Clean Air After the CAIR Decision: Back to Square One?

Clean Air After the CAIR Decision:
Back to Square One?
Updated October 9, 2008
James E. McCarthy and Larry B. Parker
Specialists in Energy and Environmental Policy
Resources, Science, and Industry Division
Robert Meltz
Legislative Attorney
American Law Division

Clean Air After the CAIR Decision:
Back to Square One?
Summary
In a July 11, 2008 decision (North Carolina v. EPA), the U.S. Court of Appeals
for the D.C. Circuit vacated what has been widely regarded as the Bush
Administration’s most significant environmental measure, the Clean Air Interstate
Rule (CAIR). CAIR, promulgated in May 2005, would have established a regional
cap-and-trade program for sulfur dioxide (SO²) and nitrogen oxide (NOx) emissions
from electric generating units (EGUs) in 28 eastern states and the District of
Columbia.
From a policy standpoint, the court’s decision seriously undermines the Bush
Administration approach to clean air over the past eight years. CAIR was the
lynchpin that held together the Administration’s strategy for attainment of the ozone
and fine particulate National Ambient Air Quality Standards (NAAQS), for achieving
reductions in mercury emissions from coal-fired powerplants, for addressing regional
haze impacts from powerplants, and for responding to state petitions to control
upwind sources of ozone and fine particulates under Section 126 of the Clean Air
Act. As discussed in this report, the potential impact on communities attempting to
achieve NAAQS and the impact on mercury emissions could be substantial, and has
prompted some (including EPA) to call for congressional action to address the issue.
EPA’s only short-term option, other than letting the decision stand, was to
appeal it — a step the agency took on September 24. However, the D.C. Circuit is
unlikely to review the decision, which gave the court little pause and was unanimous.
Likewise, the court’s decision strongly suggests that there is no simple “fix” that
would make CAIR acceptable to the court. This leaves EPA with three clear long-
term options: (1) starting anew with a new strategy with respect to mitigating
transported air pollution based on the decision; (2) allowing the states to sort out the
issue through Section 126 petitions; and (3) seeking new legislation providing EPA
with the statutory authority to implement either CAIR in some form, or an
alternative.
For the states and nonattainment areas attempting to attain the NAAQS, the
decision puts the focus on Section 126 petitions as the available means to address
interstate transport of air pollutants. For Congress, the decision raises several issues:
^!Should the Congress consider providing EPA with the authority to
implement CAIR or other cost-based, market-oriented approaches to
address NAAQS?
^!Should the Congress consider multi-pollutant legislation as a supplement
or substitute for the current regulatory regime, at least for electric
generating units?
^!Should Congress consider a more comprehensive revision to the Clean Air
Act to address the full scope of ozone and PM^2.5 NAAQS non-attainment
and related issues, as well as mercury emissions from coal-fired
powerplants, and emerging environmental issues such as climate change?

Contents
In troduction ......................................................1
Importance of the CAIR Decision.....................................2
Background ......................................................3
Significant Contribution.........................................4
Regional Cap/State Budget......................................5
Interaction with the Title IV Program..............................6
Interaction with the NOx SIP Call.................................7
The Court’s Decision...............................................8
Issues ..........................................................10
EPA’s Options...............................................10
Problems Facing Nonattainment Areas............................10
Section 126 Petitions..........................................11
Impetus for Multi-pollutant Legislation............................12
Conformity and Sanctions......................................12
Impact on New Source Review (NSR)............................13
Mercury Emissions...........................................13
Impact on Regional Haze Rule..................................14
Conclusion ......................................................14
List of Tables
Table 1. Costs and Benefits of Reducing Emissions Under
CAIR/CAMR/CAVR ...........................................3

Clean Air After the CAIR Decision:
Back to Square One?
Introduction
In a July 11, 2008 decision (North Carolina v. EPA),¹ the U.S. Court of Appeals
for the D.C. Circuit vacated what has been widely regarded as the Bush
Administration’s most significant environmental measure, the Clean Air Interstate
Rule (CAIR).² CAIR, promulgated by EPA under the Clean Air Act (CAA)³ in May
2005, would have established a regional cap-and-trade program for sulfur dioxide
(SO²) and nitrogen oxide (NOx) emissions from electric generating units (EGUs) in⁴
28 eastern states and the District of Columbia. The basic purpose of the rule was to
protect downwind states from pollution generated in other states located upwind.
For SO², the program would have reduced emission allowances in the affected⁵
upwind states 50% beginning in 2010 and 65% beginning in 2015. SO² emissions
cause acid precipitation, and SO² is also among the pollutants that form fine particles
(PM^2.5) in the atmosphere. Reducing PM^2.5 concentrations, as CAIR would have
done, was estimated by EPA to have significant health benefits, eliminating 13,000-

22,000 premature deaths annually.

CAIR’s NOx cap would have reduced emissions in the affected states by similar
percentages: a first phase in 2009 was to lower the emissions by 53% and a second
phase, in 2015, was to achieve a 61% reduction compared to 2003 levels. NOx
contributes to both PM^2.5 and to the formation of ground-level ozone. Ozone
aggravates a variety of respiratory and cardiovascular conditions and causes as many
as 2,300 premature deaths annually. Concentrations of the pollutant need to be⁶
reduced in most of the states east of the Mississippi, according to EPA.

