The D.C. Court of Appeals invalided the EPA’s Clean Air Interstate Rule (CAIR) in State of North Carolina v. Environmental Protection Agency, issued on July 11, 2008, finding that the program had “fatal flaws.” If mandated, this ruling will eliminate the CAIR-related sulfur dioxide (SO2) and nitrous oxides (NOX) emissions trading programs, including the annual NOX allowance created by CAIR. This decision has dramatically affected the emissions trading markets, causing allowance prices to drastically decline. Efforts continued this week by the EPA, the administration and Congress to save the program.
On September 24, 2008, the EPA petitioned the D.C. Circuit for rehearing in North Carolina v. EPA. The EPA argued that rehearing was appropriate because the issue of its authority to institute the trading program, and the remedy of invalidating the program, were not fully briefed. The EPA argued that no plaintiff challenged its authority to institute an interstate trading program, and the EPA considered this authority to be settled precedent. Therefore, the EPA argued that the court’s decision was made without examination of the full record the EPA relied upon. The EPA also cited the major adverse health impacts of vacating the program, estimating that the vacated rule would save tens of thousands of lives and billions in avoided medical costs. In addition, the EPA denoted the economic damage to companies that moved early on limiting emissions, given the $3 billion loss on the value of banked emissions since the D.C. Circuit held oral arguments in the case.
While the legal battle for the CAIR program continues, some members of Congress are calling for legislation to save the program. On September 11, 2008, Senators Tom Carper (D-DE) and Lamar Alexander (R-TN) hosted a roundtable to discuss legislative methods to mitigate the harmful effects of air pollution. This discussion was in response to the D.C. Circuit’s rejection of the CAIR program, as well as other court decisions that affected the EPA’s regulations of mercury and carbon dioxide. The senators touted the projected health benefits of the CAIR program, citing EPA estimates that by 2015, it would save $85 to $100 billion in avoided health care costs, and prevent 17,000 premature deaths. Senator Carper also had been in communication with Congressman Dingell (D-MI) regarding potential legislation authorizing the first four years of the CAIR program and leaving the later stages to future congressional action. Last week, Congressman Dingell suspended the effort after it became clear that Congressman Barton (R-TX), the ranking Republican on the House Energy and Commerce Committee, would not support expedited consideration of the bill. Congressman Barton expressed support for a review of the Clean Air Act more generally next year, after the election.
Also on September 11, 2008, Senator George Voinovich (R-OH) introduced legislation explicitly authorizing the continuation of the CAIR program. This legislation, S. 3469, “CAIR Reinstatement Act of 2008,” would authorize the EPA to maintain trading under CAIR as originally promulgated despite the court ruling. Calling CAIR “the most significant action to protect public health and the environment since the passage of the 1990 Clean Air Act Amendments,” Senator Voinovich urged the congressional authorization of the rule.
The emissions trading programs for SO2 and NOX still are in effect pending the outcome of the EPA’s appeals. The EPA notes on its website that:
Until any judicial appeals of the court decision are exhausted, EPA will continue to record transfers that are submitted for NOX annual and ozone season allowances. The court decision did not affect continuation of the Acid Rain Program, and the EPA will continue recording transfers of SO2 allowances.
At the time of publication, at least one lawsuit has been filed that challenges the enforceability of contracts to buy and sell emissions allowances given the D.C. Circuit’s ruling. Market participants expect further turmoil in the emissions trading markets while the EPA and certain senators fight to maintain the CAIR program.