Record and brief — Envtl. Prot. Agency v. Eme Homer City Generation, L.P.

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ey SUPREME COURT

‘eee OF THE UNITED STATES

No. 12-1182

Vide 12-1183

Title: Environmental Protection Agency, et al., Petitioners

EME Homer City Generation, L.P., et al

Docketed: March 29, 2013

Lower Ct United States Court of Appeals for the District of Columbia Circuit

Case Nos.: (11-1302, et al.)

Decision Date: August 21, 2012

Rehearing

Denied: January 24, 2013

Questions

Presented

~~~Date~~~ ~~~~~~~Proceedings and Orders~~~~ - mee

Mar 29 2013 Petition for a writ of certioran filed. (Response due April 29, 2013)

Mar 29 2013 Appendix of Environmental Protection Agency, et al. filed (Volumes 2 - 4)

Apr 10 2013 Order extending time to file response to petition to and including May 29, 2013,

for all respondents.

Apr 18 2013 Brief of Respondent States and Cities in support filed. VIDED.

Apr 18 2013 Brief of respondents Calpine Corporation, and Exelon Corporation in support

filed. VIDED

May 29 2013 Brief of respondents Luminant Generation Company LLC, et al. in opposition

filed. VIDED.

May 29 2013 Brief of State and Local respondents in opposition filed. VIDED

Jun 32013 Reply of petitioners Environmental Protection Agency, et al. filed. (Distributed)

Jun 42013 DISTRIBUTED for Conference of June 20, 2013.

Jun 24 2013 Petition GRANTED The petition for a writ of certiorari in No. 12-1183 is granted

limited to the questions presented by the petition in No. 12-1182. The cases

are consolidated and a total of one hour is allotted for oral argument.

Jul 16 2013 Order extending time to file the joint appendix and petitioner's brief on the

merits to and including September 4, 2013.

Jul 16 2013 Order extending time to file respondent's brief on the merits to and including

October 31, 2013.

Aug 21 2013 Consent to the filing of amicus curiae briefs, in support of either party or of

neither party, received from counsel for petitioners American Lung Association,

et al. VIDED.

Aug 30 2013 Consent to the filing of amicus curiae bnefs, in support of either party or of

neither party, received from counsel for the Industry and Labor

Respondents. VIDED

Aug 30 2013 Consent to the filing of amicus curiae briefs, in support of either party or of

neither party, received from counsel for the State and Local Respondents

(Texas, et al.) VIDED

Aug 30 2013 Consent to the filing of amicus curiae briefs, in support of either party or of

neither party, received from counsel for the respondents Calpine Corporation

and Exelon Corporation. VIDED

Sep 4 2013 Consent to the filing of amicus curiae briefs, in support of either party or of

neither party, received from counsel for the Federal Petitioners. VIDED

Sep 4 2013 Joint appendix filed. (Statement of costs filed.) VIDED.

Sep 42013 Brief of petitioners Environmental Protection Agency, et al. filed. VIDED

Sep 4 2013 Motion of the federal parties to deem the Court of Appeals Joint Appendix to be

Volumes 2 thru 8 of the Supreme Court Joint Appendix filed by petitioner

Environmental Protection Agency, et al. VIDED.

Sep 42013 Brief of Respondent States and Cities in support of petitioners filed. VIDED.

Sep 42013 Brief of respondents Calpine Corporation and Exelon Corporation in support of

petitioners filed. VIDED.

Sep 10 2013 Consent to the filing of amicus curiae briefs, in support of either party or of

neither party, received from counsel for the State and City respondents (New

York, et al.) VIDED

Sep 10 2013 Bnef amici curiae of Law Professors on |ssue Exhaustion filed. VIDED

(Distributed)

Sep 10 2013 Brief amicus curiae of American Thoracic Society filed. VIDED.

Sep 11 2013 Brief amici curiae of Atmospheric Scientists and Air Quality Modeling Experts

filed. VIDED.

Sep 11 2013 Brief amicus curiae of APA Watch in support of neither party filed. VIDED

Sep 11 2013 Brief amicus curiae of Institute for Policy Integnty at New York University

School of '.aw filed. VIDED.

Sep 11 2013 Brief amicus curiae of Constitutional Accountability Center filed. VIDED

Sep 11 2013 Brief amici curiae of Benjamin F. Hobbs, et al. filed. VIDED.

Sep 17 2013 SET FOR ARGUMENT ON Tuesday December 10, 2013.

Sep 17 2013 CIRCULATED

Sep 30 2013 Records received from USCA for the DC Circuit electronically filed.

Oct 7 2013 Motion to deem the Court of Appeals Joint Appendix to be Volumes 2 thru 8 of

the Supreme Court Joint Appendix GRANTED. Justice Alito took no part in the

consideration or decision of this motion.

Oct 31 2013 Brief of respondents Utility Air Regulatory Group, et al. filed. VIDED.

(Distributed)

Oct 31 2013 Brief of respondents State and Local respondents filed. VIDED. (Distributed)

Oct 31 2013 Brief of respondents Luminant Generation Company LLC, et al. filed. VIDED

(Distributed)

Nov 4 2013 Motion for divided argument filed by respondents. VIDED

Nov 72013 Brief amicus curiae of Chamber of Commerce of the United States of America

filed. VIDED. (Distributed)

Nov 7 2013 Brief amici curiae of West Virginia and 8 Other States filed. VIDED.

(Distnbuted)

Nov 26 2013 Motion for divided argument filed by respondents GRANTED. Justice Alito took

no part in the consideration or decision of this motion.

Dec 22013 Reply of petitioners Environmental Protection Agency, et al. filed. VIDED.

(Distnbuted)

Dec 32013 Reply of respondents Calpine Corporation and Exelon Corporation in support

of petitioners filed. VIDED. (Distributed)

Dec 32013 Reply of Respondent States and Cities in support of petitioners filed. VIDED

(Distributed)

PETITION

FOR

WRIT OF

CERTIORARI

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= ¢ No.

In the Supreme Court of the Anited States

UNITED STATES ENVIRONMENTAL

PROTECTION AGENCY, ET AL., PETITIONERS

EME HomMe™ERr CITY GENERATION, L.P., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

DONALD B. VERRILLI, JR.

Solicitor General

Connusel of Record

IGNACIAS. MORENO

Assistant Attorney General

MALCOLM L. STEWART

Deputy Solicitor General

JOSEPH R. PALMORE

Assistant tothe Solicitor

General

BRENDA MALLORY JON M. LIPSHULTZ

Acting General Connusel NORMAN L. RAVE, JR.

SONJA RODMAN Altorneys

Attorney Departinent of Justice

Kuvironmental Protection Washington, D.C. 20520-0001

Aqeney SupremeCt Briefs usdojy.qor

Washington, D.C. 20460 (22) 514-2217

QUESTIONS PRESENTED

The Clean Air Act, 42 U.S.C. 7401 et seg. (Act or

CAA), requires the Environmental Protection Agency

(EPA) to establish Nationa! Ambient Air Quality Stand-

ards (NAAQS) for particular pollutants at levels that

will protect the public health and welfare. 42 U.S.C.

7408, 7409. “[W]Jithin 3 years” of “promulgation of a

[NAAQS],” each State must adopt a state implementa-

tion plan (SIP) with “adequate provisions” that will,

inter alia, “prohibit|]” pollution that will “contribute

significantly” to other States’ inability to meet, or main-

tain compliance with, the NAAQS. 42 U.S.C. 7410(a)(1),

(2)(D)(i)(1). If a State fails to submit a SIP or submits

an inadequate one, the EPA must enter an order so

finding. 42 U.S.C 7410(k). After the EPA does so, it

“shall promulgate a [f]ederal implementation plan” for

that State within two years. 42 U.S.C. 7410(c¢)(1).

The questions presented are as follows:

1. Whether the court of appeals lacked jurisdiction to

consider the challenges on which it granted relief.

2. Whether States are excused from adopting SIPs

prohibiting emissions that “contribute significantly” to

air pollution problems in other States until after the

EPA has adopted a rule quantifying each State’s inter-

state pollution obligations.

3. Whether the EPA permissibly interpreted the

statutory term “contribute significantly” so as to define

each upwind State's “significant” interstate air pollution

contributions in light of the cost-effective emission re-

ductions it can make to improve air quality in polluted

downwind areas, or whether the Act instead unambigu-

ously requires the EPA to consider only each upwind

State’s physically proportionate responsibility for each

downwind air quality problem.

(I)

PARTIES TO THE PROCEEDINGS

Petitioners are the United States Environmental

Protection Agency and Acting EPA Administrator Rob-

ert Perciasepe.

