Three quick thoughts after a closer read of last week's DC Circuit ruling striking down EPA's Cross-State Air Pollution Rule (CSAPR). Fair warning: I get into wonky details of the Clean Air Act. If you're looking for a broader take on the case, look here.
- This holding seems correct, but appeal is likely
The majority and disent both make strong arguments - the majority that EPA overreached its authority under the Clean Air Act, and the dissent that such arguments were not raised by the plaintiffs and therefore not properly before the court. I tend to think the majority has the better of these arguments, but really understanding the dissent's position requires a better grasp of the record than I have. I do think appeal is likely, though EPA might conclude that a victory on jurisdictional grounds alone is not worth the effort.
- Bad news for cap-and-trade
I think the holding (assuming it survives), may mark the end of interstate trading under Section 110 of the CAA (the NAAQS). Congress first brought cap-and-trade to the CAA via the Title IV acid rain program, but that grant of authority was quite limited. In the late 1990s, EPA used its general CAA Section 110 authority to set up a parallel cap-and-trade system for sulfur dioxide and a new one for nitrogen oxides. That move was challenged by industry in Michigan v. EPA. The agency won that case, but each revision of the rules has been challenged too, in North Carolina in 2008 and now in this case. Each case has narrowed the scope for trading under Section 110. The majority here does not explicitly say it is doing this, but its hard to see any other result. In particular, the majority claims that Congress could not have intended to give EPA the power to achieve the broad emissions reductions it is attempting to achieve in CSAPR via a relatively minor part of the CAA (the "good-neighbor" provision aimed at cross-state pollution problems). The majority cites Justice Scalia's "elephants in mouseholes" quip from American Trucking for this point. It's hard to see how the same analysis would not lead the court to conclude that Congress could not have intended to allow cap-and-trade in such a minor provision either - if that issue were before the court.
Note that I am not as pessimistic about trading under other parts of the CAA - like Section 111d performance standards, which the agency has promised to issue for GHG emitters. Congressional intent is not clear there either, but the opening for trading is bigger than a mousehole.
- Time to rethink the NAAQS?
The ruling also illustrates a fundamental problem with the NAAQS regime - it's too hard for EPA to make small regulatory changes, even if they economic and environmental case for them is compelling, without activating the unwieldy and expensive NAAQS behemoth.
The majority, correctly I think, ruled that EPA cannot use the good-neighbor provision to "over-control" - that is, it can't force upwind states to cut their emissions by more than would be required to bring downwind areas into compliance with the national standards. But EPA analysis suggests that such reductions are strongly cost-benefit justified, almost exclusively because SO2 and NOx cuts will reduce atmospheric concentrations of particulate matter over a wide area, not just in the specific downwind areas that create the regulatory lever for the good neighbor provision.
But if these reductions are such a good idea, why not target them directly? The answer is that to do so, EPA would have to tighten the national standard for PM. It can't consider costs in doing so (due to American Trucking), so it would prefer to reduce these emissions indirectly, through the good-neighbor provision under which it can consider costs, at least to some extent. That creates two problems. One is that identified by the majority here (unjustified overcontrol). The other is that it undermines the legitimacy of the PM standard, which is supposed to be set at a level adequate to protect the public health. If the standard is adequate, critics rightly ask, where are all these benefits coming from?
By the way, next time someone tells you EPA is killing the economy by regulating without regard to cost, point to these contortions as evidence that costs really do matter to the agency.
A much better solution, as Randy Lutter and I have written, is to look at allowing EPA to consider costs when setting the NAAQS. If it could do so, EPA would be able (both legally and politically) to attack the PM problem directly, instead of using the good neighbor provision (and regulations on mercury and other hazardous pollutants) as a backdoor. The result would be more rational regulation with far less associated legal risk. Critics of such a proposal will worry that the ability to consider costs will fatally weaken the standards. But EPA is already considering costs under the table.