¹ 531 F.3d 896 (D.C. Cir. 2008).
² 70 Federal Register 25162, May 12, 2005.
³ 42 U.S.C. 7401 et seq.
⁴ While virtually all eastern states were affected by the rule, three were subject only to the
SO²-NOx annual caps, and five only to the seasonal NOx cap; the other 20 states and DC
were subject to all three caps. See EPA Fact Sheet, p. 3, at [http://www.epa.gov/CAIR/pdfs/
cair_final_fact.pdf].
⁵ Because EGUs have been using up banked allowances since 2000 and emitting more tons
than the current SO² cap allows, the actual reduction in SO² emissions would ultimately
have been 73% below 2003 levels after 2015, according to the agency.
⁶ For a map of the affected areas, see CRS Report RL34057, Ozone Air Quality Standards:
(continued...)

Importance of the CAIR Decision
From a policy standpoint, the court’s decision seriously undermines the Bush
Administration approach to clean air over the past eight years. CAIR was the
lynchpin that held together the Administration’s strategy for attainment of the ozone
and fine particulate National Ambient Air Quality Standards (NAAQS), for achieving
reductions in mercury emissions from coal-fired powerplants, for addressing regional
haze impacts from powerplants, and for responding to state petitions to control
upwind sources of ozone and fine particulate pollution under Section 126 of the
Clean Air Act. As discussed in this report, the potential impact on communities
attempting to achieve NAAQS and the impact on mercury emissions could be
substantial, and has already prompted some (including EPA, state environmental
officials, electric utilities, and environmental organizations) to call for congressional
action to address the issue.
Even with its less-than-adequate reductions to achieve full compliance with the
NAAQS, CAIR would have had substantial benefits for the communities affected,
if it had been implemented. In 2005, EPA, in response to congressional requests,
conducted a multi-pollutant regulatory analysis, including the estimated costs and
benefits of CAIR, the Clean Air Mercury Rule (CAMR), and the Clean Air Visibility
Rule (CAVR).⁷ Although its analysis combined all three rules, the vast majority of
the costs and benefits quantified were for CAIR. Table 1 summarizes the results of
that analysis. As indicated, the benefit-to-cost ratio ranged from 20 to 1, to 27 to 1.
The primary benefit identified was the avoidance of premature mortality, but 10 other
categories of health impacts were also identified by the agency, including (annually
in 2020) the avoidance of 29,000 non-fatal heart attacks, 510,000 cases of respiratory
symptoms, 360,000 cases of asthma exacerbation, 2 million work loss days, 430,000
school absence days, and 12 million minor restricted activity days.

⁶ (...continued)
EPA’s March 2008 Revision, by James E. McCarthy.
⁷ U.S. Environmental Protection Agency, Office of Air and Radiation, Multi-Pollutant
Regulatory Analysis: CAIR/CAMR/CAVR (The Clean Air Interstate Rule, the Clean Air
Mercury Rule, and the Clean Air Visibility Rule), October 2005.

Table 1. Costs and Benefits of Reducing Emissions Under
CAIR/CAMR/CAVR
2010 Estimate 2015 Estimate2020 Estimate
Annual Costs$2.7$4.4$6.1
(billions, 1999$)
Annual Benefits^a$62 - $73$91 - $106$120 - $140
(billions, 1999$)
Annual premature13,00018,00022,000
mortality avoided
(people)
^Source:^{U.S. En}^vⁱ^ron^m^en^tal^P^r^o^t^ection^A^g^en^cy^{, Of}^fⁱ^{ce of}^Aⁱ^{r an}^{d R}^a^diation^,^Mu^lti-^Po^llu^taⁿ^t
^R^e^g^u^l^a^t^o^r^y^Aⁿ^a^l^y^sⁱ^s^:^C^A^I^R^/^C^AM^R/C^AVR⁽^T^h^e^C^l^e^aⁿ^Aⁱ^r^Iⁿ^t^e^r^s^t^a^t^e^R^u^l^e^,^t^h^e^C^l^e^aⁿ^Aⁱ^r^M^e^r^c^u^r^y
^{Rule, and the C}^l^{ean Air}^Visⁱ^{bility Rule)}^{, O}^c^t^{ober 2005, p. 26.}
^a^.^Qu^an^tif^ied^b^eⁿ^e^f^{its f}^r^o^m^SO²^an^{d N}^O^x^redu^ctⁱ^oⁿ^s^on^l^y^;^ben^e^fⁱ^t^s^f^r^om^H^g^{or C}^O²^r^e^d^u^c^tⁱ^o^{ns no}^t
^es^tim^{ated by}^EP^A^.
Background
The Clean Air Act envisions a mix of state and federal authorities to reduce air
pollution. For those pollutants subject to NAAQS,⁸ it established a partnership in
which the federal government sets uniform national air quality standards and the
states develop State Implementation Plans (SIPs) identifying the measures they will
take to attain the standards.
In 1997, when EPA finalized new NAAQS for both PM^2.5 and ozone,⁹ it set in
motion the SIP process under Section 110 of the act. Most states already had SIPs
demonstrating how they would attain less stringent ozone and PM standards, but the
promulgation of the revised ozone NAAQS and the new PM^2.5 NAAQS meant that
the SIPs of most states were no longer adequate to bring those states into attainment
by the statutory deadlines. Under Section 110(k)(5) of the act, if EPA finds a SIP
inadequate, it must require the affected state to submit a revised SIP that includes
sufficient measures to bring that state into compliance. This is known as a “SIP
Call.”
In the case of both the ozone and the PM^2.5 NAAQS, the process of developing
effective compliance strategies is complicated by the problem of transported air
pollutants. Many states cannot attain the standards unless upwind states reduce their

