May 1, 2014
On April 29, 2014, the U.S. Supreme Court reversed the decision of a divided panel of the D.C. Circuit which vacated EPA’s Transport Rule, also known as the Cross-State Air Pollution Rule. EPA v. EME Homer City Generation, 572 U.S. — (Apr. 29, 2014) ("Slip op."). The Transport Rule, adopted by EPA in August 2011, was the agency’s third attempt to implement the Good Neighbor Provision of the Clean Air Act that requires reductions from upwind sources of air pollution that contribute to exceedances of National Ambient Air Quality Standards ("NAAQS") found in downwind States. That provision requires that State Implementation Plans ("SIPs"):
(D) contain adequate provisions —
(i) prohibiting, consistent with the provisions of this subchapter, any source or other type of emissions activity within the State from emitting any air pollutant in amounts which will —
(I) contribute significantly to nonattainment in, or interfere with maintenance by, any other State with respect to any such national primary or secondary ambient air quality standard. . . .
42 U.S.C. § 7410(a)(2)(D). In other words, "the good neighbor provision requires upwind States to bear responsibility for their fair share of the mess in down-wind States." EME Homer City Generation v. EPA, 696 F.3d 7 (D.C. Cir. 2014), rev’d 572 U.S. — (Apr. 29, 2014).
EPA previously attempted to implement the Good Neighbor Provision through its 2005 Clean Air Interstate Rule ("CAIR") which regulated upwind sources of sulfur dioxide ("SO2") and nitrogen oxides ("NOx"). The D.C. Circuit initially vacated CAIR as arbitrary and capricious, see North Carolina v. EPA, 531 F. 3d 896, 921 (D.C. Cir. 2008) (per curiam), but subsequently decided to leave that rule in place pending EPA’s promulgation of revised regulations. North Carolina v. EPA, 550 F. 3d 1176, 1178 (D.C. Cir. 2008) (per curiam).
The Transport Rule is the result of EPA’s efforts to fix the problems in CAIR, and entails a number of components. First, the rule defines which upwind States "contribute significantly" to downwind nonattainment, and does so by determining whether a State’s "exported pollution both (1) produced one percent or more of a NAAQS in at least one downwind State" and "(2) could be eliminated cost-effectively [based on dollars per ton of pollutant reduced], as determined by EPA." Slip op. at 9. Based on this analysis, EPA identified 27 States with emissions that significantly contribute to downwind air pollution. Next, "EPA created an annual emissions ‘budget’" for each such State. Id. "These budgets represented the quantity of pollution an upwind State would produce in a given year if its in-state sources implemented all pollution controls available at the chosen cost thresholds." Id. Finally, EPA promulgated, contemporaneously with the Transport Rule, Federal Implementation Plans ("FIPs") allocating each State’s emissions budgets among its in-state electric generating units that emit SO2 and NOx. EPA claimed that it had the authority to promulgate these FIPs on account of its earlier determination that each State’s SIP was inadequate to meet the Good Neighbor Provision of the Clean Air Act.
A coalition of State and local governments and industry and labor groups challenged the Transport Rule in the D.C. Circuit. A panel of that court vacated the rule in its entirety. The two principal bases for the D.C. Circuit’s decision were (a) that EPA improperly promulgated FIPs without providing States an opportunity to allocate their emission budgets to in-state sources, and (b) that EPA improperly considered the costs of emissions reduction and should have instead considered only each upwind State’s proportionate share of air quality problems downwind.
On review of the D.C. Circuit’s decision, Justice Ginsburg’s opinion for a six-Justice majority addressed both of these two reasons. First, the Court held that, "once EPA has found a SIP inadequate, the Agency has a statutory duty to issue a FIP ‘at any time’ within two years (unless the State first ‘corrects the deficiency,’ . . . .)." Id. at 15. Thus, the EPA is not required to allow a "reasonable period" after promulgating its emissions budget for the State to propose or revises its SIP. Id. "In short," the Court held, "nothing in the statute places EPA under an obligation to provide specific metrics to States before they undertake to fulfill their good neighbor obligations." Id. at 17. Justice Scalia criticized this approach in his dissent as making "a hash of the Clean Air Act, transforming it from a program based on cooperative federalism to one of centralized federal control." Id. at 14 (Scalia, J., dissenting).
The Court also reversed the D.C. Circuit’s determination that the Good Neighbor Provision requires "upwind States to reduce emissions in ‘a manner proportional to their contributio[n]’ to pollution in downwind States," not through the two-step process of the Transport Rule that treated all upwind States the same and utilized the same cost thresholds. Id. at 11 (quoting EME Homer City, 696 F.3d at 21). Rejecting the D.C. Circuit’s conclusion–and the conclusion adopted by Justice Scalia’s dissent–that the Good Neighbor Provision is clear on its face and requires proportional regulation of States, the Court held that the Good Neighbor Provision is, in fact, ambiguous since it does not answer the question of "How should EPA allocate among multiple contributing upwind States responsibility for a downwind State’s excess pollution?" Id. at 21. Thus satisfying the first step of Chevron deference, the Court proceeded to the second step in order to determine whether the Transport Rule’s allocation method to upwind States is a permissible construction of the statute by EPA, and held that it is. "The Agency has chosen, sensibly in our view, to reduce the amount easier, i.e., less costly, to eradicate, and nothing in the text of the Good Neighbor Provision precludes that choice." Id. at 26.