Respondents who were petitioners in the court of ap-

peals are: City of Ames, Iowa; City of Springfield, I1li-

nois, Office of Public Utilities, doing business as City

Water, Light & Power; Louisiana Department of Envi-

ronmental Quality; Louisiana Public Service Commis-

sion; Mississippi Public Service Commission; Public

Utility Commission of Texas; Railroad Commission of

Texas; State of Alabama; State of Florida; State of

Georgia; State of Indiana; State of Kansas; State of

Louisiana; State of Michigan; State of Nebraska; State

of Ohio; State of Oklahoma; State of South Carolina;

State of Texas; State of Virginia; State of Wisconsin;

Texas Commission on Environmental Quality; Texas

General Land Office; AEP Texas North Co; Alabama

Power Co.; American Coal Co.; American Energy Corp.;

Appalachian Power Co.; ARIPPA; Big Brown Lignite

Company LLC; Big Brown Power Company LLC; Co-

lumbus Southern Power Co.; Consolidated Edison Com-

pany of New York, Inc.; CPI USA North Carolina LLC;

Dairyland Power Cooperative; DTE Stoneman, LLC;

East Kentucky Power Cooperative, Inc.; EME Homer

City Generation, LP.; Entergy Corp.; Environmental

Committee of the Florida Electric Power Coordinating

Group, Inc.; Environmental Energy Alliance of New

York, LLC; GenOn Energy, Inc.; Georgia Power Co.;

Gulf Power Co.; Indiana Michigan Power Co.; Interna-

tional Brotherhood of Electrical Workers, AFL-CIO;

Kansas City Board of Public Utilities, Unified Govern-

ment of Wyandotte County, Kansas City, Kansas; Kan-

sas Gas and Electric Co.; Kenamerican Resources, Inc.;

Kentucky Power Co.; Lafayette Utilities System; Loui-

(11)

Ill

siana Chemical Association; Luminant Big Brown Min-

ing Company LLC; Luminant Energy Company LLC;

Luminant Generation Company LLC; Luminant Hold-

ing Company LLC; Luminant Mining Company LLC;

Midwest Food Processors Association; Midwest Ozone

Group; Mississippi Power Co.; Municipal Electric Au-

thority of Georgia; Murray Energy Corp.; National

Mining Association; National Rural Electric Cooperative

Association; Northern States Power Co. (a Minnesota

corporation); Oak Grove Management Company LLC;

Ohio Power Co.; Ohio Valley Coal Co.; Ohio American

Energy, Inc.; Peabody Energy Corp.; Public Service

Company of Oklahoma; Sandow Power Company LLC;

South Mississippi Electric Power Ass’n; Southern Com-

pany Services, Inc.; Southern Power Co.; Southwestern

Electric Power Co.; Southwestern Public Service Co.;

Sunbury Generation LP; Sunflower Electric Power

Corp.; Utility Air Regulatory Group; United Mine

Workers of America; Utah American Energy, Inc.;

Westar Energy, Inc.; Western Farmers Electric Coop-

erative; Wisconsin Cast Metals Association; Wisconsin

Electric Power Co.; Wisconsin Paper Council, Inc.; Wis-

consin Manufacturers and Commerce; Wisconsin Public

Service Corp.

Respondents who were intervenors in support of the

court of appeals petitioners are: San Miguel Electric

Cooperative; City of New York (Nos. 11-1388 and 11-

1395 only); State of New York (Nos. 11-1388 and 11-1395

only).

Respondents who were intervenors in support of the

court of appeals respondents are: American Lung Asso-

ciation; Calpine Corporation; Clean Air Council; Envi-

ronmental Defense Fund; Exelon Corporation; Natural

Resources Defense Council; Public Service Enterprise

Group, Inc.; Sierra Club; City of Bridgeport, Connecti-

cut; City of Chicago; City of New York (all but Nos. 11-

1388 and 11-1395); City of Philadelphia; Mayor and City

Council of Baltimore; State of Connecticut; State of

Delaware; District of Columbia; State of Illinois; State

of Maryland; Commonwealth of Massachusetts; State of

New York (all but Nos. 11-1388 and 11-1395); State of

North Carolina; State of Rhode Island; State of Ver-

mont.

TABLE OF CONTENTS

Page

diligence 1

TTT chiuiiscanitni bina hleenhiaaaibeaningsnpeimiinaieuisieiaiandeatieia l

Statutory provisions involved ..............:.s.sccsscssessssesssseesssesecenssess 2

iii ect ba tla eiancialdaidaatiianinaennetiah 2

Reasons for granting the petition. .................cccccceeeseeeceeeeeeeeeeee 11

A. The court of appeals both exceeded its

jurisdiction and erred on the merits by

effectively invalidating prior SIP orders......................... 12

B. The court of appeals erred in adjudicating

unpreserved challenges to the EPA’s “significant

contribution” analysis, and in failing to defer

to the agency’s reasonable interpretation of

ambiguous statutory terms ....................cscccsescsssessecseneeeees 18

C. The court of appeals’ decision will seriously

disrupt the EPA’s implementation of the CAA,

and it threatens serious harm to the public health ........ 28

TARE IN DRT ET ROTTEN OTE OOT DET OPO 32

TABLE OF AUTHORITIES

Cases:

Barnhart v. Sigmon Coal Co., 534 U.S. 438 (2002)............. 16

Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837

alata cll 21, 24

DOT v. Public Citizen, 541 U.S. 752 (2004) ....00 ee 19

Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208

ESSENSE everers eneeevenee ee oy ree NOT CN EOE aE EOI 25

McCarthy v. Madigan, 503 U.S. 140 (1992)... eee 19

Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000),

cert. denied, 532 U.S. 903, and 532 U.S. 904

li cceistcehiithitiilasanieainsiinsiblineaadgainnibinnpeainasiceiininameend 4, 9,21, 24

National Cable & Telecomms. Ass’n v. Gulf Power

eh, LI UT URI iicsessicireniinianiteneniipaanananniniadiniaieteié: 24

Cases—Continued: Page

North Carolina v. EPA (D.C. Cir.):

I I lcci 5, 10, 21

I aie iia lilaamanlicia bial 5

Vermont Yankee Nuclear Power Corp. v. NRDC,

Sc I iat tiateiiait datas 19

Whitman v. American Trucking Ass’ns, 531 U.S. 457

STITUTE eivinduiniehimpniesinbiaitithaaatiaasieapinsiimtaipaneaiansineindiigsiasiabnedieimmnbiddtditeisin: 25

Statutes:

Clean Air Act, 42 U.S.C. 7401 et seq. .......:ccccceceeeeeeesees passim

| RE a nN eT OREN 2

NN initiated ale tciaaeee taitalcadi iain 2

ete MT sisiccsncoiiiteieniciaineniciheininaeisiniesiihiitiatiagiibaiaias 31

I al 15, 16

I iii aia 15, 16

Rs 4

42 U.S.C. T410(a2)(D) GD) «0. ccccecceeesesseeeeeenees passim

42 U.S.C. 7410(a)(2)(E) (Supp. IT 1977) ........ ee eceesceseeeeee 3

Ss I oiccietscensiennnceinesensninciiieiidililias 18

I lial tial adel 15

meme 2,6

ae iacciina incinerate 15

Oe ee ene REN 27

i I canines identi 27

SCT TTT 17

KEN Onn ae 14

4B U B.C. TRIE TB) aceccccvccosesescccsesecccsccssccsscesess 18, 19, 20

Rs el 27

42 U.S.C. 18B7e-Bla MBE) (1G7D) .......ccccccccccccecececsccccccecccosscoes 2

Vil

Miscellaneous:

136 Cong. Rec. 6420 (1990), reprinted in

1S. Comm. on Environment & Public Works, A

Legislative History of the Clean Air Act Amend-

I icininniiccsnianiieqieiicniutiicinnetbiniaiiieaibiaindniin

EPA:

Air Quality Modeling Final Rule Technical

Support Document, Appendices D, E, and F

(2011), http://www.epa.gov/airtransport/pdfs/

ED ecestssinsennininninnisinienniunscniemaninimeniecns

Clean Air Markets (2010), http:/Awww.epa.gov/

airmarkets/progsregs/index.html ..................ce000+«

63 Fed. Reg. 57,356 (Oct. 27, 1998)

69 Fed. Reg. (Jan. 30, 2004):

70 Fed. Reg. 25,162 (May 12, 2005).......ccc:.-csssssssssssesseeneee

76 Fed. Reg. (July 20, 2011):

78 Fed. Reg. 3086 (Jan. 15, 2013) ......ccssscscssssssssessssececessees

H.R. Rep. No. 294, 95th Cong., Ist Sess. (1977), re-

printed in 4S. Comm. on Environment & Public

Works, A gislative History of the Clean Air

Amend ments Of 1977 (1978) .......sccesecersseresesssessccssscesseeees

S. Rep. No. 127, 95th Cong., Ist Sess. (1977), reprint-

ed in 3S. Comm. on Environment & Public Works,

A Legislative History of the Clean Air Amend-

I re ee ieieeciciccninntnicnnitainadianiciivisinananinatiinininnnineeis

vial

Vill

Miscellaneous—Continued: Page

S. Rep. No. 228, 101st Cong., lst Sess. (1989),

reprinted in 5S. Comm. on Environment &

Public Works, A Legislative History of the

Clean Air Act Amendments of 1990 (1998) .........:c.000cee00- 3

In the Supreme Court of the Gnited States

No.

UNITED STATES ENVIRONMENTAL

PROTECTION AGENCY, ET AL., PETITIONERS

EME HOMER CITY GENERATION, L.P., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

The Solicitor General, on behalf of the United States

Environmental Protection Agency (EPA) and the Acting

Administrator of the EPA, respectfully petitions for a

writ of certiorari to review the judgment of the United

States Court of Appeals for the District of Columbia

Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App., infra, la-

116a) is reported at 696 F.3d 7. The final rule of the

EPA (App. 117a-1458a) is reported at 76 Fed. Reg.

48,208.

JURISDICTION

The judgment of the court of appeals was entered on

August 21, 2012. Petitions for rehearing were denied on

January 24, 2013 (App. 1459a-1462a). The jurisdiction of

this Court is invoked under 28 U.S.C. 1254(1).

(1)

STATUTORY PROVISIONS INVOLVED

Pertinent statutory provisions are set forth in the

appendix to this petition. App. 1463a-1498a.

STATEMENT

1. a. The Clean Air Act (CAA, or the Act), 42 U.S.C.

7401 et seq., creates a federal-state partnership to

control air pollution in the United States. The Act re-

quires the EPA to establish National Ambient Air

Quality Standards (NAAQS) for particular pollutants at

levels that will protect the public health and welfare.

42 U.S.C. 7408, 7409. The Act then obligates States to

adopt state implementation plans (SIPs) that, inter alia,

assure both that States will meet the NAAQS within

their own borders and that they will not emit pollutants

in amounts that “contribute significantly” to other

States’ NAAQS nonattainment or inability to maintain

compliance with NAAQS. 42 U.S.C. 7410(a)(2)(D)(i)(1).

If the EPA finds that a State has failed to adopt a SIP

meeting these or other CAA requirements, the EPA

“shall” issue a federal implementation plan (FIP) for

that State within two years of that finding. 42 U.S.C.

7410(0)(1).

