UPDATE 3: Appeals court throws out CSAPR

The U.S. Court of Appeals for the D.C. Circuit has ruled that the U.S. Environmental Protection Agency (EPA) violated the Clean Air Act in its Cross State Air Pollution Rule (CSAPR). In a 2-1 decision, a panel of judges said the rule, which set stricter limits on sulfur dioxide (SO2) and nitrogen oxide (NOX) emissions from power plants in 28 states, exceeded the agency’s statutory authority.

In the Aug. 21 ruling, the Court said that EPA did not calculate the required emission reductions “on a proportional basis that took into account contributions of other upwind states to the downwind states’ non-attainment problems.” CSAPR attempted to establish a cap-and-trade system to allow power producers to comply with the emission limits by buying, trading and selling pollution permits.

The ruling leaves CSAPR’s predecessor, the Clean Air Interstate Rule, in place. Along with other provisions of the Clean Air Act, the existing rule ensures adequate protections remain in place to limit interstate air pollution.

In vacating the rule, the court has sided with industry groups, companies and some states that opposed compliance deadlines and said the rule could make the power market less reliable. In December, the court delayed the decision to implement CSAPR just two days before the rule was to enter force.

In a statement, EPA said it is reviewing the court’s decision and will then determine an appropriate course of action. “EPA remains committed to working with states and the power sector to address pollution transport issues as required by the Clean Air Act,” the statement said.

Todd Palmer, a partner with Michael Best & Friedrich LLP covering Clean Air Act cases in Wisconsin, said it is too early to predict the EPA’s response to the CSAPR overturn. “It is almost certain that any regulatory response will take years to develop.”

The court vacated CSAPR in two main areas. First, the Clean Air Act only authorizes EPA to require upwind states to limit its emissions that “significantly contribute” to a non-attainment problem in a downwind state.  The court held that under CSAPR, EPA was attempting to require upwind states to reduce their emissions by more than this “significant contribution” threshold.

“Our limited but important role is to independently ensure that the agency stays within the boundaries Congress has set,” wrote Judge Brett Kavanaugh. “EPA did not do so here.”

Second, the Clean Air Act affords each state the initial opportunity to regulate emissions within their borders which are deemed to “contribute significantly” to downwind non-attainment in other states.  However, under CSAPR, EPA made its findings of significant contribution and immediately imposed emission reduction obligations on those upwind jurisdictions. EPA did not provide the upwind state with an opportunity to develop its own emission reduction requirements to mitigate its interstate transport of pollution. According to the court, EPA violated the Clean Air Act by not allowing each state the opportunity to first develop its own SIP in response to a finding of interstate transport.

In a dissent, Judge Judith Rogers said that the court had disregarded “limits Congress placed on its jurisdiction, the plain text of the Clean Air Act, and this court's settled precedent interpreting the same statutory provisions at issue today. Any one of these obstacles should have given the court pause; none did.”

CSAPR had been in the making since the ‘90s. In 1998, EPA promulgated its first interstate transport rule, the NOx SIP Call.  Then in 2005, EPA a more restrictive interstate transport rule, the Clean Air Interstate Rule (CAIR), creating a cap and trade program to regulate the SO2 and NOx emissions from power plants in 28 eastern states.  In 2008, the U.S. Court of Appeals held that CAIR exceeded EPA’s authority and remanded the rule back to EPA for further development. In August 2011, EPA promulgated its CAIR through CSAPR, creating the trading program that was set to go into effect on Jan. 1, prior to the court’s decision to re-evaluate the rule.

“CSAPR was the most complicated rule-making I’ve ever been engaged in,” said Gina McCarthy, assistant administrator for EPA’s Office of Air and Radiation during PennWell’s COAL-GEN event on Aug. 15. “We had to look at two years of air modeling to understand where the pollution was coming from.”

One concern in the light of CSAPR being vacated could come in the form of state petitions being filed against individual upwind sources, Palmer said. “In the absence of a permanent, comprehensive federal interstate trading program, individual states are free to file Section 126 petitions against individual upwind sources that are alleged to be causing significant contribution to non-attainment areas within their borders.” Therefore, states that are victims of interstate pollution may file an increased number of filings as a result of the ruling.

Some power generators feared that if CSAPR had gone into effect in January, electric reliability would have been threatened as industry sought to comply with CSAPR and the Mercury and Air Toxics Standard simultaneously. One of the biggest opponents to the rule was the state of Texas, which sued the EPA, saying that enforcement of the rule would cause ERCOT reliability to be at risk.

“Vindicating the state’s objection to EPA’s aggressive and lawless approach, today’s decision is an important victory for federalism and a rebuke to a federal bureaucracy run amok,” Texas Attorney General Greg Abbott said regarding the court’s decision.

Texas power generator Luminant had also filed a lawsuit against the EPA, saying that CSAPR would have forced the company to terminate 500 jobs, shut down three lignite coal mines and 1,300 MW of coal-fired units. After the stay was granted in January, Luminant was able to continue operating units 1 and 2 at the Monticello coal-fired power plant, which it had planned to close.

Luminant spokesperson Ashley Barrie said that based on the court’s decision, Luminant will not need to implement its previously announced compliance plan. However, the company will continue pursuing CAIR compliance, which includes a budget that is expected to cost approximately $300 million this year alone.

Prior to the court’s decision, CSAPR may have had some influence on power generators’ choices to switch to natural gas. Andrew Weissman, senior energy advisor at law firm Haynes and Boone, said that if CSPAR had gone into effect as scheduled on Jan. 1, the emissions limitations on power plants would have forced some generators to switch from coal to natural gas.

This, he said, could have pushed up natural gas prices which have touched 10-year lows this year.

“However, without the regulatory boost from CSAPR, already rock bottom prices for natural gas have dropped even further, reaching 10-year lows this past spring,” he said.

U.S. natural gas futures dropped more than 10 cents on Aug. 21 after the ruling was announced as traders believe the ruling will result in less demand for gas over the coming months.

To read the court's opinion, click here.

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