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Sep 2012
September 25, 2012

Courts Say EPA Overreached – Three Times

Three decisions made this summer by three different federal appellate courts serve to highlight the limits of U.S. EPA’s authority under the federal Clean Air Act (CAA) and federal administrative law.

The common theme shared by these decisions is that EPA overreached its authority.  In all instances, the agency sought to defend its position on the basis that courts should defer to the EPA’s own  interpretation of its statutory authority under the CAA or to its own interpretation of its rules. While each court acknowledged that it is often appropriate to defer to an administrative agency’s interpretation of statutes it administers or rules it promulgates, that deference does not extend to circumstances where it is clear that the agency is acting without appropriate regard to the statutory provisions it is administrating or the clear language of its own rules.

Whether the agency will now take heed and adopt a less expansive view of its authority under the CAA remains an open question. The cases are highlighted below.

EME Homer City Generation v U.S. EPA, No. 11-1302 (D.C. Cir., August 21, 2012)

For years, states and EPA have struggled with implementation of the so-called “good neighbor” provision of the CAA.  In brief, it requires that each state address in its state implementation plan (SIP) how it will curtail emissions of pollutants that “cause or contribute” significantly to the failure of a downwind state to attain or maintain air quality meeting National Ambient Air Quality Standards (NAAQS).

Under the Bush Administration, EPA promulgated the Clean Air Interstate Rule (CAIR) in an effort to reduce emissions from coal-fired power plants in the eastern half of the United States, which were considered to be negatively impacting air quality in the northeastern states. A subsequent court challenge resulted in a ruling that CAIR was legally defective, requiring EPA to develop a different approach.

EPA’s “fix” for CAIR was the Cross-State Air Pollution Rule (CSAPR), promulgated in 2011. CSAPR, like CAIR, sought to achieve reductions in emissions from coal-fired power plants in the eastern half of the country (as well as some additional states, including Texas) by creating a “cap and trade” program with emission caps and emission allowance trading. However, under the August 2012 ruling on CSAPR by the D.C. Circuit Court, CSAPR has now fared no better than CAIR. The court ruled that in promulgating CSAPR, EPA did not adhere to the requirements of the CAA.

The court found CSAPR to be fundamentally flawed because EPA’s  robust mandates, state-by-state, to reduce emissions from power plants was not logically tied to how much the emissions within an individual state actually contributed to the failure of any downwind state to achieve or maintain relevant NAAQS. The court also found that EPA’s decision under CSAPR to directly impose emission reductions through a “federal implementation plan” (FIP) violated the cooperative federalism envisioned under the CAA, where a state is first given an opportunity to meet requirements of the CAA through its own SIP and the use of a FIP is reserved for when a state defaults upon its CAA obligations. Under CSAPR, the court found that EPA had inappropriately used its FIP authority without first affording the states, including Michigan, the opportunity to develop a SIP.

The court’s decision means the “cap and trade” program established under CAIR remains in place even though CAIR was held to be legally defective in 2008.

Texas v U.S. EPA, No. 10-60614 (5th Cir., August 13, 2012)

While the CAA is very specific about the requirements states must meet to permit new major sources of air emissions or significant modifications to existing major sources, states have far greater flexibility in how they fashion their own regulatory program for permitting the construction of minor sources or relatively insignificant modifications at existing sources.

In 1994, Texas developed a Flexible Permit Rule for minor sources or minor modifications. Under the rule, a source could apply for and obtain an emission cap for a set of pollutants. Once the cap was in place via a permit, the source could undertake changes without further regulatory review as long as the cap was not exceeded. Fifteen years after Texas first sought EPA’s approval to include the rule in the Texas SIP, EPA rejected the request, thereby creating potentially serious compliance consequences under the CAA for sources that had relied upon the rule.

The Fifth Circuit found that EPA had exceeded its authority under the CAA in rejecting the Texas rule. The main goal of the CAA is attainment and maintenance of NAAQS. SIPs must further this goal and EPA is authorized to disapprove a SIP that does not. But EPA disapproved of the Texas rule because of ambiguities in the language and because it did not believe the rule adequately assured that major sources could not circumvent other requirements of the CAA by using the rule. Texas countered these concerns by pointing to other provisions of its rules that addressed the EPA’s concerns and by explaining how it interpreted ambiguities in other rules. The court sided with Texas, finding, in essence, that it was not the role of EPA under the CAA to second guess a state on its interpretation of its own laws and rules. 

Summit Petroleum v U.S. EPA, No. 09-4348 ( 6th Cir. August 7, 2012)

A central issue under the CAA is the definition of a “stationary source.” EPA defines it as “any building, structure, facility, or installation which emits or may emit a regulated [air] pollutant.”

While this definition is relatively straight forward, its application can become complex when it pertains to one or more ostensibly separate “installations. ” When should they be combined and considered a single “stationary source?”  The answer can be critical when determining permitting and compliance requirements.

By  rule, EPA has sought to address the issue by saying it will combine the installations if they: (1) “are under common control; (2) “are located on one or more contiguous or adjacent properties”; and (3) “belong to the same major industrial grouping.” (Emphasis supplied)

While EPA has claimed to rely upon these criteria, through internal guidance in recent years it has essentially disregarded the common meaning of “adjacent.” Consequently, EPA took the position that it could treat Summit Petroleum’s gas sweetening plant and the multiple remote gas wells that provided gas to the plant as a single source. That means that were collectively required to comply with the Title V operating permit program applicable to large stationary sources.

Applying fundamental principles of administrative law, the court rejected EPA’s efforts to define “adjacent” in terms of functional inter-relationship, as opposed to physical proximity. The court concluded that the agency’s internal interpretation of “adjacent” was owed no deference since the term “adjacent” was unambiguous and that its current interpretation was inconsistent with the regulatory history of its own rulemaking and prior agency internal guidance.

Accordingly, the court vacated EPA’s determination that Summit’s plant and wells should be treated as a single source since they were not in close enough proximity to each other to satisfy the meaning of “adjacent” within EPA’s rule.

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