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State of West Virginia v. Environmental Protection Agency

April 09, 2004


On Petitions for Review of an Order of the Environmental Protection Agency

The opinion of the court was delivered by: Sentelle, Circuit Judge

Argued September 15, 2003

Before: GINSBURG, Chief Judge, and SENTELLE and ROGERS, Circuit Judges.

This is a petition for review of the Environmental Protection Agency's ("EPA" or "Agency") response to this Court's remands in Appalachian Power Co. v. EPA, 249 F.3d 1032 (D.C. Cir. 2001) (" Appalachian I "), and Appalachian Power Co. v. EPA, 251 F.3d 1026 (D.C. Cir. 2001) (" Appalachian II "). In those cases, we remanded the EPA's electric generating unit ("EGU") growth-factor determinations, which are used to develop Nitrogen Oxide ("NOx") emission limits for regulated states and EGUs. Petitioners -- two states and several business and energy policy entities -- raise multiple challenges to the Agency's Order on remand. Several states intervene in support of the EPA.

We hold that the EPA satisfied its obligation on remand to engage in reasoned decisionmaking and explain its choice of methodology. The remaining claims are not properly before this Court, as they were not raised at the time of the rulemaking or in the initial proceedings, and the EPA did not reopen these issues on remand. For these reasons, we deny the petitions.

I. Background

A. Regulatory Background

The Clean Air Act, 42 U.S.C. § 7401 et seq. (1994) ("CAA"), requires the EPA to identify air pollutants that endanger the public health, and to formulate National Ambient Air Quality Standards ("NAAQS") that specify the maximum permissible concentrations of those pollutants in the ambient air. Once the EPA has established NAAQS, each state must adopt a "state implementation plan" ("SIP") "providing for the implementation, maintenance, and enforcement of the NAAQS." Michigan v. EPA, 213 F.3d 663, 669 (D.C. Cir. 2000). Pursuant to the statute, the EPA has promulgated NAAQS for ozone, which is linked to multiple adverse health effects. See 40 C.F.R. pt. 50 (2003). Ozone, itself, is not emitted directly into the air; rather, it is formed from chemical reactions between NOx and volatile organic compounds in the presence of sunlight. NOx is, therefore, a "precursor" of ozone. NOx is emitted primarily from fossil fuel combustion sources, including motor vehicles and power plants. Owing to the ability of NOx to move through the atmosphere, emissions of NOx in one area can result in ozone non-attainment in a distant area. Evidence in the record demonstrates that states in the eastern United States have difficulty attaining ozone standards because of ozone, or ozone precursor, emissions in upwind states. 64 Fed. Reg. 28,253 (May 25, 1999). The two rules at issue in this petition deal with NOx exhaust limitations on upwind states and EGUs within their borders.

The first rule was based on the work of the Ozone Transport Assessment Group ("OTAG"). The OTAG was a national work group comprising 37 states, along with representatives of EPA, industry, and environmental groups, formed "to study and devise solutions to the interstate ozone transport problem." Michigan v. EPA, 213 F.3d at 672; see also 62 Fed. Reg. 60,318 at 60,319. Based on OTAG's findings, EPA determined that NOx emissions from 23 jurisdictions were "contribut[ing] significantly" to non-attainment in downwind states in violation of the CAA. 42 U.S.C. § 7410(a)(2)(D)(i)(I). Accordingly, in October 1998, the EPA issued the NOx State Implementation Plans Call, which required 22 states and the District of Columbia to revise their SIPs to impose controls on NOx emissions. 63 Fed Reg. 57,356 (Oct. 27, 1998) ("NOx SIP Call"). Under the NOx SIP Call, each upwind state must limit its summertime NOx emissions to a statewide emissions "budget." "The budgets represent the amount of allowable NOx emissions remaining after a covered state prohibits the NOx amount contributing significantly to downwind non-attainment." Michigan v. EPA, 213 F.3d 663, 686 (D.C. Cir. 2000). Specifically, the NOx state budgets represent the EPA's projection for NOx emissions in 2007 for each state if highly cost-effective controls were implemented. "Highly cost-effective" is defined as those controls capable of removing NOx at a cost of $2,000 or less per ton. See Appalachian Power Co. v. EPA, 251 F.3d 1026, 1030 (D.C. Cir. 2001).

