DC Court Decision Raises New Questions on EPA Authority

DC Court Decision Raises New Questions on EPA Authority

July 30, 2008 16:34

Two important climate change law developments collided this month in unexpected ways that impact whether the U.S. Environmental Protection Agency can and will regulate greenhouse gas emissions (GHGs) pursuant to the federal Clean Air Act and, legal observers say, the resulting unintended consequence compels the conclusion that the Congress needs to act now to adopt a legislative fix.

First, in a Federal Register notice published on July 30, 2008 (but released informally on July 11, 2008), the EPA issued its Advance Notice of Proposed Rulemaking (ANPR) that responds to the U.S. Supreme Court’s April 3, 2007 decision in the Massachusetts v. EPA, in which the Court held that the EPA has the authority under the Clean Air Act (the “Act”) to regulate GHGs emitted from new automobiles.  Setting aside a lot of well-publicized political debates and other issues surrounding the remarkable ANPR and its contents, it is fair to say that, among other conclusions, EPA indicated that it believed that market-based incentives, including cap-and-trade programs, were important policy options available to it under the Act.

Second, in a seemingly-unrelated case, North Carolina v. EPA, the United States Court of Appeals for the District of Columbia Circuit (“DC Circuit”) issued an opinion on July 11, 2008, the same day as the ANPR’s release, declaring invalid due to “fatal flaws” the Clean Air Interstate Rule (“CAIR”).  One key provision under attack by the State of North Carolina in the case was its concern that CAIR allowed an upwind state, Alabama, to avoid its statutory responsibility to for assuring air quality within its borders, pursuant to Title I of the Act, when the Act arguably requires each state to create a state implementation plan (a “SIP”) for each air pollutant depending on whether the area meets the national ambient air quality standard (“NAAQS”).

CAIR required upwind states to revise their SIPs to control emissions of nitrogen oxides (“NOx”) and sulfur dioxides (“SO2”).  As an implementation option, CAIR authorized an interstate trading programs for each air pollutant and, in the absence of approved SIPs, allows upwind sources to use the trading program rather than achieve site-specific emissions reductions.  CAIR also revised the EPA’s Acid Raid Program regulations governing the SO2 cap-and-trade program and implements the CAIR NOx ozone-season trading program.  CAIR features emissions budgets by allocating the regional budget among states according to each state’s proportion of oil-, gas-, and coal-fired electric generating facilities.

The DC Circuit rejected EPA’s cap-and-trading programs because CAIR did not require actual elimination of emissions from sources that contribute significantly and interfere with maintenance in downwind nonattainment areas.  It said that CAIR is not achieving the Act’s mandate of prohibiting emissions moving from one state to another, leaving EPA “with no statutory authority for its action.”

Turning back to the ANPR, the EPA is considering the possible use of cap-and-trade programs to regulate GHGs and achieve region-wide reductions in emissions.  One method of regulation, the EPA explained, would be to set a NAAQS for carbon dioxide and use the cap-and-trade program to implement compliance options for achieving allocated regional emissions budgets. 

The DC Circuit’s decision in North Carolina v. EPA, however, significantly restricts EPA’s options for climate change regulation and, most notably calls into question whether EPA even has the authority under the Act to establish a cap-and-trade program for carbon dioxide.

During a recent teleconference presentation of the American Bar Association, lawyers involved in the North Carolina v. EPA case and the ANPR agreed that this month’s legal developments raise serious new concerns and they suggested that Congress should act quickly and simply to legislatively fix the uncertainty left in the DC Circuit’s wake.

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