Legal & Regulatory

Appeals Court: EPA Rule Oversteps on NOx Allowance Purchases

In a judicial rejection of a major Bush administration air quality regulation, a federal court this summer struck down key provisions of a 2007 Environmental Protection Agency (EPA) rule allowing power plants in the eastern United States to satisfy federal requirements to improve local air quality by buying emission allowances in separate regional trading programs rather than installing pollution controls.

The ruling by a three-judge panel of the U.S. Court of Appeals for the District of Columbia addressed challenges to an EPA rule implementing a 1997 regulation that revised the national ambient air quality standard (NAAQS) for ozone from a standard averaged over one hour to a standard averaged over eight hours.

The ruling ruled on separate challenges brought by the Natural Resources Defense Council (NRDC); the states of New Jersey, New York, and Connecticut; and the National Petrochemical and Refiners Association (NPRA), consolidated by the appeals court.

The Clean Air Act’s NAAQS provisions set out requirements for improving and preserving air quality in local areas, authorizing the EPA to establish standards specifying maximum allowable concentrations of specific air pollutants and requiring states to develop highly detailed strategies—known as state implementation plans, or SIPs—for ensuring that cities and counties achieve and maintain the standards.

The statute requires the EPA to identify and designate attainment and nonattainment areas for each NAAQS, and also stipulates that SIPs require certain specific pollution control measures for all standards, as well as additional control measures for ozone.

The EPA implemented the 1997 ozone NAAQS revision in two phases. The regulations addressed by the court this summer, the Phase 2 rules, implement requirements for cities and counties the EPA identified as nonattainment areas, that is, areas that don’t meet EPA emissions requirements.
The air quality law requires that the plans for nonattainment areas “provide for the implementation of all reasonably available control measures as expeditiously as practicable (including such reductions in emissions from existing sources in the area as may be obtained through the adoption, at a minimum, of reasonably available control technology),” or RACT.

Previous judicial rulings held that Congress gave the EPA broad discretion in deciding what specific control measures would qualify as RACT, holding that as long as a given RACT control would expedite attainment, the agency was free to specify what control technology qualifies as RACT.

The NRDC, states, and NPRA challenged a provision in the Phase 2 rule in which the EPA deemed that utilities in ozone nonattainment areas could satisfy the RACT requirement by participating in two regional emissions trading programs established in separate EPA rulemakings—the so-called “NOx SIP Call” and the Clean Air Interstate Rule (CAIR.)

The NOx SIP Call rule, which addressed the flow of ozone pollution across state lines, established a NOx trading program for 22 eastern states, while CAIR, designed to assist eastern states in meeting the eight-hour ozone standard and a separate NAAQS for fine particle pollution, established trading programs for NOx and sulfur dioxide across 28 states and the District of Columbia.

The EPA said that utilities could satisfy the 2005 ozone NAAQS implementation rule’s RACT requirements by purchasing emission allowances either in the NOx SIP Call or CAIR NOx trading programs.

The NRDC, states, and NRPA argued that allowing a power plant operating in an ozone nonattainment area to satisfy RACT requirements by purchasing NOx emission allowances from utilities located hundreds of miles away from the nonattainment area violated the Clean Air Act’s mandate requiring controls at the source of pollution. The court agreed.

“Such region-wide RACT-level reductions in emissions do not meet the statutory requirement that the reductions in emissions be from sources in the non-attainment area,” the court said. “Because the EPA has not shown that NOx SIP Call compliance will result in at least RACT-level reductions in emissions from sources within each nonattainment area, the EPA’s determination that compliance with the NOx SIP Call satisfies the RACT requirement is inconsistent with the ‘in the area’ requirement and thus violates the plain text of [the statute].”

Last year the D.C. circuit court vacated the CAIR rule for similar reasons, saying, in part, that the EPA failed to demonstrate that CAIR’s emissions trading provisions adequately addressed the contribution of pollution from upwind states to downwind states’ failure to meet the ozone and particulate standards.

Following petitions from states and utilities severely impacted by the CAIR overrule, the court suspended enforcement of its decision to give the EPA time to craft a new regulation that would satisfy the court’s concerns. The court also suspended consideration of CAIR-related provisions of its July ruling.

—Chris Holley is a reporter for The Energy Daily, a sister publication of MANAGING POWER.

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