On Tuesday, April 29, 2014, the U.S. Supreme Court upheld the U.S. Environmental Protection Agency’s (“EPA”) Cross-State Air Pollution Rule (“CSAPR”). EPA v. EME Homer City Generation, L.P., No. 12-1182. In a 6-2 decision, the majority held that: (1) the Clean Air Act (“CAA”) does not require that states be given a second opportunity to file a state implementation plan (“SIP”) after EPA has quantified the state’s interstate pollution obligations under the Good Neighbor Provision of the CAA, and (2) that EPA’s cost-effective allocation of emissions reductions among upwind states is a permissible, workable, and equitable interpretation of the Good Neighbor Provision.i The decision will have a significant impact on utilities, electrical generators, coal companies, and other industries in upwind states, who will be subject to the emissions limitations imposed by the EPA. And there is more to come.
EPA issued CSAPR on July 6, 2011. As discussed in our previous Clients & Friends memoranda on CSAPR and the ensuing litigation, CSAPR requires significant reductions in emissions of sulfur dioxide (“SO2”) and nitrogen oxide (“NOx”) from power plants in 27 states in the eastern half of the U.S that contribute to “downwind” ozone or fine particle pollution in other states. On August 21, 2012, in a 2-1 decision, the U.S. Court of Appeals for the D.C. Circuit (“D.C. Circuit”) vacated the rule in its entirety, holding that EPA exceeded its statutory authority under the CAA 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 implement a SIP before implementing an EPA-designed Federal Implementation Plan (“FIP”). The D.C. Circuit instructed EPA to continue administering the Clean Air Interstate Rule (“CAIR”) pending EPA’s promulgation of a valid replacement. The Supreme Court granted certiorari to decide whether the D.C. Circuit accurately construed the EPA’s authority under the CAA.ii
The Supreme Court reversed the D.C. Circuit’s ruling, holding that EPA reasonably interpreted the CAA in adopting CSAPR. The CAA mandates SIP compliance with the Good Neighbor Provision, which requires SIPs to “contain adequate provisions…prohibiting…any source or other type of emissions activity within the State from emitting any air pollutant in amounts which will…contribute significantly to nonattainment in, or interfere with maintenance by, any other State with respect to any…national ambient air quality standards [“NAAQS”].” 42 U.S.C. § 7410(a)(2)(D)(i). Under CSAPR, EPA provided a two-pronged interpretation of the Good Neighbor Provision. It specified that an upwind State “contribute[s] significantly” to downwind nonattainment to the extent its exported pollution both: (1) produces one percent or more of a NAAQS in at least one downwind State and (2) can be eliminated cost-effectively, as determined by EPA.
The D.C. Circuit held that EPA had an implicit statutory duty to give upwind states a reasonable opportunity to allocate their emission budgets among in-state sources before EPA’s authority to issue FIPs could be triggered. The Court disagreed, noting that the CAA sets out a series of precise guidelines to which states and EPA must adhere with respect to the promulgation of SIPs and FIPs. If EPA determines a SIP to be inadequate, the unambiguous statutory language of the CAA requires EPA to replace it with a FIP within two years. The CAA does not require EPA to furnish upwind states with information about their good neighbor obligations before issuing a FIP. The Court ruled that the D.C. Circuit had departed from the plain text of the statute by reading in a non-existent statutory duty and by altering the schedule provided by Congress for SIPs and FIPs.
With respect to EPA's two-pronged interpretation of the Good Neighbor Provision, the Court observed that it routinely accords dispositive effect to an agency's reasonable interpretation of ambiguous statutory language. The CAA calls upon EPA to “account for the vagaries of the wind" in order to allocate among multiple contributing upwind states responsibility for a downwind state's excess air emissions. The Good Neighbor Provision does not provide a method of apportionment, and in keeping with Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, the Court read Congress's silence as a delegation of authority to EPA to select from among reasonable options. EPA considered both the magnitude of upwind states' contributions and the cost associated with eliminating them. The CAA does not require EPA to disregard costs and consider exclusively each upwind state's physically proportionate responsibility for each downwind air quality problem. The Court agreed with EPA that using cost "makes good sense" and is an “efficient and equitable solution” to the allocation problem. “Lacking a dispositive statutory instruction to guide it, EPA's decision…is a ‘reasonable' way of filling the ‘gap left open by Congress.'"
The decision will have a significant impact on utilities, electrical generators, coal companies, and other industries in upwind states, who will be subject to the emissions limitations imposed by the EPA-promulgated FIP. First, however, the D.C. Circuit will need to lift the current stay imposed on CSAPR, and EPA will need to promulgate rules to establish new compliance deadlines. Moreover, the Court remanded to the D.C. Circuit the question of whether EPA acted properly when it imposed FIPs on upwind states whose SIPs had previously been approved by EPA under CAIR. It remains to be seen whether the Court’s broad deference to EPA’s statutory interpretation in EME Homer will figure into the upcoming ruling in Utility Air Regulatory Group v. EPA.
For a full copy of the opinion, click here.