D.C. Circuit Vacates Portions of EPA’s 2018 Ozone Implementation Rule

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On Friday Jan. 29, 2021, the United States Court of Appeals for the D.C. Circuit in Sierra Club v. EPA, Case No. 15-1465, struck down several provisions in EPA’s 2018 rule implementing the 2008 National Ambient Air Quality Standards (NAAQS) for ozone (the 2018 Implementation Rule) under the Clean Air Act (CAA). The court vacated three provisions of this rule, including (1) the ozone precursor interpollutant trading program; (2) an option for states to demonstrate reasonable further progress of NAAQS attainment through compliance with control measure requirements, rather than models based on actual emissions data; and (3) a provision allowing states to include already implemented measures as contingency measures in their state implementation plans (SIP). The court’s opinion vacating these three provisions has important implications for Colorado as it continues to confront ozone nonattainment along the Front Range.

The Ozone Precursor Interpollutant Trading Program

The CAA requires new and modified major sources of ozone precursors, i.e., volatile organic compounds (VOCs) and nitrogen oxides (NOx), in ozone nonattainment areas to obtain offsets for those emissions from the same or other sources in the same nonattainment area prior to construction or modification.

In the 2018 Implementation Rule, the Environmental Protection Agency (EPA) interpreted the CAA to allow operators to obtain offsets for VOC emissions through reductions in NOx and vice versa. The court held that EPA’s interpretation violates the plain language of the CAA stating the ratio of total emission reductions of VOCs (or NOx) to total increased emissions of “such air pollutant” shall be in certain amounts. The court reasoned that the phrase “such air pollutant” refers back to VOCs or NOx (depending on the statutory section), not ozone, and that had Congress intended to allow ozone precursor interpollutant trading, it would have used the phrase “ozone precursor” instead of “such air pollutant” as it had done elsewhere in the statute.

Demonstrating Reasonable Further Progress

Under the CAA, SIPs for nonattainment areas must require reasonable further progress in meeting the NAAQS. SIPs for ozone nonattainment areas classified as moderate or above must provide for reductions of VOC emissions by at least 15% from baseline emissions, defined as the total amount of actual VOC or NOx emissions from all anthropogenic sources in the area during the baseline year, originally 1990. Beginning six years after the baseline year, and every three years thereafter, states must determine whether each serious or above ozone nonattainment area has achieved certain emission reduction milestones.

The 2018 Implementation Rule allows states to demonstrate compliance with this requirement in one of two ways: (1) through actual emissions reductions as demonstrated through emissions inventory data; or (2) through compliance with control measures in the relevant reasonable further progress plan (RFP). The court acknowledged the CAA gives EPA some discretion, but held EPA’s interpretation regarding compliance using control measures in the RFP to be an abuse of this discretion.

Contingency Measures

The CAA requires that SIPs include specific measures to be undertaken if the nonattainment area fails to make reasonable further progress to attain the NAAQS. If reasonable further progress is not made, these contingency measures take effect without further action.

The 2018 Implementation Rule allows approval of already implemented measures as contingency measures so long as the state does not rely on them for reasonable further progress or attainment demonstration. The court found this provision to be contrary to the plain language of the CAA, which requires contingency measures to become operative on a prospective basis only (i.e., “to be undertaken if”).

The Implications

This decision is an important inflection point for Colorado’s ozone planning efforts, and carries important consequences for regulated entities with operations in the Denver Metro/North Front Range 2008 serious ozone nonattainment area, which is likely to be reclassified to severe nonattainment status. For example, operators of new or modified major sources of ozone precursors will have fewer options when seeking required emissions offsets due to the prohibition on interpollutant trading. Moreover, states may be required to add additional contingency measures to their SIPs that would further reduce emissions in the event that reasonable further progress or attainment of the NAAQS is not made. In fact, several parties raised this issue in the recent December 2020 ozone SIP rulemaking, and this case could require the state to revise that plan. And the portion of the ruling requiring inventory data to show reasonable further progress arguably makes attainment demonstrations more difficult and certainly calls into question the importance and accuracy of emissions inventories. In short, this is a significant ruling for the state of Colorado as it continues to confront its persistent ozone issues, and carries important consequences for both state air quality planning agencies and regulated sources operating in existing and emerging ozone nonattainment areas.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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