January 01, 2015

Environmental Federalism and the Homer Decision

James Andreasen

The recent US Supreme Court case EPA v. EME Homer City Generation, 572 U.S. ____, 2014 WL 1672044 (2014), puts to bed disputes over U.S. Environmental Protection Agency’s (EPA’s) rules relating to interstate air pollution and EPA’s implementation of federal plans to implement those rules. It also opens up potential questions regarding the extent of EPA’s ability to execute end-runs around state rules and implement its own preferred programs.

The case focuses on part of the Clean Air Act, sometimes called the “good neighbor provision,” that calls for states to prevent sources from emitting “any air pollutant” in amounts that “contribute significantly” to a downwind state’s ability to attain National Ambient Air Quality Standards (NAAQs). 42 U. S. C. §7410(a)(2)(D)(i). EPA’s first effort to codify regulations covering the good neighbor provision, the 2005 Clean Air Interstate Rule, upon challenge, was allowed to remain in place while the agency endeavored to make revisions to meet mandates of the Court of Appeals for the D.C. Circuit. North Carolina v. EPA, 531 F.3d 896, 908 (D.C. Cir.2008). The Homer case considers the resulting revised rule, called the Transport Rule, issued in 2011. The Transport Rule focuses on ozone and nitrogen oxide (NOx) NAAQS, and thus targets emissions that contribute to ozone and NOx levels in the ambient air. Broadly, the Transport Rule identifies emission sources to be controlled through a two-part inquiry. First, does the emission contribute at least 1 percent of the allowable NAAQS level in the downwind state, and, second, can the emission be controlled economically?

On appeal, the D.C. Circuit held the Transport Rule was arbitrary and capricious. The Supreme Court, however, held two-part inquiry and establishment of emission inventories to incorporate a reasonable interpretation of a partially ambiguous statute, despite departing from earlier EPA interpretations. Any reader involved in the air practice would be well-advised to study the Transport Rule as well as the Court’s opinion in Homer to understand the rule in the context of judicial interpretation.

This article, however, will focus on the next step of EPA’s analysis and approach. Of course, like most of the command-and-control environmental statutes, the Clean Air Act incorporates basic federalism, calling a federal-state partnership in regulating air emissions. The Act requires states to submit State Implementation Plans (SIP) within three years after EPA promulgates a new NAAQS, provides for EPA review, and, in the event of disapproval, allows EPA to develop a Federal Implementation Plan (FIP) to stand in the stead of the SIP. The Transport Rule left room for states to determine how to achieve the emission reductions for which EPA’s calculus of emission quantity and cost of reduction would call. In short, EPA used its analysis to establish an emission budget for each state that had emissions determined to contribute 1 percent or more to downwind states’ air pollution, and the state could determine, through its SIP, how to meet that budget.

After EPA’s issuance of the Interstate Rule in 2005, states submitted SIP provisions to implement that rule. That 2005 rule, however, differed dramatically from the 2011 Transport Rule. For example, the 2005 rule lacked any reference to the 1 percent concept, or any economic analysis relating to cost of emissions reduction as part of identifying sources to be controlled. Moreover, interpretation of the 2005 rule became at least potentially unclear after the North Carolina decision required revisions to the regulation. Unsurprisingly, SIPs submitted under the 2005 rule were not consistent with the 2011 rule.

Some states’ Interstate Rule SIPs had been disapproved before EPA promulgated the Transport rule, and some had been approved. Within the Federal Register notice of its promulgation of the Transport Rule, in a section headed “Correction of CAIR SIP Approvals,” EPA stated it was “correcting” prior approvals of SIPs for twenty-two states, “to rescind any statements that the SIP submissions either satisfy or relieve the state of the obligation to submit a SIP to satisfy the requirements of [the good neighbor provisions] . . . .” 76 Fed. Reg. 48,207, 48,220 (Oct. 7, 2011). The Clean Air Act, upon SIP disapproval, starts a two-year clock for EPA to issue a FIP for the disapproved state or states, unless the state first corrects its SIP. When it issued the 2011 Transport Rule, after disapproving all outstanding SIP good neighbor provisions, EPA immediately imposed FIPs on each affected state. Homer, slip op. at 14 n. 12.

