A little over a year after upholding the U.S. Environmental Protection Agency's endangerment finding and finding that states and regulated industries lacked standing to challenge the Tailoring Rule, see Coalition for Responsible Regulation, Inc. v. EPA, 684 F.3d 102 (D.C. Cir. 2012), the U.S. Court of Appeals for the District of Columbia Circuit struck down one part of EPA's plan to regulate the emission of greenhouse gases. On July 12, in a 2–1 decision, the D.C. Circuit held that EPA's so-called Deferral Rule, which postponed regulation of biogenic carbon dioxide sources for three years, was arbitrary and capricious. Center for Biological Diversity, et al. v. EPA, Nos. 11-1101, 11-1285, 11-1328, 11-1336.

In July 2011, EPA promulgated the Deferral Rule to temporarily stay the application of the federal Clean Air Act's Prevention of Significant Deterioration of Air Quality ("PSD") and Title V permitting programs to major sources of biogenic carbon dioxide emissions. See 76 Fed. Reg. 43,490 (July 20, 2011). EPA reasoned that the complex and uncertain net atmospheric impact of biogenic carbon emissions, i.e., those "directly resulting from the combustion or decomposition of biologically-based [sic] materials other than fossil fuels and mineral sources of carbon," warranted further consideration by EPA over a three-year deferral period. During the deferral period, biogenic carbon dioxide sources that had the potential to emit over the applicable thresholds would be exempt from PSD and Title V permitting obligations.

Several environmental organizations petitioned the D.C. Circuit for review, arguing that the Deferral Rule violated the plain language of the Clean Air Act. EPA invoked three principles of administrative law in support of its decision: the de minimis, one-step-at-a-time, and administrative necessity doctrines.

Writing for the majority, Judge Tatel rejected each of the three principles proffered for the Deferral Rule. EPA conceded that the de minimis doctrine could be invoked only to establish permanent exemptions from regulation. Because the Deferral Rule was a temporary measure, it could not be sustained under the de minimis doctrine.

The appellate court further noted that to invoke the one-step-at-a-time doctrine—which allows agencies to promulgate regulations piecemeal—the agency must first explain what "full compliance" with the "statutory mandate" would entail. In other words, EPA was required to clarify what the Deferral Rule is one step toward, which the majority concluded that EPA had failed to do.

The D.C. Circuit lastly rejected EPA's invocation of the administrative necessity doctrine, which "permits an agency to 'avoid implementing a statute … by showing that attainment of the statutory objectives is impossible.'" The agency's application of the doctrine was rejected because EPA had not adopted the narrowest possible regulatory exception. The court noted that EPA had rejected, without explanation, a narrower option that would have limited PSD and Title V permitting obligations to major biogenic carbon dioxide sources that failed voluntarily "to take some steps to reduce their emissions."

In dissent, Judge Henderson opined that EPA had correctly used the one-step-at-a-time doctrine to defer regulating biogenic carbon dioxide emissions. According to Judge Henderson, EPA had reasonably attempted to balance its duty to regulate greenhouse gases with the reality that it, and its state counterparts, have limited resources and experience in this area.

Judge Henderson also suggested that prudential ripeness should have prevented the court of appeals from reaching the merits of the case. Prudential ripeness precludes judicial review where, by staying its hand temporarily, the court is never required to address the dispute. Not passing on the validity of the Deferral Rule would, according to Judge Henderson, give petitioners the opportunity to convince EPA to promulgate a rule more to their liking.

EPA has not yet indicated whether it will seek panel rehearing or rehearing en banc.