A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit voted 2-1 on Monday to vacate the Environmental Protection Agency's (EPA) disapproval of the Texas Commission on Environmental Quality's (TCEQ) Flexible Permits Program.

In a 33-page ruling, Judges E. Grady Jolly and Leslie Southwick said the EPA's objections were "sixteen years tardy," violated the Administrative Procedure Act and were based on regulatory language of its own choosing, not the federal Clean Air Act (CAA).

"We thus find that the EPA's objections to the emissions caps of the Flexible Permit Program rely on standards not found in the CAA or its implementing regulations," Jolly wrote. "The EPA's explanation for its objection is unsatisfactory because it provides no insight into how the emissions caps interfere with NAAQS [National Ambient Air Quality Standards] or another applicable requirement of the CAA.

"The EPA acted arbitrarily and capriciously, and in excess of its statutory authority."

In dissent, Judge Patrick Higginbotham said "angst over perceived federal intrusion into state affairs ought be eased by the reality that laws enacted by Congress are laws of the states. Congress passed the [CAA] and made it enforceable by the EPA."

TCEQ established the flexible permit program in 1994 in an effort to incentivize grandfathered operations to voluntarily enter into the state's air permitting and environmental regulation program. Facilities that were exempted because of their grandfathered status agreed to submit to state regulation because the program offered them operational flexibility.

Texas Attorney General Greg Abbott filed a legal challenge to the EPA's ruling on behalf of the TCEQ in July 2010 (see Daily GPI, July 28, 2010; July 2, 2010). One year later, all 136 of the companies holding TCEQ flexible air permits had agreed to apply for permits approved by the EPA (see Daily GPI, July 14, 2011).

"The court's decision is welcome," TCEQ said Monday. "It is a victory for Texas, our environment, and our economy. The court recognized the important principles that the EPA must comply with the cooperative federalism envisioned by the federal Clean Air Act and its own administrative procedures in order to bring certainty to the states and regulated communities.

"'Sixteen years tardy' is hardly a good faith effort on the part of the EPA, and the court rightfully overturned the EPA's attempt to undo 16 years' worth of permits that were designed to reduce overall emissions from a facility."

The Texas Oil & Gas Association (TXOGA), a legal party to the challenge, echoed that sentiment.

"The court's decision to vacate the EPA's disapproval of the Texas Flexible Permit Program is appropriate and we hope will eliminate some of the ambiguity created when EPA oversteps its authority," said TXOGA Executive Vice President Deb Hastings. "Perhaps today's decision -- like other recent court decisions that have upended EPA actions -- will reinforce the notion that Texas laws and regulations are working and are not enhanced by inappropriate federal interference."

Other plaintiffs in the case -- State of Texas et al v. U.S. EPA (Case No. 10-60614) -- were the Texas Association of Manufacturers, BCCA Appeal Group, American Chemistry Council, American Petroleum Institute, National Association of Manufacturers, National Petrochemical and Refiners Association, Texas Association of Business, Texas Chemical Council and the Chamber of Commerce of the United States of America.

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