On April 24, the Supreme Court issued a 6-2 decision in EPA v. EME Homer City Generation, L.P., No. 12-1182, 572 U. S. ____, 2014 WL 1672044 (2014), upholding EPA’s latest version of a regional cap-and-trade program under the federal Clean Air Act (CAA) to control those electric power plant emissions of sulfur dioxide (S02) and nitrogen oxides (NOx) that contribute to interstate formation of fine particle and ozone (smog) pollution. Of first importance, the Court removed the doubt haunting such programs for more than 15 years that EPA has power under the CAA to set the cap for such a program primarily on the basis of costs of control, an element of fairness vital to willing participation. By doing so, the Court largely cleared the path for EPA to use a regional cap-and-trade program to implement the revised National Ambient Air Quality Standard (NAAQS) for ozone that EPA is expected to issue before the end of the Obama Administration. In addition, the Court’s decision gives insight into how it may resolve pending challenges to EPA’s regulation of greenhouse gas (GHG) emissions through its Prevention of Significant Deterioration (PSD) permitting program.

Background -

Under the CAA, once EPA sets a NAAQS, each state has primary responsibility to fashion, and submit to EPA for approval, a State Implementation Plan (SIP) satisfying certain CAA design criteria. These criteria include so-called “Good Neighbor” measures aimed at keeping “emissions activity” within a particular state from generating “amounts” of air pollutants that “will contribute significantly to nonattainment in, or interfere with maintenance by, any [downwind] state” with respect to the particular NAAQS. If a state fails to submit an approvable SIP in timely fashion, EPA must issue a Federal Implementation Plan (FIP) to fill the gap. While the CAA gives EPA two years to do that, it also authorizes EPA to issue the FIP “at any time” within that two-year period.