Regulation of air emissions from power plants is in a state of flux in 2014, with particular uncertainty as to how regulators can and will tackle cross-state air pollution and the degree to which new and existing power plants will have to curb emissions of greenhouse gases. The US Environmental Protection Agency is scheduled to propose limits on greenhouse gas emissions for existing power plants by June.

Cross-State Air Pollution

The US Supreme Court heard arguments in December about rules the Environmental Protection Agency issued to hold upwind states responsible for cross-border air pollution that harms downwind states. A US appeals court had rejected the rules. The “cross-state air pollution rule,” or “CSAPR,” was originally scheduled to take effect on January 1, 2012, but implementation has been delayed pending resolution of pending legal challenges.

The US appeals court said in a case called EME Homer City Generation v. EPA in 2012 that EPA had gone beyond its authority under the Clean Air Act in the way it apportioned the required emissions reductions among affected upwind states. EPA proposed in CSAPR to allow the market to decide where pollution should be reduced by setting a limit on total pollution and allowing credits or allowances to be traded.  The court suggested that the agency should have appor- tioned emissions reductions by state based on the amount of pollution each upwind state causes. The appeals court also overturned CSAPR on the ground that EPA imposed a federal solution, rather than letting the states amend their state implementation plans in order to comply. The appeals court ordered EPA to continue administering the “clean air inter- state rule” in the meantime, CSAPR’s less-stringent regulatory predecessor, until the appeal to the US Supreme Court is decided in the government’s favor or the agency promulgates a valid replacement.

Downwind states complain that upwind states can be in compliance with air quality requirements within their borders while sending some of their air pollution to neighboring states, thereby preventing the neighboring states from meeting regulatory obligations. The downwind states who want the issue addressed are largely in the Northeast and the mid-Atlantic, with the upwind states located mainly in the Midwest and the South. To decide the case, the justices will have to determine the meaning of a good neighbor clause in the Clean Air Act that prohibits pollution sources in  a particular state from emitting pollution in “amounts that contribute significantly to nonattainment” in another state.

A decision by the US Supreme Court is expected by June, with the possibility of a 4-to-4 tie because Justice Samuel A. Alito, Jr. disqualified himself. A tie would leave rejection of CSAPR by the lower court in place.

Contingency Planning

The Environmental Protection Agency is working on a new cross-state transport policy that it could implement if the Supreme Court rules against it, possibly as soon as late 2014.

The fallback policy is expected to define each state’s regulated contributions to downwind nonattainment on a proportionality basis, rather than through a straight market mechanism designed to capture the cheapest reductions. EPA would probably also allow states to revise their state implementation plans to reduce their shares of cross-state pollution rather than impose a federal plan.

Even if EPA wins and CSAPR is upheld, adjustments to the CSAPR implementation schedule will be needed because some compliance deadlines already passed.

Downwind States Take Action

In the meantime, some downwind states have taken steps under the Clean Air Act to force EPA to address cross-state transport  of  pollution.

In December, eight downwind states petitioned EPA under section 176A of the Clean Air Act to add nine upwind states-Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, Virginia and West Virginia - to an “ozone transport region.” If added, this would require the upwind states  to amend their state implementation plans to step up vehicle inspection and maintenance programs for major metropolitan areas and implement certain volatile organic compound and NOx emission control technology requirements for  major factories and power plants.

EPA may add a state to the transport region if air pollutants from it contribute significantly to failure by a downwind state to comply with a national ambient air quality standard. The petition says that cross-state pollution from the upwind states contributes significantly to violations of ozone standards in the ozone transport region as a whole ― the downwind states are already included in the transport region ― and asks EPA to require the upwind states to take steps to reduce their emissions.

EPA must act on the petition within 18 months, but the agency has broad discretion to approve or disapprove the petition. Whether EPA decides to expand the transport region may depend in part on whether CSAPR survives review by the Supreme Court.

In addition to the effort under section 176A, some states and cities have begun taking a more targeted approach to cross-state pollution by filing petitions under section 126 of the Clean Air Act. These petitions ask EPA to find that a particular stationary pollution source or group of such sources emits in violation of the good neighbor provision of the Clean Air Act. If EPA so finds, then the source has just three months to reduce its emissions or shut down.

Greenhouse Gas

The US Supreme Court will also hear arguments in a separate dispute over whether the fact that EPA is required to regulate greenhouse gas emissions from motor vehicles also obligates the agency to regulate such emissions from stationary sources like power plants.

If EPA loses, it could be forced to curb or withdraw current and planned rules imposing limits on greenhouse gas emissions from new and existing power plants and other industry sources, especially coal-fired power plants.

The lawsuit claims that EPA has no authority under the Clean Air Act to require major stationary sources to obtain permits for their greenhouse gas emissions. The Supreme Court let stand earlier a finding by EPA that greenhouse gases like carbon are pollutants that pose a potential threat to human health and the environment and, thus, the agency has the power to act. However, the latest case will test whether the agency only has authority to regulate carbon emissions from motor vehicles or can regulate them more broadly.