Facing Two Strikes, EPA Gets a Hit: Supreme Court Upholds EPA Cross-State Air Pollution Rule

by K&L Gates LLP

Two years ago, we reported that the D.C. Circuit vacated and remanded the U.S. Environmental Protection Agency’s (“EPA”) second attempt at regulation of air pollution crossing state borders. [1] Facing two strikes, EPA swung for the fences, and on April 29, 2014, in a 6-2 ruling, [2] the Supreme Court reversed the D.C. Circuit, holding that EPA’s cross-border air pollution rule (the “Transport Rule”) [3] did not violate the Clean Air Act (“CAA”) by establishing a new federal scheme for regulating upwind emissions that drift over state lines.  The decision likely will impact those power plants in “upwind states” that contribute to cross-border air pollution by imposing more stringent air emissions limits for those facilities. However, the decision may also spur an increase in development of renewable energy and lower-emission, natural gas-fired plants.

The Transport Rule establishes good neighbor obligations among 28 states for three primary pollutants: NOX, SO2, and ozone, and EPA has established National Ambient Air Quality Standards (“NAAQS”) for each of these pollutants. [4] Any state whose ambient air quality exceeds the NAAQS is considered in “non-attainment.” The CAA requires that upwind states whose emissions cause or contribute to exceedances of NAAQS standards in downwind states control their emissions to the extent required to avoid such contribution.  The Transport Rule is made up of two basic components: it quantifies each state’s emission reduction levels under the good neighbor provision and imposes Federal Implementation Plans (“FIPs”) to implement those reductions at the state level.

EPA calculated the necessary emissions reductions in a two-stage approach. The first stage screens from its requirements all upwind states that contribute less than 1% of any downwind state’s non-attainment. [5] The second stage applies a multi-factor assessment to set reductions in those upwind states on a cost-per-ton reduction basis (which relied on the costs to install pollution reduction technology) distributed across all power plants in the upwind states. [6] The Transport Rule proposed to achieve cost-per-ton reductions over multiple years, beginning in 2012 and relying on a maximum budget for each pollutant that a state’s power plants may collectively emit through 2014. [7] Since EPA found that many State Implementation Plans (“SIPs”) did not properly provide for these emissions budgets, EPA invalidated those SIPs and instead required those states to comply with new state-specific FIPs. It did so without giving the states an opportunity to correct their SIPs based upon EPA’s objections, and (at least according to some) without giving the states guidance on how to address those objections.

The Supreme Court reviewed the D.C. Circuit’s conclusion that the Transport Rule exceeded EPA’s statutory authority to impose more stringent air quality requirements through the good neighbor provisions of the CAA. First, the D.C. Circuit determined that the Transport Rule exceeded CAA authority because the good neighbor provision could impose emissions reductions on upwind states that could go beyond those states’ significant contribution to downwind air pollution in other states. Second, the Transport Rule failed to provide the states the first opportunity to implement the good neighbor reductions through their own SIPs. Instead, EPA quantified the states’ good neighbor reductions and simultaneously set forth EPA-designed FIPs to implement those obligations at the state level without first providing the states an opportunity to correct their SIPs.

The Supreme Court overturned the D.C. Circuit decision, concluding that EPA reasonably interpreted the good neighbor provision and that the CAA did not require EPA to give states a grace period to file revised SIPs.

As to the FIP/SIP issue, the Supreme Court observed that “[a]fter EPA has disapproved a SIP, [it] can wait up to two years to issue a FIP, during which time the State can ‘correc[t] the deficiency’ on its own. But EPA is not obliged to wait two years or postpone its action even a single day: The Act empowers [EPA] to promulgate a FIP ‘at any time’ within the two-year limit.” [8] The states argued that they could not reasonably write SIPs to address the good neighbor provision until they knew how EPA would interpret that provision. The Supreme Court disagreed, noting that the CAA “does not require EPA to furnish upwind States with information of any kind about their good neighbor obligations before a FIP issues.” [9] As such, the Supreme Court held that EPA acted within its discretion to establish emission reduction criteria under the good neighbor provision, invalidate SIPs that did not meet the good neighbor provision, and immediately impose FIPs on those states without allowing states the opportunity to amend their SIPs to address EPA’s new criteria. [10]

More importantly, the Supreme Court also showed substantial deference to EPA’s statutory interpretation of the good neighbor provision itself, largely because of the highly technical approach EPA took. The good neighbor provision requires upwind states to reduce any emissions that “significantly contribute” to downwind states’ nonattainment of the NAAQS. [11] The parties disputed whether EPA could allocate emission reduction criteria among several upwind states based upon cost-effectiveness, rather than on each state’s individual emission contribution. In addition, the parties disputed whether the Transport Rule might require a state to reduce emissions in an amount greater than necessary to enable a downwind state to achieve attainment. While the D.C. Circuit agreed with the states that a cost-effective analysis did not comply with the CAA, the Supreme Court deferred to EPA’s judgment, concluding that Congress had not expressly stated how EPA should allocate emission reductions. The Supreme Court “read Congress’ silence as a delegation of authority to EPA to select from among reasonable options.” [12] Despite arguments that the cost of preventing emissions is wholly unrelated to the actual amount of air pollution contributed by an upwind state, the Supreme Court upheld the belief that “[e]liminating those amounts that can cost-effectively be reduced is an efficient and equitable solution to the allocation problem the Good Neighbor Provision requires [EPA] to address.” [13]

The Supreme Court did not, however, grant EPA blanket license to regulate pollutants, and—mindful of the potential for over-control—the Court stated that “[i]f EPA requires an upwind State to reduce emissions by more than the amount necessary to achieve attainment in every downwind State to which it is linked, the Agency will have overstepped its authority.” [14] Should such an overstep occur, the Supreme Court explained that an affected state could “bring a particularized, as-applied challenge to the Transport Rule,. . . .” [15]

Given the technical nature of the Transport Rule and the fact that reasonable minds could disagree as to the correct approach, it is not surprising that the Supreme Court deferred to EPA’s approach. Two aspects of the decision, however, may present more profound implications, one relating to CAA policy and the other to judicial review of EPA decisions.

