High court cross-state ruling leaves much unsettled for EPA

Source: Jeremy P. Jacobs and Daniel Lippman, E&E reporters • Posted: Monday, May 5, 2014

U.S. EPA scored a major victory this week when the Supreme Court upheld its program for harmful coal plant emissions that cross state lines, but the agency still faces important policy questions — as well as litigation — as it moves to implement the regime.

In a 6-2 ruling, the Supreme Court on Tuesday sided with the agency in a broad challenge from states and electric utilities to its Cross-State Air Pollution Rule, or CSAPR (Greenwire, April 29).The program encompasses 28 Eastern states, requiring upwind states to reduce emissions of harmful pollutants in order to help downwind states come into attainment with EPA’s air standards.

EPA has been trying to implement a “good neighbor” rule for two decades, having seen its previous effort thrown out in federal court. But while the Supreme Court upheld important aspects of the program — such as considering costs in deciding which states and sources must cut emissions — the court did not grapple with other issues raised by utilities and states in lower court.

That — plus compliance dates that have already come and gone — leaves many legal issues unanswered, industry lawyers said.

“There are a whole host of issues that still remain at the D.C. Circuit,” said Joshua Frank of Baker Botts LLP, who represented utilities in the case. He characterized the current status of the program as a legal “quagmire.”

For example, three states — Ohio, Kansas and Georgia — had separately challenged EPA’s implementation plans for their states. Those cases were put on hold pending the Supreme Court decision and now will move forward.

More importantly, the Supreme Court decision did not technically lift a federal appellate court’s stay on the program, which put it on hold. EPA must decide whether and when to ask the U.S. Court of Appeals for the District of Columbia Circuit to take such action.

EPA must also decide whether it wants to change the program’s compliance deadlines, which passed during the more than two years CSAPR has been caught up in litigation.

The agency says it hasn’t made any decisions yet.

“We are reviewing the decision and will determine any next steps once our review is complete,” agency spokeswoman Enesta Jones said, adding that the previous transport program, the Clean Air Interstate Rule, or CAIR, remains in place. “No immediate action from states or affected sources is expected.”

Industry attorneys said EPA may need to go through a new notice-and-comment period if it wants to change the compliance dates or other aspects of the rule. Such a process would undoubtedly open the agency up to new legal challenges.

“Even if the D.C. Circuit were inclined to lift the stay, there are difficult implementation issues to be grappled with,” Frank said. “With the compliance dates for CSAPR already in the past, it is not clear what obligations would apply and when.”

Other lawyers, however, had a different take.

If the stay is lifted, states would be required to start working to comply with CSAPR’s requirements regardless of the deadline, said Amanda Leiter, an environmental law professor at American University Washington College of Law.

“If I were EPA, I would not bother” changing the compliance deadlines, she said. “The fact that the existing deadlines have passed and are behind us is helpful to EPA, not harmful. If they really want to get the ball rolling, I don’t see why they would.”

She added that if a conservative administration wanted to slow the program down, going through new deadline procedures would be expected. But “this administration has shown every sign of wanting [the program] to go forward, so I don’t see why they’d do that.”

Further, from a litigation standpoint, the Department of Justice could bring enforcement lawsuits if a state took no action. The only other potential lawsuits would come from environmentalists challenging EPA for not forcing states to move more quickly.

But given EPA’s win at the Supreme Court, environmental groups would likely be “a bit leery” of bringing those types of lawsuits.

Leiter was also skeptical of the industry lawyers’ arguments about the remaining issues left at the D.C. Circuit, which the Supreme Court reversed in the case.

“The D.C. Circuit does not like to get its hands slapped,” she said. “Given that, my guess is that they are going to be pretty hesitant to open up a Pandora’s box with the rest of this rule.”

Other rules prepare utilities for compliance

Still, EPA may have to make some tweaks to the rule, largely because the emissions landscape has changed significantly since the agency finalized it in August 2011.

As much as they’ve grumbled about the rules, many utilities may not find it very difficult to comply with CSAPR since other regulations have prepared them to make emissions reductions, such as EPA’s Mercury and Air Toxics Standards, or MATS.

“We’re retrofitting [power] units or refueling them essentially to comply with the MATS rule … and so we expect that the sulfur dioxide and nitrogen oxides [reductions] required in the CSAPR rule are pretty close to being achieved,” said Melissa McHenry, a spokeswoman for American Electric Power Co. Inc., which was part of the lawsuit.

“We think that our compliance plan for those other rules are likely to get us very close, if not completely, to compliance with whatever requirements might come through CSAPR,” McHenry said.

MATS was recently upheld by the D.C. Circuit, though it is likely the utility industry will ask the Supreme Court to take up the case (Greenwire, April 15).

More lawsuits in the works

That doesn’t mean there aren’t other lawsuits in the works challenging CSAPR.

Supreme Court Justice Ruth Bader Ginsburg foreshadowed future litigation this week when she noted in her majority opinion that states may bring individual “as-applied” challenges to EPA’s specific determinations.

One particular issue is the EPA-determined threshold for adding an upwind state to the regime. The rule says a state that contributes at least 1 percent to a downwind state’s nonattainment status qualifies. If it doesn’t, Ginsburg’s opinion seems to indicate that EPA can’t include it in the program.

Several lawyers agree that the holding poses a problem for EPA’s decision to add Texas as an upwind state. Texas claims it does not meet the 1 percent threshold.

“Texas is the biggest issue for EPA,” said Jeff Holmstead, a former EPA air chief who now represents industry at Bracewell & Giuliani.

“Texas is the one where the court’s holding makes it pretty clear that what EPA did to Texas is not permissible,” he said.

In addition to the 1 percent issue, EPA also included Texas in the final CSAPR rule after leaving it out of the proposed rule. That may also make the agency vulnerable to a challenge.

And Texas Attorney General Greg Abbott, the Republican nominee for governor, all but welcomed that aspect of the Supreme Court opinion.

“Although we are disappointed in the ruling, we are pleased that the U.S. Supreme Court recognized that EPA’s power to implement this misguided rule is limited,” Abbott spokeswoman Lauren Bean said. “We look forward to pursuing the remaining challenges Texas has raised against this rule.”

Environmental groups are eager for EPA to act and for the D.C. Circuit Court to let implementation happen.

“This rule is designed to ensure that 240 million Americans live healthier longer lives, and it is of urgency that the U.S. Court of Appeals for the D.C. Circuit lift the stay and ensure that these protections are promptly carried out,” said Vickie Patton, the general counsel of the Environmental Defense Fund.

She said the emissions reductions by power companies wouldn’t require much capital investment and said that some coal-fired power plants already have modern controls that companies have not been fully operating during the litigation, causing more pollution to be emitted. That could change once the rules are put into effect.