Analysis of EPA v. EME Homer City Generation: SCOTUS Clarifies Clean Air Act’s Good Neighbor Provision, 5 Years Late

by William Yeatman on April 30, 2014

in Blog

Summary: Yesterday’s Supreme Court ruling in EPA v. EME Homer Generation, which upheld the EPA’s 2011 Cross State Air Pollution Rule (CSAPR), clarified more than a decade of contradictory interpretations of the Clean Air Act by the D.C. Circuit. For this, we can be thankful.  At the same time, however, there is reason to be wistful, because there can be little doubt that this Supreme Court would’ve upheld CSAPR’s predecessor, the 2005 Clean Air Interstate Rule. That rule was remanded by the D.C. Circuit Court in 2008, but the Bush administration didn’t have time for an appeal.

1. Michigan (2000) & North Carolina (2008): D.C. Circuit  Gives Conflicting Interpretations of the Clean Air Act’s Good Neighbor Provision; Judge David Sentelle’s Key role 

The Clean Air Act’s aptly named “Good Neighbor” provision addresses interstate pollution by prohibiting in-state sources from “emitting any air pollutant in amounts which will … contribute significantly” to downwind States’ non-compliance with national ambient air quality standards. See 42 U.S.C. §7410(a)(2)(D)

EPA promulgated its first interstate pollution plan on October 27, 1998*. It is known as the NOx SIP Call. The rule created a two-step process to determine the “amounts” of upwind States’ pollution which will “contribute significantly” to downwind States’ noncompliance with air quality standards. First, there was a threshold trigger: an upwind State was a “significant contributor” if it was found to contribute at least 2 parts per billion of ozone pollution to a downwind State that is failing to meet Clean Air Act ozone standards. If a State met this low threshold of contribution, it was required to participate in a cap-and-trade program for ozone precursor pollutants, for which each State’s pollution “budget” was determined by taking into account control costs.

EPA promulgated its second interstate pollution plan on May 12, 2005*. It is known as the Clean Air Interstate Rule (CAIR). Like the NOx SIP Call, CAIR created a two-step process to determine the “amounts” of upwind States’ pollution which will “contribute significantly” to downwind States’ noncompliance with air quality standards. Like the first rule, CAIR’s threshold for an upwind State being a “significant contributor” to downwind noncompliance was 2 parts per billion ozone pollution. Like the first NOx SIP Call, once a State met this 2 parts per billion threshold contribution,  it was required to participate in a cap-and-trade program for ozone precursor pollutants, for which each State’s pollution “budget” was determined by taking into account control costs.

For all intents and purposes, the NOx SIP Call and CAIR were functionally equivalent: The regulations established similar, and in many ways identical, two-step processes. Yet the D.C. Circuit Court treated them very differently.

States and environmental groups challenged the NOx SIP Call in court, and they argued, inter alia, that the Clean Air Act prohibits EPA from taking costs into account when the agency implements the Good Neighbor provision. In Michigan v EPA 213 F. 3d 663 (2000), the D.C. Circuit Court of Appeals upheld the NOx SIP Call by a 2-1 split decision, and explicitly authorized the use of costs to shape the rule’s implementation. (“in sum, there is nothing in the text, structure, or history of [the Clean Air Act Good Neighbor provision] that bars EPA from considering cost in its application.” Id at 679).

States and environmental groups also challenged CAIR, but they didn’t argue that the Clean Air Act prohibits EPA from taking costs into account, presumably because this matter had been (seemingly) settled in Michigan v. EPA. Yet in North Carolina v. EPA, 531 F. 3d 896 (2008), the D.C. Circuit reversed and remanded CAIR, because…well….the unanimous 3-judge panel wasn’t terribly clear as to why. The court seemed to believe that EPA’s CAIR relied too much on costs, but the judges had a hard time articulating how their reasoning differed from the court’s ruling  in Michigan v. EPA, in which the D.C. Circuit authorized the agency’s “considering cost in its application” of the Good Neighbor provision. Read for yourself, as I’ve posted the North Carolina Court’s opaque thinking below:

In Michigan v. EPA, 213 F.3d 663 (D.C.Cir.2000), we deferred to EPA’s decision to apply uniform emissions controls to all upwind states despite different levels of contribution of NOx to nonattainment areas caused by the differing quantities of emissions produced in upwind states and the varying distances of upwind sources to downwind nonattainment areas. We did so because these effects “flow[] ineluctably from the EPA’s decision to draw the `significant contribution’ line on a basis of cost differentials” and “[o]ur upholding of that decision logically entails upholding this consequence.” But the flow of logic only goes so far. It stops at the point where EPA is no longer effectuating its statutory mandate. [Citations omitted; formatting added]

Unhelpfully, the North Carolina court failed to discuss further “the point” at which consideration of cost is impermissible.

It’s a rare intra-circuit split. On the one hand, Michigan v. EPA authorizes the use of cost to define upwind States’ “significant contribution” to downwind noncompliance with the Clean Air Act. On the other, North Carolina v. EPA vaguely limits the use of cost in doing so. Why did the same court issue such divergent rulings regarding the scope of the same provision?

