Court overturns key EPA air-quality rule

WASHINGTON - The U.S. Court of Appeals for the District of Columbia Circuit overturned one of the Obama administration's hallmark air quality rules Tuesday, ruling that the Environmental Protection Agency had overstepped its authority in curbing pollution from Midwest power plants too sharply.

The 2-1 ruling by the appeals court represents a major victory for utilities and business groups, who fought the Cross-State Air Pollution Rule on the grounds that it was costly, burdensome and arbitrary. Environmentalists, who had hailed the rule as a major improvement over a Bush-era regulation, bemoaned the decision as a blow to public health.

For years federal regulators have struggled with how best to cut harmful sulfur dioxide and nitrogen oxide emissions from Midwest power plants, which blows downwind and contributes to forming smog and acid rain in the East. The EPA issued a rule - which was supposed to take effect Jan. 1, 2011, but was delayed by the court - that would have required utilities in 28 states to install new pollution controls. It also established a limited cap-and-trade system that would have let utilities buy and sell pollution credits in order to comply with the new standards.

EPA officials calculated that the new rule would yield health benefits for 240 million Americans. The agency predicted that by 2014 this rule, with others, would cut sulfur dioxide emissions nationwide by 73 percent, compared with 2005 levels, and reduce nitrogen oxide emissions by 54 percent.

But Southern Co., EME Homer City Generation, and Energy Future Holdings Corp. units in Texas challenged the rule, saying they could not meet the new requirements in time, while the state of Texas, the National Mining Association and the International Brotherhood of Electrical Workers also sued EPA in separate cases on the grounds that it was based on flawed computer models and could jeopardize the nation's electricity supply by forcing companies to shut down older coal-fired plants.

In the ruling, the court wrote that the EPA used a section in the Clean Air Act known as the "good neighbor provision" to "impose massive emissions reduction requirements on upwind States without regard to the limits imposed by the statutory text. Whatever its merits as a policy matter, EPA's Transport Rule violates the statute." It also wrote that the EPA overstepped its bounds in regulating power plants directly, rather than giving upwind states a chance to develop their plans.

"EPA can't force states to do more than their fair share, and can't force 'one size fits all' federal programs without allowing states to craft their own solution," said Joseph Stanko, who heads government relations at the law firm Hunton & Williams, and represents coal-fired utilities.

Jeffrey R. Holmstead, who helped craft an earlier interstate pollution rule when he headed EPA's air and radiation office under George W. Bush and is now a partner at Bracewell & Giuliani, said the ruling might prompt environmentalists and industry officials to seek new legislation to resolve the issue. But Holmstead, who also represents several utilities, said it represents a significant legal loss for an administration that has worked aggressively to curb power-plant pollution.