Thoughts on EPA v EME Homer City Generation from a Cooperative Federalism Perspective

In a 6-2 ruling rendered last Tuesday, Environmental Protection Agency  v. EME Homer City Generation, 572 U.S. __(2014), the Supreme Court addressed the scope of the EPA’s authority to regulate interstate pollution under the “Good Neighbor” provision of the Clean Air Act.

There are two parts to the ruling. In one part, the Supreme Court permitted the use of costs to define an upwind state’s contribution to downwind states’ pollution problems. In a previous post, I explained how this section of the ruling clarified more than a decade of confusing case law out of the D.C. Circuit Court of Appeals.

In today’s offering, I will analyze briefly the second part of the ruling in EPA v. EME Homer City Generation, in which the Supreme Court permitted the Agency define the States’ Good Neighbor obligations and, at the same time, impose a compliance regime. Simply put, the Court denied States a broad right to be a “first implementer” under the cooperative federalism scheme established by the Clean Air Act.

1. Brief Primer on Cooperative Federalism as Practiced under the Clean Air Act

The Clean Air Amendments of 1970 (“the Act”) establish a “partnership” to improve air quality, one whereby “[t]he state proposes” and “the EPA disposes.” See Bethlehem Steel Corp. v. Gorsuch, 742 F. 2. 1028, 1036 (7th Cir. 1984).

Generally, the EPA establishes country-wide emissions limits, known as National Ambient Air Quality Standards (“NAAQS”), and achieving these standards is then left to the States.

To be temporally precise, the Clean Air Act gives States three years to draw up and submit to the EPA a strategy to reach NAAQS targets. These blueprints are known as “State Implementation Plans” (SIPs). Within 18 months of receiving a SIP, the EPA is required to approve, disapprove, or partially approve/partially disapprove the plan. If EPA finds that a SIP is incomplete or disapproves of a SIP, the Clean Air Act requires the agency to correct the deficiency by promulgating a Federal Implementation Plan, or FIP, within two years, unless the State corrects the deficiency within that time frame.

2. Brief Primer on EPA’s Implementation of Good Neighbor provision: 1998 NOx SIP Call; 2005 CAIR; 2011 CSAPR

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 gave participating States 12 months to incorporate this cap-and-trade into their SIPs, or come up with an alternative means of compliance.

On May 12, 2005, EPA promulgated a Good Neighbor provision plan known as known as the Clean Air Interstate Rule (CAIR). Like the NOx SIP Call, the CAIR regulation identified upwind States’ “significant contribution” to downwind States’ pollution problems, and provided an EPA-designed “cap-and-trade” by which participating States could achieve their Good Neighbor obligations. Notably, the agency provided States 18 months either incorporate the cap-and-trade into their SIPs, or come up with some alternative means of compliance.

On August 8, 2011, EPA promulgated a replacement rule for CAIR. The new rule is known as the Cross State Air Pollution Rule (CSAPR), and its structure was, for all intents and purposes, identical to that CAIR and the NOx SIP Call. Once again, EPA identified upwind States’ “significant contribution” to downwind States’ pollution problems, and provided an EPA-designed “cap-and-trade” by which participating States could achieve their Good Neighbor obligations. However, instead of granting States a period of time during which they could either incorporate the cap-and-trade into their SIPs or come up with alternative means of compliance (like the previous two Good Neighbor provision rules), EPA imposed the cap-and-trade, effective immediately. The Agency accomplished this by promulgating 28 Federal Implementation Plans, mandating State participation in the emissions trading program.

From a structural standpoint, then, the primary difference between the NOx SIP Call & CAIR on the one hand, and CSAPR on the other, was that the former two rules allotted States at least a year to come up with an alternative, whereas the latter was imposed immediately. 

3. D.C. Circuit Addresses CSAPR FIPs in EME Homer City Generation LP v. EPA; SCOTUS Reverse in EPA v. EME Homer

States and industry challenged EPA’s CSAPR rule in the D.C. Circuit Court, alleging, inter alia, that the agency violated the Clean Air Act by failing to accord States the opportunity to meet their Good Neighbor provision responsibilities on their own. That is, they contended that EPA exceeded its Clean Air Act authority when the agency quantified upwind States’ obligations to mitigate downwind pollution, and simultaneously issued Federal Implementation Plans to force these States to participate in a cap-and-trade, without first giving the States an opportunity to comply.

