Court of Appeals Vacates and Remands the EPA's Clean Air Interstate Rule (CAIR); Texas Rulemaking Impacted
By:
Craig Enochs,
Mike Nasi, and
Holly Hawkins
The United States Court of Appeals for the District of Columbia Circuit recently vacated the Environmental Protection Agency's (EPA) Clean Air
Interstate Rule (CAIR) and remanded the rule back to the EPA to promulgate a new rule consistent with the Court's opinion in State of North
Carolina v. Environmental Protection Agency et. al., Case No. 05-1244 (decided July 11, 2008). The Court noted that it "must vacate CAIR
because very little will survive remand in anything approaching recognizable form."
Background on Clean Air Interstate Rule (CAIR)
In accordance with Titles I and IV of the Clean Air Act (CAA), the EPA is required to implement programs aimed at reducing smog and air
pollution in general. Relying on this authority, the EPA promulgated the NOx SIP Call in 1998, which imposes a duty on certain upwind sources
to reduce their nitrogen oxide (NOx) emissions by a specified amount so that they no longer contribute significantly to emissions in a
downward state. The EPA promulgated an additional program under Title IV of the CAA in 1995, known as the Acid Rain Program, which aims to
reduce acid rain deposition nationwide. Both programs created cap and trade systems, for NOx emissions credits under the NOx SIP Call and for
sulfur dioxide (SO2) emissions credits under the Acid Rain Program.
EPA published the final Clean Air Interstate Rule (CAIR) in the Federal Register on May 12, 2005. The final rule followed years of
informal comment and a name-change (the rule was previously referred to in draft form as the Interstate Air Quality Rule (IAQR)). CAIR mandated
28 states and the District of Columbia to achieve emission reductions for new and existing electric generating units (EGUs) for NOx and SO2.
EPA came up with the 28 CAIR states after modeling 37 states for their contribution of PM2.5, SO2, and NOx to other locations. EPA's modeling
contended that Texas contributed 0.29 µg/m3 of PM2.5 to two downwind locations in Illinois. Texas was not assigned responsibility for
contributing to ozone nonattainment in any other state.
The final CAIR rule allowed affected states to meet their assigned emission budgets through state-promulgated programs or through participation
in an EPA-administered interstate cap-and-trade system, which was to be administered in two "phases," with the first phase for NOx running from
2009 through 2014. The Texas SO2 budget for Phase I was set at 320,946 tons annually. The Texas SO2 budget for Phase II (after 2015) was set
at 224,662 tons annually. The Texas NOx budget was set at 181,014 tons annually. The Phase II budget was set at 150,845 tons annually.
Impact of Case on Texas
If the invalidation of the CAIR rule stands, ongoing CAIR-related rulemaking in Texas would be rendered moot and the CAIR-related emission
reduction programs would no longer apply. This means that Texas, as a non-"SIP call" state, would only be subject to SO2 reductions associated
with the existing Acid Rain Program and no additional NOx reduction requirements (other than those limitations imposed by the state as part
of its ozone attainment portion of the SIP).
The Texas Commission on Environmental Quality (TCEQ) is in the midst of a rulemaking that is designed to ensure that state and federal
requirements are consistent with each other so that Texas can submit an approvable CAIR SIP revision by early 2009. The proposed rule would
implement changes EPA has made to the CAIR program since 2005 and implement the alternative NOx allocation methodology established by the 80th
Texas Legislature in 2007 (SB 1672), which differs dramatically from EPA's model CAIR rule NOx allocation methodology. The TCEQ proposed the
rule on June 4, 2008, held three public meetings in mid-July, and closed the comment period on July 18, 2008. If the CAIR invalidation stands,
the rulemaking and statutory changes would be rendered moot as the underlying CAIR program will cease to exist.
As of the date of this writing, TCEQ has not issued a formal response to the D.C. Circuit's North Carolina Opinion, but will be
dramatically impacted by the decision if it stands. TCEQ is currently in a holding pattern on the pending rule while it awaits EPA's decision
whether to appeal the Court's decision by the August 25, 2008, deadline. TCEQ is also awaiting finalization of the North Carolina case
before deciding what will happen to the CAIR monitor requirements that would otherwise apply starting January 1, 2009.
