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Federal Appeals Court Rejects EPA Mercury Cap And Trade Rule For Power Plants

On February 8, 2008, the D.C. Court of Appeals ruled that EPA violated Section 112 of the Clean Air Act when it removed electricity generation power plants from the list of sources of airborne mercury pollution, then attempted to control mercury pollution from those same power plants by a voluntary cap and trade program.

Comparing EPA to the Queen of Hearts from Alice in Wonderland, who insisted that words meant whatever she, the Queen, intended them to mean at the moment, the court in New Jersey v. EPA, slip op. No. 05-1097 (D.C. Cir., Feb. 8, 2008), determined that EPA had substituted its “desires for the plain text of section 112(c)(9)” and unlawfully delisted electric generation power plants as a source of mercury pollution via EPA’s regulatory Delisting Rule. Because this action was improper and EPA relied upon the Delisting Rule to promulgate its Clean Air Mercury Rule (CAMR), establishing a cap and trade system for mercury emissions from power plants, both the Delisting Rule and CAMR are invalid.

Under Sections 111 and 112 of the Clean Air Act, EPA is required to regulate hazardous air pollutants (HAPs). In 1990, perturbed by the slow pace of EPA’s identification of HAPs, Congress amended the Clean Air Act to pre-identify a number of HAPs, including mercury, and to require EPA to regulate mercury emissions from major sources, including electric generation units (EGUs) – primarily coal and oil-fired power plants – if EPA concluded that doing so was “appropriate and necessary.” Clean Air Act, §112(n). In 2000 EPA so concluded, and added power plants to the Section 112(c)(1) list of major sources of mercury pollution. In 2005, however, EPA reconsidered that decision and issued its Delisting Rule, removing EGUs from the major source list and thereby removing power plants from the emission control technology requirements otherwise applicable to new and existing sources of mercury pollution.

At the same time EPA delisted power plants from Section 112(c)(1), EPA initiated its CAMR system for mercury pollution control under Section 111 of the Clean Air Act. The CAMR Rule:

established plant-specific “standards of performance” for mercury emissions from new coal-fired EGUs under section 111(b). 70 Fed. Reg. at 28,613-16. Relying on sections 111(b) and (d), it also established a national mercury emissions cap for new and existing EGUs, allocating each state and certain tribal areas a mercury emissions budget. This was supplemented by a voluntary cap-and-trade program.

New Jersey v. EPA, slip op. at 11. EPA asserted that efficient power plants would reduce emissions below otherwise-applicable regulatory requirements, thereby improving environmental performance, while less efficient power plants would be encouraged to improve because of the cost of purchasing additional mercury pollution emission allowances.

New Jersey and a host of other states, municipalities and environmental interest groups sued to block EPA’s CAMR and the Delisting Rule as violating the Clean Air Act. When Congress added Section 112 to the Act in 1990, it included an express delisting provision – Section 112(c)(9). Section 112(c)(9) provides that:

The Administrator may delete any source category from the [section 112(c)(1) list] . . . whenever the Administrator . . . [determines] that emissions from no source in the category or subcategory concerned . . .  exceed a level which is adequate to protect public health with an ample margin of safety and no adverse environmental effect will result from emissions from any source.

New Jersey v. EPA at 14. In issuing the Delisting Rule, EPA stated that it was not required to comply with Section 112(c)(9) in order to delist power plants as a major source of mercury pollution because EPA had not been required to add them as a source under Section 112 (c)(1) in the first place. A discretionary decision on the front end, EPA claimed, rendered delisting on the back end also discretionary.

The D.C. Court of Appeals disagreed, finding it relevant that Congress specifically enacted Section 112(c)(9) to govern any EPA decision to delist a major source, once listed. EPA conceded that its Delisting Rule wholly failed to meet the statutory delisting criteria of Section 112(c)(9). Without satisfaction of the statutory criteria, EPA’s attempt to delist power plants from Section 112(c)(1) was not effective. Because existing power plants remained subject to regulation under Section 112(c)(1), they could not be regulated under Section 111. The Court also determined that CAMR’s application to new power plants would be inappropriate if existing plants were not also included in the cap and trade system. Therefore, the Court voided CAMR in its entirety.

A number of observers have noted that the effect of the D.C. Court of Appeals’ decision is to remove any mercury emission limits from coal-fired power plants. They argue that such a result is inconsistent with the presumed goals of New Jersey and the other plaintiffs. Inconsistent or not, it is true that EPA must return to the drawing board to develop a new system for regulating mercury emissions from new and existing electric power plants.

For more information about this decision or the Clean Air Act, contact Mike Hockley in Spencer Fane’s Kansas City office or at mhockley@spencerfane.com.