Outlook Cloudy for EPA's 'Good Neighbor' Rule

A key piece of President Obama's plan for curtailing air pollution has been in legal limbo for more than a year, and a Supreme Court hearing Tuesday did little to clarify whether the so-called "good neighbor" rule is headed up or down.

The justices batted around the question of whether the Environmental Protection Agency's Cross-State Air Pollution Rule oversteps the authorities spelled out in the Clean Air Act, as industry groups and some states contend in a lawsuit against the rule, which was aimed at protecting downwind areas from soot- and smog-forming pollution from power plants in upwind eastern states.

The plaintiffs won a round in August 2012, when the U.S. Court of Appeals for the D.C. Circuit ruled that EPA had exceeded its authority in requiring upwind states, such as those in the Midwest, to make emission reductions greater than prescribed by the Clean Air Act in order to protect areas downwind, mostly in the Northeast.

At issue is whether EPA was justified in factoring the cost-effectiveness of emissions-control technologies into proposed targets for pollution reduction rather than relying solely on air-quality thresholds prescribed under the Clean Air Act. The court will also decide whether the agency acted appropriately in imposing federal implementation plans on upwind states.

Justice Antonin Scalia appeared to take up the side of states and industry groups, which have criticized EPA's methodology in setting the reductions targets. "What the application of the cost factor [in determining state emissions targets] means is that some states that can more efficiently make the changes will be required to do more than merely account for their proportion of the downwind harm," Scalia said during the arguments.

Deputy Solicitor General Malcolm Stewart, arguing on behalf of the EPA, pushed back, saying that the rule was more likely to prevent states from shouldering an unfair emissions-reduction burden than do the opposite.

"If you adopted an air-quality-only threshold, then it would be more likely to be the case that states that had already done a lot to control air pollution would have to take additional steps [to rein in pollution]," Stewart countered.

Justice Elena Kagan's line of questioning was more sympathetic to the EPA.

"I think, you know, most people, everybody, thinks that it's better to regulate with attention to costs than to regulate without attention to costs," she said during the arguments.

Kagan also raised the point that the Clean Air Act's good-neighbor provision, which provided the legal basis for EPA to write the rule, contains a significant amount of ambiguity, which could mean EPA had the ability to interpret the statute as it did.

"There are lots of different choices for what we can allocate [the emissions-reductions targets] on the basis of," Kagan said. "We can just divide, you know, and do it all proportionally. We can take into account per-capita. We can take into account a state's population if we wanted to. Or we can take into account, as the EPA did here, costs — on the understanding that costs reflect how much of an investment a state has already made in pollution technology."

After sitting through the arguments, one environmental attorney said the fate of the Obama administration's good-neighbor rule is still up in the air.

"There could be a full affirmation of the D.C. Circuit's original ruling, which would mean that the rule would continue to be overturned," Graham McCahan of the Environmental Defense Fund told National Journal. "Or there could be a full affirmation of EPA's approach, saying that the D.C. Circuit got it wrong."

But even if the Supreme Court overturns the appellate court's ruling, that doesn't mean the transport rule would immediately take effect, McCahan said. "It's not completely clear, but what could happen would be that the Supreme Court might send the rule back to the D.C. Circuit with instructions detailing which provisions of the rule they decided to uphold and which they did not, if they decide not to affirm all of the original provisions, and then they could leave it up to the D.C. Circuit to enforce the law and possibly set a timeline for its implementation."

Until the Court rules, which could happen by June, a less-stringent rule enacted under the George W. Bush administration will remain in effect.

The oral arguments in the Supreme Court occurred on the same day that the D.C. Circuit Court heard arguments in a case challenging EPA's mercury and air-toxics standards for power plants. Given the stakes, that case could well end up before the Supreme Court too.