.C. Circuit. It even chided EPA for resisting the availability of as-applied challenges by “saying something to this Court that is in tension with, if not in contravention of, what the Deputy Solicitor General told the Supreme Court.” In mandating that EPA adhere to the Supreme Court’s “crystalline” holding in EME Homer, the D.C. Circuit’s opinion echoed other recent Supreme Court decisions affording less deference to EPA and other agencies on rulemakings of extraordinary economic and political significance. Such agency action may receive greater scrutiny in future judicial review before the D.C. Circuit.
Remand for “Prompt” Action. The court allowed the Rule to remain in place while EPA takes action to bring its budgets in compliance with this decision. Noting the prospect of significant disruption to emission-trading markets if portions of the Rule were immediately invalidated, the court remanded the Rule without vacating it. But, it did so with instructions for EPA not to drag its feet. The Court observed that it “expect[ed] and urge[d] EPA to move promptly on remand,” or otherwise petitioners “may promptly bring suit” for EPA’s failure to perform.