⁸ NAAQS pollutants (also called “criteria pollutants”) are pollutants that endanger public
health or welfare, in the EPA Administrator’s judgment, and whose presence in ambient air
results from numerous or diverse sources. EPA has identified six such pollutants: ozone,
particulate matter, carbon monoxide, sulfur dioxide, nitrogen dioxide, and lead.
⁹ Published in the Federal Register on July 18, 1997 (62 FR 38652-38896), the standards
became effective September 16, 1997.

pollution. The act recognizes this and requires that those upwind states control major
sources of pollution that affect other states: under Section 110(a)(2)(D), SIPs must
include adequate provisions to prevent sources within a state from contributing
significantly to nonattainment in downwind states.
Finding that interstate transport of SO² and NOx contributes significantly to
ozone and PM^2.5 nonattainment in the majority of eastern states, EPA issued the
Clean Air Interstate Rule (CAIR) in March 2005 to mitigate the problem. CAIR was
based on a series of determinations by EPA with respect to pollution transport, cost-
effective pollution control, and compliance feasibility. These determinations were
made within the State Implementation Plan process of Sections 110(k)(5) and

110(a)(2)(D) of the Clean Air Act.

Significant Contribution
The pivotal finding by EPA in the rule is that SO² and NOx emissions from 23
states and the District of Columbia contribute to unhealthy levels of fine particles in
downwind states, and NOx emissions in 25 eastern states and the District of
Columbia contribute to unhealthy levels of ozone in downwind states. This
determination defined the geographic scope of the rule.
EPA conducted a series of modeling runs to determine the contribution various
upwind states are projected to make to areas in the eastern United States projected
by EPA to be in nonattainment in 2010 and 2015. For ozone nonattainment, a
“significant contribution” was defined by EPA as the product of three factors: (1) the
actual amount of transported pollution from upwind states that contributes to
nonattainment in downwind states; (2) how often contributions over specific
thresholds occur; and (3) the comparative amount of the upwind transported
contribution to the total nonattainment situation in the downwind area.¹⁰ For the
ozone NAAQS, EPA modeled the emissions impact of the 31 states east of or
bordering the Mississippi River on 40 eastern downwind counties projected by EPA
to be in nonattainment in 2010. States whose maximum contribution was estimated
at less than 2 parts per billion (ppb)¹¹ and/or that contribute less than 1% to total
nonattainment were screened out. After evaluating the remaining eastern states on
the three criteria, 25 states and the District of Columbia were found to make a
significant contribution to nonattainment.¹² These states constitute the region
covered under the CAIR seasonal NOx cap.¹³

¹⁰ Environmental Protection Agency, Rule to Reduce Interstate Transport of Fine
Particulate Matter and Ozone (Clean Air Interstate Rule); Revisions to Acid Rain Program;
Revisions to the NOx SIP Call; Final Rule (70 Federal Register 25162-25405, May 12,

2005), p. 25246. (Hereafter cited as Clean Air Interstate Rule.)

¹¹ The ozone NAAQS, at the time, was 0.08 parts per million, which allowing for rounding,
was 85 ppb. It has since been reduced to 75 ppb.
¹² For modeling purposes, the District of Columbia’s emissions were combined with those
of Maryland. Clean Air Interstate Rule, p. 25249.
¹³ In addressing the effect of interstate transport on ozone pollution, CAIR established a
(continued...)

For the PM^2.5 NAAQS, EPA modeled the emissions impacts of 37 eastern states
on 62 eastern downwind counties projected by EPA to be in nonattainment in 2010.¹⁴
Because the controlling 1997 PM^2.5 NAAQS is an annual standard, EPA considered
only two of the three factors in determining significant contribution: actual amount
of transported pollution and comparative amount.¹⁵ In the proposed rule, EPA
suggested that the threshold for determining significant contribution be 0.15
micrograms per cubic meter (µg/m³) — 1% of the annual standard of 15 µg/m³. In
the final rule, EPA settled on 0.2 µg/m³ as the threshold.¹⁶ Based on that threshold,
EPA found 23 states and the District of Columbia were projected to contribute
significantly to 2010 PM^2.5 nonattainment. These states constitute the region covered
under CAIR’s annual NOx and SO² caps.
Regional Cap/State Budget
With a determination of significant contribution, CAIR moves toward
developing a cost-effective remedy. Arguing a need to base its remedy on “highly
cost-effective reductions,” EPA examined the potential balance of local control to
interstate controls along with the availability and timing of cost-effective pollution
control measures in upwind states. Projecting nonattainment areas in 2010, EPA
concluded in the proposed rule that for many PM^2.5 nonattainment areas:
it would be difficult, if not impossible, to reach attainment unless transport is
reduced to a much greater degree and over a much broader regional area than by
the simultaneous adoption of local controls within specific nonattainment areas.
In addition, we found that much of the air quality improvement that did occur in
downwind areas with this strategy was due to reductions in transported sulfate¹⁷
attributable to upwind SO² emissions.
EPA conclusions with respect to ozone nonattainment areas were less dramatic, but
still significant enough for EPA to conclude that further regional reductions were¹⁸