As to CAA policy, the Supreme Court clearly deferred to EPA’s restriction of states’ authority to set attainment standards. Although the CAA gives EPA up to two years to replace a defective SIP with a FIP, in this case, it did so immediately, without giving states the ability to correct the deficiencies or instructing them in advance on how it should be met. As to judicial review, the Supreme Court held that EPA’s immediate FIP promulgation complied with the CAA’s “plain text and structure establishing a clear chronology of federal and state responsibilities.” [16] Because the CAA is “clear,” the Supreme Court did not even reach step two of the Chevron deference analysis asking whether EPA’s interpretation was based on a permissible construction of the statute. Under the Supreme Court’s review, EPA’s authority to invalidate a SIP and immediately promulgate a FIP rises from the clear text of the CAA rather than from EPA’s interpretation of the statute. 

Deferring to EPA in this manner raises two primary issues. First, for states that rely on fossil fuel power, EPA’s exercise of authority in this manner substantially reduces their ability to support those forms of energy production. It clearly represents a victory for EPA’s efforts to discourage use of fossil fuel by increasing its cost, thus making renewable alternatives more competitive.

Although the Supreme Court technically left open the possibility that states may bring “as-applied” challenges to the Transport Rule (rather than simply challenging the Transport Rule in its entirety), individual state-by-state challenges to FIPs may be more akin to playing “whack-a-mole” since, although the FIP decision for each state is separate, all FIP decisions are inherently linked because they address interstate pollution.

Second, and more broadly, the Supreme Court’s deference to EPA (by agreeing that the CAA’s text clearly authorized immediate FIP promulgation) raises the issue of what it really means to say Congress has “directly spoken to the issue” for purposes of Chevron Step I. This holding shows great deference to an agency’s reading of a statute in the face of multiple parties, Circuit Courts, and even some Supreme Court justices’ belief that the statute’s text does not show that Congress has directly spoken to an issue.

Questions remain as to whether this decision will embolden EPA as it pursues other policies. Seemingly, the more technical and complicated EPA makes its justification for a particular rule, the more deference the Supreme Court will grant it. How will the Supreme Court react, for instance, in the face of a technically complex rule requiring some form of cap and trade to address greenhouse gases?

Moreover, significant issues lie ahead for EPA related to regulatory impacts and legal implications for the Transport Rule.  For example, the Transport Rule’s technical start date—January 1, 2012—is already two years past, so the agency will likely issue new regulations to modify implementation dates.  Likewise, EPA may need to adjust the Transport Rule to address revisions and updates to air quality standards for ozone and particulate matter. And finally, EPA may face further litigation that was stayed in light of the D.C. Circuit decision, or litigation related to technical revisions to the Transport Rule during the stay. [17]

Despite these challenges, the Supreme Court decision establishes a broad basis for EPA to regulate cross-border air pollutants, which will likely accelerate the adoption of new pollution control technologies or the replacement of fossil fuel energy production with alternatives that do not emit—or emit far less of—these criteria pollutants.

[1] For additional information on the decision underlying the Supreme Court’s decision, see our prior alerts on this topic:  D.C. Circuit Calls Strike Two on EPA’s Cross-State Air Pollution Rule and Homer City - Has the D.C. Circuit Signaled an Alternate Approach to Judicial Review of Agency Regulations?.

[2] Justice Alito did not participate.  Justices Scalia and Thomas joined in dissent.

[3] Federal Implementation Plans:  Interstate Transport of Fine Particulate Matter and Ozone and Correction of SIP Approvals, 76 Fed. Reg. 48,208 (Aug. 8, 2011).

[4] For additional details on the regulated pollutants, see 76 Fed. Reg. 48,208.

[5] EME Homer City Generation LP v. EPA, 696 F.3d 7, 11 (D.C. Cir. Aug. 21, 2012).

[6] Id. at 11-12.

[7] Id. at 12.

[8] EPA v. Homer City, No. 12-1182, slip op. at 16 (April 29, 2014) (“Homer City”) (internal citations omitted).

[9] Id. at 16.

[10] Id. at 14-17.

[11] 42 U.S.C. § 7410(a)(2)(D)(i).

[12] Homer City at 22.

[13] Id. at 26.

[14] Id. at 29 (emphasis in original).

[15] Id. at 31.

[16] Id. (citations omitted).

[17] See, e.g., Util. Air Regulatory Grp. v. EPA, No. 12-1346 (D.C. Cir. Sept. 27, 2012); Wisconsin Pub. Serv. Corp. v. EPA, No. 12-1163 (D.C. Cir. April 6, 2012).


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.

© K&L Gates LLP | Attorney Advertising

Written by:

K&L Gates LLP

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.