The Clean Air Act (“CAA”) envisions states and the federal government working together to improve air quality. Under the CAA, states must develop State Implementation Plans (“SIPs”) to implement National Ambient Air Quality Standards (“NAAQS”) set by the EPA. The EPA can reject a SIP and impose its own federal implementation plan (“FIP”) if it finds that the state plan fails to meet certain CAA requirements. One of those requirements is the “Good Neighbor Plan” (“GNP”), which is designed to prohibit emissions from upwind states in amounts that contribute significantly to nonattainment areas or interfere with maintenance of NAAQS in downwind states.

What You Need to Know:

• The Supreme Court temporarily blocked the EPA’s “Good Neighbor” Federal Implementation Plan regulating emissions from power plants and other industrial facilities in certain upwind states.
• The Court faulted the EPA for failing to explain why it believed its rule would continue to offer cost-effective improvements in downwind air quality with only a subset of the states EPA originally intended the Plan to cover still subject to the rule.

The EPA required states to submit SIPs to implement a 2015 revision to Ozone NAAQS. The EPA disapproved 23 SIPs for failing to adequately address the GNP requirements. Several federal courts found that the EPA likely violated the CAA by disapproving certain SIPs. These courts granted stays of the EPA’s action disapproving certain SIPS pending further review by the court. Regardless, in June 2023 the EPA finalized a single FIP binding all 23 upwind states. 

Courts ultimately stayed 12 of the 23 SIP disapprovals, meaning that the EPA could not apply its FIP to those 12 states (which accounted for over 70 percent of the emissions the EPA sought to address through its FIP). The EPA’s FIP selected cost-effective control measures using “knee in the curve” – a point at which more expenditure on controls in upwind states would result in little additional emissions reductions and air quality improvements. The EPA designed the FIP based on which emissions-control measures would maximize cost-effectiveness in improving ozone levels downwind on the assumption that the FIP would apply to all 23 states.

Several states still subject to the FIP challenged the plan in the D.C. Circuit and sought a stay pending the court’s review. The D.C. Circuit declined to stay the FIP. The states applied to the Supreme Court for a stay, arguing that the EPA’s decision to issue the FIP after so many states had dropped out was arbitrary or capricious.

In a 5-4 decision, the Supreme Court granted applications to stay the FIP. Enforcement of the EPA’s rule against the applicants is thus stayed pending the disposition of the applicants’ petitions for review in the D.C. Circuit and any petitions for writ of certiorari. 

Justice Gorsuch wrote for the majority. The Court held that the petitioners were likely to ultimately prevail on their claim that the EPA’s decision to implement the FIP in remaining states was arbitrary and capricious. The Court found that the EPA failed to reasonably explain why the FIP would still be cost-effective with fewer than all 23 states subject to the FIP. According to the Court, the EPA erred in declining to re-evaluate the cost effectiveness of the FIP in light of the potential that it would not apply to all 23 states and what impacts, if any, this would have on those remaining states should the FIP go into effect. Justice Barrett penned a dissenting opinion that was joined by Justices Sotomayor, Kagan, and Brown Jackson. Justice Barrett opined that the Court’s decision to enjoin enforcement of a major EPA rule was “based on an underdeveloped theory that is unlikely to succeed on the merits.” According to Justice Barrett, the Court’s decision “leaves large swathes of upwind States free to keep contributing significantly to their downwind neighbors ozone problems[.]”

The case will now go back to the D.C. Circuit which will need to decide it on the merits.

The FIP would have an immediate impact on power plant emission limits should it ultimately go into effect. Beginning in 2026, the FIP would impose new emission limits or control requirements on other industrial sectors such as cement manufacturing, solid waste combustion, and pipeline transportation of natural gas.