All signs point to one answer: venerable D.C. Circuit Judge David Sentelle.

As I mentioned above, in Michigan v. EPA, the D.C. Circuit upheld the use of costs in the NOx SIP Call by a 2-1 split decision. The dissenting voice in that case was Judge Sentelle, and his foremost objection was to the majority’s allowance for the agency’s use of cost in implementing the Good Neighbor provision. Here’s what he said:

[The Clean Air Act’s Good Neighbor provision] provides authority for EPA to require States to act in a certain fashion based upon the presence of sources or activities which emit “pollutants in amounts which will….contribute significantly to nonattainment.” It would appear to me that Congress clearly empowered EPA to base its actions on amounts of pollutants, those amounts to be measured in terms of significance of contribution to downwind nonattainment. Instead, EPA has chosen, doubtless in the pursuit of beneficent ends, to assert authority to require the SIPs to contain provisions based not on the amounts of pollutants, nor even on the relative significance of the contributions of such pollutants to downwind nonattainment, but on the relative cost effectiveness of alleviation. I agree with the State petitioners that it is undeniable that EPA has exceeded its statutory authority.

Fast forward eight years to 2008, and EPA’s second interstate pollution plan comes before a three-judge panel on the D.C. Circuit for judicial review. Guess who is the senior judge on the panel? None other than Chief Judge David Sentelle. Indeed, the per curiam opinion bears the unmistakable imprint of his dissenting opinion eight years earlier in Michigan v. EPA. Bluntly stated, the D.C. Circuit Court’s ruling in North Carolina v. EPA is confusing, I suspect, because Sentelle used it to re-litigate precedent. To be precise, I think he persuaded his colleagues to try to comport the reasoning of his Michigan dissent within the precedent established by the Michigan majority. However, because these rationales are mutually exclusive, such an attempt (i.e.., the North Carolina ruling) is necessarily nonsensical.

2. EME Homer (2012) Is Based on Confusing Precedent; SCOTUS Clarifies

In August 2011, EPA promulgated its third interstate pollution plan, known as the Cross State Air Pollution Rule (CSAPR). The rule followed the well trod path established by the NOx SIP Call and CAIR: There was a threshold contribution trigger, which, if met by an upwind State, subjected that State to a cap-and-trade whose parameters were a function of control cost. Again, the rule was challenged by State and industry petitioners, and came before a three judge panel on the D.C. Circuit Court (NOT including Judge Sentelle). The court’s task was unenviable, given the contradictory precedents established by the Michigan and North Carolina rulings.

By a 2-1 split decision that relied disproportionately on North Carolina v. EPA (rather than Michigan v. EPA), the D.C. Circuit vacated the agency’s CSAPR. The majority opinion in EME Homer City Generation v. EPA, 696 F. 3d 7 (2012), was delivered by Judge Brett Kanavaugh, and it held that the Good Neighbor provision requires EPA to consider only each upwind State’s physically proportionate responsibility for each downwind State’s air quality problem. Simply put, the court found that EPA was not authorized to rely on costs when it determined what constitutes an upwind State’s “significant contribution” to a downwind State’ air quality problem; instead, the agency had to endeavor to identify the actual amount of interstate pollution that violates the Clean Air Act.

In yesterday’s ruling, the Supreme Court reversed the D.C. Circuit’s decision in EME Homer v. EPA. The Court’s opinion, delivered by Justice Ginsburg, puts to rest the confusion sowed by the circuit court’s incongruent decisions, by ruling unequivocally that the Clean Air Act’s Good Neighbor provision gives EPA the authority to take costs into account during implementation.* According to the Court, “nothing in the Good Neighbor provision text precludes [using costs in CSAPR calculus].”

3. What Could’ve Been…

It’s pretty clear that this Supreme Court, were it logically consistent (i.e., apolitical, which is, admittedly, a stretch), would have upheld the 2005 CAIR. After all, the D.C. Circuit’s split was conspicuous, and it was only a matter of time before the Supreme Court weighed in, given the significant stakes inherent to interstate pollution mitigation. But in a historical twist of timing, the George W. Bush administration was never afforded the opportunity to appeal its reversal in North Carolina v. EPA. That decision was rendered in July 2008, only four months before a presidential election. There was no time for an appeal.


*Both the NOx SIP Call and CAIR addressed particulate matter pollution, in addition to ozone. For simplicity’s sake, I only addressed ozone in this post. The particulate matter regimes established by the two rules is identical to that created for ozone.

**Interestingly, the Supreme Court identified EPA’s authority as being derived from a Congressional delegation implicit in the ambiguity of the term “amounts” in the Good Neighbor provision. In Michigan v. EPA, the D.C. Circuit Court had identified “significant” as being the operative term in the Good Neighbor provision that authorizes the consideration of costs.

P.S. Stay Tuned! This post only covers half the Supreme Court’s EPA v. EME Homer ruling. Later today, I’ll post about the other half, which has dire ramifications for cooperative federalism, as intended by the Congress.

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