Publication

February 2009Client Alert

CAIR Update: DC Circuit Revises Remedy and Remands EPA’s Clean Air Interstate Rule without Vacatur

In a decision that surprised the government, environmental advocacy and business communities, in July 2008, the District of Columbia Circuit Court struck down the Clean Air Interstate Rule (“CAIR”) as “fundamentally flawed”. North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. July 11, 2008). Developed by the United States Environmental Protection Agency (“EPA”) under the Clean Air Act (“CAA”) as one of a suite of rules designed to address interstate pollution, CAIR utilized a regional cap-and-trade approach.

To the further surprise of many, the court both remanded the rule and vacated it, creating a regulatory void to be filled by EPA at some uncertain future time. In September 2008, EPA filed a petition for rehearing, as did Environmental Defense Fund, National Resources Defense Council, U.S. Public Interest Research Group, National Mining Association, and Utility Air Regulatory Group. On December 23, 2008, the DC Circuit Court revised its initial decision remedy, remanding the case without vacatur. North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. Dec. 23, 2008). (Click here to read Michael Best's client alert from August 2008, titled, "DC Circuit To EPA: Multi-Pollutant Strategy For Interstate Clean Air Fails To Meet Clean Air Act Requirements," which discusses this opinion in detail.)

Summary of Court’s Initial Decision

In its July decision, the court rejected CAIR for five main reasons. First, CAIR did not address elimination of individual states’ contributions. Second, budgets for allowances under the trading program were not made on a state-by-state basis. Third, EPA did not give independent meaning to the CAA’s provision regarding “interfere with the maintenance of” of attainment in another state. Fourth, EPA did not have authority to address reduction of acid rain allowances. Finally, the deadlines for compliance with CAIR were inconsistent.

EPA’s Motion for Rehearing

EPA moved for rehearing on two main grounds. First, the court erred in determining that CAIR must be vacated. EPA argued that the court had upheld a trading program similar to CAIR in Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000). Like CAIR, the trading program in Michigan focused on regional emissions, rather than addressing state-by-state emissions. In Michigan, the court rejected the argument that the trading program was invalid because the regional program failed to correlate the level of emission reductions required from each state to that state’s impact on downwind attainment. EPA argued that its approach in CAIR was based on the approach the court upheld in Michigan. The Michigan court considered and rejected the very arguments on which the court relied when it found CAIR fundamentally flawed. Accordingly, rehearing was necessary to maintain uniformity in the court’s decisions.

EPA argued that the court erred in its order of vacatur because such an order would result in significant environmental, health, and economic harms. Vacatur would jeopardize massive emission reductions, which would result in thousands of cases of illness and premature death. Further, vacatur would have severe economic impacts. Billions of dollars have already been spent installing controls in anticipation of CAIR, and the value of banked allowances would be destroyed or greatly reduced.

Second, EPA contended that rehearing was appropriate because the court erred in holding that EPA lacked authority to terminate or limit sulfur dioxide (SO2) allowances under Title IV of CAA, which created a cap-and-trade program for SO2 emissions. Congress intended that EPA have such authority so it could modify programs under Title IV and Title I to be consistent with each other.

The Court’s Revised Remedy

On December 23, 2008, the court revised its remedy. The court reversed vacatur, leaving CAIR in place until EPA develops new rules to take its place or appropriately modifies CAIR. Despite the flaws of CAIR, the court explained that remand without vacatur was appropriate because vacatur “would at least temporarily defeat . . . the enhanced protection of the environmental values covered by” CAIR. While the court did not set a deadline for EPA to develop the new rule or correct the flaws in CAIR, it assured the parties that it would not grant an indefinite stay on the court’s vacatur order.

Update on CAMR

Prior to its initial decision regarding CAIR, in February 2008 the court invalidated another EPA rule developed under the CAA, the Clean Air Mercury Rule (“CAMR”). The CAMR decision was also discussed in detail in the client alert cited in the introductory paragraph. EPA is still analyzing the impact of the court’s vacatur and remand of CAMR.

For more information, please contact Linda H. Bochert at 608.283.2271, or lhbochert@michaelbest.com or Stephanie A. Czukas at 414.277.3442, or saczukas@michaelbest.com.

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