On August 21, 2012, the United States Court of Appeals for the District of Columbia issued its Opinion and Order in the appeal of the Cross State Air Pollution Rule (CSAPR). The Court vacated CSAPR for two independent legal reasons and has remanded the rule back to the Environmental Protection Agency (EPA) for further consideration. 

This decision reflects the third attempt by EPA to include the state of Wisconsin in an interstate pollution transport rule. In each instance, the United States Court of Appeals for the District of Columbia has held that EPA’s attempts were illegal. 

It is too early to predict EPA’s response to the CSAPR vacature. However, it is almost certain that any regulatory response will take years to develop and therefore is not likely to impose new requirements on Wisconsin sources in the short term. The court’s decision seems to seriously undermine EPA’s approach for addressing interstate transport which may require EPA to make a significant policy shift in its regulatory approach to addressing this issue. The court also reaffirmed the primary role of states in establishing Clean Air Act policy within their respective jurisdictions and any EPA response must provide states with an opportunity to exercise that authority. In the interim, the previously vacated Clean Air Interstate Rule (CAIR) remains in effect, for now, by a standing Court order. 

Background

The Clean Air Act establishes a “cooperative federalism” based system for regulating air pollution amongst the states. Under this approach, EPA sets ambient air quality standards for pollutants. Each state is then given the principal responsibility to define the emission standards and other regulations that will be enforced against air pollution sources within that state’s borders. EPA will approve a state implementation plan (SIP) if it is shown to allow air quality in the state to meet federal ambient air quality standards.

Section 126 of the Clean Air Act also includes a “good neighbor” provision to address interstate pollution transport. Under this provision, an upwind state must control emissions within its borders to avoid pollution traveling across its borders and “contributing significantly” to a downwind state’s non-attainment with federal ambient air standards.

In 1998, EPA promulgated its first interstate transport rule known as the “NOx SIP Call”.  Wisconsin was initially included in the NOx SIP Call, which was challenged by a coalition of industrial and utility interests. The US Court of Appeals for the District of Columbia largely upheld the NOx SIP Call. However, the court vacated Wisconsin’s inclusion in the program finding that EPA had failed to properly establish that emissions from sources in Wisconsin “contribute significantly” to a downwind state’s non-attainment with ambient air quality standards. Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000).

In 2005, EPA promulgated a more restrictive interstate transport rule known as the Clean Air Interstate Rule (CAIR) which built on the NOx SIP Call. CAIR created a cap and trade program regulating the SO2 and NOxemissions from power plants in 28 eastern states.  Wisconsin was included in CAIR. CAIR was subject to numerous legal challenges by a diverse group of interests and the US Court of Appeals for the District of Columbia held that CAIR exceeded EPA’s authority. North Carolina v. EPA, 531 F.3d 896 (D.C.Cir. 2008). The Court vacated CAIR and remanded the rule back to EPA for further development. At the request of ENGOs, the EPA and many utilities, the Court agreed to allow EPA to continue enforcing CAIR while the agency established a new interstate transport replacement rule.

In August 2011, EPA promulgated its CAIR replacement rule known as CSAPR (a/k/a the “Transport Rule”). CSAPR created an elaborate SO2 and NOx emission trading program that applied to power plants in 28 states, including Wisconsin, that are generally east of the Mississippi. CSAPR was also challenged by a diverse coalition of industry, state and utility interests, including the State of Wisconsin, several Wisconsin utilities and five Wisconsin industrial/manufacturing trade associations.  Michael Best represented several litigants in that appeal. On August 21, 2012, the US Court of Appeals for the District of Columbia vacated CSAPR.

Court’s Holding Vacating CSAPR

The court vacated CSAPR and held that EPA violated the Clean Air Act in two respects.

First, the Clean Air Act only authorizes EPA to require upwind states to limit those emissions that “significantly contribute” to a non-attainment problem in a downwind state. The Court held that under CSAPR, EPA was improperly attempting to require upwind states to reduce their emissions by more than this “significant contribution” threshold.

Second, as mentioned above, the “cooperative federalism” aspects of the Clean Air Act afford each state the initial opportunity to regulate those emissions within their borders that are deemed to “contribute significantly” to downwind non-attainment in another state. However, under CSAPR, EPA did not follow this approach.  EPA made findings of significant downwind contribution for groups of upwind states and then immediately imposed emission reduction obligations on those states. Importantly, the Court held that EPA did not provide upwind states with an opportunity to develop their own emission reduction programs to mitigate their interstate transport of pollution. According to the Court, EPA must allow each state the opportunity to first develop SIPs in response to a finding of interstate transport.

The court went out of its way to explain that it was not interpreting or providing any commentary on the wisdom or policy merits of CSAPR. Rather, the Court was simply looking at EPA’s authority under the Clean Air Act as defined and limited by Congress.

Practical Impacts of Decision and What’s Might Be Next

EPA will need time to digest the decision and chart its path for crafting a replacement rule for CSAPR (and CAIR for that matter). This will take time. In the interim, it is unclear how long the D.C. Circuit will extend the effectiveness of CAIR while EPA crafts a permanent replacement rule. 

In the absence of a permanent, comprehensive federal interstate trading program, individual states are free to file Section 126 petitions to address interstate pollution transport.  These petitions are filed with EPA by a downwind state alleging that individual stationary sources located in upwind states are causing a significant contribution to non-attainment areas within their borders. States in the northeastern United States have been filing these petitions and have stated their intent to aggressively pursue more of them with or without CSAPR. It would appear that the vacature of CSAPR could result in an increase in these Section 126 filings. Thus far, no state has formerly alleged that Wisconsin emission sources are significantly contributing to downwind non-attainment within their jurisdictions.

On remand, EPA may chose to abandon its preferred regional “cap and trade” approach to interstate pollution which underlies the NOx SIP Call, the vacated CAIR and the vacated CSAPR.  Instead, EPA could pursue the more traditional “SIP Call” process as defined by Section 110 of the Clean Air Act.   This process generally requires EPA to make state-by-state findings of significant contribution to downwind non-attainment areas.  EPA then issues a finding that each state’s SIP is deficient for failing to mitigate interstate pollution transport and requests that each state modify their SIP to address these deficiencies.  A downside of this approach is the time required to complete the initial state-by-state contribution findings and allow each state to develop a SIP. 

Another impact of the Court’s decision relates to EPA’s regional haze program and its requirement for certain stationary sources to employ best available retrofit technology (BART) to mitigate visibility impacts.  In a June 2012 rule, EPA allowed states and sources to rely upon CSAPR compliance for meeting their obligations under EPA’s regional haze program. With the vacature of CSAPR, it is unclear how these sources will meet their regional haze obligations going forward.  It is possible that such sources will need to develop source specific BART emission limitations.

Finally, many states have relied upon CSAPR emission reductions for developing their SIP strategies for meeting ambient air quality standards. Without a set of permanent, enforceable CSAPR (or CAIR) emission reduction obligations, it is unclear whether these SIP plans will be deemed valid and sufficient for achieving compliance with ambient air standards.

Michael Best represented a coalition of five trade associations in the CSAPR appeal.