1. State of New Jersey v. EPA A Case Study in Politics v. Statutory Language Mary Ellen Hogan Holme Roberts & Owen LLP Los Angeles, California

2. Road Map for Presentation Summary of Case Statutory Framework under Clean Air Act Chronology of Events Key Issue(s) Before the Court EPA’s Arguments Arguments from Petition for Rehearing En Banc

3. Summary of Case New Jersey challenges two final EPA Rules: –Delisting of electric utility steam generating units (EGUs) from sources regulated as Hazardous Air Pollutants (HAPs) under CAA Section 112 (“Delisting Rule”) –CAA Section 111 performance standards for new EGUs, total mercury emissions limits for states and voluntary cap-and-trade program for new and existing coal-fired EGUs (“CAMR”)

4. Key Issue Before the Court The issue that the D.C. Circuit decided was whether once EGUs were listed as a HAP source in December 2000, could EPA “delist” EGUs as a HAP source without following the steps required in Section 112(c)(9)? Answer: Unanimous NO

5. Statutory Framework 1990 CAA Amendments 1990 Clean Air Act Amendments (1990 Amendments) modified Section 112 of the Clean Air Act that regulated HAPs 1990 Amendments specifically listed mercury as a HAP 1990 Amendments required EPA to list and regulate “all categories and subcategories of major sources and area sources” of 1 or more HAPs. 1990 Amendments required EPA to regulate HAPs using BACT (best available control technology) 1990 Amendments required EPA to perform a study of public health hazards from ECU’s HAP emissions prior to regulation as HAP

6. Statutory Framework Overview - Listing To list a source category for HAP from EGUs, EPA must find that such regulation is “appropriate and necessary” after considering the results of a source-specific study.

7. Focus on Statutory Language (CAA § 112(n)(1)(A) Before listing EGUs as a HAP source under Section 112: “...the Admin shall perform a study of hazards to public health... as a result of emissions by [EGUs] of [listed pollutants including mercury]...The Admin shall regulate [EGUs] under this section if the Admin finds such regulation is appropriate and necessary after considering the results of the study required by this subparagraph.”

8. Statutory Framework Overview - Delisting EPA may delete any source category from the HAP source list only after determining that emissions do not exceed a level which is adequate to protect public health with an ample margin of safety and no adverse environmental effect will result from emissions from any source.

9. Focus on Statutory Language (CAA § 112(c)(9) “The Admin may delete any source category from the [section 112(c)(1) list]... whenever the Admin...[determines] that emissions from no source in the category or subcategory concerned...exceed a level which is adequate to protect public health with an ample margin of safety and no adverse environmental effect will result from emissions from any source.”

10. Chronology of Events 1998 – EPA submits its Public Health Study of HAPs from EGUs to Congress December 20, 2000 (End of Clinton Administration) – EPA announces that EGUs should be regulated as sources of HAPs under Section 112 because mercury emissions from HGUs are the largest domestic source of mercury emissions and mercury presents significant hazards to public health and the environment. December 20, 2000 – EPA added Coal-and-Oil-Fired EGUs as a source category for regulation under Section 112 (HAPs)

11. Chronology of Events January 2004 (Bush Administration) – EPA proposes two alternatives to control HAP emissions from EGUs. Regulate under Section 112 using MACT or Remove EGUs from list of HAP sources and regulate EGUs under Section 111 (Standards of Performance ) March 2005 – EPA decides to remove EGUs from listing under Section 112 because regulation under Section 112 was neither “appropriate” nor “necessary.”

12. Chronology of Events EPA’s concluded it was not “appropriate” to regulate ECUs under section 112 because: The level of HAP emissions AFTER ECUs regulated under other CAA programs was not reasonably anticipated to cause public health hazards and Costs of regulation under section 112 were extreme and health benefits would be nominal EPA concluded that it was not “necessary” to regulate ECUs under section 112 because HAPs from would be addressed cost-effectively under other available authorities in CAA.

13. EPA’s Concessions and the Court’s Reasoning EPA concedes it listed EGUs under Section 112 Since Section 112(c)(9) applies to the removal of “any” source category from the section 112(c)(1) list AND Nothing in CAA exempts EGUs from Section 112(c)(9), The Court reasons, therefore, the only way to remove EGUs from the list was to comply with Section112 (c)(9).

14. EPA’s Concessions and the Court’s Reasoning EPA conceded that it did not make findings under Section 112(c)(9). By failing to make the findings, EPA violated the “plain text” of the statute under Prong 1 of Chevron v. NRDC. Thus Prong 2 was not reached. Therefore, the Court vacated both the Delisting Rule and the CAMR.

15. EPA’s Arguments DC Circuit standard of review of EPA’s interpretation of the CAA is the two prong test in Chevron v. NRDC (1984) Prong One: If Congress’ intent is clear, the EPA must give effect to the unambiguous intent of Congress, Prong Two: If Congress has NOT addressed the issue, then is the agency’s interpretation based on a permissible construction of the statute?

16. EPA’s Arguments EPA argued that Section 112(c)(9) is ambiguous by operation of Section 112(n)(1) – If EPA determines that power plants should not be regulated at all under Section 112(n), that determination results in removal of power plants from the Section 112 list. Court said Section 112(n)(1) addressed LISTING of sources, not DELISTING of sources and where Congress wished to exempt EGUs from Section 112, it did so explicitly.

17. EPA’s Arguments EPA argued that it could remove EGUs from Section 112 based on the fundamental principle that an agency can reverse an earlier decision. The Court agreed that an agency can reverse its decision, however, Congress can, without question, limit the agency’s discretion to reverse its decision, and that is what Section 112(c)(9) did.

18. EPA’s Arguments EPA argued that it previously removed listed sources without satisfying the requirements of Section 112(c)(9). The Court wryly quoted another DC Circuit opinion that “we do not see how merely applying an unreasonable statutory interpretation for several years can transform it into a reasonable interpretation.”

19. The Argument Not Made Intervenor Utility Air Regulatory Group contended that the December 2000 source listing by EPA was not effective because of lack of notice and comment. The Court did not consider that argument because EPA did not advance the argument itself and EPA “steadfastly refused to join it [the argument of the Group].

20. Petition for Rehearing En Banc EPA’s action to list power plants under Section 112 is not subject to judicial review under CAA judicial review provisions until EPA promulgates Section 112 emission standards for power plants In fact, the Utility Air Regulatory Group sued EPA after the initial December 2000 ECUlisting and the Court dismissed that action stating that the action must be brought after EPA promulgates the emission standards.

21. Petition for Rehearing En Banc If ECUs are erroneously listed and cannot be corrected except by compliance with section 112(c)(9) prior to judicial review of the emission standards, EPA argues the following “absurd” result: EPA must undertake an promulgation of emission standards for a source category that is unnecessary and inappropriate and THEN be sued in order to correct a listing it comes to believe is incorrect.

22. Petition for Rehearing En Banc Response: If EPA’s argument is correct, it renders section 112(c)(9) – which defines how to delete a source category - superflous because EPA could always delist the source by finding that the listing criteria (“appropriate” and “necessary”) were incorrect!

23. Petition for Rehearing En Banc Procedural Argument: Legal question must be of real significance to the legal process and to the litigants, recognizing that the standards for en banc rehearing are “demandingly high.” EPA says the exceptional importance is whether section 112(n)(1)(A)’s language of “appropriate and necessary” governs EPA’s decision to remove ECUs when EPA decides its initial decision was in error.

24. Outcome of Petition EPA’s Petition for Rehearing was DENIED on May 20, 2008