On September 25, 2008, EPA filed a Petition for Rehearing or Rehearing En Banc of the D.C. Circuit’s July 11, 2008 decision to vacate EPA’s Clean Air Interstate Rule (”CAIR”).  That decision eviscerated EPA’s primary tool for regulating interstate NOx and SOx emissions from 28 “upwind” states and DC that contribute to National Ambient Air Quality Standards violations in “downwind” states. 

While acknowledging a remand may still be necessary for portions of the decision the government is not contesting, the Petition asserts the panel erred in its unanimous ruling that: a) EPA’s regional trading scheme for SOx and NOx was inconsistent with the Clean Air Act’s requirement that EPA evaluate and address air pollution contributions on a state-by-state basis; b) EPA lacked authority to terminate or limit SOx and NOx allowances issued pursuant to EPA’s Acid Rain Program and c) vacating the entire rule was the necessary and proper remedy.

The Circuit Court decision was a major blow to the Bush administration, which has used market-based cap-and-trade programs as the centerpiece of its air pollution regulations (CAIR, Clear Skies and Mercury Rule).  While the Court’s decision to vacate the entire CAIR rule is essentially deregulatory in the short-term, the decision has raised concern among many industry stakeholders.  They fear any new regulation enacted in the wake of the Court’s broad holding would provide far less flexibility, be more costly, and potentially conflict with significant pollution control investments companies have already made in reliance on CAIR.  Indeed, concern over the impact of the Court’s action has also prompted some lawmakers to push for a legislative enactment of the CAIR program, but those efforts died last week in the House of Representatives..

If the Court denies the government’s request for rehearing, EPA would still have the opportunity to appeal the decision to the Supreme Court.

For further information about this topic, please contact Akin Gump.