On June 27, 2024, the Supreme Court issued its opinion in Ohio v. EPA, in which it stayed the EPA’s 2023 “good neighbor” rule. Merits litigation challenging the rule is underway in the D.C. Circuit, but that court will likely not hold argument, let alone rule on the merits, until next year. For now, EPA cannot enforce the rule in any of the plaintiff states or against any of the plaintiff trade associations and companies. The opinion also suggests that a majority of the current Court is on high alert for any missteps EPA may take under the Clean Air Act, which has long been and will likely remain the site of major political, policy, and legal contention.
One of EPA’s major regulatory programs under the Clean Air Act administers the National Ambient Air Quality Standards (NAAQS, pronounced “nacks” to rhyme with “snacks”). EPA has identified six air pollutants, emitted from a broad range of sources, whose elevated local concentration harms human health and welfare. EPA determines the maximum level of these pollutants that is “requisite to protect the public health” with an “adequate margin of safety.”
Once EPA has set a NAAQS standard, a complex, interrelated set of state and federal actions takes place to ensure attainment and maintenance of the new standard. State regulations to implement a NAAQS standard are known as SIPs (State Implementation Plans). If a state fails to submit a SIP, or if EPA disapproves a state’s SIP submission, the statute requires EPA to issue a FIP (Federal Implementation Plan) to fulfill the outstanding requirements of the Act for the state in question.
The statute requires EPA to review NAAQS standards every five years and, if appropriate, to revise them. Whenever EPA issues a new NAAQS standard, this starts a three-year clock for every state to submit for EPA review and approval a so-called “infrastructure” SIP, which gets its name because it is not targeted specifically towards attaining and maintaining the standard for the state in question. (A state’s attainment and maintenance of the new standard is governed by other statutory provisions.) Instead, an “infrastructure” SIP demonstrates that the state has the regulatory infrastructure in place to account for the new standard in a variety of ways.
One required aspect of the “infrastructure” SIP is known as the “good neighbor” requirement. The Act requires a state’s SIP to “contain adequate provisions prohibiting . . . any source or other type of emissions activity within the State from emitting any air pollutant in amounts which will contribute significantly to nonattainment in, or interfere with maintenance by, any other State with respect to [the new NAAQS] quality standard.” In plain English, upwind states need to demonstrate that their sources are sufficiently controlled so as to not significantly interfere with downwind states’ ability to attain and maintain the new standard.
The good neighbor rule at issue in this case addresses this requirement with respect to the October 2015 ozone NAAQS standard. The Trump Administration had signaled its desire to depart from prior Administrations’ implementation of the good neighbor requirement for previous NAAQS standards via FIPs and encouraged states to explore a variety of analytical paths when crafting their SIPs in this regard. And indeed, many states submitted analyses to EPA that showed that they did not need to impose additional controls in order to satisfy the good neighbor requirement here.
The Biden Administration proposed to disapprove (or, in some instances, revoked the prior approval of) dozens of states’ good neighbor SIP submissions. While those proposed SIP disapprovals were pending, EPA then proposed a FIP. The rule takes the form of a cap-and-trade budget for coal-fired power-plant emissions of ozone precursor pollutants—in line with the policy architecture through which prior Administrations had satisfied the good neighbor requirement for previous standards). But the rule departs from prior efforts by also imposing control requirements (with no allowance trading) in more than a dozen other industrial sectors, such as pipelines, paper mills, and steel mills.
Commenters on the proposed FIP argued that some of these states’ SIP disapprovals were in error, that EPA would not be able to impose its FIP on those states, and that this would therefore wreak havoc on EPA’s determinations in the good neighbor rule of the appropriate mix of controls on upwind state activity. This is because EPA determines what cost-effective upwind controls are available in order to achieve cost-efficient downwind protections as a holistic matter. (The four-step analytic framework through which EPA has long implemented the good neighbor provision is not squarely at issue in the Supreme Court’s opinion; the Court generally affirmed it in the 2014 case EPA v. EME Homer City Generation.)
In the final good neighbor FIP, EPA responded to these comments by saying that the requirements placed on each state were severable from those placed on any other state, and that it intended to rule to function regardless of how many individual states were or were not included in the rule’s implementation. But it did not provide any analysis of why the final rule would meet the Act’s requirements and would otherwise rationally achieve the policy goal at issue even if it could not be implemented in all states.
The commenters’ warnings proved prophetic. Multiple regional circuit courts issued preliminary injunctions on EPA’s disapproval of various state SIPs, leaving EPA unable to implement the rule in those states. (For its part, EPA insists that none of these courts should even be hearing these actions, as under its reading of the Act, these challenges all belong in the D.C Circuit.)
As for the good neighbor FIP rule itself, when the D.C. Circuit declined to grant a preliminary injunction, parties sought one in the Supreme Court, which heard oral argument on the stay application in February 2024. (The Court did not rule on the stay application until the end of its term, an unusually long period for any court to deliberate on a stay request.)
Justice Gorsuch’s majority opinion holds that challengers to the good neighbor FIP are likely to succeed on the merits of their claim that EPA acted in an arbitrary and capricious manner by not reasonably explaining its determination that each state’s obligations under the rule could function independent of the others’, and by not adequately responding to comments on this point. (Because this was sufficient to stay the rule, the Court did not reach any other challenge to the rule, although the D.C. Circuit will consider multiple other legal and technical challenges to the rule as they are briefed before it.)
Justice Barrett wrote the dissent, joined by the three Democratic-appointed Justices. The dissent argues that challengers have not actually identified how the exclusion of some states from coverage would affect the viability of the rule for the rest of the states, stresses that the SIP disapprovals may eventually be upheld, and additionally argues that the comments on this issue did not meet the Clean Air Act’s requirement that objections to a rule be raised with “reasonable specificity” in order for a court to review them. The majority counters that the comments on the proposed rule were specific enough to put the agency on notice.
This last aspect of the case speaks to a unique provision of the Clean Air Act which has long stymied parties wishing to challenge EPA actions under that Act. In most litigation over agency regulation, the question of whether comments on a proposed regulation sufficiently raised an issue before the agency to permit judicial review is subject to the judicially-created, somewhat fuzzy doctrine of exhaustion of remedies, which doctrine in turn can be subject to equitable exceptions. But Congress explicitly codified in the Clean Air Act a provision that courts can only review objections to a rule raised in comments with “reasonable specificity.” This raises the prospect, confirmed in multiple D.C. Circuit opinions, that EPA can finalize an aspect of a final regulation that it never proposed and avoid judicial review on that issue because no one raised the issue in comments. Parties subject to rules with defects they didn’t raise in comments (because the defects were not in the proposed rule) may not simply sue to enjoin the rules in question. They need to first file a petition with EPA for administrative reconsideration—with no congressional deadline provided for EPA to act on that petition. Only when EPA gets around to ruling on the petition can the party seek judicial review of the issue.
Justice Gorsuch’s majority opinion here is likely to reduce EPA’s ability to rely on this unique Clean Air Act provision in two regards. First, it sets a lower bar for plaintiffs to clear: it’s enough for some comment in the record (not necessarily filed by the plaintiff itself) to fairly place an agency on notice of an objection. Second, the majority expressly rejects the dissent’s suggestion that a claim of failure to adequately respond to comments needs to go through the administrative re-consideration procedure described above. While the dissent argues that this is what the literal text of the Act demands, the majority rejects this: “A person need not go back to the agency and insist on an explanation a second time.”
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