As additional bases for vacating the Transport Rule, the Circuit Court had concluded that it regulated pollution beyond what was necessary and expressly provided for by the Good Neighbor Provision: "Because the emission budgets were calculated by reference to cost alone, the [D.C. Circuit] concluded that EPA had done nothing to guard against, or even measure, the ‘over-control’ potentially imposed by the Transport Rule." Id. at 12. Furthermore, the panel majority concluded that the Transport Rule could require upwind States that exceed the one-percent threshold to then, in turn, reduce their emissions to a level well below the threshold. Id. Justice Ginsburg’s opinion acknowledges these two concerns, but does not find them sufficiently pervasive to warrant "wholesale invalidation" of the rule. Id. at 29. In fact, Justice Ginsburg provided helpful language to States or other interested parties that may challenge EPA’s actions in the future:
EPA cannot require a State to reduce its output of pollution by more than is necessary to achieve attainment in every downwind State or at odds with the one-percent threshold the Agency has set. If EPA requires an upwind State to reduce emissions by more than the amount necessary to achieve attainment in every downwind State to which it is linked, the Agency will have overstepped its authority, under the Good Neighbor Provision, to eliminate those "amounts [that] contribute . . . to nonattainment." Nor can EPA demand reductions that would drive an upwind State’s contribution to every downwind State to which it is linked below one percent of the relevant NAAQS. Doing so would be counter to step one of the Agency’s interpretation of the Good Neighbor Provision.
* * *
If any upwind State concludes it has been forced to regulate emissions below the one percent threshold or beyond the point necessary to bring all downwind States into attainment, that State may bring a particularized, as applied challenge to the Transport Rule, along with any other as-applied challenges it may have.
Id. at 29, 30. Some "degree of imprecision is inevitable in tackling the problem of interstate air pollution," the Court held, shielding the Transport Rule from attack as over-controlling or under-controlling. Such "over-control" is acceptable here because "[p]ermitting ‘over-control’ as to one State for the purpose of achieving attainment in another furthers the stated goal of the Good Neighbor Provision, i.e., attainment of NAAQS. Id. at 30 n.23. Imposing over-control "for the purpose of achieving proportionality," would exceed the limits of the statute.
The Supreme Court’s decision upholding the Transport Rule may lead to a number of consequences. One potential consequence is that, without the benefit of EPA’s precise emissions budget and with the goal of avoiding the issuance of a FIP, upwind States may seek to adopt overly restrictive SIPs. Furthermore, sources located in upwind States that surpass the one-percent threshold may be required by State SIPs to reduce emissions to a degree beyond similar sources located in upwind States that do not trigger the Transport Rule. But perhaps most significantly, the decision will embolden EPA in finding "gap[s] left open" in ambiguous environmental statutes, see Chevron, 467 U.S. at 866, and making full use of the discretion granted to the Agency in filling those gaps. It is anticipated that EPA will rely heavily on this discretion as it crafts rulemaking limiting greenhouse gas emissions from power plants and, ultimately, from a broader range of stationary sources.
 See Federal Implementation Plans: Interstate Transport of Fine Particulate Matter and Ozone and Correction of SIP Approvals, 76 Fed. Reg. 48208 (Aug. 8, 2011) (the "Transport Rule").
 See Transport Rule, 76 Fed. Reg. at 48219.
 See Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984).
 Pending legal challenges by three States–Georgia, Kansas, and Ohio–to the EPA’s determination deeming their respective SIPs inadequate were held in abeyance for the Supreme Court’s decision in this case. Slip op. at 10 n. 11.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have about these developments. To learn more about the firm’s Environmental Litigation and Mass Tort Practice Group, please contact the Gibson Dunn attorney with whom you usually work or the authors:
Raymond B. Ludwiszewski – Washington, D.C. (202-955-8665, email@example.com)
Charles H. Haake – Washington, D.C. (202-887-3581, firstname.lastname@example.org)
David Fotouhi – Washington, D.C. (202-887-3681, email@example.com)
Please also feel free to contact the following practice group co-chairs:
Patrick W. Dennis – Los Angeles (213-229-7568, firstname.lastname@example.org)
Jeffrey D. Dintzer – Los Angeles (213-229-7872, email@example.com)
Alan N. Bick – Orange County (949-451-4211, firstname.lastname@example.org)
Peter E. Seley – Washington, D.C. (202-887-3689, email@example.com)
© 2014 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.