This case involves the interstate component of these

SIP requirements, commonly referred to as the “good

neighbor” provision. 42 U.S.C. 7410(a)(2)(D)(D(1). The

original version of that provision required only that

SIPs include provisions for “intergovernmenta! coopera-

tion” to assure that emissions would not interfere with

attainment or maintenance of the NAAQS in other

States. 42 U.S.C. 1857¢-5(a)(2)(E) (1970). Because this

“cooperation” approach proved ineffectual, Congress

amended the CAA in 1977 to require, more directly, that

all SIPs contain provisions prohibiting emissions from

particular stationary sources that “will * * * prevent”

attainment or maintenance of the NAAQS in downwind

States. 42 U.S.C. 7410(a)(2)(E) (Supp. II 1977). In

adding these (and related) new provisions in 1977, Con-

gress recognized that upwind States had little incentive

to control pollution whose effects would be felt principal-

ly in other States, and Congress made clear its intent

that the burdens of air pollution control be shared more

equitably among upwind and downwind States.’

In 1990, Congress decided that even the strength-

ened interstate-pollution provision in the CAA had been

inadequate.” In particular, the EPA had found in sever-

' For example, a House report concluded that existing law was “an

inadequate answer to the problem of interstate air pollution.” H.R.

Rep. No, 294, 95th Cong., Ist Sess. 330 (1977), reprinted in 4 A

Legislative History of the Clean Atr Amendments of 1977 (1YT7

Legis. Hist.), at 2797 (1978). The report stressed that one of the

problems under the existing law was that its effectiveness depended

largely on “prevention or abatement” by upwind States that in reality

had little “incentive and need to act.” /bid. Similarly, a Senate

report criticized the lack of effective “interstate abatement proce-

dures” and “interstate enforcement actions” under existing law,

which it viewed as “resulting in serious inequities among several

States, where one State may have more stringent implementation

plan requirements than another State.” S. Rep. No. 127, 95th Cong..,

Ist Sess. 41-42 (1977), reprinted ix 3 1977 Legis. Hist., at 1415.

Accordingly, the new provisions were “intended to equalize the

positions of the States with respect to interstate pollution by making

a source at least as responsible for polluting another State as it would

be for polluting its own State.” /d. at 1416.

* See S. Rep. No. 228, 101st Cong., Ist Sess. 48 (1989), reprinted in

5 A Legislative History of the Clean Air Act Amendments of 1990

(1990 Legis. Hist.), at 8388 (1998); see also 136 Cong. Rec. 6420

(1990), reprinted in | 1990 Legis. Hist., at 1106 (statement of Sen.

Lautenberg) (“In New Jersey, the Department of Environmental

Protection says that on some days even if we shut down the entire

State, we would be in violation of some health standards because of

pollution coming over from other States.”); S. Rep. No. 228, 101st

al decisions that pollution contributions by particular

upwind sources could not be shown to have “pre-

venti[ed]” NAAQS attainment downwind. See Michigan

v. EPA, 213 F.3d 6638, 674 (D.C. Cir. 2000) (per curiam)

(discussing this history), cert. denied, 582 U.S. 908, 904

(2001).

for these reasons, Congress in 1990 revised a num-

ber of provisions relating to interstate pollution

transport, including (as relevant here) 42 U.S.C.

7410(a)(2)(D). That amendment made the good neighbor

provision stronger and more flexible by extending its

reach beyond a single stationary source to cover multi

ple sources, and by requiring States to prohibit emis-

sions that “contribute significantly” to downwind nonat-

tainment or maintenance problems, whether or not

those emissions could be shown, on their own, to “pre-

vent” attainment. See App., infra, 25a n.14; 42 U.S.C.

7410(a)(2)(D)()C1). The good neighbor provision now

requires SIPs to contain measures “(i) prohibiting

* * * any source or other type of emissions activity

within the State from emitting any air pollutant in

amounts which will—(1) contribute significantly to non-

attainment in, or interfere with maintenance by, any

other State with respect to any such national primary or

secondary | NAAQS]}.” 42 U.S.C. 7410(a)(2)(D)(i)(1); see

App., infra, 8a (“To put it colloquially, the good neigh-

bor provision requires upwind States to bear responsi-

bility for their fair share of the mess in downwind

States.”).

b. Following enactment of the 1990 amendments, the

EPA began a series of rulemakings to address the re-

vised interstate pollution transport requirements. The

Cong., Ist Sess. 49 (1989), reprinted in 5 1990 Legis. Hist., at 8389

(similar statement regarding New York City).

first was the “NO, SIP Call,” which in 1998 established a

cap-and-trade program* for nitrogen oxide (NO,) emis-

sions to address ozone nonattainment. 63 Fed. Reg.

57,356 (Oct. 27, 1998). The NO, SIP Call was upheld by

the D.C. Circuit in most significant respects in Michi-

gan.

In 2005, the EPA issued the Clean Air Interstate

Rule (CAIR), which extended the basic approach of the

NO, SIP Call to “reduce or eliminate the impact of up-

wind sources on out-of-state downwind nonattainment of

NAAQS for fine particulate matter (‘PM, ,’)” and ozone.

North Carolina v. EPA, 531 F.3d 896, 9038 (D.C. Cir.

2008) (North Carolina) (per curiam); see 70 Fed. Reg.

25,162 (May 12, 2005). CAIR was initially vacated by

the D.C. Circuit in North Carolina. In a later decision

on rehearing, however, the court modified the remedy to

remand without vacatur, thus allowing the EPA to con-

tinue to administer CAIR pending further rulemaking.

North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008)

(per curiam).

c. The EPA rule at issue in this case is the Cross-

State Air Pollution Rule, commonly referred to as the

Transport Rule. App. 117a-1458a. The Transport Rule

* In simple terms, a cap-and-trade program establishes an aggre

gate emission “cap” for each set of covered sources and provides

regulated entities significant flexibility to determine how the cap is

met. Sources comply by holding allowances equal to their emissions,

and they can purchase allowances from other sources that are able to

reduce their emissions less expensively. Allowances are traded much

like other commodities. This gives sources the flexibility to secure

required emission reductions in the most feasible and least expensive

manner, while still assuring that the overall pollution-control targets

are met. General information about the EPA’s clean air markets

programs can be found at EPA, Clean Air Markets (2010), http://

www.epa.gov/airmarkets/progsregs/index.html.

responded to the remand in North Carolina and ad-

dressed the emission of pollutants in 28 upwind States

that significantly contribute to downwind States’ prob-

lems attaining or maintaining the NAAQS for ozone and

fine particulate matter (PM.,).' For each State subject

to the Transport Rule, the EPA had previously made a

finding (in separate administrative proceedings) that the

State either had failed to submit a SIP addressing the

good neighbor requirement, or had submitted an inade-

quate one, thus triggering the statutory requirement

for the EPA to promulgate a FIP within two years.

42 U.S.C. 7410(¢)(1); see App. 17la-172a. In the

Transport Rule, the FPA therefore promulgated F IPs

for those States.

d. While the NO. SIP Call, CAIR, and the Transport

Rule varied somewhat in their details, all three rules

were premised on the same basic framework, using a

two-part analysis that considered both air quality and

cost factors. The first step was the Screening Analysis,

in which the EPA identified those States potentially

subject to the rule (pending further analysis). The

Screening Analysis used air quality modeling to deter-

mine whether each State’s emissions increased ambient

' The Transport Rule actually addressed three distinct NAAQS:

(1) the 1997 PM, annual NAAQS, (2) the 2006 PM, daily NAAQS;

and (3) the 1997 hour ozone NAAQS, App. 168a. Because the

differences in the EPA’s analysis for the two PM,.,, NAAQS are

largely irrelevant lo the issues addressed in this petition, the petition

refers simply to the PM,,, NAAQS except as specifically noted. In

2008, the &-hour ozone NAAQS was revised to be somewhat more

stringent, a. at 1694, and in January 2013, the FPA revised its suite

of PM NAAQS, making the annual PM, , more stringent but retain-

ing the same standard for daily PM... 78 Fed. Reg. 3086 (Jan. 15,

2013). The Transport Rule does not address either of these recently

revised NAAQS.

concentrations of pollutants by greater than a defined

threshold level in at least one downwind area with a

NAAQS nonattainment or maintenance problem. App.

255a.

In the second part of the analysis (the Control Analy-

sis), the EPA established the emission-control obliga-

tions for each upwind State that had been made subject

to the rule by the Screening Analysis. The obligations of

each such State were defined by reference to the amount

of emission reductions that can be achieved in that State

at a specific cost threshold. The cost thresholds were

selected by evaluating how much emission control is

necessary to address the upwind component of down-

wind nonattainment and maintenance problems. In this

way, the agency considered both the air quality impacts

and the cost to the regulated community of increasingly

stringent levels of emission control. App. 316a-323a.

EPA's rationale for using this two-part approach is

largely based on the nature and technical complexity of

the interstate pollution problem. For decades, air quali-

ty modeling has shown that ozone and PM, , nonattain-

ment and maintenance problems are caused by the col-

lective contribution of NO, and sulfur dioxide (SO,) from

numerous upwind States to particular downwind areas,

combined with local emissions from the affected down-

wind areas themselves.” Further complicating matters

—— ws

——_—— |

* The underlying chemical mechanisms are complex but can be

summarized in general terms as follows. In the case of ozone pollu-

tion, emissions of NO, and volatile organic compounds (VOCs) mix in

the atmosphere in the presence of sunlight to form ozone. According-

ly, ozone nonatlainment is primarily a seasonal, warm-weather prob-

lem. Because VOC emissions generally are local in nature, the inter-

state component of ozone pollution is due primarily to NO, emissions

that can be transported in the atmosphere over very long distances

(hundreds of miles or more). App. 185a-187a. Fine particulate mat-

is the fact that many States that are upwind contribu-

tors to pollution problems in other States also have

NAAQS nonattainment and maintenance problems of

their own (7.e., they are both “upwind” and “downwind”),

and most upwind States contribute, in varying degrees,

to nonattainment and maintenance problems in many

downwind areas. In short, at least in the eastern half of

the United States (which for demographic and meteoro-

logical reasons is the portion of the country most affect-

ed), the interstate pollution problem is best understood

as a dense, spaghetti-like matrix of overlapping up-

wind/downwind “linkages” among many States, rather

than a neater and more limited set of linkages among

just a few.

