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Washington, 21 August (Argus) — The DC Circuit Court of Appeals today struck down the Cross-State Air Pollution Rule, ordering federal regulators to continue enforcing the Clean Air Interstate Rule (CAIR) until a legally defensible replacement is developed.
In a 2-1 ruling, judges Brett Kavanaugh and Thomas Griffith voted to strike down the cross-state rule, saying the Environmental Protection Agency (EPA) used a flawed methodology to determine the amount of emissions reductions each state must achieve. The majority opinion also said EPA overstepped its authority by promulgating a federal implementation plan (FIP) instead of allowing the 28 states covered by the rule to develop their own plans.
Kavanaugh, who wrote the majority opinion, said the cross-state rule is illegal because it could require upwind states to reduce emissions “by more than their own significant contributions” to downwind non-attainment of national ambient air quality standards (NAAQS) “without regard to the limits imposed by” the Clean Air Act.
The cross-state rule was projected to reduce SO2 and NOx emissions from power plants by 73pc and 54pc, respectively, below 2005 levels. It was designed to help states meet annual ozone and fine particulate matter NAAQS set in 1997 and 24-hour fine particulate matter NAAQS set in 2006.
EPA used a combination of emissions monitoring, modeling and cost abatement thresholds to set state-level SO2 and NOx allowance budgets as part of trading programs that would replace those developed under CAIR. The agency used a $500/short ton abatement cost threshold to determine annual and ozone season NOx budgets, while SO2 budgets were set using a $500/st threshold for 2012-2013 that rose to $2,300/st in 2014 for 16 states.
The court determined that this methodology “failed to ensure that the collective obligations of the various upwind states, when aggregated, did not produce unnecessary over-control in the downwind states” because the uniform application of blanket cost abatement thresholds does not match up with each state's actual contribution to downwind air pollution. The opinion also cited the 2008 decision that remanded CAIR, saying EPA may not use cost to force an upwind state to “exceed the mark.”
The decision will make it challenging for EPA to design and implement market-based emissions-reduction programs because it will be extremely difficult to set emissions budgets based on significant contribution calculations that could face endless legal challenges and appeals.
“It is not worth it for EPA to try to implement this court's decision on the precise amount of pollution contributed by the upwind states because it is so convoluted,” said a former congressional staffer involved with the 1990 Clean Air Act amendments. The former aide also said the majority's ruling that EPA can require states to reduce less than their contribution to other state's air quality problems was contrary to a literal reading of the Clean Air Act.
The two judges also agreed with opponents that EPA acted illegally by promulgating a FIP without first allowing states to develop their own plans to achieve the cross-state rule's emissions reduction targets. Doing so represented an “unprecedented application” of the Clean Air Act's good-neighbor provision, the judges wrote. Kavanaugh and Griffith explained that determining emissions reductions through the SO2 and NOx allowance budgets was analogous to setting NAAQS, meaning states should have been given time to prepare their own plans to meet the cross-state rule's requirements.
Judge Judith Rogers, the dissenting voice, said the majority opinion represents “a redesign of Congress's vision of cooperative federalism” and “trampl[es]” on the court's history of deferring to EPA on technical rulemaking issues. Rogers disagreed with her colleague's interpretation of the 2008 CAIR decision that was used to invalidate EPA's significant contribution methodology. Rogers also disagreed with arguments made against EPA's use of a cross-state FIP, saying they “lack merit.”
Rogers was the only member of the three-judge panel to also preside over the 2008 case that overturned CAIR.
A number of US states and power companies that opposed the cross-state rule issued statements of support for the court's ruling, saying it would preserve grid reliability while keeping power prices low. Environmental groups and states that joined the case in support of EPA urged the agency to file an appeal. EPA has 45 days to ask the full DC Circuit to rehear the case, or the agency could appeal directly to the US Supreme Court.
The agency did not respond to requests for comment.
The ruling caused prices for CAIR annual and ozone season NOx allowances to rise sharply from yesterday's levels. By late afternoon, vintage 2012 CAIR ozone season NOx allowances had traded at $20/st, while annual NOx allowances were heard to trade at $50/st. The annual allowances closed yesterday at $25 and the seasonal at $7.50. Bids for all cross-state SO2 and NOx allowance contracts were heard at $10/st with offers at $50/st, but no trades were reported.
It is unclear when EPA will repopulate CAIR compliance accounts with vintage 2013 allowances now that the cross-state rule has been knocked down. As of today, no accounts have CAIR annual NOx, ozone season NOx or SO2 allowances beyond vintage year 2012, according to EPA's electronic tracking system.
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