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D.C. Circuit Appeals Court Vacates EPA's Cross-State Rule as Legally Flawed

The United States Court of Appeals for the D.C. Circuit today vacated the Environmental Protection Agency's (EPA) Cross-State Air Pollution Rule (CSAPR) as an unlawful exercise of EPA authority under the Clean Air Act (CAA). The Court also said that EPA must continue to implement the Clean Air Interstate Rule (known as CAIR) until it can promulgate a replacement program. Practically speaking, EPA will likely not be able to finalize a new program until at least 2014, and such a program, if adopted, will likely not impose new requirements on power plants until 2016 at the earliest. Thus, the compliance deadlines for EPA's "Mercury and Air Toxics Standards" rule will likely arrive before a new rule to replace CSAPR can come into effect.

The court's opinion found EPA's action illegal for two main reasons.

First, the Court held that EPA cannot force states to reduce their emissions by more than an amount determined to be their "significant contribution" to nonattainment in other states. The Court emphasized that, although EPA does have authority to address cross-state pollution problems, the CAA does not give EPA a "blank check … to address interstate pollution on a regional basis without regard to an individual upwind State's actual contribution to downwind air quality."

Second, the court held that EPA violated the Clean Air Act by forcing plants to comply immediately with the emission reductions requirements imposed by CSAPR. The court called EPA's actions an "unprecedented application of the [Clean Air Act]" and held that, as EPA has always done in the past, the Agency must determine the necessary level of emission reduction in each state and then give states the opportunity to develop their own programs to achieve those reductions. Under the CAA, the states are the "first implementers" of federal requirements and EPA must give them a reasonable time to implement new emission reduction obligations imposed by EPA.

As a result of this decision, CSAPR will no longer be in existence once the mandate issues. In order to develop a replacement rule, EPA will need to re-do its analysis of interstate air pollution from power plants. EPA must also go through another full notice-and-comment rulemaking process to finalize a replacement rule. It took three years for EPA to finalize CSAPR after CAIR was vacated in July 2008, and it will likely take at least two years for EPA to develop a rule to replace CSAPR. Once a new rule is finalized, EPA will likely need to give states at least two years (if not more) to react to any new rule. Therefore, it is unlikely that sources would be required to comply with a CSAPR replacement before 2016. EPA could ask for a rehearing by the same judicial panel or by the full D.C. Circuit Court and could also petition for review by the Supreme Court. If EPA pursues any of those procedural options, compliance with a CSAPR replacement rule would be pushed further into the future.

It now seems almost certain that CSAPR will not impact existing coal-fired power generation. For the present, the court ordered EPA to continue implementing CAIR, which will maintain the status quo as to emission reduction requirements. However, another recently promulgated EPA rule, the Mercury and Air Toxics Standards (MATS) rule, imposes new emission control requirements on coal-fired power plants in 2015, unless individual states grant an extension to 2016. Thus, the MATS rule is now the critical path for coal-fired generators to decide whether to repower, retire, or install expensive pollution controls. Decision-makers in the power sector should keep in mind, however, that the MATS rule is also being challenged in Court and that presidential candidate Mitt Romney has supported congressional efforts to overturn MATS. Thus, there continues to be uncertainty as to the emission reduction requirements that will ultimately apply to coal-fired power plants.