Federal courts moved on two significant cases regarding EPA’s regulation of ozone and interstate air pollution this week. In the first case, the U.S. Supreme Court held on Tuesday in EPA v. EME Homer City Generation, L.P., No. 12-1182 and American Lung Association v. EME Homer City Generation, L.P., No. 12-1183, that the U.S. Environmental Protection Agency (EPA) did not violate the Clean Air Act when it promulgated the Cross-State Air Pollution Rule (CSAPR) in 2011. In the second case, pending in the Northern District of California, the federal district court ordered EPA to decide whether to propose new nationwide ozone standards by December 1^st.

The Supreme Court’s ruling means that CSAPR, which was struck down by the Court of Appeals for the D.C. Circuit in 2012, can be used to limit air emissions from power plants located in 28 eastern states (including Wisconsin). The District Court’s ruling moves up EPA’s schedule for proposing new ozone standards, which could impose even more restrictions on the emissions of pollutants from major source of ozone.

CSAPR

CSAPR was promulgated by EPA in 2011 pursuant to the “good-neighbor” provision in the Clean Air Act, Section 110(a)(2)(D)(i)(I). CSAPR was designed to reduce trans-boundary air pollution of ozone and particulate matter from electric utility units that may inhibit a downwind state from obtaining or maintaining attainment with national ambient air quality standards.

The overall cost of CSAPR has been debated. Energy companies claim the rule will force costly improvements to power facilities (800 million dollars in 2014 alone) that will be passed on to consumers, increasing the cost of products and business operations. CSAPR is just one of many new federal regulations that will increase the cost of producing electricity in the near future, especially in coal-dependent states. However, EPA argues CSAPR will save money overall because the resulting reduction in air pollution is estimated to prevent over 30,000 premature deaths a year.

In 2012, upwind states, labor groups, energy companies, and other parties successfully challenged CSAPR before the D.C. Circuit Court of Appeals. The circuit court held that EPA denied states a full opportunity to set up their own cross-state pollution reduction plans (state implementation plans, or “SIPs”) and overstepped its authority in setting emission reduction levels for the states.

On Tuesday, the Supreme Court reversed the decision by the Court of Appeals for the D.C. Circuit and held that EPA acted reasonably when it promulgated the rule. More specifically, the Supreme Court held that:

1. The Clean Air Act does not require that states be given a second opportunity to file a SIP after EPA has quantified the state’s interstate pollution obligations, and

2. EPA can consider the cost of controls when apportioning responsibility for mitigating upwind state’s contribution to a downwind state’s air quality problems.

EPA will likely undertake further rulemaking in response to the Supreme Court’s ruling. For example, several compliance deadlines in the original CSAPR rule have passed during the appellate process.

Once EPA begins to implement the rule, facilities in the impacted states (which include Wisconsin) will be subject to stricter emissions standards for sulfur dioxide (SO₂) and nitrous oxide (NO_X). In addition, Wisconsin and a handful of other states will be subject to summertime ozone limits for NO_X.

As a general matter, Wisconsin’s utilities are already installing the emission control equipment and making other adjustments needed to achieve compliance with CSAPR. Non-utility emission sources will not be directly impacted by the rule, except through the utility rate increases necessary to pay for these utility modifications. Many anticipate that EPA will now use the CSAPR rule template to develop future emission reduction requirements for non-utility boilers located in Wisconsin and other states east of the Mississippi River.

The court’s upholding of CSAPR will also trigger renewed attention to whether Wisconsin should be subject to the NO_X SIP Call transport rule. A challenge to Wisconsin’s regional haze program had also been stayed by the Seventh Circuit Court of Appeals pending the Supreme Court’s decision on CSAPR. That litigation will likely now move forward.

Ozone Standards

The Clean Air Act requires EPA to set national ambient air quality standards (NAAQS) for ozone and five other pollutants considered harmful to the public health and environment. The law also requires EPA to review the standards every five years to ensure that they adequately provide these protections, and to update those standards as necessary.

EPA had developed a proposal on new ozone NAAQS that would have tightened the standards nationwide, but President Obama directed EPA to withdraw the proposal shortly before the last presidential election. Sierra Club, along with a number of other environmental groups, sued EPA to commence the periodic review required under the Clean Air Act, and update the standards as necessary. (This statutory deadline passed on March 12, 2013.) On Tuesday, EPA failed to convince the U.S. District Judge Yvonne Gonzalez Rogers (Northern District of California) that it couldn’t meet the deadlines sought by the environmentalists. The judge ordered EPA to issue its proposed decision on revising the ozone NAAQS by December 1, 2014, and finalize the rule by October 1, 2015.

We will continue to monitor EPA’s implementation of the CSAPR rule, the development of the revised ozone standard, and any changes implementation of the rules will bring to regulated facilities.