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Return of the clean air interstate rule—The court does CAIR

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Courtesy of Trinity Consultants

In summer 2008, the U.S. Court of Appeals for the D.C. Circuit issued a dramatic decision to vacate the Clean Air Interstate Rule (CAIR) in its entirety (North Carolina v. EPA, No. 05-1244, D.C. Cir., July 11, 2008). Following a petition for rehearing, it seems the previous vacatur was just a temporary detour, as the Court reinstated CAIR on December 22, 2008. The reinstatement appears to turn back the clock six months and revive CAIR’s role in helping states plan to address more stringent attainment standards.

The U.S. Environmental Protection Agency (EPA) issued CAIR on March 10, 2005, as part of a multi-pollutant strategy1 to address interstate transport of emissions from electric utilities that impact the ability of downwind states to attain the national ambient air quality standards (NAAQS) for ozone and fine particulate matter. Through CAIR, EPA implemented a cap-and-trade approach to emissions reductions of sulfur dioxide (SO2) and oxides of nitrogen (NOX) for 28 eastern states and the District of Columbia (see EPA’s CAIR-coverage map in Figure 1). 2

The affected states were required to meet a phased reduction schedule for emissions from power plants, by participating in an EPA-administered cap-and-trade program or through individual state budgets in accordance with the following pollutant-specific deadlines:

  • Phase I cap in place for NOX – 2009
  • Phase I cap in place for SO2 – 2010
  • Phase II cap in place for NOX and SO2 – 2015

CAIR was designed to supplant and expand upon the existing regional NOX SIP Call, and to strengthen the nationwide Acid Rain program developed in accordance with
Title IV of the Clean Air Act (CAA).

However, the D.C. District Court decided on July 11, 2008, to vacate CAIR in its entirety, stating that “No amount of tinkering with the rule or revising the explanations will transform CAIR, as written, into an acceptable rule.”3 The Court held that CAIR was constructed around the following fatal flaws:

  • The cap-and-trade approach is fundamentally flawed. CAIR was regional and would not necessarily result in reducing emissions within one state found to significantly contribute to another state. Significant contributions through emission reductions within the State must be addressed. 4
  • CAIR did not give independent effect to the requirement that states avoid“interfering with the maintenance” of air quality standards in other states, and as a result may have omitted states that should have been affected.
  • The Phase II deadline in 2015 did not ensure that states would reduce their emissions sufficiently to allow downwind states to meet the 2010 attainment deadline for ozone.
  • The SO2 and NOX budgets were arbitrary and capricious because they were not established based on the reductions necessary to eliminate significant contributions from within a state to downwind nonattainment.
  • CAIR, established under Title I of the CAA, does not have the authority to require the retirement of allowances under the Acid Rain programdistributed in accordance with Title IV.

The Court elected the full vacatur over a remand, stating that “very little will survive remand in anything approaching recognizable form.”
The results of this decision halted many pollution control projects at utilities. It also forced nearly all state agencies that were previously relying on CAIR to meet attainment deadlines, to reevaluate their SIPs for achieving emission reductions.

The Court Does CAIR
While the list of petitioners in North Carolina v. EPA was long and broad – including industry groups, regulatory groups, and environmental groups, each challenging different aspects of the rule – most agreed that the uncertainty and removal of emissions reductions with the total vacatur of CAIR was not for the greater good.

The Department of Justice (DOJ) filed a Petition for Rehearing on September 24, 2008, arguing that the Court had not considered the health and economic impact of vacating the rule entirely. In response, the Court issued an order on October 21 requesting that the parties file a response to this position addressing:

  1. Whether any party is seeking vacatur of CAIR, and
  2. Whether the court should stay its mandate until EPA promulgates a revised rule.

In considering the responses from the varied groups adversely impacted by a total vacatur (even the lead petitioner, the state of North Carolina, stated its support of leaving CAIR in place temporarily), the Court granted DOJ’s petition and remanded CAIR without vacatur, noting that it is appropriate to remand without vacatur in particular occasions where vacatur “would at least temporarily defeat…the enhanced protection of the environmental values covered by [the EPA rule at issue].” 5

EPA was not given a deadline by which CAIR must be corrected and re-issued. However, the Court was purposeful in reminding EPA that the reversal of the total vacatur was not intended “to grant an indefinite stay of the effectiveness of this court’s decision. Our opinion revealed CAIR’s fundamental flaws, which EPA must still remedy.”

Who CAIRs?
So what does this all mean? In the off-again on-again regulatory world, consider the following takeaways to help anticipate the next steps in planning for CAIR (beyond complying with the Phase 1 budget):

Phase I CAIR
Phase I of CAIR reductions is likely to occur as originally intended by EPA. This allows many programs relying on CAIR (e.g., Regional Haze and/or nonattainment SIPs) to remain in place, at least for the moment. However, since EPA expects to have a new rule in place by 2012, plans for the future should not include allowances for 2012 and beyond.

Early Adoption
While reinstating just Phase I of CAIR does not provide the long term regulatory certainty that many utilities desire, the cost recovery concern for early adopters of CAIR has been lessened with the reversal of the total vacatur. Essentially, allowing Phase I to continue as originally planned, at least temporarily, removes the perceived “penalty” to early adopters of CAIR who were planning on a return from investing in pollution controls before CAIR with the capability to bank these early reductions for interstate trading. However, with CAIR likely to change in just a few years, the return will be limited. Also, the revised multi-pollutant rule for utilities that replaces CAIR is likely to require further reductions. Will pollution controls the early adopters have installed be efficient enough to meet CAIR Part 2?

