In a landmark ruling, the U.S. Court of Appeals for District of Columbia struck down U.S. EPA's Cross-State Air Pollution Rule (CSAPR) on Aug. 21, 2012.  As proposed, CSAPR would have required emission reductions through installation of additional emission controls at power plants and an interstate "cap and trade" system for 28 eastern states.  The rule was ostensibly designed to reduce emissions from power plants in up-wind states that potentially impact the ambient air standard attainment status of down-wind states.

In EME Homer City Generation L.P. v. EPA , various states and industry petitioners challenged the CSAPR rule on grounds that EPA had exceeded its Clean Air Act authority in promulgating the rule. Two of the three judges on the panel sided with petitioners, holding that EPA's rule exceeded its statutory authority and violated the Clean Air Act's structure of "cooperative federalism" in which the federal government sets air quality standards but allows the states to implement those standards. 

First, the D.C. Circuit rejected EPA's claim that CSAPR's stringent standards are authorized by the Clean Air Act's Section 110(a)(2)(D), often referred to as the Clean Air Act's "good neighbor provision."  The Court of Appeals found that the "good neighbor provision" of the Clean Air Act was not a "blank check" for EPA to regulate interstate pollution on a regional basis.  Slip Op. at p. 24.  Instead, the good neighbor provision limits EPA's authority for regulating pollution from an upwind state only if it that caused "significant" contribution to a down-wind state's nonattainment status.  Id.  Even then, EPA could only require reductions relative to the specific upwind state's contribution to the downwind state's nonattainment status. EPA may not require any upwind State to 'share the burden of reducing other upwind states' emissions.'"  Id. at 25 quoting North Carolina v. EPA, 531 F.3d 896, 921 (D.C. 2008).

Finding that EPA's interpretation stretched "far beyond" the statute, the court also held that EPA's interpretation was not supported by the statutory context.  Regarding what it called an "ancillary provision" the Court explained:

It seems inconceivable that Congress buried in Section 110(a)(2)(D)(i)(I) - the good neighbor provision - an open-ended authorization for EPA to effectively force every power plant in the upwind States to install every emissions control technology EPA deems "cost effective." Such a reading would transform the narrow good neighbor provision into a "broad and unusual authority" that would overtake other core provisions of the Act. Gonzales v. Oregon, 546 U.S. 243, 267 (2006). We "are confident that Congress could not have intended to delegate a decision of such economic and political significance to an agency in so cryptic a fashion." FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 160 (2000).

Slip Op. p. 40. 

Second, the Court of Appeals found that CSAPR's federal-first regulation regime violated the Clean Air Act's "cooperative federalism" structure, which allows states to implement ambient air quality standards through "state implementation plans" (SIPs). The Court explained that CSAPR's move to implement new standards directly through "federal implementation plans" (FIPs) violated the Clean Air Act requirement that states first be given an opportunity to meet standards through SIPs. "The FIP-first approach is incompatible with the basic text and structure of the Clean Air Act."  Slip. Op. at 51.

Based on this rationale, the Court vacated CSAPR, but left in effect the U.S. EPA's previous attempt at cross-state emission control, the Clean Air Interstate Rule (CAIR), until EPA promulgates a valid replacement. 

The Court's ruling is expected to have a widespread effect on several regulatory regimes.  Since CSAPR's first planned effective date of Jan. 1, 2012 (the rule was ultimately stayed pending the outcome of the EME Homer City litigation), U.S. EPA has linked compliance with other Clean Air Act programs with CSAPR.  For example, on June 7, 2012, U.S. EPA finalized a rule that deems states that have satisfied CSAPR's requirements to have also satisfied the "Best Available Retrofit Technology" (BART) standard found in the Clean Air Act's "Regional Haze" requirements. Region Haze requirements are designed to protect air quality and visibility at national landmarks. 

Moreover, U.S. EPA recently redesignated several areas (including those near Chicago and St. Louis) as attainment with the 1997 Ozone National Ambient Air Quality Standard "NAAQS) based on emission reductions the Agency anticipated from implementation of CSAPR.

In light of the Court's decision in EME Homer City, states and emission sources alike are scrambling to understand the implications of CSAPR's vacatur and how the change may affect attainment status with NAAQS, Regional Haze compliance, and attendant air permitting implications. 

It is unclear at this point whether U.S. EPA will seek to appeal the decision to the U.S. Supreme Court.