On August 21, 2012, in a highly unusual disagreement with a rulemaking action by a Federal agency, the D.C. Circuit Court of Appeals sent the Environmental Protection Agency’s (“EPA”) Cross-State Air Pollution, or Transport, Rule, governing sulfur dioxide (“SO2”) and oxides of nitrogen (“NOx”) emissions, back to the agency with firm instructions to try again, and, next time, do a better job.  What makes this decision somewhat unusual is that cross-state rules had previously been implemented by EPA for PM2.5 and ozone, and upheld by the D.C. Circuit, see, e.g., Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000) and North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008). 

In its decision in EME Homer City Generating, L.P., et al. v. EPA, et al., Case No. 11-1302, the D.C. Circuit took strong issue with EPA’s attempt to meet its responsibility under Clean Air Act § 110(a)(2)(D)(i)(I), 49 U.S.C. § 7410(a)(2)(D).  That section, the “good neighbor” provision, requires, in pertinent part, that, after EPA sets National Ambient Air Quality Standards (“NAAQS”), 42 U.S.C. § 7409, and designates areas within each state which exceed the NAAQS, 42 U.S.C. § 7407(d), or “nonattainment” areas, states must develop a state implementation plan (“SIP”), 42 U.S.C. § 7410, which includes provisions prohibiting any emissions source or activity “which will – 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.”  The D.C. Circuit found major legal flaws in EPA’s Transport Rule. 

First, and most important, the Court found that EPA’s rule did not comport with its statutory mandate to limit its rule to the amount of emissions from upwind states that contribute “significantly to nonattainment” in downwind states.  Instead, EPA created an independent measure below which upwind states’ emissions contributions are viewed as “insignificant” with regard to the absolute amount of their contribution to downwind violations.  In setting such a level, moreover, EPA ignored the statute’s “proportionality” requirement, and required some upwind states to “share the burden of reducing other upwind states’ emissions.”  North Carolina, supra, 531 F.3d at 921. 

Second, the Court found that EPA had erroneously issued Federal Implementation Plans (“FIP”) simultaneously with and as an integral part of the Transport Rule.  In the Court’s view, this simultaneous issuance of the FIP was both legally unpalatable and practicably impossible.  In the first instance, it violated the Federal/State partnership implicit in the Clean Air Act, wherein EPA makes the rules and the states have largely unfettered discretion, constrained only by the Clean Air Act itself, as to the manner in which the rules are implemented, as memorialized in the SIP.  The Court viewed the EPA’s simultaneous issuance of FIPs, without giving the impacted states a chance to issue their own SIPs, as a fatal incursion into state prerogatives.  In addition, and despite EPA’s argument to the contrary, the Court was unable to discern the way in which it would have been possible for the states to implement a standard in their own SIPs that, until the publication of the Transport Rule, EPA had failed to develop or promulgate. 

Finally, the Court gave EPA a hint of a rule that would be acceptable to it.  It pointed to a previous version EPA had considered during the proposal stage for the Transport Rule under which significant contributions to a given downwind area would collectively have to provide a “defined air quality improvement to the downwind state in the amount by which the downwind state exceeded the NAAQS. [Cites omitted.]  And the upwind states’ individual share of that collective duty would be defined in direct proportion to their original contributions to the downwind state.” 

In short, the D.C. Circuit abandoned in this case its typical deference to agency action and reminded EPA of its responsibility to Congress, to implement faithfully Congressional mandates, and to its partners, the states, to give them the collegiality and cooperation required by the Clean Air Act.