Applicable Sources to SO2
With the return of CAIR, many sources could be directly impacted. Specifically, the following sources were exempt from the Acid Rain program, but may be pulled into CAIR, depending on their location:

  • Qualified facilities 6
  • Waste coal units
  • Cogeneration units (that don’t meet certain efficiency levels)

In order to meet the data acquisition and handling system (DAHS) requirement of CAIR, these Acid Rain-exempt facilities may have to add the extensive Part 75 continuous emissions monitoring system (CEMS) equipment required under Part 75.

Applicable Sources to NOx
Sources in Florida, Texas, Louisiana, Mississippi, Arkansas, Iowa, Minnesota, and Wisconsin will be subject to the NOx limitations of CAIR, where the sources in these states were previously excluded from the NOx SIP Call (see map of NOx SIP Call-affected states on page 15). Even for states previously subject to the NOx SIP Call, CAIR extends NOx requirements to year-round standards as compared to the five month ozone season of the NOx SIP Call.

Permits for a Temporary Regulation
All the plans for NOx and SO2 controls at utilities that were left idle after July 2008, may now be re-started. Also, while some state agencies sought the CAIR-driven controls through other means after the Court’s original vacatur (e.g., BART or RACT), the tabled CAIR permits will need to be reconsidered and processed as quickly as possible. However, the CAIR permits will need to be incorporated into Title V permits carefully – with provisions to sunset the current CAIR requirements once EPA has revised the rule.

A New Administration’s in Town
CAIR will be re-written, and may not even resemble the original, following revision. CAIR was a key component of the Bush administration’s approach to cleaner air and strategy to meet attainment standards for both ozone and PM2.5. With the many illegalities cited by the Court, the Obama administration may choose to address the issue in a completely different way—will it even be based on a multi-pollutant cap-and-trade program? Utilities may not be the only sources affected by a CAIR re-write (some environmental petitioners wanted industrial boilers included in the original CAIR). Not only will EPA need to define those sources with “significant contribution” to attainment in downwind states, but also a changed rule may affect states’ plans to meet attainment deadlines, causing them to seek reductions elsewhere in the regulated community. All major sources, especially those upwind of nonattainment areas in other states, should monitor updates to CAIR closely.

Is it Enough to CAIR?
The court’s decision not to vacate CAIR relieved states of resubmitting their SIPs for the old ozone and PM2.5 nonattainment standards. If states determine that a temporary, wounded CAIR program may not provide sufficient reductions to meet attainment deadlines, will they turn to Section 126 petitions, or lawsuits? North Carolina submitted a Section 126 petition in 2004, and with CAIR limited in effectiveness, the court case involving EPA’s denial of North Carolina’s petition can go forward. Outside of Section 126, North Carolina has used a civil suit of common law to bring the Tennessee Valley Authority to court. 7 The temporary installation of CAIR may not fully resolve these issues.

Phase II Non-Attainment
With the strengthened ozone standard in March 2008 (75 parts per billion), a new round of nonattainment area designations are on the horizon, even though most counties have not attained the old standard. Hence, new counties and more sources may be brought into the argument. Some states that were included in CAIR, such as Florida, did not have any non-attainment areas under the old standard. But, under the lowered ozone standard, preliminary data suggests Florida might have some nonattainment areas, possibly around the Gulf Coast, that could be attributed to upwind sources in Alabama and Mississippi.
Regulatory Recession
In addition to looking to out-of-state upwind sources to address nonattainment issues, each state agency may be forced to look beyond Phase I of CAIR for additional reductions in an era of tightening interpretation of RACT for existing sources, BACT for new sources, or BART for sources impacting Class I areas. However, current economic conditions for the regulated community and tightening state budgets will certainly motivate state agencies to target out-of-state reductions first. Major sources upwind of nonattainment areas may need to develop relationships with neighboring state regulators.

For the latest CAIR updates, or to stay abreast of new regulations in your state or those downwind of your facility, contact your local Trinity Consultants office at (800) 229-6655.

1CAIR was developed and issued alongside the Clean Air Mercury Rule (CAMR), which was previously vacated in the decision for New Jersey v. EPA, No. 05 1097, D.C. Cir., February 8, 2008.
3Page 59 of the decision to North Carolina v. EPA, No. 05-1244, D.C. Cir., July 11, 2008.
4While this ruling would seemingly negate the legality of other cap-and-trade programs from other court precedent, most significantly the NOx SIP Call, the Court held that it never ruled on the lawfulness of the NOx trading program because its adoption was not specifically challenged.
5Envtl. Def. Fund, Inc. v. Adm’r of the United States EPA, 898 F.2d 183, 190 (D.C. Cir. 1990), as referenced in the Decision On Petitions for Rehearing for North Carolina v. EPA, No. 05 1244, December 23, 2008.
6Defined in 40 CFR 72.2.
7The District Court for the Western District of North Carolina, ordered the installation of emissions controls at some plants operated by the Tennessee Valley Authority, as a result of negatively impacting air quality in the downwind state (North Carolina v. Tennessee Valley Authority, Civil No. 1:06CV20, January 2009).

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