To illustrate these points more concretely, the EPA’s

air quality modeling for the Transport Rule evaluated

2479 potential contribution linkages among 37 upwind

States and 67 ozone and PM, .. downwind nonattainment

and maintenance areas. Of these linkages, 565 were

above the one-percent threshold for the rule’s Screening

Analysis (88 for ozone and 477 for PM,.). For each

downwind nonattainment and maintenance area, be-

tween 25 and 32 upwind States contribute some amount

of pollution, with between five and 12 (and a mean of

eight) being substantial enough to exceed the screening

threshold. For ozone, four out of 25 contributing States

are both upwind contributors and downwind receptors,

ter (1.e., PM...) can be emitted directly or formed secondarily in the

atmosphere. The interstate air pollution component of PM. pollu-

tion is primarily attributable to the formation of sulfates from SO,

emissions from power plants and industrial facilities and nitrates

from NO, emissions from power plants, automobiles, and other com-

bustion sources. These precursors, as well as the fine particles

themselves, also can be transported long distances in the atmosphere.

69 Fed. Reg. 4566, 4575 (Jan. 30, 2004).

while for PM, ., this figure is nine out of 23. Many up-

wind States, especially those located in the industrial

Midwest, make downwind contributions exceeding the

screening threshold to a large number of downwind

areas. For example, Kentucky contributes above the

threshold to 40 out of 41 downwind receptor areas for

the daily PM,, NAAQS, and to all 16 downwind recep-

tors for the annual PM,, NAAQS.°

2. a. In Michigan, the D.C. Circuit reviewed the

NO, SIP Call and upheld the EPA’s two-step analytical

approach. 213 F.3d at 677-680. The court held that the

term “significant” (as used in the good neighbor provi-

sion) is ambiguous, and that the EPA can permissibly

determine the amount of a State’s “significant” contribu-

tion by reference to the amount of emissions reductions

achievable through application of “highly cost-effective”

controls. Jd. at 677-679. The court observed that “{t|he

term ‘significant’ does not in itself convey a thought that

significance should be measured in only one dimension—

here, in the petitioners’ view, health alone.” /d. at 677.

The EPA used the same basic analytical approach for

CAIR, which was the subject of the D.C. Circuit’s deci-

sion in North Carolina. Although the court of appeals

ultimately remanded CAIR on other grounds, the court

reaffirmed Michigan’s general acceptance of a cost-

effectiveness analysis to help determine the amount of

each State’s “significant” contribution, and it expressly

" The figures discussed in this paragraph are derived from data in

the EPA’s air quality modeling technical support document (Air

Quality TSD) for the Transport Rule, which was part of the adminis-

trative record for the Rule. See EPA, Air Quality Modeling Final

Rule Technical Support Document, Appendices D, E, and F (2011),

http://www.epa.gov/airtransport/pdfs/ AQ Modeling. pdf.

declined to disturb the agency’s basic two-step analyti-

cal approach. North Carolina, 531 F.3d at 916-917.

b. Inthe order at issue here, the EPA again used the

same basic analytical approach, but a divided pane] of

the court of appeals rejected it. App., infra, 1a-116a.'

The court of appeals concluded for three reasons that

the Transport Rule was unambiguously foreclosed by

the good neighbor provision. First, the court found that

the rule could theoretically result in a State being com-

pelled to reduce emissions below the threshold level for

determining whether that State was subject to the

Transport Rule. Second, the court believed that, where

multiple upwind States contribute to a common down-

wind nonattainment problem, the rule did not sufficient-

ly assure that upwind States’ emission reduction obliga-

tions were proportional to their share of modeled down-

wind contribution. Third, the court concluded that the

rule did not sufficiently assure that cumulative upwind-

State obligations would be no more than the minimum

amount necessary to enable affected downwind areas to

meet the NAAQS. App., infra, 3la-4la.

The court of appeals also held that the EPA lacked

statutory authority to promulgate F1Ps under the cir-

cumstances presented here. The EPA is required to

" To the extent that the EPA's two-step regulatory approach for

the Transport Rule differed in any significant way from that used in

the NO, SIP Call and CAIR, it was to place greater emphasis on air

quality factors. Most notable in this respect was the agency's deci-

sion to create two different cost thresholds for SO, controls to apply

to different groups of States depending on the severity of the associ-

ated downwind PM,,, nonattainment problems. See App. 314a, 316a-

323a. Where the downwind problems were less severe, upwind States

were required only to make reductions available at $500 per ton, a

relatively low cost threshold compared to the $2000 per ton threshold

used in the NO, SIP Call and CAIR.

promulgate a FIP only when it has made a finding thata

State has breached its obligation to submit an adequate

SIP in a timely fashion. In the court’s view, no such

state non-compliance had been demonstrated because no

State was obligated to submit a SIP addressing inter-

state transport until the EPA had defined that State’s

significant contribution to nonattainment or interference

with maintenance in other States. App., infra, 42a-61a.

Judge Rogers dissented. She concluded that the

court did not have jurisdiction to decide either the

significant-contribution or FIP question. On the merits,

she would have held that the Transport Rule was a per-

missible exercise of the EPA’s authority under the CAA.

App., infra, 65a-116a; see id. at 114a (“The court ignores

Congress’s limitations on the court’s jurisdiction and

decades of precedent strictly enforcing those limitations

and proceeds to do violence to the plain text of the CAA

and EPA’s permissible interpretations of the CAA.”).

“The result,” Judge Rogers concluded, “is the endorse-

ment of a ‘maximum delay’ strategy for regulated enti

ties.” /bid.

REASONS FOR GRANTING THE PETITION

The court of appeals committed a series of fundamen-

tal errors that, if left undisturbed, will gravely under-

mine the EPA’s enforcement of the Clean Air Act. As

Judge Rogers explained in dissent, the court should not

even have decided either question presented. The court

of appeals’ determination that the EPA could not pass

judgment on SIPs until it had quantified States’ good

neighbor obligations was, in substance, a collateral in-

validation of separate orders not before the court. Those

challenging the Transport Rule likewise had waived any

statutory objection to the agency’s approach to “signifi-

cant contribution” by failing to raise it in the adminis-

trative proceedings.

The court of appeals’ merits holdings were likewise

erroneous. The court disregarded mandatory statutory

deadlines for States to adopt SIPs with good neighbor

provisions and for the EPA to issue FIPs when it finds

that a State has failed to do so (or has done so inade-

quately). The court then read several statutory com-

mands of its own invention into the ambiguous term

“significant contribution” and faulted the EPA for not

complying with those directives.

If not corrected, the decision below will have serious

adverse consequences. Its imposition of non-textual

barriers to implementation of the good neighbor provi-

sion could delay by years the ability of downwind States

to comply with NAAQS, and could in some cases make it

impossible for those States to meet statutory deadlines

for doing so. Because the EPA had planned to use the

Transport Rule as a mode! for enforcement of additional

NAAQS, the court’s decision also creates serious uncer-

tainty about implementation of other CAA require-

ments. Most fundamentally, the court of appeals’ errors

will seriously impede the EPA’s ability to deal with a

grave public health problem. The petition for a writ of

certiorari should be granted.

A. The Court Of Appeals Both Exceeded Its Jurisdiction

And Erred On The Merits By Effectively Invalidating

Prior SIP Orders

1. In June 2010 and July 2011 (before the Transport

Rule had calculated any State’s good neighbor obliga-

tions), EPA issued final orders finding that 29 States

and territories had failed to satisfy their statutory obli-

gation to submit SIPs with good neighbor provisions for

the 2006 24-hour PM,, NAAQS. App., infra, 7la-73a &

n.2 (Rogers, J., dissenting). No party sought judicial

review of those orders. /d. at 73a (Rogers, J., dissent-

ing). Also in July 2011, EPA issued separate final or-

ders disapproving as inadequate the good neighbor

provisions of SIPs submitted by ten other States. See

id. at 73a & n.3 (Rogers, J., dissenting). Only three of

those States sought judicial review (two in the D.C.

Circuit and one in the Sixth Circuit), and those petitions

were not consolidated with the case below. See id. at

73a-74a & n.3 (Rogers, J., dissenting).

The court of appeals in this case held that “EPA’s

many SIP disapprovals and findings of failure to submit

share one problematic feature: EPA made all of those

findings before it told the States what emissions reduc-

tions their SIPs were supposed to achieve under the

good neighbor provision.” App., infra, 49a. That state-

ment starkly demonstrates that the Court’s invalidation

of the Transport Rule rested on its conclusion that the

EPA’s antecedent June 2010 and July 2011 final orders

were premature and therefore erroneous. But the prop-

er avenue for challenging the prior orders was via direct

petitions for review of those orders, not through a later

challenge to the Transport Rule. As Judge Rogers ex-

plained, “[iJf a State wished to object that under section

[7410(a)] it had no obligation to include ‘good neighbor’

provisions in its SIP until EPA quantified its ‘significant

contribution’ in emission reduction budgets, then the

CAA required it to do so at the time EPA found it had

not met its SIP ‘good neighbor’ obligation.” Jd. at 75a."

* Indeed, in the 2011 order disapproving the good neighbor provi-

sion of Indiana’s SIP, EPA rejected the very argument on which the

court below later relied in invalidating the Transport Rule, ve., that

“EPA ‘should provide [the State] the opportunity to revise its [] SIP

once the Transport Rule is completed.’” App., infra, 77a (Rogers, J.,

To obtain judicial review of EPA action under the

CAA, a challenger must file a petition for review within

60 days after that action is published in the Federal

fore exceeded its jurisdiction by permitting those chal-

lenging the Transport Rule to colla‘ ally attack sepa-

rate final orders for which the time to seek review had

passed. See App., infra, 65a-66a, 70a-82a (Rogers, J.,

dissenting). In determining the propriety of the

Transport Rule, the court below therefore was required

to accept as valid the antecedent SIP disapprovals and

findings of failure to submit.