The letter of the law is on EPA’s side. As I note above in Section 1 of this post (the primer on cooperative federalism), the Clean Air Act authorizes the agency to promulgate a Federal Implementation Plan, or FIP, within two years of making a finding that a SIP is inadequate. For States subject to the Good Neighbor provision, EPA rendered such a finding in April 2005. CSAPR was published in 2011, well more than 2 years after the agency found these SIPs incomplete. As such, pursuant to a strict reading of the text, the agency should have been empowered to impose CSAPR’s targets and requirements contemporaneously.

And yet…

…It’s not that clear cut. For starters, the Clean Air Act establishes a system of cooperative federalism, whereby the States are given broad leeway to achieve national standards established by EPA, as I briefly explain in the first section. Implicit in the States’ discretion to implement a given standard is, of course, the existence of the standard to begin with. There are, moreover, equity concerns: Is it fair for States to be regulated before they’ve been given fair notice specifying their forbidden activity?

By a 2-1 split decision in EME Homer City Generation, L.P v. EPA, 696 F. 3d 7 (2012), the D.C. Circuit eschewed the letter of the law, and instead found that, “the text and context of the statute, and the precedents of the Supreme Court and [the D.C. Circuit Court of Appeals], establish the States’ first-implementer role under [the Good Neighbor provision].” See id at 34.

EPA appealed the D.C. Circuit’s ruling, and in EPA v. EME Homer City Generation 572 U.S. __(2014), rendered last week, the Supreme Court adhered to the letter of the law, and reversed the D.C. Circuit. According to the opinion of the court, “[O]nce EPA has found a SIP inadequate, the Agency has a statutory duty to issue a [Federal Implementation Plan] “at any time”. Thus, the Court rejected the D.C. Circuit’s contention that the cooperative federalism structure of the Clean Air Act grants States a right to be the “first implementer” under any EPA interstate pollution plan.

4. Analysis: What Are the Consequences?

• For starters, President Obama greatly added to his record-setting FIP total from his first term. This is demonstrated by the bar chart displayed above.
• The Supreme Court’s legal reasoning was viable; The D.C. Circuit’s legal reasoning was viable.
• As I intimate immediately above, I do not fault the Supreme Court’s legal reasoning. Indeed, EPA’s CSAPR isn’t a legal outrage so much as it is a political outrage. The “problem,” as I see it, is this administration’s total lack of respect for cooperative federalism (see graph above). It is, therefore, incumbent upon Governors, State legislators, and other local politicos to highlight and bemoan EPA’s overreach into the States’ rightful authorities. Only when the EPA’s political overlords (i.e., White House political strategists) feel a political blowback will the agency be tamed. As is demonstrated by the aforementioned chart above, FIPs were very rare…before the Obama administration. Yet there’s been little political price to pay. This must change.
• The Good Neighbor provision is multifaceted. In addition to ensuring that upwind States don’t contribute to downwind States’ non-attainment of public health standards like National Ambient Air Quality Standards, the provision also targets interstate pollution that impairs visibility. Because the Clean Air Act long has had a standalone visibility improvement program–Regional Haze–that takes into account interstate emissions, it had long been presumed that the Good Neighbor provision for visibility was no more than a backstop requirement to ensure a given State was meeting its Regional Haze requirements. [The Clean Air Act is famously and frustratingly interlocked]. However, the Obama administration’s EPA has advanced a novel legal regime, whereby the Good Neighbor provision for visibility imparts on the States a regulatory requirement that is INDEPENDENT of the Regional Haze program. For more, see here and here. Suffice it say for the purposes of this post, the Supreme Court’s decision opens the door for EPA to subject States to instant regulatory regimes, without any notice, in Clean Air Act programs other than NAAQS. That’s not good news.