On April 29, 2014, in a very significant 6-2 decision, the U.S. Supreme Court affirmed EPA’s Cross-State Air Pollution Rule (CSAPR or the Rule), overturning a 2012 D.C. Circuit Court of Appeals decision invalidating the Rule. The decision in EPA v. EME Homer City Generation, L.P. is a major victory for downwind states adversely impacted by power plant emissions originating in upwind states. For example, a substantial portion of air pollution in New Jersey comes from major emitting facilities in upwind states.

As a general matter, EPA sets National Ambient Air Quality Standards (NAAQS) under the Clean Air Act (CAA) to protect health and welfare. Within three years of establishing new NAAQS, each state must file a State Implementation Plan (SIP) setting forth how it will achieve the NAAQS. If EPA determines that any SIP does not fully comply with the CAA, it may promulgate a Federal Implementation Plan (FIP) to supplant the non-compliant SIP. Section 110(a)(2) CAA also requires states to prohibit the emission of air pollutants in amounts that will interfere with another state’s ability to attain the NAAQS. This provision, known as the “Good Neighbor Provision,” is the source of EPA’s authority for the CSAPR.

CSAPR requires 28 states to reduce power plant emissions, such as sulfur dioxide, nitrogen dioxide, particulate matter and ozone, which travel downwind and negatively impact other states’ ability to comply with NAAQS. Contemporaneous to its release of the Rule, EPA preemptively issued an FIP allocating state emissions budgets among in-state sources, having previously determined that the affected states’ SIPs inadequately addressed the CAA Good Neighbor Provision. EPA’s map of the regulated states and the general direction of emissions from state to state is available here.

The D.C. Circuit had found that EPA violated the Rule by not providing upwind states with guidance or enough time to reformulate their SIPs after EPA had set the emission budgets under the Rule. The Supreme Court disagreed, holding that the plain language of the CAA required EPA to issue the FIPs and granted the agency authority to limit emissions under the Good Neighbor Provision. The Court rejected arguments that EPA had improperly relied upon a cost analysis when it created the emissions budgets for the states affected by the Rule. Relying upon Chevron v. Natural Resources Defense Council, which instructs courts to defer to reasonable agency interpretations of ambiguous statutory language, the Court held that the Good Neighbor Provision was ambiguous and that EPA’s judgment in implementing the Rule was entitled to deference.

The ruling ends a long-fought legal battle over the Good Neighbor Provision, which EPA has been trying to enforce in one form or another since 1998. A prior 2005 rule, the Clean Air Interstate Rule (CAIR), was overturned by the D.C. Circuit Court of Appeals in 2008 for not sufficiently protecting public health. CSAPR was finalized in August 2011 to replace CAIR. EPA’s cost-benefit analysis in support of the Rule found that when implemented it will prevent 1.8 million sick days, 400,000 cases of aggravated asthma, and 13,000-34,000 premature deaths.

Affected facilities should consider how best to meet the requirements of the Rule. This could include adding pollution controls or acquiring allowances. Unfortunately, the Court did not clarify whether existing CAIR allowances may be used to demonstrate compliance. Expect EPA to clarify that in the future. Also, expect some states to bring “as-applied” challenges to the Rule on the basis that the emissions reductions required for their state fall below CSAPR’s 1 percent de minimis threshold. The Court’s decision is available here.