The EPA adopted the second rule in response to petitions from eight states requesting a finding, pursuant to CAA section 126(b), 42 U.S.C. § 7426(b), that stationary sources in upwind states were contributing to ozone non-attainment in the petitioning states in violation of the CAA. 42 U.S.C. § 7410(a)(2)(D). Each petitioning state further sought direct federal regulation of stationary sources in upwind states. Because the Section 126 petitions raised many of the same issues as the NOx SIP Call, the EPA coordinated its response to the section 126 petitions with the NOx SIP Call rulemaking. Based on the analysis underlying the NOx SIP Call, the EPA determined that sources in all or parts of 12 states contributed to non-attainment in the petitioning states; therefore, the Agency established emission limits for major NOx sources in those states. 65 Fed. Reg. 2674 (Jan. 18, 2000) ("Section 126 Rule"). As with the NOx SIP call, the EPA considered both NOx emissions and the cost of controlling them in determining which sources contributed significantly to downwind ozone non-attainment. The EPA also established a "cap and trade" program for the Section 126 Rule, which allows sources with emissions that exceed their budget to purchase allowances from other facilities.

NOx emissions budgets for both the Section 126 Rule and the NOx SIP Call are calculated for the year 2007, although states and EGUs must begin meeting their budgets on May 31, 2004. See 67 Fed. Reg. 21,522–21,525 (April 30, 2002). Additionally, both rules rely on the same underlying determinations. In setting the NOx budgets, the EPA divided each state's NOx emissions according to five source types or "sectors": EGUs, non-EGU stationary sources (such as industrial boilers), area sources (smaller stationary sources), highway mobile sources, and nonroad mobile sources. The EPA calculated budget allocations for each sector. See Appalachian II, 251 F.3d at 1030. At issue in this petition is the EPA's method for determining the EGU budgets.

To calculate the EGU budgets, the EPA started with a baseline utilization measured as heat input, in million British thermal units ("mmBtu"), from fossil fuels for each EGU's actual heat input from 1995 or 1996, whichever was higher. To that baseline, the EPA added a heat input growth factor. To determine the growth factor, the EPA used the Integrated Planning Model ("IPM"). Several assumptions went into the IPM, one of the most critical of which was projected electricity demand for the states. The EPA utilized inputs derived from the model for 2001–2010. The EPA then applied the projected heat input growth for the 2001–2010 period to the 1995 or 1996 baseline to determine projected heat inputs for the year 2007. Under the NOx SIP Call, each state can allocate its NOx allowances to individual sources as it deems appropriate. Under the Section 126 Rule, EPA distributed the allowances to specific EGUs based on historical heat input levels.

B. This Court's Remands

We have previously considered petitions for review of both the NOx SIP Call and the Section 126 Rule. In both cases we remanded the rules and instructed the EPA to "fulfill its obligation to engage in reasoned decisionmaking on how to set EGU growth factors and explain why results that appear arbitrary on their face are, in fact, reasonable determinations." Appalachian I, 249 F.3d at 1055; Appalachian II, 251 F.3d at 1035. This decision was based, at least in part, on the fact that in two states "actual utilization in 1998 already exceeded the EPA's projected level for 2007." Appalachian I, 249 F.3d at 1053. Additionally, the EPA's implied prediction of "negative growth in electricity generation over the course of a decade appear[ed] arbitrary," as it was left completely unexplained. Id. "While courts routinely defer to agency modeling of complex phenomena, model assumptions must have a 'rational relationship' to the real world." Id. (citing ...

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