On April 29, 2014, the U.S. Supreme Court held that U.S. EPA did not violate the Clean Air Act (CAA) when it issued the Cross State Air Pollution Rule (Transport Rule), overturning the D.C. Circuit Court’s ruling in 2012. The Transport Rule, enacted pursuant to the “Good Neighbor” provision of the CAA, requires reduced emissions of SO2 and NOx from power plants in 28 states that EPA determined were “significantly contributing” to a downwind state’s nonattainment of the National Ambient Air Quality Standards (NAAQS).

Interpreting the Good Neighbor provision, the Supreme Court held that (1) after EPA disapproves a state implementation plan, “the Act empowers the Agency to promulgate a federal implementation plan ‘at any time’” and (2) while “EPA cannot require a state to reduce its output of pollution by more than necessary to achieve attainment in every downwind State . . . [o]nly reductions unnecessary to downwind attainment anywhere fall outside the Agency’s statutory authority.” Accordingly, the Court approved EPA’s cost-effective methodology for allocating emissions reductions among upwind states.

States are now faced with the daunting task of determining how to allocate emissions allowances to sources within the state in accordance with the EPA-imposed FIPs.