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EPA’s Cross-State Air Pollution Rule Vacated

09.21.2012

By Larry Kane, Attorney, Bingham Greenebaum Doll LLP

Litigation Outcome

On August 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, et al., vacated the Cross-State Air Pollution Rule (CSAPR) and remanded this rule to EPA. 

CSAPR 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.  The majority decision found that CSAPR “exceeds [EPA’s] statutory authority in two independent respects.”  First, CSAPR 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 implement a system for reductions for sources within their boundaries. 

As such, the court reaffirmed the 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 (CAIR) “pending implementation of a valid replacement.”  Whether EPA will appeal the decision remains to be seen. 

Background

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 the Clean Air Act (Section 110(a)(2)(D)(i)) 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 non-attainment with federal ambient air quality standards.

Over the last fifteen years, EPA has promulgated several transport rules.  CAIR was promulgated in 2005, creating a cap and trade program to regulate the emissions of sulfur dioxide and nitrogen oxide from upwind states.  CAIR was vacated by the United States Court of Appeals for the District of Columbia in 2008, but the court found the EPA could enforce CAIR pending the promulgation of a replacement rule. 

CSAPR was designed to be the successor to CAIR.  CSAPR included a complex sulfur dioxide and nitrogen oxide emission trading program.  In the recent decision overturning CSAPR, the court noted that it was not interpreting the policy merits of CSAPR, but was merely enforcing the limits on EPA’s authority set forth within the Clean Air Act.

In ruling that CAIR 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.

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 facing the combined threats of increasing federal regulation and low natural gas prices.

Like Indiana, Kentucky benefits from one of the lowest cost per kilowatt 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.

To view a complete PDF of the July/August 2012 issue of the Environmental Letter, click HERE.

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