State v. Environmental Protection Agency
382 U.S. App. D.C. 167, 531 F.3d 896 (2008)
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Rule of Law:
The Environmental Protection Agency (EPA) exceeds its statutory authority under Section 110(a)(2)(D)(i)(I) of the Clean Air Act when it promulgates an interstate air pollution rule that fails to ensure that state emissions reductions correlate to individual states' significant contributions to downwind nonattainment or maintenance interference, arbitrarily interferes with other statutory programs, or delays compliance beyond statutory attainment deadlines without adequate justification.
Facts:
- Title I of the Clean Air Act (CAA) requires EPA to set National Ambient Air Quality Standards (NAAQS) for pollutants and mandates that State Implementation Plans (SIPs) prohibit sources within a state from emitting pollutants that "contribute significantly to nonattainment in, or interfere with maintenance by, any other State."
- Title IV of the CAA established a national cap-and-trade program for sulfur dioxide (SO2) emissions from electric generating units (EGUs) to reduce acid rain, allocating allowances based on 1985-87 data.
- In 2005, EPA promulgated the Clean Air Interstate Rule (CAIR) under its Title I authority to address interstate transport of fine particulate matter (PM2.5) and ozone.
- CAIR identified 28 states and the District of Columbia as "upwind states" contributing significantly to out-of-state nonattainment and required them to reduce SO2 and nitrogen oxide (NOx) emissions in two phases, with NOx reductions starting in 2009 and SO2 in 2010, and second-phase reductions for both starting in 2015.
- CAIR established optional interstate trading programs for SO2 and NOx, setting region-wide caps and state-specific budgets, but allowing sources to buy and sell emissions allowances from/to sources in other states.
- For SO2, CAIR structured its program by reducing Title IV allowances and requiring EGUs to surrender Title IV allowances or states to include provisions for retiring excess allowances.
- For NOx, CAIR set state budgets by allocating a regionwide cap using "fuel factors" which adjusted a state's heat input based on the mix of coal, oil, and gas used by its power plants, resulting in more allowances for states with higher percentages of coal-fired facilities.
- CAIR set a Phase Two compliance deadline of 2015 for eliminating "significant contribution," despite Title I generally requiring PM2.5 and ozone NAAQS attainment by 2010.
Procedural Posture:
- The Environmental Protection Agency (EPA) promulgated the Clean Air Interstate Rule (CAIR) on May 12, 2005.
- On April 28, 2006, EPA published its Reconsideration of CAIR and a Federal Implementation Plan (FIP) to regulate sources until states implemented EPA-approved State Implementation Plans (SIPs).
- Within 60 days of the publication of CAIR and its Reconsideration, multiple parties, including North Carolina, various electric utility companies (referred to as "SO2 Petitioners"), Entergy Corporation and FPL Group ("Entergy"), electric utilities in Texas, Florida, and Minnesota, and the Florida Association of Electric Utilities, filed petitions for judicial review of various aspects of CAIR in the U.S. Court of Appeals for the District of Columbia Circuit.
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Issue:
Does the Environmental Protection Agency (EPA) have the statutory authority under Section 110(a)(2)(D)(i)(I) of the Clean Air Act to promulgate the Clean Air Interstate Rule (CAIR) with regional pollution trading programs, a delayed compliance deadline, and provisions that interfere with the Title IV allowance system, without adequately tying individual state emissions reductions to their significant contributions to downwind nonattainment or maintenance interference?
