Third Circuit dishes up Section 126(b) hors d’ouvre while everyone waits to learn whether a CSAPR entree is on the menu

Late last week, in GenOn REMA, LLC v. EPA, No. 12-1022 (3d Cir., Opinion filed July 12, 2013), the U.S. Court of Appeals for the Third Circuit upheld a rule imposing emissions limits and compliance schedules on a single Pennsylvania coal-fired power plant.  EPA had promulgated the rule in response to a petition filed by the State of New Jersey Department of Environmental Protection (NJDEP), which maintained that emissions from the plant were significantly contributing to the problems that a number of counties in New Jersey were having meeting national ambient air quality standards (NAAQS).  The Third Circuit opinion may increase the frequency with which state and local governments file petitions seeking to require sources in neighboring upwind states to reduce emissions that are impairing their downwind ambient air quality, particularly in the wake of a recent D.C. Circuit decision that vacated another EPA rule aimed at addressing cross-state air pollution in a more coordinated and comprehensive fashion.

The Clean Air Act contains a provision, Section 7410(a)(2)(D)(i) (often referred to as the “good neighbor provision”), which prohibits sources within one state from emitting air pollutants in amounts that significantly contribute to the nonattainment of NAAQS in another state.  The Clean Air Act contains another provision, Section 126(b), that allows state and local governments to petition EPA to make a finding that any major source (or group of sources) in an upwind state is violating the good neighbor provision.  Following a public hearing and within 60 days of receiving a petition, EPA is required to make this finding or else deny the petition.  If EPA makes the finding, the source must terminate operations within three months, unless it complies with emissions limits and compliance schedules that EPA may impose to address the violation.

On September 17, 2010, NJDEP filed a petition under Section 126(b) requesting that EPA make a finding that the Portland Generating Station, a 427-megawatt coal-fired electricity generating plant in Upper Mount Bethel Township, Northampton County, Pennsylvania, located directly across the Delaware River and upwind from New Jersey, emits sulfur dioxide in amounts that significantly contribute to the nonattainment in New Jersey of a 2010 standard that sets the level of sulfur dioxide emissions at 75 parts per billion per hour (the 1-hour SO2 NAAQS).  NJDEP submitted modeling analyses showing that emissions from the facility cause violations of the 1-hour SO2 NAAQS in four New Jersey counties.  Sulfur dioxide, a gas derived from fossil fuel combustion, can cause adverse health affects, as well as acid rain.

On November 7, 2011, after completing its own independent analyses, publishing a proposed rule and accepting public comment (including at a public hearing), EPA issued a final rule (the Portland Rule) granting NJDEP’s Section 126(b) petition.  In the Portland Rule, EPA made a finding that sulfur dioxide emissions from the Portland facility significantly contribute to the nonattainment of the 1-hour SO2 NAAQS in New Jersey and, on that basis, imposed stringent emissions limits and compliance schedules requiring the facility, on a defined schedule, to reduce its sulfur dioxide emissions by approximately 81% within three years.

GenOn REMA, LLC, the owner and operator of the facility, filed a petition for review in the Third Circuit challenging the Portland Rule both as exceeding EPA’s Clean Air Act authority and as arbitrary and capricious.  As a general matter, the cooperative federalism structure of the Clean Air Act authorizes EPA to establish NAAQS but permits the states to achieve them through state implementation plans (SIPS) that states, under Section 110 of the Clean Air Act, are required to develop within three years after EPA promulgates a NAAQS.  The gravamen of GenOn’s petition was that the Portland Rule does violence to this structure by imposing direct regulations on the Portland facility before Pennsylvania was even required to complete its Section 110 SIP for the 1-hour SO2 NAAQS.

Last Friday, the Third Circuit denied the petition for review and upheld the Portland Rule.  In determining whether EPA exceeded its Clean Air Act authority, the court applied traditional Chevron analysis.  Under Chevron step one, the court found no support in the text of Section 126 for GenOn’s position that a valid petition can only be filed after the upwind state has been afforded an opportunity to establish a SIP.  To the contrary, the court found that GenOn’s position would frustrate certain provisions of Section 126 while rendering others superfluous.  With regard to cooperative federalism, the court cited with approval a D.C. Circuit opinion in Appalachian Power Co. v. EPA, which held that “this principle . . . cannot be absolute in the face of § 126, which contemplates that in at least some circumstances the EPA will directly regulate sources within a state.”

In the alternative, under Chevron step two, the court found that the legislative history of Section 126(b) as part of the Clean Air Act Amendments of 1977 supported the notion that “Congress viewed the Federal government as continuing to play an essential role in the fight against interstate pollution despite the fact that the states are the primary actors for implementing NAAQS and formulating SIPs.”  On the question of whether the Portland Rule was arbitrary and capricious, the court found that the text of Section 126 permitted EPA to require a single facility to address the air quality problems in a downwind state even before other facilities in that state were required to address the same problems.  The court also found sufficient support in the administrative record to uphold the Portland Rule.

As mentioned at the outset of this post, a recent D.C. Circuit decision vacated a different EPA rule that sought to implement the good neighbor provision of the Clean Air Act.  In EME Homer City Generation, L.P. v. EPA, the court invalidated the Cross-State Air Pollution Rule (CSAPR), which limited emissions from power plants and other sources in 28 upwind states based on their contributions to the air quality problems in downwind states.  The court held that CSAPR exceeded EPA’s Clean Air Act authority in two respects:  first, in requiring upwind states to reduce their emissions in amounts that potentially exceed their own significant contributions to nonattainment in a downwind state; and second, in not affording states the initial opportunity to implement reductions with respect to sources within their borders before imposing federal implementation plans (FIPs) requiring such reductions.  (Interestingly, when GenOn attempted to use the latter rationale to support its cooperative federalism argument, the Third Circuit turned the EME Homer City decision around on GenOn, noting that the opinion also provided that Section 126 is “a separate provision [from Section 110] that explicitly contemplates direct EPA regulation of specific sources that generate interstate pollution.”)

The U.S. Supreme Court recently granted EPA’s petition seeking review of the D.C. Circuit decision in the EME Homer City case.  Many state and local governments will be waiting for the outcome of that case to learn whether CSAPR might yet provide some relief for their cross-state air pollution problems.  At the same time, it isn’t hard to imagine that other state and local governments, buoyed by the GenOn decision and anxious to begin addressing those problems sooner rather than later, will at least explore filing their own Section 126(b) petitions.  Major sources located near state borders may want to take cover.

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