The decades-long efforts of the Environmental Protection Agency to regulate cross-state air pollution under the so called "Good Neighbor Provision" of the Clean Air Act took another turn yesterday when the United States Court of Appeals for the D.C. Circuit vacated the Cross-State Air Pollution Rule ("CSAPR").¹ In a two-to-one decision, the Court remanded the proceeding back to EPA for development of replacement and left the 2005 Clean Air Interstate Rule (which had itself been remanded without being vacated in 2008) in place pending a revision to the rule.

The Cross-State Air Pollution Rule was promulgated in August 2011 by EPA to implement the Good Neighbor Provision of the Clean Air Act and to respond to the D.C. Circuit's remand of the Clean Air Interstate Rule. The Good Neighbor Provision requires that states, as part of their plans to ensure that air quality within their borders remains below promulgated air quality standards, ensure that emissions from the state will not "contribute significantly to nonattainment [of air quality standards] in any other state" 42 U.S.C. 7401(a)(2)(D). The D.C. Circuit described this colloquially as follows: the good neighbor provision requires upwind states to bear responsibility for their fair share of the mess in downwind States.²

Under CSAPR, EPA identified 28 states whose emissions were contributing to the non-attainment of air quality standards in other states. The rule limits emissions of sulfur dioxide (SO2) and nitrogen oxides (NOX) from those states by establishing allowances for sources within the state. CSAPR was challenged by numerous states, local governments, industry groups, and labor organizations. The D.C. Circuit vacated the rule for two broad reasons. First, it found that the nature of the emission reductions mandated by the rule exceeded EPA's authority in the Good Neighbor Provision. Second, the Court found that EPA overstepped its bounds by establishing source-specific allowances without first affording the affected states an opportunity to do so.3

The key finding in the Court's opinion was that the proscribed emissions reductions in the upwind states exceeded EPA's statutory authority under the Good Neighbor Provision. First, the Court found that the reductions called for by EPA exceeded the amount allowed by statute because EPA ignored its own significance threshold. In other words, even though EPA used a numerical threshold to determine whether emissions from an upwind state represented a significant contribution to a downwind state's nonattainment, CSAPR required states to reduce its emissions contributions to the downwind state to below that threshold. The Court found this exceeded EPA's authority under the Good Neighbor Provision.⁴

Second, in determining allowances allocated to each upwind state, EPA failed to account for the relative effect of emissions from other states. According to the Court, this led to a situation where upwind states were forced to bear the burden of other upwind states in a way that was not proportional to the size of their contribution to the nonattainment of air quality standards in the downwind states and violated the statute.⁵ Finally, the Court found that the allocation method used by EPA failed to ensure that the aggregated reductions from upwind states would not result in unnecessary "over-control" in the downwind states. Such over-control (reduction in pollution to well below air quality standards) was not authorized by the Good Neighbor Provision.⁶

The Court also found error in the method through which EPA implemented the CSAPR. The Good Neighbor Provision is part of the provision of the Clean Air Act requiring states to develop state implementation plans ("SIP") to ensure that air quality standards are met. If states fail to properly develop and implement their SIPs, EPA can issue a federal implementation plan ("FIP") to address a SIP's shortcomings. Instead of giving the states the first opportunity to implement the required reductions through the development of a SIP, EPA issued a FIP immediately with the rule. The Court found that this process violated the federal-state division of labor required by the Clean Air Act and concluded that this error was separate, independent grounds for vacating CSAPR.⁷

In the end the Court vacated CSAPR and left the 2005 Clean Air Interstate Rule in effect while EPA develops another replacement. The mandate issued by the Court was stayed pending any petition for rehearing or petition for rehearing by the D.C. Circuit en banc. What is certain is that the final chapter in the long saga of interstate air pollution regulation remains to be written.

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¹EME Homer City Generation, L.P., et al. v. EPA, No. 11-1302 (D.C. Ckt. August 21, 2012). A copy of the Court's opinion can be found here.

²Slip Opinion at 11.

³Id., at 7.

⁴Id., at 34.

⁵Id., at 38.

⁶Id., at 38-39.

⁷Id., at 59.