On April 29, 2014, the United States Supreme Court (“Supreme Court”) reversed and remanded the D.C. Circuit’s 2012 decision that vacated the Environmental Protection Agency’s (“EPA”) Cross-State Air Pollution Rule (“CSAPR”).  The decision was 6-2 with Justices Antonin Scalia and Clarence Thomas dissenting.  Justice Samuel Alito recused himself from this case and therefore did not participate in the decision.

In August 2012, the D.C. Circuit, with Judge Rogers dissenting, held that CSAPR exceeded EPA’s statutory authority under the Clean Air Act (“CAA”) in at least two independent respects:  (1) EPA issued CSAPR as a Federal Implementation Plan (“FIP”) as opposed to setting the reduction obligations and then allowing states an opportunity to develop State Implementation Plans (“SIPs”) to reduce emissions from sources within their borders (the so-called “FIP first” or “FIP / SIP” issue); and (2) the rule required upwind states to reduce emissions by more than the CAA’s “significant contribution” threshold as established by EPA and more than necessary to achieve attainment (the called the “significant contribution” or “over control” issue).

Reviewing the D.C. Circuit’s decision, the Supreme Court concluded that EPA’s FIP-first approach was lawful.  When EPA establishes a National Ambient Air Quality Standard (“NAAQS”), the States are required to adopt rules to prevent facilities within their borders from significantly contributing to downwind nonattainment of the NAAQS, even before EPA adopts a regulation defining the amount of that contribution.  In the NOX SIP Call and Clean Air Interstate Rule (“CAIR”), EPA had first defined the amount of emission reductions that States were required to make and then gave States an opportunity to submit SIPs making those reductions.  But in CSAPR, EPA disapproved States’ preexisting SIPs and proceeded with a FIP, even though EPA had not yet defined which states were contributing and the CSAPR emission reductions necessary to eliminate their significant contribution.  This ruling gives EPA greater authority to take the lead in implementation of interstate transport rules and could have broader implications for the federal/state balance of power more generally under the CAA.

The Supreme Court also upheld EPA’s approach for defining the states’ emission reduction obligations – the “significant contribution” to be eliminated.  Specifically, the Court concluded that EPA may consider cost in defining a state’s “significant contribution” to downwind nonattainment and thus the amount of emissions to be reduced from that state.  However, the Supreme Court specifically left open the possibility of challenges to the EPA’s “significant contribution” analysis if it, in fact, resulted in over control.

This ruling enables states and individual companies that believe they were the subject of over control to pursue those claims on remand in the D.C. Circuit.

While the Supreme Court upheld CSAPR, the D.C. Circuit’s stay of CSAPR remains in effect. The case now goes back to the DC Circuit to address substantive issues left open by the Supreme Court (e.g., the “over control” issue).  In addition, there are challenges to CSAPR that were not resolved in the D.C. Circuit’s 2012 decision which the court could also take up on remand.  While some states and /or environmental groups may ask the court to lift the stay in the near future, there are substantive legal issues that will need to be resolved by the D.C. Circuit.  Therefore, it is not clear whether the stay will be lifted prior to completion of the remand review by the D.C. Circuit.

As to the compliance schedule in the rule, because the initial compliance deadlines have long passed, the court may allow briefing on the compliance schedule and/or may direct EPA to undertake a rulemaking to establish a new compliance schedule.  In the alternative, EPA could decide to seek voluntary remand from the D.C. Circuit to allow it to undertake a new rulemaking altogether using updated emissions and modeling.  Thus, there is more legal process required before CSAPR can be put back into effect, and if it does go back into effect, there will be a debate over the timing and compliance deadlines.

A copy of the decision is available here.