On December 10, 2013, the Supreme Court of the United States heard oral arguments in two consolidated cases, EPA v. EME Homer City Generation, L.P., and American Lung Association v. EME Homer City Generation, L.P., Case Nos. 12-1182 and 12-1183. The cases concern challenges brought by certain states, municipalities, and coal and power companies to EPA's Transport Rule (76 Fed. Reg. 48,208). EPA issued the Transport Rule to implement the "good neighbor" provision of the Clean Air Act (42 U.S.C. § 7410(a)(2)(D)(i)(I)). The Court's ruling in these cases, expected in June 2014, will have major implications for power producers in 28 upwind states, including Indiana and Minnesota, which are required by the Transport Rule to limit emissions that impact air quality in downwind states.

Background

Under the Clean Air Act's good neighbor provision, upwind states must prevent sources within their borders from emitting air pollutants in amounts that will "contribute significantly" to nonattainment with federal air quality standards in downwind states. The Transport Rule attempts to implement the good neighbor provision by limiting emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx) from power plants.

In 2012, the Court of Appeals for the D.C. Circuit vacated the Transport Rule, on the grounds that it exceeded EPA's statutory authority. (See 696 F.3d 7.) The court reasoned that the Transport Rule potentially required upwind states to reduce emissions by more than their own "significant contributions" to downwind states' nonattainment of federal air quality standards. The court further reasoned that the Transport Rule contravened the Clean Air Act's regime of cooperative federalism by imposing Federal Implementation Plans (FIPs) on the upwind states before giving them an initial opportunity to reduce emissions through State Implementation Plans (SIPs). According to the court, the Transport Rule violated a basic division of labor in the Clean Air Act, under which the federal government sets air quality standards, but states have primary responsibility for devising the plans to achieve those standards.

Issues and Proceedings Before the Supreme Court

In 2013, following EPA's petition for certiorari, the Supreme Court agreed to hear the case. There are principally three issues before the Court:

  1. Did the court of appeals lack jurisdiction to consider the challenges to the Transport Rule?

EPA argues that the court lacked jurisdiction because, in the agency's view, the challenges are nothing more than an untimely collateral attack on EPA's prior decisions regarding the upwind states' SIPs. For each of the upwind states, EPA had previously either disapproved the good neighbor provisions of the state's SIP, or found that the state had failed altogether to submit a SIP with good neighbor provisions. No party challenged those disapprovals and findings by EPA within the 60-day statutory period, and the Clean Air Act requires EPA to issue a FIP for a state after either disapproving the state's SIP or finding that none has been submitted.

The upwind states argue that they are not challenging EPA's prior SIP disapprovals and findings, but rather only the type of FIPs that EPA issued under the Transport Rule. According to the upwind states, EPA could issue a Transport Rule FIP for a state only after first quantifying that state's "significant contribution" to downwind nonattainment, and then allowing the state a reasonable opportunity to eliminate its significant contribution through a SIP.

  1. Was EPA required to quantify each state's "significant contribution" to downwind pollution before issuing the Transport Rule?

The upwind states argue that EPA was required by the Clean Air Act's context and structure to quantify each state's "significant contribution" before issuing the Transport Rule. The upwind states note that the Clean Air Act employs a regime of cooperative federalism, and allows each state an opportunity to avoid a FIP by submitting a SIP that complies with applicable requirements. The upwind states argue that the Transport Rule renders that opportunity meaningless because EPA left states unaware of how the agency would define their "significant contribution" until the moment the Agency issued the Transport Rule FIPs.

EPA argues that nothing in the language of the Clean Air Act requires the agency to quantify each state's "significant contribution" to downwind pollution. EPA further argues that a judicially imposed requirement that the agency quantify each state's significant contribution, and then allow time for the state to develop a SIP to eliminate that contribution, instead of addressing the contribution immediately through a Transport Rule FIP, would be inconsistent with the Clean Air Act's goal of achieving downwind attainment in a timely manner.

  1. Was EPA's "significant contribution" analysis flawed?

Power companies and industry groups argue that EPA's "significant contribution" analysis exceeded the agency's authority under the statute. The Transport Rule effectively requires all emissions reductions that are possible through the installation of pollution controls available at or below certain cost levels. The power companies and industry groups argue that the Transport Rule's approach impermissibly: (a) forces emissions from upwind states down to levels that EPA itself deems insignificant; (b) requires upwind states to eliminate emissions that never leave the state; and (c) fails to protect against "over-control" (i.e., higher pollutant reductions in downwind states than is necessary to achieve attainment).

EPA notes that the term "contribute significantly" is not defined in the Clean Air Act; the agency contends that its construction of this undefined, ambiguous term is reasonable and entitled to judicial deference because: (a) the term "significance" does not mean that significance should be measured only in terms of health impact; and (b) the Clean Air Act does not expressly preclude the agency from considering the cost of controls as part of its significant-contribution analysis.

Finally, EPA argues that the geospatial, meteorological, and other scientific complexities of interstate air pollution make it impossible to: (a) avoid driving some emissions down below "significance" levels; (b) calculate each upwind state's exact contribution to downwind nonattainment; and (c) ensure that every downwind area stops precisely at the attainment level and experiences no further pollution reduction. EPA argues that it made a concerted effort to consider and account for the complexities of interstate air pollution and tailor upwind controls to downwind nonattainment, and that its "significant contribution" analysis should accordingly be upheld as reasonable and lawful.

At oral argument, a majority of the justices expressed at least some support for EPA's position and the Transport Rule. Of the eight justices participating in oral argument – Justice Alito did not participate and appears to have recused himself from the case – only Justice Scalia expressed strong skepticism of EPA's position. Thus, while nothing is certain, the justices' questions at oral argument suggest that the Court may reverse the court of appeals and uphold the Transport Rule.

Implications for Upwind Power Producers and Other Regulated Parties

If, in fact, the Supreme Court does reverse the court of appeals, then coal- and natural gas-fired power plants in Indiana, Minnesota, and other upwind states could be subject immediately to the limitations in Transport Rule FIPs on SO2 and NOx. Upwind states would have an opportunity to propose SIPs to supplant the Transport Rule FIPs. However, developing those SIPs, and obtaining EPA approval for them, could take months or years.

If, on the other hand, the Supreme Court affirms the court of appeals, then Indiana and other states will have an opportunity to propose SIPs before EPA can issue FIPs implementing good neighbor limitations on SO2 and NOx. In addition, if the court of appeals' analysis is upheld, EPA will have to recalculate each upwind state's "significant contribution" to downwind nonattainment.

Beyond the immediate implications for upwind power producers, this case potentially impacts two broader matters as well: 

  • What are the roles of the federal and state governments generally under the Clean Air Act and other statues (e.g., RCRA and the Clean Water Act) that employ regimes of cooperative federalism?
  • Will the Court reconsider (expand or limit) the deference agencies receive in construing undefined statutory terms such as "significantly contribute"? To what extent, for example, can EPA and other agencies consider implementation costs in the absence of express direction from Congress?

Depending on how the Court decides to address these matters, if at all, the decision in EME Homer could significantly impact federal agencies' role and authority in implementing environmental laws and other federal statutes going forward.