warranted.
¹³ (...continued)
summer season (“seasonal”) cap on emissions, because ozone forms primarily through
atmospheric reactions among NOx and other pollutants in the presence of sunlight and warm
temperatures.
¹⁴ Clean Air Interstate Rule, p. 25247.
¹⁵ Environmental Protection Agency, Rule to Reduce Interstate Transport of Fine
Particulate Matter and Ozone (Interstate Air Quality Rule); Proposed Rule (69 Federal
Register 4566-4650), p. 4608. (Hereafter cited as Proposed Interstate Air Quality Rule.)
Note: EPA changed the name of the rule from the Interstate Air Quality Rule (IAQR) to the
Clean Air Interstate Rule (CAIR) between the time of proposal and the rule’s promulgation.
¹⁶ Clean Air Interstate Rule, p. 25246.
¹⁷ Proposed Interstate Air Quality Rule, p. 4582.
¹⁸ Specifically, EPA modeling indicated that from 22% to 96% of projected 2010
nonattainment of the eight-hour ozone NAAQS is due to transported pollution, depending
on the specific area. Proposed Interstate Air Quality Rule, p. 4584.

Calling for a combination of local and interstate transport control, EPA’s CAIR
rulemaking developed criteria for determining “highly cost-effective” transport
control levels. SO² and NOx are emitted by a variety of sources. Sulfur dioxide is
primarily emitted by stationary sources, particularly coal-fired electric generators
(69% of the total SO² emissions in 2003) and industrial combustion (14% of the total
in 2003).¹⁹ In the case of nitrogen oxides, mobile sources are the primary source
(55% of the total in 2003), although stationary sources, particularly electric
generators (22% of the total in 2003) and industrial combustion (14% of the total in
2003), make substantial contributions to the overall totals. Generally arguing that
electric generators provided the most cost-effective emission reduction source and
that data were lacking on other stationary sources, EPA focused on reductions from
electric generators to determine emission caps. In contrast, for an earlier regional cap-
and-trade program (the NOx SIP Call, promulgated in the late 1990s), large industrial
combustion sources were included in EPA’s cost-effectiveness calculations.
Focusing on electric generators greater than 25 megawatts (MW), EPA
developed a threshold for controlling transported pollutants by comparing the average
and marginal costs of other SO² and NOx regulatory actions, along with other factors.
Finding the electric generating control technologies to be “highly cost-effective,”
EPA determined the final regionwide caps for affected states by assuming these
control technologies were installed on electric generators.
Based on the assumption that states would solely target electric generators for
control, EPA proceeded to determine the appropriate individual statewide emission
budgets. Under the SIP process, states are not required to adopt an electric-generator-
only strategy in complying with their emissions budgets; however, they must do so
if they choose to participate in the EPA-sponsored regional trading program set up
under the model rule.
Interaction with the Title IV Program
Since 1990, EPA has been implementing a regional cap-and-trade program to
control SO² emissions that cause acid rain under Title IV of the Clean Air Act.
Because the Title IV program is both statutory and successful, EPA felt it needed to
protect the program, thus limiting its ability to suggest alternative allocation schemes
for emission allowances under CAIR.²⁰ Based on the assumption that states would
solely target electric generators for control, EPA proceeded to determine CAIR’s
appropriate statewide emission budgets by melding CAIR’s allocation scheme into
the existing Title IV acid rain program. With both programs based on electric
generators, one effect of this allocation scheme is to continue the grandfathering of
pre-1990 existing plants under CAIR. EPA recognized this, but argued that
maintaining the integrity of the Title IV program prevented it from pursuing
alternative allocation schemes that might have provided relief to newly constructed
sources.

¹⁹ Based on EPA data for 2003. See [http://www.epa.gov/airtrends/econ-emissions.html].
²⁰ Clean Air Interstate Rule, p. 25229.

Interaction with the NOx SIP Call
EPA’s other regional cap-and-trade program, designed to control NOx
emissions, is the Ozone Transport Rule, which EPA finalized on October 27, 1998,²¹
and which the D.C. Circuit Court of Appeals upheld (with some modifications) on
March 3, 2000. The rule required 21 eastern states²² and the District of Columbia to
submit state implementation plans (SIPs) to address regional transport of ozone under
the 1997 1-hour ozone standard, which is why the rule is known as the NOx SIP Call.
As issued, the rule called for increased controls on NOx, focusing particularly on
emissions from electric utilities and large combustion sources. To achieve the
necessary reductions, EPA stipulated emission budgets for each of the affected states,
with each state free to decide on what controls to use to maintain emissions within
those budgets. EPA also encouraged the formation of a regional cap and trade
program to implement the NOx reductions through a model program, which all
participating states agreed to join.
Unlike EPA’s approach with the SO² program and despite its emphasis on using
NOx SIP methodology in developing CAIR, the annual CAIR NOx cap-and-trade
scheme differs significantly from the NOx SIP Call in terms of the state budget
determined and the scope of participants. EPA’s choice of focusing only on electric
generators runs counter to the cost-benefit analysis, the recommendations of the
Ozone Transport Assessment Group (OTAG), and EPA’s NOx SIP Call.²³ OTAG’s
recommendations to EPA with respect to the NOx SIP Call called for NOx controls
on large and medium non-utility stationary sources in addition to controlling utility
sources. In the final NOx SIP Call, EPA calculated state emission budgets based on
five sectors: electric utility, nonutility sources, area sources, nonroad engines, and
highway vehicles. Budgets were based on cost-effective reductions, with substantial
reductions required from electric generators and from nonutility sources. Indeed,
EPA used a 70% reduction requirement for large industrial facilities and Reasonably
Available Control Technology (RACT) control (generally 25%-50%) for smaller

²¹ Environmental Protection Agency. Finding of Significant Contribution and Rulemaking
for Certain States in the Ozone Transport Assessment Group Region for Purposes of
Reducing Regional Transport of Ozone. Rule. 63 Federal Register 57356-57538, October

27, 1998.