2. Even if the court of appeals had been authorized

to review the June 2010 and July 2011 orders, the

court’s determination that the orders were invalid con

flicts with the text of the Act. See App., infra, 83a-95a

(Rogers, J., dissenting). The CAA’s “plain text and

structure establish a clear chronology of federal and

State responsibilities” that do not include the extra

steps mandated by the court of appeals. /d. at 86a

(Rogers, J., dissenting).

The CAA provides:

Fach State shall, after reasonable notice and pub-

lic hearings, adopt and submit to the Administrator,

within 3 years (or such shorter period as the Admin-

istrator may prescribe) after the promulgation of a

national primary ambient air quality standard (or

any revision thereof) under section 7409 of this title

for any air pollutant, a plan which provides for im-

plementation, maintenance, and enforcement of such

dissenting) (quoting 76 Fed. Reg. 43,175, 43,177 (July 20, 2011)).

Indiana did not file a petition for review to challenge that conclusion.

id. at 78a (Rogers, J., dissenting).

primary standard in each air quality control region

(or portion thereof) within such State.

42 U.S.C. 7410(a)(1) (emphases added).

The Act further provides:

Each such [state implementation] plan shall * * *

(D) contain adequate provisions—

(i) prohibiting, consistent with the provisions of this

subchapter, any source or other type of emissions ac-

tivity within the State from emitting any air pollutant

in amounts which will—

(I) contribute significantly to nonattainment in, or

interfere with maintenance by, any other State with

respect to any such national primary or secondary

ambient air quality standard.

42 U.S.C 7410(a)(2).

If a State fails to submit a SIP, or submits an inade-

quate one, the EPA must make a finding of failure to

submit or disapprove the submission. 42 U.S.C 7410(k).

The EPA is then required to promulgate a FIP within

two years of making such a finding or disapproval unless

the State has addressed the problem and the EPA has

approved the SIP. 42 U.S.C. 7410(c). As noted above,

for every State for which the EPA promulgated a

Transport Rule FIP, the agency either had found that

the State’s submission was overdue or had disapproved

a submitted SIP. Under the plain terms of the statute,

the EPA therefore had a mandatory duty to promulgate

F IPs for those States. /bid.

Notwithstanding the clear statutory mandate, the

court of appeals held that the EPA lacked authority to

promulgate the FIPs because, in that court’s view,

States have no obligation under the good neighbor pro-

vision to submit SIPs addressing interstate transport

until after the EPA has defined their significant contri-

bution. App., infra, 42a-61a. The court did not find that

the language of Section 7410(a)(1)—.e., that States

“shall” submit a SIP within three years after the EPA

has promulgated a NAAQS—makes a State’s obligation

to act contingent on its receipt of guidance from the

EPA. Rather, the court thought that “contextual and

structural factors” supported its approach. /d. at 54a.

The court of appeals’ analysis violated the core prin-

ciple of statutory interpretation that “courts must pre-

sume that a legislature says in a statute what it means

and means in a statute what it says there.” Barnhart v.

Sigmon Coal Co., 534 U.S. 438, 461-462 (2002) (citation

omitted). The statutory language here could not be

clearer. Under the Act, each State “shall” submit a SIP

to the EPA within three years after the promulgation of

a new or revised NAAQS, and “[eJach such plan shall”

contain adequate provisions to control emissions from

the State that significantly contribute to nonattain-

ment or interfere with maintenance in another State.

42 U.S.C. 7410(a)(2) (emphases added). Nothing in the

CAA makes that obligation contingent on prior action by

the EPA to define a particular State’s contribution to

downwind nonattainment. “The Act does not require

EPA to promulgate a rule or issue guidance regarding

the specific requirements of section [7410(a)(2)(D)(i)(1)]

in advance of the SIP submittal deadline, much less

require EPA to promulgate such a rule a specific

amount of time before the SIP submittal deadline.”

App. 175a.

The court of appeals’ interpretation is also incon-

sistent with the statute’s emphasis on timely attainment

of the NAAQS. The statute establishes specific dead-

lines by which the NAAQS must be achieved, which can

be as short as three years after an area is designated as

nonattainment. 42 U.S.C. 7511(a)(1). As Congress rec-

ognized in enacting and then strengthening the inter-

state transport provision of the Act, some States need

emission reductions from upwind States (in conjunction

with emission reductions within their own borders) in

order to achieve attainment. Thus, the timely submis-

sion of interstate transport SIPs and the consequent

implementation of contro! measures are integral to the

ability of all States to achieve the statutory deadlines for

attainment. By effectively eliminating the statutory

deadline for the submission of transport SIPs, the court

of appeals’ decision disrupts this integrated statutory

scheme for achieving attainment. By contrast, the

EPA’s Transport Rule, which included statutorily-

mandated FIPs but stressed that States were free to

replace them by later submitting SIPs to the EPA for

approval, see App. 669a-682a, was true to the statutory

design.

Finally, the court of appeals erred in asserting that

States are incapable of submitting transport SIPs until

the EPA has established their significant contribution.

The court cited nothing to support this assumption ex-

cept statements by the EPA to the effect that determin-

ing interstate contribution is complex. App., infra, 5la-

52a. In implementing the CAA, however, States rou-

tinely undertake technically complex air quality deter-

minations. SIPs addressing in-state emissions are based

on complex modeling to predict how emissions of nu-

merous pollutants will interact with atmospheric con-

ditions to create, often in areas far from the sources,

concentrations of ozone and PM, ,. States are capable

of producing the air quality modeling and inform-

ation needed to submit transport SIPs. See id. at 89a-

95a (Rogers, J. dissenting); see also 42 U.S.C.

7410(a)(2)(K)(i) (States must “perform|] * * * such air

quality modeling as [EPA] may prescribe for the pur-

pose of predicting the effect on ambient air quality of

any emissions of any air pollutant for which [EPA] has

established a |NAAQS].”). In addition, the necessary

emissions information from all States is publicly availa-

ble, see App., infra, 90a & n.12 (Rogers, J., dissenting),

and States not covered by CAIR or the Transport Rule

have complied with the requirement to submit transport

SIPs. E.g., 77 Fed. Reg. 1027 (Jan. 9, 2012) (EPA ap-

proval of Colorado’s interstate transport SIP).

B. The Court Of Appeals Erred In Adjudicating Unpre-

served Challenges To The EPA’s “Significant Contribu-

tion” Analysis, And In Failing To Defer To The Agency’s

Reasonable Interpretation Of Ambiguous Statutory

Terms

The court of appeals also erred in invalidating the

Transport Rule based on its conclusion that the EPA’s

“significant contribution” analysis was foreclosed by the

CAA. No statutory objection to that effect was made in

the administrative proceedings. In any event, the EPA’s

analysis of that issue reflected a reasonable construction

of the CAA’s broad and ambiguous terms.

1. The CAA specifies that “[o|]nly an objection to a

rule or procedure which was raised with reasonable

specificity during the period for public comment * * *

may be raised during judicial review.” 42 U.S.C.

7607(d)(7)(B). That statutory requirement codifies long-

recognized exhaustion rules. Enforcement of such rules

helps to ensure that an agency will have the opportunity

to modify its proposed course of action if it concludes

that particular objections have merit; enables the agen-

cy to explain why it views particular objections as un-

meritorious if it reaches that conclusion; and promotes

better-informed judicial review by allowing the court to

focus on the agency’s actual responses to actual objec-

tions. See, e.g., DOT v. Public Citizen, 541 U.S. 752,

764-765 (2004); Vermont Yankee Nuclear Power Corp. v.

NRDC, Inc., 435 U.S. 519, 553-554 (1978). “Exhaustion

concerns apply with particular force when,” as here,

“the agency proceedings * * * allow the agency to

apply its special expertise.” McCarthy v. Madigan,

503 U.S. 140, 145 (1992).

The court below failed to honor Section

7607(d)(7)(B)’s requirement that objections to EPA

action must be “raised with reasonable specificity” dur-

ing the administrative proceedings in order to be pre-

served for judicial review. See App., infra, 95a-110a

(Rogers, J., dissenting); see also id. at 96a (noting that

the waiver “question is not close”). In concluding that

the EPA’s methodology was inconsistent with the CAA,

the court of appeals expressed concern that the EPA’s

Control] Analysis could theoretically require a State to

reduce its emissions below the air quality threshold used

for the Screening Analysis (7.e., one percent of the appli-

cable NAAQS for at least one upwind-to-downwind link-

age). Jd. at 3la-38a. Such a result, the court believed,

would exceed the EPA’s statutory authority to regulate

only “significant” contributions. See ibid.

As Judge Rogers’s dissent thoroughly demonstrated,

however, this statutory objection was not asserted in

any rulemaking comments. App., infra, 98a-10la. Be-

cause of that failure, there was no evidence before the

court of appeals that the factual scenario the court hy-

pothesized would ever actually occur. /d. at 95a & n.15

(Rogers, J., dissenting). Likewise, the court of appeals’

conclusion that the CAA required a strictly proportional

approach to upwind States’ emission-reduction obliga-

tions was not even advanced in the court of appeals by

those challenging the Transport Rule. /d. at 11la(Rog-

ers, J., dissenting). The court nevertheless viewed those

questions as properly before it because concerns of this

sort had been raised in the years-old and separate CA/R

rulemaking, and because EPA had discussed (but pro-

posed not to pursue) alternative regulatory approaches

in the Transport Rule proposal. /d. at 32a n.18. The

court therefore believed that the agency was sufficiently

“on notice that its disregard of the significance floor was

a potential legal infirmity in its approach.” /bid.

Under the plain language of the CAA’s judicial re-

view provision, however, the relevant question is not

whether the EPA was aware of a potential issue or ob-

jection, but whether the objection asserted in court was

“raised with reasonable specificity during the period for

public comment” on the particular agency action that is

the subject of the petitioner’s challenge. 42 U.S.C.

