In a significant victory for the U.S. Environmental Protection Agency and supporting parties, the U.S. Supreme Court reversed and remanded an appellate ruling that had invalidated EPA’s Clean Air Act regulation of certain air pollutants from power plants in 28 eastern “upwind” states that cross state lines and contribute significantly to air quality problems in “downwind” states. On April 29, 2014, the Court overturned a ruling by the U.S. Court of Appeals for the District of Columbia Circuit in EPA, et al. v. EME Homer City Generation, L.P., et al. The opinion resoundingly upholds the principles of Chevron deference to agency expertise when statutory language is ambiguous, even though its immediate practical impact on the power generation industry may be limited.

The federal Clean Air Act requires states to regulate emissions from in-state air pollution sources to achieve designated healthful levels of air quality through State Implementation Plans (SIPs) approved by EPA. SIPs must include “Good Neighbor” provisions limiting in-state emissions so as to prevent those emissions from interfering with healthful air quality levels in downwind states. Finding SIPs inadequate to comply with the statutory mandate, EPA promulgated the Cross-State Air Pollution Rule (CSAPR) in 2011 to address the requirements of the Good Neighbor Provision. As part of CSAPR, EPA invoked its federal implementation plan (FIP) authority to substitute federal regulations for inadequate SIPs.

At a basic level, EPA employed a two-step process to develop CSAPR requirements. First, to determine which states to include in the program, EPA used air quality modeling projections to identify states whose emissions would contribute significantly to downwind air quality problems. Next, in step two, EPA determined what emissions from each state could be eliminated through use of “highly cost-effective” controls. EPA then allocated annual sulfur dioxide and nitrogen oxide emission allowances to each covered state, and ultimately to each power plant, reflecting those two-step calculations, with each allowance authorizing one ton of emissions.

Many electric generating companies, upwind states, nongovernmental organizations, and others appealed CSAPR to the D.C. Circuit. A number of downwind states and cities, environmental groups, and electric generating companies with clean generation fleets intervened to support EPA. In 2012, the D.C. Circuit held that EPA upset the Clean Air Act’s cooperative federalism structure when it issued FIPs instead of quantifying states’ good neighbor obligations and allowing states the initial opportunity to develop SIPs.

The D.C. Circuit also held that CSAPR exceeded EPA’s statutory authority because the two-step rule may result in requiring upwind states to reduce their downwind impacts below the threshold that EPA has already deemed “insignificant.” That possibility was created, according to the court, by employing the two-step process. The Court of Appeals also held that EPA may not require reductions beyond the level at which the downwind state achieves the air quality concentrations deemed healthful, and that each upwind state may be required only to reduce its proportional share of contribution compared with other upwind states and with the downwind state itself.

Justice Ruth Bader Ginsburg, joined by Justices Anthony M. Kennedy, Stephen G. Breyer, Sonia Sotomayor, and Elena Kagan, as well as Chief Justice John G. Roberts, concluded that EPA had acted within its reasonable discretion in implementing the Clean Air Act’s Good Neighbor Provision. The Court held that EPA acted permissibly within the statute by promulgating FIPs without giving the states another chance to submit revisions to SIPs, which EPA had already disapproved, to implement EPA’s quantification of each state’s Good Neighbor Provision obligations. The Court criticized the D.C. Circuit for “carving out an exception to the Act’s precise deadlines” for replacing an inadequate SIP with a FIP.

The Supreme Court also held that the Good Neighbor Provision does not dictate the particular allocation of emissions among contributing states advanced by the D.C. Circuit. The Court upheld EPA’s chosen allocation method as a permissible construction of the statute. Observing that multiple upwind states contribute varying amounts of pollution to multiple downwind states, the Court found that the D.C. Circuit’s proportionality approach works neither mathematically nor practically.

The Court also held that EPA reasonably exercised its discretion in balancing air quality impact and cost considerations in setting state-specific emission targets that might end up achieving over-control in certain downwind states to achieve adequate control in other states. Using cost in this way is both an “efficient and equitable solution to the allocation problem the Good Neighbor Provision requires the Agency to address,” the Court wrote.

Justice Antonin Scalia, joined by Justice Clarence Thomas, dissented. Justice Samuel Alito recused himself from the case.

It is noteworthy that the Court afforded great deference to EPA’s reasonable interpretation of ambiguous terms in the Clean Air Act, and held that EPA may use cost in its decision where the statute does not tell the agency what factors to consider. While the decision may have significant longer-term regulatory implications, the immediate practical impact of the decision on the regulated power generation industry may be limited. A stay of the rule entered by the D.C. Circuit remains in place pending further reconsideration by the court of appeals on remand. More importantly, decisions of power plant owners on whether to install emission controls or shut down are being heavily influenced by other environmental regulations such as the Mercury and Air Toxics Standards, which in many cases will require more significant emission reductions than required by the CSAPR.

Nevertheless, CSAPR represents a high-profile rulemaking on which EPA can now rely as a new baseline for both addressing the interstate impacts of air pollutant emissions, and for regulating those emissions from the power sector. EPA will likely need to revisit the CSAPR requirements as EPA updates and possibly tightens air quality standards designated as healthful. Further, the Court’s affirmance of EPA’s method of basing state emission reduction requirements for the electricity sector on what could be achieved using “highly cost-effective” control technology may have implications for EPA’s upcoming standards for greenhouse gas emissions for electric generating units, where cost considerations are expressly authorized by the statute.

The Ballard Spahr legal team of Brendan K. Collins, Robert B. McKinstry, Jr., and Lorene L. Boudreau represented Exelon Corporation as an intervening party on the side of EPA in this litigation. If you have questions about the Supreme Court ruling, contact Mr. Collins at 215.864.8106 or or Ms. Boudreau at 215.864.8245 or

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