Opinions:
Majority - PER CURIAM
No, the Environmental Protection Agency lacked the statutory authority under Section 110(a)(2)(D)(i)(I) of the Clean Air Act to promulgate the Clean Air Interstate Rule (CAIR) because its regional pollution trading programs, delayed compliance deadline, and interference with the Title IV allowance system were fundamentally flawed and inconsistent with the Act's mandate to link individual state emissions reductions to their significant contributions to downwind nonattainment or maintenance interference. The court found that CAIR's pollution trading programs were unlawful because EPA failed to ensure that each individual state's emissions reductions correlated to its own "significant contribution" to downwind nonattainment. Section 110(a)(2)(D)(i)(I) prohibits sources "within the State" from contributing significantly to nonattainment "in any other State," implying a state-specific obligation. By evaluating reductions region-wide and assuming interstate trading, EPA never measured the unlawful amount of pollution for each upwind-downwind linkage, potentially allowing some states to continue significant contributions without abatement if they purchased allowances. EPA unlawfully ignored the independent effect of the "interfere with maintenance" language in Section 110(a)(2)(D)(i)(I). The agency interpreted this phrase as intertwined with "contribute significantly to nonattainment," effectively divesting it of separate meaning. The court held that the use of the disjunctive "or" in the statute requires both prongs to be given independent effect, and EPA's interpretation left downwind areas projected to barely meet attainment (but at risk of falling back into nonattainment) without recourse under CAIR. The 2015 Phase Two deadline for eliminating "significant contribution" was incompatible with Title I's mandate for states to attain PM2.5 and ozone NAAQS by 2010. Section 110(a)(2)(D)(i) requires SIPs to be "consistent with the provisions of this subchapter (Title I)." EPA's argument that this consistency only applied to procedural provisions was rejected, as the CAA differentiates between "provisions" and "procedures." The court determined that EPA made no effort to harmonize CAIR's deadline with Title I's attainment deadlines, thus unlawfully forcing downwind areas to achieve NAAQS without timely elimination of upwind states' significant contributions. EPA's method for setting SO2 budgets, based on a percentage reduction of Title IV allowances, was arbitrary and capricious. Title IV allowances were designed for acid rain reduction using 1985-87 data, and EPA failed to explain how this baseline was relevant to 2015 PM2.5 levels or the Section 110(a)(2)(D)(i)(I) mandate to prohibit significant contributions. EPA's stated goals, such as "preserving the viability" of the Title IV program or achieving an "equitable governmental approach," were not among the objectives of Section 110(a)(2)(D)(i)(I). Similarly, EPA's use of "fuel factors" to adjust state NOx budgets was arbitrary and capricious. These adjustments, which favored states with more coal-fired EGUs by giving them comparably more allowances, were made purely in the interest of "fairness" and "equitable budget distribution." Section 110(a)(2)(D)(i)(I) requires each state to prohibit emissions "within the State" that contribute significantly, not to reallocate burdens based on one state's cost of eliminating emissions or to subsidize other states. Finally, EPA lacked the statutory authority to terminate or limit Title IV allowances by requiring EGUs to surrender them in the CAIR market or for non-trading states to have SIP provisions for retiring them. While 42 U.S.C. § 7651b(f) states that the "United States" can terminate allowances, it does not grant EPA such authority. Neither Section 110(a)(2)(D)(i)(I) nor the general regulatory authority of Section 301(a) provided EPA the power to remove allowances from the Title IV market, as these actions were unrelated to the goal of prohibiting a state's significant contribution to downwind nonattainment. The court vacated CAIR and its associated Federal Implementation Plan (FIP) in their entirety, finding the rule unseverable due to its integral design. The court denied North Carolina's challenges regarding EPA's definition of "will" and the PM2.5 contribution threshold, and most border state challenges (Texas and Florida), but granted Minnesota Power's petition regarding Minnesota due to unaddressed flawed data impacting its inclusion.
Analysis:
This case fundamentally reshapes EPA's approach to interstate air pollution, establishing that the agency must develop more targeted, state-specific requirements under the Clean Air Act's "good neighbor" provision. It clarifies that EPA cannot use broad regional cap-and-trade programs if they fail to ensure that each individual state is held accountable for its own measurable contribution to downwind nonattainment or maintenance interference. The ruling also mandates that all statutory language, particularly disjunctive clauses like "contribute significantly to nonattainment or interfere with maintenance," must be given independent effect, preventing agencies from narrowing their statutory obligations. This decision underscores that policy goals, such as cost-effectiveness or equity, cannot supersede the specific mandates and limitations of the authorizing statute, forcing EPA to meticulously justify its regulatory choices with clear statutory grounding.