Case Summary
At issue in the Court's opinion in State of North Carolina is the EPA's rule promulgated under Title I of the CAA, known as CAIR, issued
by the EPA in March 2005 with the goal of cutting power plant emissions of SO2 and NOx by 70 percent by 2015. With or without CAIR, states are
still given primary responsibility for assuring air quality within their borders under Title I of the CAA and are required to create state
implementation plans (SIPs) to meet national ambient air quality standards (NAAQS) for each air pollutant and submit them to the EPA for its
approval. These SIPs must be submitted to the EPA three years after the EPA establishes each state's NAAQS requirements. The EPA issued CAIR
in order to streamline the method by which states could achieve their NAAQS for each air pollutant that "causes or contributes to air pollution
which may reasonably be anticipated to endanger public health or welfare."1 If implemented, CAIR would reduce or eliminate the impact
of upwind sources on out-of-state downwind nonattainment of NAAQS for fine particulate matter, a pollutant associated with respiratory and
cardiovascular problems, and eight-hour ozone, a pollutant commonly known as smog.
In its promulgation of CAIR, the EPA determined that 28 states and the District of Columbia (upwind states) contribute significantly to
out-of-state downwind nonattainment of one or both NAAQS. CAIR required upwind states to reduce their emissions in two phases. Phase one
required NOx reductions to start in 2009 and SO2 reductions to start in 2010, and the second reduction phase for each air pollutant was to start
in 2015. The CAIR program also revised the EPA's Acid Rain Program and replaced the NOx SIP Call with the CAIR NOx trading program, an
interstate trading program designed to facilitate compliance with the new emission reduction targets.
Petitions for review of the CAIR program were filed by several parties, some arguing that the CAIR program needed to be clarified so that it
could achieve the goal of protecting states from downwind emissions of particulate matter, while others argued that the EPA overstepped its
authority entirely by not implementing CAIR based on a permissible construction of the CAA.
The most significant challenge to the rule examined by the Court was the question of whether CAIR contained reasonable measures to assure that
upwind states would abate their lawful emissions (as required by the rule) from interfering with downwind states’ attainment of their NAAQS.
The Court found that because participants in the program could purchase sufficient NOx and SO2 allowances to cover their current emissions,
these states essentially would not need to reduce their emissions levels at all, thus, resulting in no change to the upwind states' actual
emission levels. In other words, the Court held that "CAIR must do more than achieve something measurable; it must actually require elimination
of emissions from sources that contribute significantly and interfere with maintenance in downwind nonattainment areas." The Court held the
trading program promulgated under CAIR as unlawful because "it does not connect states' emissions reductions to any measure of their own
significant contributions."
With respect to the EPA's allocation of states' NOx budgets, the Court found that the EPA's allocation based on the extent generation units
burned oil and gas was unfair. Specifically, the EPA adjusted each state’s heat input (on which NOx levels were determined) by the mix of fuels
its power plants used. For example, a coal-fired power plant contributed 100 percent of its heat input, while an oil-fired power plant and a
gas-fired power plant contributed 60 percent and 40 percent respectively. By allocating NOx emissions in this manner, states with more
coal-fired power plants received larger NOx emissions budgets than those with more oil- and gas-fired power plants. By allocating in this
manner, the Court held that the EPA, without authority, is forcing upwind states to share the burden of reducing other upwind states’
emissions.
The Court found other aspects of CAIR also to be inconsistent with Title I of the CAA. For example, the Court found deadlines set by the rule
to achieve significant ozone reductions by 2015 to be inconsistent with the CAA, which requires significant ozone reductions by 2010, and that
CAIR established SO2 trading budgets based on factors used in the Acid Rain Program under Title IV of the CAA, rather than on Title I.
Additionally, the Court found that the EPA did not properly address the requirement in Title I of the CAA, that SIPs contain adequate provisions
prohibiting "interference with maintenance" of NAAQS in any other state, thereby possibly hindering or preventing other states from meeting
their NAAQS by 2010 and leaving these states with no possible recourse under CAIR.
The Court noted that because the CAIR NOx trading program would not be implemented, the NOx SIP Call trading program would effectively remain
in place (rather than be phased out as required by CAIR), thus mitigating any disruption that might result from the Court vacating CAIR, at
least with respect to NOx emissions, so that states could still have some method of meeting their Title I requirements. The EPA has not
announced whether it will seek reconsideration by the Court, seek an en banc hearing, or appeal the case to the U.S. Supreme Court.
As a result of the Court's actions, pending any possible appeals, the EPA now must effectively start over in developing a CAIR-equivalent
program, unless Congress decides to act first. Currently there are several bills in Congress under consideration that would address the
regulation of emissions standards in general and which could effectively eliminate the need for a CAIR-type program altogether. However,
any future Congressional action is uncertain.
For more information about this topic or any other questions, please feel free to contact
Craig Enochs at 713.752.4315 or cenochs@jw.com,
Mike Nasi at 512.236.2216 or mnasi@jw.com, or
Holly Hawkins at 214.953.5936 or hhawkins@jw.com.
1 See 42. U.S.C. § §7401, 7408(a)(1)(A),(B).
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