Would you, could you, won't you be my good neighbor?

May 5, 2014 by Terri A. Czajka, Partner
On April 29, 2014, the U.S. Supreme Court decided the U.S. Environmental Protection Agency (EPA) has the authority to make states that are upwind of other states act as good neighbors and consider the impact that the air pollution emitted in upwind states has on the air quality of downwind states.  Hailed as a victory for Obama's environmental agenda and a momentum building decision to further the EPA's future rulemaking addressing global warming issues that are often seen as targeting the coal industry, the 6-2 decision upholds the EPA's Cross-State Air Pollution Rule (Transport Rule). 
 
Passed in 2011, the Transport Rule was EPA's third attempt at trying to develop a scheme of regulation to address the "good neighbor" rule, i.e. prohibiting one state's air emissions from contributing to the non-attainment of another state with respect to air quality standards.  Fifteen states, including Indiana and Ohio, as well as certain industries and utilities, either joined or intervened in a filed suit challenging the Transport Rule, alleging EPA did not properly follow its regulatory authority under the Clean Air Act in establishing the methodology for calculating the allocation of responsibility for an upwind states' impact on downwind areas by relying on the screen (1 percent or more contribution to downwind nonattainment gets you into the regulatory scheme) and control (using cost effective methods to allocate emission reductions) method.  Also at issue was the fact that EPA issued Federal Implementation Plans (FIPs) setting the emission budgets it established using its analysis under the screen and control method, without allowing states to develop their own process in the State Implementation Plans.  The Transport Rule was initially struck down by the D.C. Circuit Court, but the challenge did withstand the Supreme Court's review.  
 
For EPA, the third time was the charm for rulemaking purposes.  The Supreme Court majority agreed that the screen and control approach was reasonable to identify those states that should be regulated under the Transport Rule, as was EPA's decision to immediately issue FIPs.  Here, the Supreme Court was not persuaded by the arguments that EPA acted arbitrarily in setting its methodology for evaluating the screening process, and that with EPA's control methods there was a potential for "over-regulation" (i.e. that those states who barely exceeded the 1 percent threshold may end up reducing their portion of the downwind nonattainment more than their fair share).  As is common in regulatory litigation, the Supreme Court was willing to give deference to EPA and found the Clean Air Act was not specific as to how to administer the good neighbor provisions, and that EPA's discretionary authority had been exercised in a reasonable manner within the confounds of its authority.  In fact, the majority opinion for the Supreme Court seemed quite comfortable with the prospect of over-regulation as opposed to under-regulation.
 
But while the Transport Rule has been given new life, its journey may not be an easy one, and there will likely be complications in addressing its implementation.  When the Transport Rule was struck down in 2012, the D.C. Circuit Court re-instituted the Clean Air Interstate Rule, which had suffered its own set of legal challenges but had been allowed to remain in effect until EPA could develop a replacement regulatory structure.  Also complicating matters is that, with the passage of time between now and the Transport Rule's original passage in 2011, other conditions have changed, such as the compliance status of downwind states, which creates potential challenges to the FIPs that were forced onto states.  The Supreme Court ruling also leaves open the opportunity to bring challenges to EPA's administration of the Transport Rule.  So all may not be lost but it is likely EPA will look to move swiftly on its course now that it has affirmation of its authority.


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