For the rule as proposed, see: Environmental Protection Agency. Finding of
Significant Contribution and Rulemaking for Certain States in the Ozone Transport
Assessment Group Region for Purposes of Reducing Regional Transport of Ozone. Notice
of proposed rulemaking. 62 Federal Register 60317-60421, November 7, 1997
²² There were 22 states included in the original rule were: Alabama, Connecticut, Delaware,
Georgia, Illinois, Indiana, Kentucky, Massachusetts, Maryland, Michigan, Missouri, North
Carolina, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, South Carolina,
Tennessee, Virginia, Wisconsin, and West Virginia. In ruling on the applicability of the
Ozone Transport Rule under the 1-hour ozone standard, the court removed one state
(Wisconsin) and parts of two others (Missouri and Georgia) from the scope of the rule, but
left its requirements in place for the other 19 states.
²³ OTAG was created by EPA and the 37 easternmost states under the 1990 Clean Air Act
Amendments to recommend ways of reducing ozone transport in the northeastern part of the
country. Final recommendations were made in 1997.

sources.²⁴ In CAIR, arguing a lack of data, EPA generally released the other
stationary source components from the rule. EPA notes it had sufficient data in 1997
to propose a NOx SIP Call that included these sources, but argues it didn’t have
sufficient data in 2005 to include these sources in CAIR because of the increased
geographic scope of CAIR and its inclusion of SO².²⁵
The Court’s Decision
No less than 32 petitions for review of CAIR were consolidated and decided in
North Carolina v. EPA. The D.C. Circuit found several of the key challenges valid.
Noting that EPA regards CAIR as one integrated action, the court decided against
voiding only the successfully challenged portions. Rather, it vacated the entire rule
(and its associated Federal Implementation Plan) and remanded it to EPA.
With regard to North Carolina’s challenges, the court ruled that CAIR’s
emissions trading program for SO² and NOx violates CAA Section
110(a)(2)(D)(i)(I). This provision addresses downwind states, such as North
Carolina, whose achievement of NAAQS is interfered with by emission sources in
upwind states. It requires SIPs to —
prohibit[], consistent with the provisions of [CAA Title I, governing stationary
sources of emissions], any source or other type of emissions activity within the
State from emitting any air pollutants in amounts which will ... contribute
significantly to nonattainment in, or interference with maintenance by, any other
State with respect to any [NAAQS]....
The court found the CAIR trading program unlawful in assuring only that no
entire region will “contribute significantly,” while Section 110(a)(2)(D)(i)(I) requires
that each state’s sources not “contribute significantly.” (For similar reasons, the
court noted that the NOx SIP Call’s emissions trading program might have been²⁶
judicially invalidated, had this argument been raised.) The court also found
unacceptable that CAIR attributed no significance to the “interference with

²⁴ Specifically, for utility sources, EPA used a NOx emission rate of 0.15 lb. NOx/mmBtu
to determine budget allocations. For area sources, EPA assumed no new controls. For
nonutility sources, EPA used a 70% reduction requirement for large sources, and RACT
controls (generally 25%-50%) for smaller sources. EPA calculated the highway vehicle
budget by assuming implementation of existing SIPs, along with the following federal
measures: national low emission vehicle standards, 2004 heavy-duty engine standards, and
revisions to emissions test procedures. Finally, EPA calculated the budget for nonroad
engines assuming implementation of existing SIPs, along with the following federal
measures: federal small engine standards (Phase II), and 1997 proposed nonroad diesel
engine standards. See proposed Ozone Transport Rule and Appendix B (OTAG
Recommendations), 62 Federal Register 60318-60420, November 7, 1997.
²⁵ Clean Air Interstate Rule, p. 25214.
²⁶ It is too late now to challenge the 1998 NOx SIP Call rule. CAA Section 307(b), 42
U.S.C. Section 7607(b), requires that petitions for review of such rules be filed within 60
days after the rule is promulgated in the Federal Register.

maintenance” prong of Section 110(a)(2)(D)(i)(I) independent of the “contribute
significantly to nonattainment” prong. As CAIR would have it, only states that
satisfy the nonattainment prong can also satisfy the maintenance prong, rendering the
latter a nullity. North Carolina’s final successful argument was that CAIR’s 2015
deadline for upwind states to eliminate their “significant contribution” to downwind
nonattainment again ignores Section 110(a)(2)(D)(i)(I). That provision requires
compliance “consistent with ... [Title I],” which imposes compliance deadlines for
downwind states in 2010. Finally, the court elected not to pass judgment on the
lawfulness of the NOx Compliance Supplement Pool (200,000 extra allowances as
a reward for early reductions), though suggesting that EPA would need to revise it
on remand.
As to the challenges by electric utility companies, the court agreed first that EPA
had improperly set states’ budgets for SO² and NOx in the CAIR emissions trading
program. For example, in basing the budgets on the number of allowances that a
state’s EGUs receive under the CAA’s acid rain program (Title IV), the budgets fail
to track the requirements of Section 110(a)(2)(D)(i)(I) above. Second, the court
found EPA’s use of adjustment factors that gave smaller budgets to states with
mostly natural-gas- or oil-fired EGUs to be inconsistent with Section
110(a)(2)(D)(i)(I) as well, and thus arbitrary and capricious. Third, the court agreed
with the utilities that EPA’s effort to reconcile CAIR’s regulation of SO² with the
existing program for trading SO² allowances under Title IV was unlawful. The court
found nothing in Section 110(a)(2)(D)(i)(I) or other law giving EPA authority to, as
CAIR proposed, remove some Title IV allowances created by CAIR from the Title
IV market. Fourth, the court approved Minnesota Power’s argument that EPA had
overstated the state’s downwind contribution to PM^2.5 (thereby pushing the state over
the threshold for inclusion in CAIR). The argument, said the court, requires a
response from EPA on remand.
North Carolina v. EPA is an immersion in regulatory program detail involving
little in the way of broad legal principles. The court simply juxtaposed what the
CAA (chiefly, Section 110(a)(2)(D)(i)(I)) requires and what CAIR said, and in
several key respects found the latter deficient. Nor did the court feel obliged to defer
to EPA’s views, possibly because it saw the CAA (chiefly, Section
110(a)(2)(D)(i)(I)) as speaking unambiguously to many of the issues raised by
petitioners.
In response to the court’s decision, EPA requested reconsideration September