7607(d)(7)(B). The court of appeals’ casual approach to

waiver and exhaustion issues would require agencies to

intuit unstated objections to proposed rules based on

any issue of which a court might later find the agency

was “on notice.” In particular, the court’s approach

would require agencies to guess whether objections

raised in one agency proceeding, but never asserted as a

ground for judicial review of the resulting agency action,

must be addressed again in a subsequent rulemaking

even though no commenter has pressed them. The

court’s approach also permits courts to adjudicate very

complex regulatory issues without the benefit of agency

responses to focused rulemaking comments. Indeed, the

manner in which the court of appeals proceeded to ana-

lyze the significant contribution claims in this case is a

striking illustration of this problem. See pp. 21-28,

infra.

2. Onthe merits, the court of appeals erred in invali-

dating the EPA’s approach to the “significant contribu-

tion” question.

Agencies are entitled to deference in construing stat-

utes they administer. Chevron U.S.A. Inc. v. NRDC,

Inc., 467 U.S. 837, 842-845 (1984). If Congress has “di-

rectly spoken to the precise question at issue,” that

intent must be given effect. /d. at 842-843. However, “if

the statute is silent or ambiguous with respect to the

specific issue, the question for the court is whether the

agency’s answer is based on a permissible construction

of the statute.” /d. at 843. “The court need not conclude

that the agency construction was the only one it permis-

sibly could have adopted to uphold the construction, or

even the reading the court would have reached if the

question initially had arisen in a judicial proceeding.”

Id. at 843 n.11.

In 2000, the D.C. Circuit held that the term “signifi-

cant” is ambiguous as used in the statutory phrase “con-

tribute significantly to nonattainment,” 42 U.S.C.

7410(a)(2)(D)(i)C1). Michigan v. EPA, 213 F.3d 663, 677-

680 (D.C. Cir. 2000), cert. denied, 582 U.S. 903, 904

(2001). The court further held that it was reasonable for

the EPA to determine the “significan[ce]” of particular

state contributions by reference to the amount of highly

cost-effective pollution controls available in each upwind

State, and without regard to the amount of each State’s

downwind contribution. /bid.; see North Carolina v.

EPA, 531 F.3d 896, 916-917 (D.C. Cir. 2008) (declining to

disturb CAIR’s similar approach to significant contribu-

tion). In this case, however, the court below changed

course and held that the EPA’s approach violated the

CAA’s plain terms.

a. In particular, the court of appeals perceived a

strict statutory requirement that the emission-reduction

obligations for each upwind State be “proportional” to

its modeled amount of downwind air quality contribu-

tions. App., infra, 3la-4la. The court did not make

clear whether it found these to be unambiguous statuto-

ry requirements (Chevron step one) or merely a neces-

sary component of any “permissible” construction of the

statute (Chevron step two). The court of appeals erred

in either event because Congress did not address these

specific issues, and the EPA’s approach is reasonable.

The court of appeals’ proportionality requirement is

an unrealistically simplistic response to a highly com-

plex problem. To illustrate, first consider a downwind

nonattainment area (Area A) that receives relatively

egual amounts of pollution contributions from three

upwind States, X, Y, and Z. A strict proportionality

requirement would compel the EPA to identify the por-

tion of the problem attributable to each upwind State

and then divide the upwind share among States X, Y,

and Z “in proportion to the size of their contributions to

the downwind State’s nonattainment.” App., infra, 25a.

In reality, however, interstate pollution transport

problems are far more complex. In the scenario de-

scribed above, for example, assume that States Y and Z

also contribute relatively higher amounts to nonattain-

ment in other areas (Areas B and C, respectively), while

State X contributes a relatively small (but still “signifi-

cant”) amount to nonattainment in a fourth area (Area

D). These facts may require States Y and Z to make

relatively larger emission reductions to address their

contributions to Areas B and C. With respect to Area A,

however, where States Y and Z constitute two-thirds of

the upwind contribution, the likely result of such larger

reductions would be some degree of incidental

“overcontrol,” as well as a lack of “proportionality”

among States X, Y, and Z. Similarly, because State X is

a relatively small contributor to nonattainment in Area

D, the relatively larger reductions it would have to make

to satisfy its share of the upwind contribution to Area A

would likely cause some lack of proportionality and some

over-control] with respect to Area D.

As discussed above, further technical complications

and cost implications arise out of other typical real-

world circumstances, such as the fact that many down-

wind nonattainment areas are also upwind contributors,

and that there is often a wide disparity among the

States with regard to the pollution-control investments

they have already made (and the consequent disparities

in expenditures needed to make additional emission

reductions). Moreover, in a typical real-world case, a

downwind area will have far more than the three upwind

contributors used in the above examples; these upwind

contributions will vary widely in degree; and each up-

wind State will typically contribute in varying amounts

to downwind nonattainment and maintenance problems

in numerous areas, not just one or two.

Especially when viewed against this background,

Congress is unlikely to have intended—and it surely did

not unambiguously determine—to impose the court of

appeals’ simplistic and inflexible quantitative propor-

tionality restrictions on the EPA (and the States) in

addressing this sprawling and complex problem. Rather

than prescribing a specific regulatory solution, Congress

instead simply required each State’s SIP to prohibit

emissions in amounts that “contribute significantly” to

downwind nonattainment or maintenance problems,

42 U.S.C. 7410(a)(2)(D)(i)(1), without specifying any

technical or policy factors that the EPA should take into

account in enforcing this requirement. This is a classic

delegation of gap-filling authority warranting Chevron

deference in a highly technical area that demands spe-

cialized expertise. Chevron, 467 U.S. at 843; National

Cable & Telecomms. Ass’n v. Gulf Power Co., 534 U.S.

327, 339 (2002).

b. The EPA’s construction of the CAA to allow its

mixed air-quality and cost-effectiveness approach to the

“contribute significantly” criterion, unencumbered by

the restrictions enunciated by the court of appeals, is a

reasonable one. As the D.C. Circuit had previously

recognized, see Michigan, 213 F.3d at 677, the term

“significant,” in and of itself, does not dictate an exclu-

sive or even primary focus on air quality impacts to the

exclusion of costs. Nor is such a focus required by the

CAA’s references to the “amounts” of emissions that

“contribute significantly,” as the court below appeared

to believe. See App., infra, 22a-23a; 42 U.S.C.

7410(a)(2)(D)G)(1).

To be sure, the statutory reference to “amounts” can

be read as an indication that Congress expected SIPs to

address the interstate transport requirement through

quantitative emission limits; but the Transport Rule did

that. It is the term “contribute significantly” that

guides the substance of those limits, however, and that

key term was not defined by Congress. While the EPA’s

approach may not be the only permissible way to define

the “significant” amount of upwind emissions, it is (for

all the reasons discussed above) one permissible ap-

proach, as it achieves the air quality results desired by

Congress in a simpler, more feasible, and less costly

manner than other alternatives.

The EPA’s approach to significant contribution is al-

so consistent with applicable guidance from this Court.

The Court has recently stressed that, except where

consideration of costs is expressly precluded by statute,

the EPA and other agencies should be allowed to con-

sider costs in construing broad qualitative standards

similar to that at issue here, in order to allow the agency

to identify the most efficient and least burdensome

mechanisms to achieve a statutory goal. See Entergy

Corp. v. Riverkeeper, Inc., 556 U.S. 208, 218 (2009) (con-

sidering a Clean Water Act “best technology available”

standard and observing that, while the technology that

achieves the maximum environmental benefit could be

viewed as the “best,” the term also could be used to

describe the technology that is “nvost efficient/{]” from a

cost-benefit perspective). And, citing Michigan, this

Court has specifically noted the D.C. Circuit’s conclu-

sion that Section 7410(a)(2)(D)(iX(I), unlike the Act’s

NAAQS provisions, does wot preclude the consideration

of costs. Whitman v. American Trucking Ass’ns,

531 U.S. 457, 469 n.1 (2001).

c. The court of appeals also erred in opining that its

proportionality requirement was necessary to assure

that upwind contributors were required to do no more

than their “fair share” to address downwind nonattain-

ment problems. App., infra, 25a. To begin with, the

CAA itself does not specify any single most equitable

and appropriate manner to divide emission-control re-

sponsibility among multiple upwind and downwind con-

tributors. In the absence of any such statutory specifi-

cation, the responsibility of balancing the relevant equi-

ties is a quintessential policy judgment on which the

EPA should be afforded deference.

In the D.C. Circuit’s view, each upwind contributor’s

“fair share” must be measured exclusively by its mod-

eled air quality contribution to a single downwind nonat-

tainment area, relative to other upwind contributors to

the same area. App., infra, 25a. The court of appeals

even specified a proportionality formula (illustrated

with a hypothetical example involving three upwind

contributors to a single downwind area) that it believed

the statute required. /d. at 25a-26a & n.15. The hypo-

thetical foundation of this formula bears so little resem-

blance to reality that it would be difficult if not impossi-

ble to apply even in the single-area context on which it is

premised.” More importantly, however, most States

subject to the rule are contributors to multiple down-

wind nonattainment and maintenance problems, with

their relative degree of air quality culpability for each

” For example, the court’s hypothetical was premised on an invent-

ed and otherwise-unknown unit of measure—so-called NAAQS

“units”—which the court used to describe both the quantity of upwind

and downwind emissions and the air quality of the affected downwind

area. The court depended on this unrealistic device to create an

artificial world in which its mathematical construct could easily be

applied. App., infra, 26a (assuming that the NAAQS is “100 units,”

the downwind area has air quality of “150 units,” the downwind State

contributes “90 units” and three upwind States contribute “20 units”

each). In reality, of course, emissions are measured in actual quanti-

ties (e.g., tons per year), and the effect of any given quantity of emis-

sions on air quality and NAAQS attainment in downwind areas is

highly variable and can be accurately estimated only through sophis-

ticated computer modeling that takes into account geographic, mete-

orological, and a host of other technical factors—not through simple

addition and subtraction as the court of appeals suggests. See note 5,

supra (discussing formation of ozone and PM, , from precursor NO,

and SO, emissions).

upwind-to-downwind linkage varying considerably. The

court of appeals therefore was hopelessly unrealistic in

assuming that each State could be assigned a precise air

quality-based “fair share” with respect to all of its “sig-

nificant” linkages."

