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Supreme Court Upholds EPA Cross-State Air Pollution Rule

In a move that hurts coal-fired electricity generators, the U.S. Supreme Court on Tuesday upheld a rule adopted by the U.S. Environmental Protection Agency (EPA) that limits smokestack emissions in 28 central and eastern states that affect air quality of other states located downwind.

In a 6-2 decision, the court ruled that the Cross-State Air Pollution Rule (CSAPR), which EPA enacted under the Clean Air Act's "Good Neighbor" mandate in 2011, was a "permissible, workable and equitable" regulatory solution (see Daily GPI, July 8, 2011). It added that the Clean Air Act did not require that a state be given a second chance to file its own plan to curb emissions after the EPA had quantified a state's interstate pollution obligations.

"While EPA has a statutory duty to avoid ‘over­-control,’ the agency also has a statutory obligation to avoid 'under-control,'" Justice Ruth Bader Ginsburg wrote in a 58-page ruling for the majority. "A degree of imprecision is inevitable in tackling the problem of interstate air pollution. Slight changes in wind patterns or energy consumption, for example, may vary downwind air quality in ways EPA might not have antici­pated.

"The Good Neighbor provision requires EPA to seek downwind attainment of NAAQS [national ambient air quality standards] notwithstanding the uncertainties. Hence, some amount of over-control -- i.e., emission budgets that turn out to be more demanding than necessary -- would not be surprising. Required to balance the possibilities of under-control and over-control, EPA must have leeway in fulfilling its statutory mandate."

Justices Antonin Scalia and Clarence Thomas dissented. Justice Samuel Alito did not participate in the case.

"Too many important decisions of the federal govern­ment are made nowadays by unelected agency officials exercising broad lawmaking authority rather than by the people's representatives in Congress," Scalia wrote. "With the statute involved in the present cases, however, Congress did it right. It specified quite precisely the responsibility of an upwind state under the Good Neighbor provision: to eliminate those amounts of pollutants that it contributes to downwind problem areas.

"But the EPA was unsatisfied with this system. Agency personnel, perhaps correctly, thought it more efficient to require reductions not in proportion to the amounts of pollutants for which each upwind state is responsible, but on the basis of how cost-effectively each can decrease emissions."

EPA has tried several times over a 20-year period to use the Good Neighbor mandate as a tool to curb sulfur dioxide (SO2) and nitrogen oxide (NOx) emissions. The agency issued the Clean Air Interstate Rule (CAIR) in March 2005, but in December 2008 the U.S. Court of Appeals for the District of Columbia Circuit found fault with CAIR.

The appellate court left the measure in place but encouraged EPA to come up with a new rule to address the issues raised by CAIR. The same appellate court struck down CSAPR in August 2012 (see Daily GPI,Aug. 16, 2012).

Analysts reacted cautiously to Tuesday's ruling.

"While today's decision...is generally viewed as constructive for electric power demand for natural gas, we suspect that the actual implementation will only marginally increase the fuel's use at the expense of coal generation," Teri Viswanath, BNP Paribas director of commodity strategy, said Tuesday.

"There have been a number of important developments that have amplified gas use within the electric power sector since the rule was first finalized nearly three years ago. Perhaps the most important development is that natural gas prices have remained low for such a prolonged period that the industry has finally internalized a sense of security about U.S. gas supplies. This changed perspective has led to a general willingness on the part of utilities to retire more expensive baseload generation earlier than planned. Another limiting factor is that the lengthy delay for implementing this rule has resulted in a degree of regulatory overlap with other environmental rules that ultimately benefit gas use within the sector.

"All told, today's development simply reinforces our long-held view for significant structural demand growth ahead."

Christine Tezak, managing director of ClearView Energy Partners LLC, said it was unclear how EPA would reinstate CSAPR's compliance requirements.

"The upcoming compliance obligations under the Mercury and Air Toxics Standards may help states achieve CSAPR targets, blunting the impact of a reinstated rule," Tezak said Tuesday. "On the other hand, the EPA could also push for a stronger National Ambient Air Quality Standards for ozone in its upcoming proposal and rebuff efforts to make the upcoming new source performance standards for greenhouse gases from existing power plants more lenient."

The 28 states affected by CSAPR are Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia and Wisconsin.

Under CSAPR, 25 of the 28 states were required to reduce NOx emissions during ozone season. Another 18 to 21 states were required to reduce annual emissions of SO2 and NOx.

The case is EPA v. EME Homer City Generation LP (No. 12-1182).

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