Two days before Christmas, the DC Circuit Court of Appeals reversed course and issued a new ruling in the Clean Air Interstate Rule (CAIR) case–North Carolina v. EPA, No. 05-1244.
In July 2008, a three-judge panel struck down the CAIR program after determining that it violated EPA’s statutory mandate. The panel held that EPA was required to evaluate and address air pollution contributions on a state-by-state basis, whereas CAIR uses a regional approach. In addition, they held that the EPA lacked authority to terminate or limit emissions allowances originally issued under the Acid Rain Program (ARP); many of CAIR’s environmental benefits are based on mandating accelerated retirement of ARP allowances, so that pollution is quickly reduced across the region.
The panel then held that the rule would be vacated in its entirety and remanded to EPA to promulgate a new rule consistent with the court’s opinion. The federal government filed a petition for rehearing and rehearing en banc on September 24, 2008. A month later, the court issued an order directing the other parties to the case to file a response to the government’s petition.
On December 23, 2008 the same three-judge panel granted the petition for rehearing in part and significantly modified its prior remedial order. The Court withdrew its vacatur order and reinstated the rule — held that the rule should stay in place — pending the EPA’s reconsideration of the rule on remand. The Court noted that, “notwithstanding the relative flaws of CAIR, allowing CAIR to remain in effect until it is replaced by a rule consistent with our opinion would at least temporarily preserve the environmental values covered by CAIR.” The Court underscored, however, that EPA must still fix “CAIR’s fundamental flaws” in a timely manner, or face being hauled before the Court yet again. “[W]e do not intend to grant an indefinite stay of the effectiveness of this court’s decision,” the Court cautioned.
This decision is the result of a rather uncommon process within the D.C. Circuit. At the outset, it is unusual for the DC Circuit to grant a petition for rehearing, particularly one that so substantially modifies the court’s initial ruling. Patricia Millett, co-head of Akin Gump’s Supreme Court and Appellate practice, noted that the judges had already considered and addressed the ramifications of their vacatur decision in July, so it is “particularly unusual for the Court to reevaluate and reverse course on an issue of such consequence that had already been debated and decided. After all, these type of administrative law issues are the DC Circuit Court’s bailiwick.” None of the issues presented in the rehearing were strikingly new or novel - the effects of eliminating CAIR were outlined for the Court at the time. Because the government also sought rehearing en banc by the full D.C. Circuit — something that it is relatively rare for the Solicitor General to authorize the federal government to do in that court — there is speculation that the panel’s change of heart may have been motivated by pressure or concerns from other members of the Court.
In the end, the Court determined that having an illegal program in effect is better than not having any program at all, given the environmental benefits that CAIR is expected to deliver. EPA estimates that CAIR “will result in $85 to $100 billion in health benefits and nearly $2 billion in visibility benefits per year by 2015 and will substantially reduce premature mortality in the eastern United States.”
There is little question that the federal government believed that the environmental and public health benefits of CAIR were critically important issues, given that the Solicitor General authorized the EPA to seek rehearing en banc and the EPA included with its petition signed declarations from high-ranking air pollution officials offering support for CAIR. Brian J. McLean, the Director of EPA’s Office of Air and Radiation, argued that vacating CAIR “would remove the primary incentive for power companies to install and operate emission controls” in many areas. He also noted the effect that vacating CAIR would have on the markets for emission allowances under the Clean Air Act: in a four month period the price for sulfur dioxide allowances dropped by roughly 80 percent, reducing by over $3 billion the value of banked allowances being held by firms.
Thus, in addition to achieving significant environmental benefits, the DC Circuit’s reversal is likely to send a positive message about the future of emissions markets in the US, an important issue as President-elect Obama readies his climate change agenda, and Congress returns to work with hopes of passing comprehensive carbon legislation.
For further information about this topic, please contact Akin Gump.
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