24, with suggestion for rehearing en banc (that is, rehearing by the entire court).

Grant of reconsideration is unusual, however, and rehearing en banc even more so.
If such second chances are granted, success is especially unlikely when the initial
decision appeared to give the court little pause and was unanimous, as with North
Carolina v. EPA. A petition for certiorari to the U.S. Supreme Court is also
possible.

Issues
EPA’s Options
Any of the appeal options will necessarily take time, particularly resolution by
the Supreme Court. Time is in short supply for states and cities in nonattainment:
deadlines are fast approaching for states to submit State Implementation Plans and
reach attainment of the ozone and PM^2.5 standards.
Rewriting the regulations to address the court’s objections would also pose
difficulties. The court found “more than several fatal flaws”²⁷ in the rule, and
concluded: “CAIR’s flaws are deep. No amount of tinkering will transform CAIR,
as written, into an acceptable rule.”²⁸ A rewrite would appear to require a stronger
link between the significant contribution to nonattainment posed by individual states
and the controls placed on their emissions. Given that requirement, it is unclear
whether the agency can salvage the regional cap-and-trade approach, which lies at the
heart of CAIR, or whether cap-and-trade on a smaller scale, whether intrastate or
intra-company, would face better odds.²⁹
Problems Facing Nonattainment Areas
Whatever path EPA chooses to follow, the areas designated nonattainment for
ozone and PM^2.5 — a significant portion of the eastern United States — face choices
of their own. As of June 2008, 132 million people in 293 counties lived in areas
designated nonattainment for the ozone standard. Seventy percent of the total (about
93 million people) lived in the eastern half of the country, where EPA had identified
CAIR as a key step toward improving ozone air quality.
Under the fine particle (PM^2.5) standard, 208 counties with a combined
population of more than 90 million are designated nonattainment. Except for Los
Angeles and the San Joaquin Valley in California, virtually all of these people and
counties were in areas where air quality would have been improved by
implementation of CAIR. As with ozone, EPA identified CAIR as a key component
of State Implementation Plans to attain the PM^2.5 standard. EPA estimated that about
half of the SIPs would be submitted by July 2008, and the remainder in the coming
months.³⁰ The court decision may require states to reconsider plans already
submitted and those pending submission.

²⁷ 531 F.3d at 901.
²⁸ Id. at 930.
²⁹ Allowing even modest emissions trading can significantly reduce costs. Estimates made
during the development of the acid rain trading program indicated that intra-utility trading
reduced costs by half over a plant-by-plant control program, while including intrastate
trading reduced costs by an additional 10%. Further expansion to interstate trading reduced
costs an additional 10%. See Larry B. Parker, Robert D. Poling, and John L. Moore, “Clean
Air Act Allowance Trading,” 21 Environmental Law, 2021, 2022-2068 (1991).
³⁰ States were required to submit SIPs for the 1997 PM^2.5 NAAQS by April 2008 (three years
after the effective date for the final geographic nonattainment designations).

Further complicating issues associated with achieving attainment of PM^2.5
NAAQS promulgated in 1997, the EPA promulgated revisions to the NAAQS for
particulate matter on October 17, 2006,³¹ primarily a tightening of the 1997 standard
for PM^2.5. The tightening of the PM^2.5 standards³² is expected to increase the number
of areas in nonattainment. SIPs for the new 2006 PM NAAQS would be due in April
of 2012, and under the CAA, states are required to meet the new 2006 PM^2.5 standard
“as expeditiously as practicable,” but no later than five years from the date of final
nonattainment designations — April 2014. Given the historical delays in
implementing the 1997 standards, some stakeholders have advocated leapfrogging
to implementation of the 2006 standards. This position may gain additional
momentum if the implementation of the 1997 standards is further delayed as a result
of the court’s decision regarding CAIR.
Similarly, for ozone, EPA strengthened the NAAQS in March 2008. This sets
in motion a new round of nonattainment area designations and SIP revisions, even
though 293 counties have not attained the old standard, with most SIPs to attain that
old standard still under review by EPA.
States are required to submit SIPs to EPA outlining their strategy for complying
with the PM^2.5 and ozone NAAQS, including provisions to prevent sources within
their states from contributing significantly to nonattainment in downwind states.
Under the Administration’s approach to the SIPs, implementation of CAIR would
have met the interstate transport (downwind state) provision of Section 110(a)(2)(D).
The vacating of CAIR means that SIPs from downwind states may be inadequate
because they assumed the CAIR reductions in interstate transport of pollutants. SIPs
from upwind states, on the other hand, could be inadequate if they don’t prevent
downwind nonattainment: the Clean Air Act makes clear that states are to impose
controls on stationary sources of pollution that contribute significantly to downwind
nonattainment or interfere with the maintenance of air quality standards in other
states. This provision of the statute has been widely disregarded in the past, with
little EPA effort (other than regional cap-and-trade programs) to address it. This
reluctance to act can be challenged through Section 126 petitions.
Section 126 Petitions
Under Section 126 of the Clean Air Act, which addresses interstate pollution
abatement,³³ any state or political subdivision may petition the EPA Administrator
for a finding that a major source or group of sources is violating the act’s prohibition
of emissions contributing significantly to nonattainment or interfering with the

