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EPA Fails Again on Transport Rule for Interstate Air Pollution

11.02.2012

By Larry Kane, Attorney, Bingham Greenebaum Doll LLP

On Aug. 21, 2012, the United States Court of Appeals for the District of Columbia, in a 2-to-1 decision in EME Homer City Generation, L.P. v. Environmental Protection Agency, 2012 U.S. App. LEXIS 17535; 42 ELR 20177, vacated the Cross-State Air Pollution Rule and remanded this rule to the Environmental Protection Agency (EPA). The vacated rule would have required significant reductions in emissions from power plants in 28 Eastern and Midwestern states (including Indiana and Kentucky) that contribute to downwind pollution in other states. Indiana joined a number of upwind states in opposing the rule.

Background: From the Clean Air Act to the Cross-State Air Pollution Rule

In accordance with the Clean Air Act, EPA establishes ambient air quality standards for pollutants. States then create State Implementation Plans (SIPs) to ensure compliance with the federal ambient air quality standards. SIPs further articulate emission standards and enforcement provisions applicable to air pollution sources within the respective state’s jurisdiction.

The Good Neighbor provision of Section 110 of the Clean Air Act addresses interstate pollution transfer. Specifically, an upwind state must control its air pollution to prevent it from traveling over state lines and significantly contributing to a downwind state’s nonattainment with federal ambient air quality standards.

Over the last 15 years, EPA has promulgated several air pollution transport rules. The Clean Air Interstate Rule (CAIR) was promulgated in 2005, creating a cap and trade program to regulate the emissions of sulfur dioxide and nitrogen oxide from upwind states.  In 2008, this rule was remanded to EPA by the United States Court of Appeals for the D.C. Circuit as exceeding EPA’s statutory authority, but the court, on rehearing, decided not to vacate CAIR and ordered that EPA could enforce the rule pending the promulgation of a replacement rule.

The Cross-State Air Pollution Rule (CSAPR) was designed to be the successor to CAIR.

Litigation outcome of the Cross-State Air Pollution Rule

The Cross-State Air Pollution Rule included a complex sulfur dioxide and nitrogen oxide emission trading program. In the recent decision overturning this rule, the court noted that it was not interpreting the policy merits of the rule, but was merely enforcing the limits on EPA’s authority set forth within the Clean Air Act. The majority decision found that CSAPR “exceeds [EPA’s] statutory authority in two independent respects.” First, the rule required emissions reductions greater than necessary to eliminate upwind states’ significant contribution to downwind states’ nonattainment. Second, by simultaneously promulgating CSAPR and a Federal Implementation Plan, states were not given an opportunity to adopt and implement a state rule to establish reductions for sources within their boundaries.  In the court’s words:

[The Clean Air Act’s] Title I’s core two-step process is that the Federal Government sets end goals and the States choose the means to attain those goals. . . .

In our view, determining the level of reductions required under Section 110(a)(2)(D)(i)(I)  is analogous to setting a NAAQS. . . .  In both situations – setting a NAAQS and defining States’ good neighbor obligations – EPA sets the numerical end goal.  And, in both cases, once the standards are set, “determining the particular mix of controls among individual sources to attain those standards” remains a “State responsibility.”  [Citation omitted.]

EME Homer City, at *75-76.

With this, the court reaffirmed the statutorily ordained preferential role of the states in implementing the Clean Air Act within their borders. Thus, any regulatory response by EPA must allow states to exercise that authority. However, a regulatory response from EPA could take years to develop. In the interim, the decision directs EPA to continue to administer the Clean Air Interstate Rule “pending implementation of a valid replacement.” Whether EPA will appeal the decision remains to be seen.

In ruling that the former CAIR rule will remain in effect until EPA adopts a replacement rule on interstate transport of such pollutant emissions, the court unavoidably creates uncertainty for SIPs based on CSAPR’s provisions, as well as for future SIP development when the only transport rule in play is an interim rule with known flaws.  That uncertainty is accentuated by the court’s admonition that any replacement rule must set different standards that do not exceed those required under the good neighbor provision.  In this regard, the court remarked:

And as with the Clean Air Interstate Rule, the Transport Rule’s “fundamental flaws foreclose EPA from promulgating the same standards on remand.” [Citation omitted.]

Id., at *88.

