A federal appeals court last week struck down parts of a 2005 Environmental Protection Agency (EPA) rule governing power plant and factory pollution in areas where levels exceeded the federal 8-hour ozone standard. Also last week, an agency official told a Senate panel that the EPA was quickly moving forward to replace the Clean Air Interstate Rule (CAIR) and Clean Air Mercury Rule (CAMR).

The U.S. Court of Appeals for the District of Columbia on Friday invalidated parts of the EPA’s Final Rule to Implement the 8-Hour Ozone National Ambient Air Quality Standard (NAAQS) (PDF). Known more simply as the Phase 2 Ozone rule, this 2005 rule outlined the remaining elements of a program to implement the 8-hour ground-level ozone NAAQS that the EPA had revised in July 1997 from a 1-hour standard.

Environmental group Natural Resources Defense Council (NRDC) and the states of New Jersey, New York, and Connecticut had challenged parts of the rule that allowed power plants and factories in areas that had yet to meet federal health standards—nonattainment areas—to buy credits to pollute from other plants participating in CAIR, instead of installing modern emissions controls. Also challenged was an aspect of the rule that weakened pollution limits for major new or expanded power plants and factories in these areas because they had met other regulatory requirements.

Issued in 2005, CAIR’s purpose was to reduce sulfur dioxide (SO2), nitrogen oxide (NOx), and smog emitted by power plants in 28 Midwestern and Eastern states via an interstate cap-and-trade program to lessen their impact on downwind areas. The D.C. federal court had last December reversed its July 11, 2008, decision to vacate the regulation in its entirety until the EPA fixed “flaws” in that rule.

But on Friday, in per curiam decision (PDF), the court’s three-judge panel ruled that the Phase 2 Ozone Rule was “inconsistent with the Clean Air Act in allowing participation in a regional cap-and-trade program to satisfy an area-specific statutory mandate.” It added, “We further hold the EPA arbitrarily eliminated one safeguard and violated the anti-backsliding provision of the Act insofar as it eliminated another from its regulations governing review of new sources of pollution.”

“Rejecting these waivers is a breath of fresh air to millions of Americans living in cities that violate clean air standards,” said David Baron, attorney for Earthjustice, the organization that represented the NRDC. “The EPA rule let power plants pump uncontrolled air pollution into regions that already had dangerous smog levels. We said that violated the law, and the court agreed.”

Only the day before the federal court’s decision, the EPA’s assistant administrator for the Office of Air and Radiation, Regina McCarthy, had told the Senate Subcommittee on Clean Air and Nuclear Safety that the EPA would move “smartly and aggressively” to propose replacements for CAIR in early 2010, issuing a final rule by early 2011. The agency was also working to replace CAMR “as quickly as our understanding of the issues allows,” she said at a hearing titled “Oversight: Environmental Protection Agency’s Clean Air Regulations—One Year after the CAIR and CAMR Federal Court Decisions.”

In February 2008, the federal D.C. court had vacated CAMR, finding that the agency had unlawfully allowed trading of the toxic pollutant.

The replacement rules would cover all pollutants the EPA was responsible for—including SO2, NOx, mercury, acid gases, and others—as well as greenhouse gases, McCarthy said. As well as implementing them as quickly as possible, the EPA was committed to keeping costs low. “This means looking for cost-effective ways to get reductions on the right geographic scales by using the right combination of emissions trading, performance standards and hybrid approaches as appropriate; providing industry the kind of information they can rely on to plan for the future so we can keep the lights on and make smart investments; and avoid unnecessarily high or volatile energy costs for consumers.”

The agency would also work to keep the policies “clear, coordinated, and legally defensible.”

“Finally, we must keep in mind that soon we will likely be living in a carbon controlled world that will require greenhouse gas emission reductions from power plants,” she added. “As we plan for the future, it is both environmentally and economically irresponsible not to take this likelihood into account.”

Sources: U.S. Court of Appeals for the District of Columbia, EPA, Senate Committee on Environment and Public Works, NRDC