³¹ 71 Federal Register 61143-61233, October 17, 2006. See CRS Report RL33254, Air
Quality: EPA’s 2006 Changes to the Particulate Matter (PM) Standard, by Robert Esworthy
and James E. McCarthy.
³² The new daily standard averaged over 24-hour periods is reduced from 65 µg/m³ to 35
µg/m³ (71 Federal Register 61143-61233, October 17, 2006).
³³ The Section 126 language can be found at [http://www.epa.gov/air/caa/caa126.txt].

maintenance of attainment in another state.³⁴ EPA has 60 days to make a finding in
response to such a petition. If the Administrator found that out-of-state sources were
significantly contributing to an area’s nonattainment, the out-of-state sources would
have to shut down within three months unless EPA imposed emission limits and a
compliance schedule of not more than three years.
EPA has never granted a Section 126 petition in the manner outlined by the
statute. Most recently, it denied a 2004 petition from the State of North Carolina, for
several reasons, in part arguing that CAIR was a better mechanism for addressing the
interstate transport of pollution to which North Carolina was subject than was the
state’s petition under Section 126. North Carolina challenged this denial in court.
Its challenge was stayed, pending the outcome of the CAIR suit.³⁵
With the CAIR decision now made, the court case involving EPA’s denial of
North Carolina’s petition can go forward, and a decision in North Carolina’s favor
would seem much more likely: the D.C. Circuit decision in the CAIR case, after
determining that CAIR must be vacated in toto, notes that “downwind states retain
their statutory right to petition for immediate relief from unlawful interstate pollution
under section 126.”³⁶ A court finding in favor of North Carolina’s Section 126
petition might, therefore, bring on an avalanche of Section 126 petitions from other
states.
Impetus for Multi-pollutant Legislation
The vacating of CAIR and a companion rule targeting mercury (the Clean Air
Mercury Rule, CAMR) raises again the argument for a multi-pollutant strategy with
respect to the electric utility industry — a framework based on a consistent set of
emissions caps, implemented through emission trading. Such an approach would not
resolve all the issues surrounding CAIR, particularly if limited to the electric utility
industry, and would raise issues of its own: How stringent should the emission caps
be? What is an appropriate schedule for their introduction? How should they relate
to existing CAA provisions? Should carbon dioxide be included with SO², NOx, and
mercury control programs?
Currently, there are several bills introduced in Congress to impose emission
caps on these four pollutants emitted by the electric utility industry.³⁷ The vacating
of CAIR may increase focus on this approach.
Conformity and Sanctions
The Clean Air Act does not impose formal penalties on nonattainment areas for
failing to attain air quality standards. Rather, it penalizes areas that fail to submit and

³⁴ The prohibition is found in Section 110(a)(2)(D)(i).
³⁵ Sierra Club v. EPA, D.C. Cir., No. 06-1221, filed June 23, 2006.
³⁶ 2008 Westlaw 2698180, *30.
³⁷ For a comparison of legislation, see CRS Report RL34018, Air Quality: Multi-Pollutant
Legislation in the 110^th Congress, by Larry Parker and John Blodgett.

implement adequate plans — plans that identify emission control measures that,
when modeled, show that the area will have reduced emissions sufficiently to reach
the standards. Many of the most recent SIPs have, with EPA’s approval, counted on
the reductions projected from implementation of CAIR. As noted earlier, in the
CAIR proposal, EPA stated: “(I)t would be difficult, if not impossible, to reach
attainment unless transport is reduced to a much greater degree and over a much
broader regional area than by the simultaneous adoption of local controls within
specific nonattainment areas.”³⁸
Without CAIR, these SIPs would no longer demonstrate attainment. They
would need to be revised and resubmitted. Presumably, EPA will provide a timetable
for such submissions, but if it does not do so, or if the states fail to submit timely
revisions, the states could be subject to sanctions for failure to act. Sanctions can
include a temporary withholding of federal highway funds for new projects until an
adequate SIP is approved.
Impact on New Source Review (NSR)
The Bush Administration has made several attempts over the past five years to
revise the New Source Review (NSR) process under the CAA. Several of these
initiatives have invoked the expected emission reductions under CAIR as one
justification for EPA’s proposed or finalized revision of NSR. These initiatives
include the proposed rule changing the emissions test used to determine whether a
modification by an electric utility generating unit results in it being subject to NSR,
and a final rule on implementing NSR for the PM^2.5 NAAQS,³⁹ which was recently
challenged in the D.C. Circuit.⁴⁰ Whether these initiatives can withstand the loss of
CAIR without revisions is not clear.
Mercury Emissions
Although CAIR applied only to SO² and NOx, EPA has made clear since it
proposed the rule in 2003 that it expected the scrubbers and NOx controls installed
for CAIR compliance to be the means by which most electric utilities would reduce
mercury emissions. The agency did promulgate a Clean Air Mercury Rule (CAMR)
at the same time as CAIR, through which it would have established a cap-and-trade
program for EGU mercury emissions. But CAMR was vacated by the D.C. Circuit