Impact of CSAPR Decision on Related Litigation Concerning Regional Haze Plans

Several environmental non-governmental organizations have seized upon the EME Homer City decision vacating CSAPR as an additional basis for challenging EPA’s determination, as embodied in a rulemaking, that CSAPR can be utilized in SIPs to satisfy best available retrofit technology (BART) requirements for preventing or remedying impairment of visibility (“haze reduction”) in mandatory Class I Federal areas pursuant to Section 169A of the Clean Air Act.  The conceptual argument posed by these challenges is that the regional haze reduction plans cannot be legitimately based on a federal rule that has been vacated.  For example, on October 19, 2012, Sierra Club filed a petition with the Seventh Circuit Court of Appeals seeking review of EPA’s approval of Indiana’s SIP revision to address EPA’s Regional Haze Rule, 40 CFR 51.308.  On the same day, National Parks Conservation Association and Sierra Club filed a petition for review with the Sixth Circuit Court of Appeals (No. 12-4236) of a federal implementation plan (FIP) for the states of Kentucky, Michigan, Ohio and Tennessee to satisfy Regional Haze Rule requirements, including BART specifications.  Interestingly, this latter petition is self-described as a “protective” petition, apparently meaning that the petitioners are filing it in the Sixth Circuit as a backup to an earlier Petition for Review filed with the D.C. Circuit Court of Appeals more broadly challenging the validity of EPA’s sanctioning of the use of CSAPR as an option for regional haze reduction plans.

Potential Impact of CSAPR Decision on PM2.5 Nonattainment Redesignation Approvals

Some areas previously designated as nonattainment for  the National Ambient Air Quality Standards (NAAQS) for fine particulate (PM2.5) have been proposed by EPA, or already have been approved, for redesignation as attainment based substantially on reductions in PM2.5 emissions that were deemed permanent and enforceable under CSAPR’s provisions.  An example is provided by EPA’s redesignation in September, 2011, of the Evansville, Indiana nonattainment area (comprising 3 complete counties and portions of 3 other counties) to attainment for the annual PM2.5 NAAQS.  See 76 Fed. Reg. 59527 (Sept. 27, 2011).  In the preamble to this rulemaking, EPA explained its rationale as follows:

Thus, as set forth in the proposal and in today's action, EPA continues to believe that the air quality improvement is largely attributable to substantial reductions in power plant emissions. CAIR mandated substantial reductions in power plant emissions. These requirements address emissions through 2011 and EPA has now promulgated CSAPR, which requires similar or greater reductions in the relevant areas in 2012 and beyond. Because the emission reduction requirements of CAIR are enforceable through the 2011 control period, and because CSAPR has now been promulgated to address the requirements previously addressed by CAIR and gets similar or greater reductions in the relevant areas in 2012 and beyond, EPA has determined that the emission reductions that led to attainment in the Evansville area can now be considered permanent and enforceable and that the requirement of Clean Air Act Section 107(d)(3)(E)(iii) has now been met.

The question arises whether the redesignation of this area as attainment will be subjected to challenge as a result of the vacature of CSAPR since EPA relied upon CSAPR in approving the redesignation.  There may be other PM2.5 nonattainment redesignation determinations that were premised on the “permanent and enforceable” reductions of CSAPR.

Indiana and Kentucky implications

Indiana Governor Mitch Daniels issued a statement on August 21, stating, “[t]his repudiation of EPA's overreaching regulation is great news for Hoosier ratepayers and job seekers. Indiana is in compliance with federal clean air limits for the first time ever, and our air quality is the best since measurement began. This ruling means that our affordable energy costs can remain one of our best arguments in attracting new businesses.”

Indiana and Kentucky receive the majority of their electricity from coal-fired power plants. The decision gives a partial reprieve to coal-dependent power generators.

Like Indiana, Kentucky benefits from one of the lowest cost per kilowatt-hour rates in the nation. These low electrical costs enable Kentucky to retain manufacturing that many other states have lost to other countries. If electric utility rates were to increase because of increased environmental compliance costs, the state’s ability to attract and retain manufacturers would be negatively impacted.

These potential benefits of CSAPR’s invalidation will need to be weighed against the potential detrimental impacts that may result from the pending challenges to regional haze plans predicated upon emission reductions to occur under CSAPR or from potential challenges to PM2.5 redesignation actions.


To view a complete PDF of the Third Quarter 2012 issue of the Air Quality Letter, click HERE.

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