d. The court of appeals’ fair-share policy rationale al-

so does not take into account a separate but highly rele-

vant consideration, namely that different States (both

upwind and downwind) had made widely varying pollu-

tion-control investments at the time the Transport Rule

was promulgated. To illustrate, again consider the sim-

ple hypothetical discussed above, where States X, Y, and

Z contribute equal amounts to downwind nonattainment

in Area A. Under the court of appeals’ proportional

approach, each of the three States must be required to

make one-third of the total needed “upwind” emission

reductions with respect to Area A. However, if States X

and Y already have made substantial pollution-control

'° The decision below also creates a possible conflict with another

CAA interstate transport provision, 42 U.S.C. 7426. Inter alia,

that provision allows a downwind State to petition the EPA to make

a finding that a specific source (or multiple sources) in upwind States

violate the prohibition on significant contribution in Section

7410(aX(2)(D(i)(D) with respect to the downwind State. 42 U.S.C.

7426(b). The statute requires the EPA to respond to any such peti-

tion within 60 days, while authorizing the EPA to extend that dead-

line for up to six months. /bid.; 42 U.S.C. 7607(d)(10). Under the

court of appeals’ view of Section 7410(a)(2)(D)(iX1), however, the

EPA would typically be unable to quantify the emissions of upwind

sources that contribute significantly to NAAQS nonattainment or

maintenance problems unless it first undertook a full-blown, multi-

state air quality modeling analysis that addressed the court’s propor-

tionality requirements with respect to all other potential contribu-

tors. Such an onerous requirement is incompatible with Congress’s

express expectation that the EPA could act, and acti relatively quick-

ly, on Section 7426 petitions.

investments, but State Z’s investments have to date

been negligible, the EPA could reasonably take that fact

into account in defining each State’s obligations, even if

the effect of that approach was to reduce State Z’s emis-

sions by somewhat more than one-third of the total

upwind contributions to Area A. This is especially true

since, in the real world, State Z would likely contribute

to NAAQS nonattainment and maintenance problems in

other downwind areas as well, and might even have

NAAQS nonattainment and maintenance problems of its

own. In this respect, the EPA’s cost-effectiveness ap-

proach provides a rough but objective means of equita-

bly distributing pollution-control burdens among a criss-

crossing patchwork of upwind and downwind States.

e. Finally, the court of appeals expressed concern

that the Transport Rule “could require upwind States to

reduce emissions by more than the amount” of pollution

that subjected them to the rule in the first place. App.,

infra, 34a-35a. That concern, however, was entirely

hypothetical. The court cited no basis in the record for

believing that such a scenario was a realistic possibility,

see id. at 95a n.15 (Rogers, J., dissenting), and because

no party advanced that argument in the administrative

proceedings, the EPA did not address it in the rulemak-

ing. If such a scenario ever occurs, it will provide at

most a basis for a targeted challenge by the affected

State; but it affords no sound justification for facial

invalidation of the Transport Rule.

C. The Court Of Appeals’ Decision Will Seriously Disrupt

The EPA’s Implementation Of The CAA, And It Threat-

ens Serious Harm To The Public Health

Review of the court of appeals’ decision is warranted

because it creates a substantial impediment to the

EPA’s ability to implement the CAA. In particular, it

hobbles the agency with respect to the aspect of the

Act’s administration (regulation of interstate pollution

that upwind States often have little incentive to police on

their own) where the need for a strong federal role is the

most critical.

1. The court of appeals’ decision will substantially

delay emission reductions by upwind States that are

necessary for downwind States to attain and maintain

the NAAQS. Indeed, the compliance dates in the

Transport Rule were “aligned with the attainment dead-

lines for the relevant NAAQS.” App. 449a. That rule

and its compliance dates are now vacated, but the at-

tainment deadlines remain.

If the decision below is not corrected, the EPA will be

required to determine each State’s significant contribu-

tion in accordance with the new restrictions announced

by the court of appeals. That task would presumably be

undertaken through notice and comment rulemaking

that would likely take at least two years, and that might

itself be subject to judicial review. The EPA would then

be required to give each affected State an opportunity,

probably again for a period of years, to develop a strate-

gy for implementing the requirements in the State

through its SIP process. The resulting SIPs would then

be submitted to the EPA for review. If a State fails to

submit a SIP, or if the EPA disapproves a SIP submis-

sion, the EPA would promulgate a FIP, again through

notice-and-comment rulemaking. Only then would the

EPA be back at the point it had previously reached by

promulgating the Transport Rule. Cumulatively, these

processes would likely take many years to complete, and

would no doubt generate time-consuming legal challeng-

es of their own. Under the court of appeals’ decision,

the time required for controls to be implemented in

upwind States would extend far beyond that contem-

plated by the CAA, to the detriment of the public health

in downwind States.

2. In addition to establishing extra-textual procedur-

al obstacles for the EPA to surmount, the court of ap-

peals placed onerous and unwarranted restrictions on

the manner in which the agency may permissibly identi-

fy “significant” contributions to downwind nonattain-

ment. As discussed above, given the multiple, overlap-

ping linkages involved in the interstate pollution prob-

lem, it may well be nearly impossible to meet the court’s

proportionality requirement with respect to all upwind-

to-downwind linkages.

To be sure, the court of appeals’ opinion acknowledg-

es that the EPA has “some discretion” in applying these

requirements when it faces “truly unavoidable” tech-

nical complications, App., infra, 28a, and that the agency

has some additional degree of discretion to consider

costs (but, in the court of appeals’ view, only to reduce

regulatory burdens), id. at 27a. This may leave the EPA

enough latitude to at least attempt to craft a new regula-

tory approach that meets the court’s requirements.

Because the EPA’s ability to consider cost-effectiveness

and the impact of collective contributions in crafting

such a rule would be vastly diminished, however, any

resulting rule would likely be much more costly and

burdensome in its application to certain States. There is

no basis in the statute to require such an inflexible and

unwise result.

3. The court of appeals’ decision also severely im-

pedes the EPA’s efforts to combat the serious health

risks posed by fine particles and ozone. Fine particles

“are associated with a number of serious health effects

including premature mortality, aggravation of respirato-

ry and cardiovascular disease, * * * lung disease,

* * * asthma attacks, and certain cardiovascular prob-

lems.” App. 165a; see id. at 165a-166a (discussing nega-

tive impact on environment and agriculture). Short-

term exposure to ozone at sufficient concentrations “can

irritate the respiratory system” and aggravate asthma,

while long-term exposure “can inflame and damage the

lining of the lungs, which may lead to permanent chang-

es in lung tissue and irreversible reductions in lung

function.” /d. at 166a-167a; see id. at 167a (discussing

negative impact on environment and agriculture).

An EPA analysis on which the agency relied in issu-

ing the Transport Rule estimated that “1 in 20 deaths in

the U.S. is attributable to PM,, and ozone exposure.”

App. 602a; see ibid. (“This same analysis attributed

almost 200,000 non-fatal heart attacks, 90,000 hospital

admissions due to respiratory or cardiovascular illness,

2.5 million cases of aggravated asthma among children,

and many other human health impacts to exposure to

these two air pollutants.”). The EPA estimated that the

Transport Rule would “annually reduce between 13,000

and 34,000 PM, ,-related premature deaths, 15,000 non-

fatal heart attacks, 8,700 incidences of chronic bronchi-

tis, 8,500 hospital admissions, and 400,000 cases of ag-

gravated asthma,” while the rule’s “annual ozone related

health benefits” would include “160,000 fewer days with

restricted activity levels, and 51,000 fewer days where

children are absent from school due to illnesses.” /d. at

602a-603a. By vacating the Transport Rule, while im-

peding any EPA effort to replace it, the court of appeals’

decision will directly and negatively affect the public

health.

4. Because the opinion below broadly interprets the

requirements of Section 7410(a), it will affect the EPA’s

ability to address transported pollution with respect to

all NAAQS, not just those directly at issue here. In-

deed, when it issued the Transport Rule, the agency

described the Rule as “a precedent for quantifying up-

wind state emission reduction responsibilities with re-

spect to potential future NAAQS.” App. 138a; see id. at

310a, 314a. Because the analysis that produced the

Transport Rule was intended to serve as a model for

future efforts to limit interstate pollution, its importance

transcends the rulemaking at issue here. Review is

warranted for that reason as well.

CONCLUSION

The petition for a writ of certiorari should be grant-

ed.

Respectfully submitted.

DONALD B. VERRILLI, JR.

Solicitor General

IGNACIA S. MORENO

Assistant Attorney General

MALCOLM L. STEWART

Deputy Solicitor General

BRENDA MALLORY JOSEPH R. PALMORE

Acting General Counsel Assistant to the Solicitor

SONJA RODMAN General

Attorney JON M. LIPSHULTZ

Environmental Protection NORMAN L. RAVE, JR.

Agency Attorneys

MARCH 2013

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 11-1302

EME HOMER CITY GENERATION, L.P., PETITIONER

ENVIRONMENTAL PROTECTION AGENCY, ET AL.,

RESPONDENTS

SAN MIGUEL ELECTRIC COOPERATIVE, ET AL.,

INTERVENORS

Consolidated with 11-1315, 11-1323, 11-1329, 11-1338,

11-1340, 11-1350, 11-1357, 11-1358, 11-1359, 11-1360,

11-1361, 11-1362, 11-1363, 11-1364, 11-1365, 11-1366,

11-1367, 11-1368, 11-1369, 11-1371, 11-1372, 11-1373,

11-1374, 11-1375, 11-1376, 11-1377, 11-1378, 11-1379,

11-1380, 11-1381, 11-1382, 11-1383, 11-1384, 11-1385,

11-1386, 11-1387, 11-1388, 11-1389, 11-1390, 11-1391,

11-1392, 11-1398, 11-1394, 11-1395

Argued: Apr. 13, 2012

Decided: Aug. 21, 2012

(la)

On Petitions for Review of a Final Rule of the

Environmental Protection Agency

Before: ROGERS, GRIFFITH, and KAVANAUGH, Cir-

cuit Judges.

