On April 19, 2014, the U.S. Supreme Court upheld EPA’s beleaguered Cross State Air Pollution Rule, 76 Fed. Reg. 48,208 (Aug. 8, 2011), reversing a decision by the U.S. Court of Appeals, D.C. Circuit, which had vacated issued the so-called “Transport Rule” rule in its entirety. E.P.A. v. EME Homer City Generation, L.P., –U.S.–, 134 S.Ct. 1584 (April 29 2014).


Under the Clean Air Act, states that are not attaining EPA’s National Ambient Air Quality Standards, or NAAQS, must implement the NAAQS within their borders by adopting state implementation plans (SIPs) that designate individual sources within the state that must reduce emissions, and by how much. If a state does not submit a satisfactory SIP implementing its obligations within 3 years of the SIP, the Act requires EPA to establish a federal implementation plan (FIP) for the state. Recognizing that some downwind states’ inability to meet the NAAQS is caused by upwind polluters, the Act’s “good neighbor” provision requires upwind states to include measures in their SIPs to reduce their contributions to downwind states’ nonattainment with the NAAQS. 42 U. S. C. § 7410(a)(2)(D)(i).


The Clean Air Act's "Good Neighbor" provision requires upwind states to limit air pollution drifting to downwind states. (Source: www.quickmeme.com)

The Clean Air Act’s “Good Neighbor” provision requires upwind states to limit air pollution drifting to downwind states. (Source: http://www.quickmeme.com)


EPA’s 2011 Transport Rule requires 28 states, including Minnesota, to reduce annual SO2 emissions, annual NOX emissions and/or ozone season NOX emissions in an effort to help downwind states meet three particular NAAQS: EPA’s 1997 annual PM2.5 NAAQS, 2006 24-hour PM2.5 NAAQS, and 1997 ozone NAAQS. The rule tasks EPA with establishing an annual emissions “budget” for each of the regulated states, representing the quantity of pollution an upwind State would produce in a given year if its in-state sources implemented specified pollution controls. Sources in the states—primarily natural gas- and coal-fired power plants—can meet the budget amounts in any manner they choose, including trading emissions allowances between sources. Contemporaneously with the Transport Rule, EPA, having previously determined that each state’s SIP was inadequate, also promulgated FIPs for the regulated states, allocating each state’s emission budget among its in-state sources.


A conglomeration of state and local governments, as well as industry and labor groups, petitioned the D.C. Circuit to review the Transport Rule.  EME Homer City Generation, L.P. v. E.P.A., 696 F.3d 7 (D.C. Cir. 2012). In vacating the Rule, the D.C. Circuit concluded EPA had exceeded its statutory authority in two ways. First, whereas the Act requires states to eliminate only those “amounts” of pollution that “contribute significantly to nonattainment ” in downwind states, 42 U.S.C. § 7410(a)(2)(D)(i), the Transport Rule—which allocates states’ emissions budgets based on the amount of pollution that could be reduced by implementing technologies below certain “cost thresholds”—could result in states reducing emissions beyond their own “contribution.” Second, the court held that the Act requires EPA, once it has established states’ emissions budgets, to allow states to implement their obligations through SIPs instead of immediately passing FIPs.


The Supreme Court disagreed on both counts. As to the FIPs, the Court concluded that EPA had appropriately followed the plain language of the Clean Air Act by issuing FIPS where the states had not adopted satisfactory SIPs within 3 years of the PM2.5 and ozone NAAQS. Nothing in the Act supported the D.C. Circuit’s opinion that EPA must provide the states a chance to prepare their own SIPs after it has set emissions budgets.  As to EPA’s method of allocating states’ emissions budgets, the Court held that EPA’s decision to consider the overall cost-effectiveness represented a permissible interpretation of the “good neighbor” provision and a reasonable and equitable solution to a “thorny causation problem”–i.e., how to allocate among multiple contributing upwind states responsibility for a downwind state’s excess pollution.