- U.S. Supreme Court Upholds Cross-State Air Pollution Rule
- May 7, 2014 | Authors: Lesly A.R. Davis; Courtney Ross Samford
- Law Firm: Wyatt, Tarrant & Combs, LLP - Lexington Office
On April 29, 2014, the Supreme Court of the United States upheld the Environmental Protection Agency’s (“EPA”) Cross-State Air Pollution Rule (commonly referred to as the “Transport Rule”) in EPA v. EME Homer City Generation, L.P., Case No. 12-1182. The decision constitutes a victory for EPA and a significant set-back for the industry. Under the Transport Rule, 27 upwind states, including Kentucky, are required to reduce their nitrogen oxide (“NOx”) and sulfur dioxide (“SO2”) emissions in order to lessen their effect on downwind states. See 76 Fed. Rule 48208-01. These reductions are expected to cost utilities an estimated $800 million annually.
The Transport Rule uses a two-step process to determine which upwind states “contribute significantly” to air pollution downwind under the Good Neighbor Provision of the Clean Air Act (“CAA”). 42 U.S.C.A. § 7410(a)(2)(D)(i). The first step of the Transport Rule excludes any upwind state that contributes less than one percent of three National Ambient Air Quality Standards (“NAAQS”) to any downwind state. Under step two, EPA allocates the needed reductions among the states that were not exempt under the first step. The second step calls for a cost-effective allocation of emission reductions among the remaining upwind states, rather than proportional allocation based upon how much downwind pollution a state creates. As such, it is possible for State A to be required to reduce its emissions by more than State B, even though State A already emits less pollutants than State B.
State and local governments and industry participants brought lawsuits challenging the Transport Rule. These suits were initially successful. On August 21, 2012, the Court of Appeals for the D.C. Circuit vacated the Transport Rule on two different grounds. EME Homer City Generation, L.P. v. EPA, 696 F.3d 7 (D.C. Cir. 2012). The Court of Appeals held that EPA could not issue Federal Implementation Plans without first giving the upwind states an opportunity to implement the reductions on their own. The Court also ruled that EPA had exceeded its statutory authority in implementing the Transport Rule because it failed to require proportional emission reductions as required by the CAA.
The Supreme Court of the United States disagreed and reversed the lower court in a 6-2 decision. The Supreme Court determined that states are not entitled to a second opportunity to implement their own reduction plans since they previously failed to comply with the CAA’s Good Neighbor Provision. According to the Supreme Court, the CAA does not require that states be given a second opportunity to file a State Implementation Plan (“SIP”) after EPA quantified each state’s interstate pollution obligations.
In addition, the Supreme Court held that EPA’s cost-effective allocation of emission reductions among upwind states is permissible. The Court noted the Good Neighbor Provision requires a reduction of emissions, but does not provide a method for allocating the reduction among the various upwind states. The Court “read Congress' silence as a delegation of authority to EPA” to select a reasonable method of allocation. The majority opinion held allocating reductions on the basis of cost was reasonable because it was both efficient and equitable - efficient in that it seeks to satisfy the Good Neighbor Provision at a lower overall cost and equitable since it imposes stricter regulations on states that have not already invested in pollution control. The Supreme Court opined that “the Good Neighbor Provision does not require EPA to disregard costs and consider exclusively each upwind State's physically proportionate responsibility for each downwind air quality problem.” Accordingly, the Court concluded that the Transport Rule is not arbitrary, capricious, or manifestly contrary to the CAA.
The decision was applauded by environmental groups, while industry has expressed grave concerns over EPA’s most recent example of over-regulation. In a joint statement with Representative Fred Upton (R-MI), Representative Ed Whitfield (R-KY) warned that “[t]he administration’s overreaching regulation will drive up energy costs and threaten jobs and electric reliability.” Many also fear that the Supreme Court’s recent decision will embolden EPA in its promulgation of soon-to-be released carbon rules for existing power plants.