Unsurprisingly, states challenged this action. After all they had, presumably in good faith, expended significant resources to develop, propose, and perhaps negotiate with EPA over SIP provisions based on the 2005 rule. They could not have known throughout that process that EPA would change the regulatory landscape so thoroughly that their plans would become unacceptable. Moreover, EPA imposed its FIPs without ever giving states a chance to develop SIPs consistent with the 2011 rule. Doubtless it seemed like quite a departure for EPA to issue a new rule and, at least arguably, circumvent the states’ right under the Clean Air Act to develop their own implementation plans.

Arguably, a state whose SIP was disapproved regardless of the 2011 rule might occupy a different position under the statute than a state whose SIP approval was rescinded by the 2011 rule. The Supreme Court did not address this question, however, because the circuit court had not addressed the issue. Instead, the Court’s analysis appears to treat all the SIP disapprovals simply as disapprovals occurring before implementation of the relevant FIP.

Ultimately, this appears to make the Court’s analysis relatively simple. The Clean Air Act calls for EPA to issue a FIP within two years after disapproving a SIP. The statute does not expressly require EPA to wait, so once the SIPs were disapproved, immediate imposition of the FIPs was consistent with the statute. From the Court’s perspective, “once EPA has found a SIP inadequate, the Agency has a statutory duty to issue a FIP “at any time” within two years . . . .” Homer, slip op. at 15.

The fact that the FIPs were prepared under an entirely new regulation did not prevent EPA from issuing them. The Circuit Court had asserted that, in the pre-Transport Rule regime, where states had no direct guidance as to how to deal individually with a regional problem, requiring SIP submissions set the states up to fail. But the Supreme Court found the statute did not require EPA to provide any such guidance. See Homer, slip op at 15. Moreover, the Supreme Court noted the statute did not “condition the duty to promulgate a FIP on EPA’s having first quantified an upwind State’s good neighbor obligations.” Id. at 16.

If one accepts the legitimacy of the SIP disapprovals, it seemingly would have been counterproductive at best for EPA to refuse to acknowledge the existence of the new rules in developing a FIP. In other words, a FIP based on the now-superseded regulatory program would likely be no more consonant with the current regulations than the disapproved state SIPs. Once things change, regulators and the regulated must live with the change (at least once all challenges are exhausted). From that perspective, the timing of EPA’s actions arguably fades out of relevance, and if the disapprovals were proper the only really rational approach would be to implement FIPs (or, if time allowed SIPs) that were consistent with the newer regulation.

A question arises, at least theoretically, as to whether the Transport Rule triggered a new three-year SIP submittal duty, even though the FIPs presumably are identical to those EPA would issue if they disapproved SIPs prepared under the new regulation. Ancillary to that question is whether it would be particularly fruitful for a state to endeavor to develop independently an implementation plan in the face of an existing federal implementation plan. Different rules could significantly upset what may become relatively settled expectations among regulators and the regulated community. Moreover, the approval process could be complicated by the existence of the FIP, with which EPA presumably is satisfied. These and other factors might make the efforts necessary to develop a new SIP unwise. In the long run, as a practical matter, by at least establishing a firm set of ground rules, the Court’s opinion may facilitate future efforts to identify and implement more effective and efficient controls to deal with interstate transport of air pollutants, like cap-and-trade provisions.

But there may be some question as to whether the ruling opens up other potential avenues for EPA to, in effect, move the goal line and immediately impose its own preferred control regime with respect to other programs that involve a federal-state partnership in regulation and enforcement. These include not only the Clean Air Act but the Clean Water Act and the Resource Conservation and Recovery Act. Of course a significant brake on these possibilities is that, at least to be on all fours with the Homer decision, EPA would need a new set of regulations that departed significantly from the approach taken by the preexisting regulatory provisions and a clear mechanism to disapprove the states’ programs created under the preexisting rules. In an era of limited resources, a rational state might want to assess potential effects of pending federal regulatory changes on its existing programs, especially proposals being developed with EPA. If the work of developing those proposals is likely to be tossed out, it might be best for all concerned to focus energies on activities that will have long-term meaning and effect.

James Andreasen

Mr. Andreasen practices law in the greater Kansas City area.