³⁸ Proposed Interstate Air Quality Rule, p. 4582.
³⁹ Environmental Protection Agency, Prevention of Significant Deterioration,
Nonattainment New Source Review, and New Source Performance Standards: Emissions
Test for Electric Generating Units, proposed rule. 70 Federal Register 202 (October 20.
2005), pp. 61081-61103; and, Environmental Protection Agency, Implementation of the New
Source Review (NSR) Program for Particulate Matter Less Than 2.5 Micrometers (PM^2.5),
Final rule. 73 Federal Register 96 (May 16, 2008), pp. 28321-28350.
⁴⁰ Natural Resources Defense Council v. EPA, No. 08-1250 (D.C. Cir. filed July 15, 2008).

in February 2008.⁴¹ Thus, the agency is left with no controls on mercury emissions
from powerplants.
Coal-fired powerplants are responsible for 42% of total U.S. emissions of
mercury, according to EPA, and are, by far, the largest uncontrolled mercury
emission source. Mercury pollution is widespread; it deposits in water bodies where
it is converted to methylmercury and is taken up in the food chain.⁴² The Clean Air
Act requires that major sources of mercury meet standards based on EPA’s
determination of the Maximum Achievable Control Technology (MACT) available
to such sources. EPA sought to avoid imposing MACT on coal-fired powerplants
by substituting the CAIR and CAMR control programs, which it argued would
produce more cost-effective controls; in the wake of the court’s two rulings, the
agency now appears to have few options other than implementing MACT.⁴³
Impact on Regional Haze Rule
Section 169A of the CAA sets “as a national goal the prevention of any future,
and the remedying of any existing, impairment to visibility” in designated “class I
areas” (e.g., national parks and wilderness areas). It requires 26 categories of major
stationary sources of pollution — including electric generating units (EGUs) — in
existence on the date of enactment (1977), but not more than 15 years old as of that
date, to install “best available retrofit technology” (BART) if the state determines the
source may reasonably be anticipated to cause or contribute to any impairment of
visibility in any class I area. In 2005, EPA made a final determination to exempt
EGUs subject to the CAIR trading program from the Section 169A visibility BART
program.⁴⁴ With the vacating of CAIR, BART determinations for electric generating
units may be subject to further rulemaking.
Conclusion
Unless reversed on further review, the court decision in North Carolina v. EPA
leaves EPA’s strategy for achieving attainment of the ozone and PM^2.5 NAAQS in
serious disarray. CAIR was the lynchpin that held together the Administration’s
strategy for attainment of the ozone and fine particulate NAAQS, for achieving
reductions in mercury emissions from coal-fired powerplants, for addressing regional

⁴¹ The CAMR case, decided February 8, 2008, was New Jersey v. EPA, 517 F.3d 574 (D.C.
Cir. 2008).
⁴² Forty-eight states have fish-consumption advisories for mercury in their freshwater lakes
and/or rivers (23 of these advisories cover every water body in the state); and 13 states have
statewide mercury advisories in their coastal waters. About 60% of the U.S. coastline
(excluding Alaska) is under fish consumption advisories for mercury. See U.S. EPA, Office
of Water, “Fact Sheet: 2005/2006 National Listing of Fish Advisories,” July 2007, pp. 4-5,
at [http://www.epa.gov/waterscience/fish/advisories/2006/tech.pdf].
⁴³ For additional information on CAMR, see CRS Report RS22817, The D.C. Circuit Rejects
EPA’s Mercury Rules: New Jersey v. EPA.
⁴⁴ 70 Federal Register 39137 (July 6, 2005).

haze impacts from powerplants, and for responding to state petitions under Section

126 of the Clean Air Act with respect to the ozone and fine particulate NAAQS.

EPA’s only short-term option, other than letting the decision stand, was to
appeal it — a step EPA took on September 24. However, it appears unlikely the D.C.
Circuit will review the decision, which gave the court little pause and was
unanimous. Likewise, the court’s decision strongly suggests that there is no simple
“fix” that would make CAIR acceptable to the court. This leaves EPA with three
clear options: (1) starting over with a new strategy to mitigate transported air
pollutants based on the decision; (2) allowing the states to sort out the issue through
Section 126 petitions; and (3) seeking new legislation providing EPA with the
statutory authority to either implement CAIR in some form, or an alternative.
For the states attempting to attain the NAAQS, the decision clearly puts the
focus on Section 126 petitions as the available means to address interstate transport
of air pollutants.
For Congress, the decision raises several issues:
^!Should the Congress consider providing EPA with the authority to
implement CAIR or other cost-based, market-oriented approaches to
address NAAQS?
^!Should the Congress consider multi-pollutant legislation as a
supplement or substitute for the current regulatory regime, at least
for electric generating units?
^!Should Congress consider a more comprehensive revision to the
Clean Air Act to address not only ozone and PM^2.5 NAAQS non-
attainment, but also mercury emissions from coal-fired powerplants,
and emerging environmental issues such as climate change?