Summary

The Environmental Protection Agency (EPA) intends to require power plants and other stationary sources in five additional states to comply with the Good Neighbor Plan to ensure that these states do not unlawfully contribute to air quality problems in downwind states.

The Upshot

• Emissions Trading Program: Fossil power plants in five new states – Arizona, Iowa, Kansas, New Mexico, and Tennessee – would be required to participate in the federal allowance-based nitrogen oxides (NO_x) emissions trading program by 2025.
• Industrial Emissions Limits: Arizona would see specific NO_x emissions limits set for certain industries by 2027.
• Inclusion of Tribal areas: The proposal would extend the federal requirements to Tribal areas to ensure a comprehensive strategy to improve air quality.
• Interested parties may submit comments to EPA within 45 days of the proposal’s publication in the Federal Register.

The Bottom Line

Affected states, industries, and Tribal jurisdictions should actively engage in the upcoming changes by evaluating the impact this rule would have on their interests and preparing for compliance with the new emissions trading system and emissions limits. Public participation in the comment process is encouraged to inform and influence the final rulemaking.

The Clean Air Act’s (CAA) “Good Neighbor” provision mandates that states ensure their own air pollution does not significantly contribute to non-compliance with national ambient air quality standards (NAAQS) in downwind states. If the EPA determines that a State Implementation Plan (SIP) does not adequately address the state’s good neighbor obligations, EPA may impose a Federal Implementation Plan (FIP) in that state. In January 2024, EPA proposed to disapprove SIPs submitted by Arizona, Iowa, Kansas, New Mexico, and Tennessee for failure to satisfy these obligations, and to impose FIPs in their place (the Proposal).

The Proposal builds on prior EPA rulemaking establishing a federal “Good Neighbor Plan,” whose predecessor, the “Cross-State Air Pollution Rule,” addressed good neighbor obligations for the 2008 ozone NAAQS. On February 13, 2023, EPA published a final action fully or partially disapproving good neighbor SIPs submitted by 21 states addressing good neighbor obligations for the 2015 ozone NAAQS. EPA issued its final Good Neighbor Plan shortly thereafter on March 15, 2023, establishing FIP requirements for both power plants and certain industrial sources in 23 states. Several states and industry members have opposed both SIP and FIP actions in federal courts of appeals, while at least nine downwind states and multiple organizations intervened to support EPA’s Good Neighbor Plan in the Court of Appeals for the D.C. Circuit, where a divided panel declined to stay the rule on September 25, 2023.

Amidst these ongoing challenges, the Proposal would integrate Arizona, Iowa, Kansas, New Mexico, and Tennessee into the Good Neighbor Plan, requiring that fossil fuel-fired power plants participate in the allowance-based NO_x trading program beginning in 2025.

In addition to power plants, sources in many other industries located in Arizona will have to meet new NO_x emission limits by 2027. These industrial sources include:

• internal combustion engines in natural gas pipeline transportation;
• kilns in cement and cement product manufacturing;
• reheat furnaces in iron and steel mills and ferroalloy manufacturing;
• furnaces in glass and glass product manufacturing;
• boilers in iron and steel mills and ferroalloy manufacturing, metal ore mining, basic chemical manufacturing, petroleum and coal products manufacturing, and pulp, paper, and paperboard mills; and
• solid waste combustors and incinerators.

One noteworthy aspect of both the Good Neighbor Plan and EPA’s supplemental proposal is inclusion of Tribal areas within the affected states. Tribes are not required to submit SIPs, but EPA is nevertheless authorized to establish a FIP for Tribal areas if a SIP is not submitted and approved. By including Tribal areas in the Good Neighbor Plan and this Proposal, EPA intends to ensure that Tribal areas, often overlooked in national regulatory efforts, are part of a comprehensive strategy to improve air quality.

EPA encourages stakeholders, including state and Tribal authorities, industries subject to the new regulations, and communities impacted by air quality issues, to participate in the rulemaking process by submitting comments within 45 days of publication in the Federal Register. The comment process presents the best opportunity for affected parties to influence EPA’s final decision, as well as to build out the administrative record on which the rulemaking will be judged in the inevitable litigation that will follow the final rulemaking.