Opinion for the Court filed by Circuit Judge KAv-

ANAUGH, with whom Circuit Judge GRIFFITH joins.

Dissenting opinion filed by Circuit Judge ROGERS.

KAVANAUGH, Circuit Judge: Some emissions of

air pollutants affect air quality in the States where the

pollutants are emitted. Some emissions of air pollu-

tants travel across State boundaries and affect

air quality in downwind States. To deal with that

complex regulatory challenge, Congress did not au-

thorize EPA to simply adopt limits on emissions as

EPA deemed reasonable. Rather, Congress set up a

federalism-based system of air pollution control.

Under this cooperative federalism approach, both the

Federal Government and the States play significant

roles. The Federal Government sets air quality

standards for pollutants. The States have the pri-

mary responsibility for determining how to meet those

standards and regulating sources within their borders.

In addition, and of primary relevance here, upwind

States must prevent sources within their borders from

emitting federally determined “amounts” of pollution

that travel across State lines and “contribute signifi-

cantly” to a downwind State’s “nonattainment” of fed-

eral air quality standards. That requirement is some-

times called the “good neighbor” provision.

In August 2011, to implement the statutory good

neighbor requirement, EPA promulgated the rule at

issue in this case, the Transport Rule, also known as

the Cross-State Air Pollution Rule. The Transport

Rule defines emissions reduction responsibilities for 28

upwind States based on those States’ contributions to

downwind States’ air quality problems. The Rule

limits emissions from upwind States’ coal-and natural

gas-fired power plants, among other sources. Those

power plants generate the majority of electricity used

in the United States, but they also emit pollutants that

affect air quality. The Transport Rule targets two of

those pollutants, sulfur dioxide (SO.) and nitrogen

oxides (NQ,).

Various States, local governments, industry groups,

and labor organizations have petitioned for review of

the Transport Rule. Although the facts here are

complicated, the legal principles that govern this case

are straightforward: Absent a claim of constitutional

authority (and there is none here), executive agencies

may exercise only the authority conferred by statute,

and agencies may not transgress statutory limits on

that authority.

Here, EPA’s Transport Rule exceeds the agency’s

statutory authority in two independent respects.

First, the statutory text grants EPA authority to re-

quire upwind States to reduce only their own signifi-

cant contributions to a downwind State’s nonattain-

ment. But under the Transport Rule, upwind States

may be required to reduce emissions by more than

their own significant contributions to a downwind

State’s nonattainment. EPA has used the good

neighbor provision to impose massive emissions reduc-

tion requirements on upwind States without regard to

the limits imposed by the statutory text. Whatever

its merits as a policy matter, EPA’s Transport Rule

violates the statute. Second, the Clean Air Act af-

fords States the initial opportunity to implement re-

ductions required by EPA under the good neighbor

provision. But here, when EPA quantified States’

good neighbor obligations, it did not allow the States

the initial opportunity to implement the required re-

ductions with respect to sources within their borders.

Instead, EPA quantified States’ good neighbor obliga-

tions and simultaneously set forth EPA-designed

Federal Implementation Plans, or FIPs, to implement

those obligations at the State level. By doing so,

EPA departed from its consistent prior approach to

implementing the good neighbor provision and violated

the Act.

For each of those two independent reasons, EPA’s

Transport Rule violates federal law. Therefore, the

Rule must be vacated.

In so ruling, we note that this Court has affirmed

numerous EPA clean air decisions in recent years

when those agency decisions met relevant statutory

requirements and complied with statutory constraints.

See, e.g., National Environmental Development Asso-

ciation’s Clean Air Project v. EPA, No. 10-1252 (D.C.

Cir. July 20, 2012); APJ v. EPA, No. 10-1079 (D.C. Cir.

July 17, 2012); ATK Launch Systems, Inc. v. EPA, 669

F.3d 330 (D.C. Cir. 2012); NRDC v. EPA, 661 F.3d 662

(D.C. Cir. 2011); Medical Waste Institute & Energy

Recovery Council v. EPA, 645 F.3d 420 (D.C. Cir.

2011); American Trucking Ass’ns v. EPA, 600 F.3d

624 (D.C. Cir. 2010). In this case, however, we con-

clude that EPA has transgressed statutory bounda-

ries. Congress could well decide to alter the statute

to permit or require EPA’s preferred approach to the

good neighbor issue. Unless and until Congress does

so, we must apply and enforce the statute as it’s now

written. Our decision today should not be interpreted

as a comment on the wisdom or policy merits of EPA’s

Transport Rule. It is not our job to set environmen-

tal policy. Our limited but important role is to inde-

pendently ensure that the agency stays within the

boundaries Congress has set. EPA did not do so

here.'

The dissent argues that petitioners’ challenge to EPA’s ap-

proach to the significant contribution issue is not properly before

us because that issue was not sufficiently raised before the agency

in the rulemaking proceeding. We fundamentally disagree with

the dissent’s reading of the record on that point.

The dissent also claims that petitioners’ challenge to EPA’s issu-

ance of the FIPs is not properly before us because the affected

States should have raised such a challenge earlier in the process.

We again disagree. The dissent’s analysis on the FIPs issue con-

flates (i) EPA’s rejection of certain States’ SIPs and (ii) EPA’s

decision in the Transport Rule to set States’ “good neighbor” obli-

gations and emissions budgets and simultaneously issue F IPs.

The States here are challenging only the latter issue, and they

have done so in a timely fashion. Indeed, they could not have done

Under the Clean Air Act, the Federal Government

sets air quality standards, but States retain the pri-

mary responsibility (if the States want it) for choosing

how to attain those standards within their borders.

See Train v. NRDC, 421 U.S. 60, 63-67 (1975); Virgin-

ia v. EPA, 108 F.3d 1397, 1406-10 (D.C. Cir. 1997).

The Act thus leaves it to the individual States to de-

termine, in the first instance, the particular restric-

tions that will be imposed on particular emitters within

their borders. (If a State refuses to participate, the

Federal Government regulates the sources directly.)

To spell this out in more detail: The Clean Air Act

charges EPA with setting National Ambient Air Qual-

ity Standards, or NAAQS, which prescribe the maxi-

mum permissible levels of common pollutants in the

ambient air. See 42 U.S.C. § 7409(a)-(b). EPA must

choose levels which, “allowing an adequate margin

of safety, are requisite to protect the public health.”

42 U.S.C. § 7409(b)(1).

After a lengthy process, the details of which are not

relevant here, EPA designates “nonattainment” are-

as—that is, areas within each State where the level

so until EPA, in the Transport Rule, simultaneously set the States’

individual emissions budgets and issued F IPs.

We will explain both points more below. Suffice it here to say

that, much as we might like to do so, we respectfully do not believe

we can avoid the merits of this complex case, as the dissent urges.

of the pollutant exceeds the NAAQS. See 42 U.S.C.

§ 7407(d).

Once EPA sets a NAAQS and designates nonat-

tainment areas within the States, the lead role shifts to

the States. The States implement the NAAQS within

their borders through State Implementation Plans, or

SIPs. (As the experienced reader knows, there is no

shortage of acronyms in EPA-land.) In their SIPs,

States choose which individual sources within the State

must reduce emissions, and by how much. For exam-

ple, a State may decide to impose different emissions

limits on individual coal-burning power plants, natural

gas burning power plants, and other sources of air pol-

lution, such as factories, refineries, incinerators, and

agricultural activities.

States must submit SIPs to EPA within three years

of each new or revised NAAQS. See 42 U.S.C.

§ 7410(a)(1). Section 110(a)(2) of the Act lists the re-

quired elements of a SIP submission.

Section 110(a)(2)(D)(G)(1), the “good neighbor” pro-

vision at issue in this case, is one of the required ele-

ments of a SIP. The good neighbor provision re-

quires that SIPs:

(D) contain adequate provisions—

(i) prohibiting, consistent with the provisions of

this subchapter, any source or other type of emis-

sions activity within the State from emitting any air

pollutant in amounts which will—

(1) contribute significantly to nonattainment

in, or interfere with maintenance by, any other

State with respect to any such national primary

or secondary ambient air quality standard.

42 U.S.C. § 7410(a)(2)(D).

The good neighbor provision recognizes that emis-

sions “from ‘upwind’ regions may pollute ‘downwind’

regions.” Appalachian Power Co. v. EPA, 249 F.3d

1032, 1037 (D.C. Cir. 2001). To put it colloquially, the

good neighbor provision requires upwind States to

bear responsibility for their fair share of the mess in

downwind States. By placing the good neighbor re-

quirement in Section 110(a)(2), Congress established

the upwind State’s SIP as the vehicle for implementing

the upwind State’s good neighbor obligation. Of

course, an upwind State will not know what it needs to

do to meet its good neighbor obligation until it learns

the level of air pollution in downwind States, and fur-

ther learns how much it is contributing to the problems

in the downwind States. EPA plays the critical role

in gathering information about air quality in the down-

wind States, calculating each upwind State’s good

neighbor obligation, and transmitting that information

to the upwind State. With that information, the up-

wind State can then determine how to meet its good

neighbor obligation in a new SIP or SIP revision. See

42 U.S.C. § 7410(k)(5).

After EPA quantifies a State’s good neighbor obli-

gation, if a State does not timely submit an adequate

SIP (or an adequate SIP revision) to take account of

the good neighbor obligation as defined by EPA, re-

sponsibility shifts back to the Federal Government.

Within two years of disapproving a State’s SIP sub-

mission or SIP revision, or determining that a State

has failed to submit a SIP, EPA must promulgate a

Federal Implementation Plan to implement the

NAAQS within that State. See 42 U.S.C. § 7410(c)(1).

The good neighbor provision—and EPA’s attempts

to implement it—are familiar to this Court from past

cases.

In Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000),

we considered a challenge to EPA’s 1998 NO, Rule,

commonly referred to as the NO, SIP Call, which

quantified the good neighbor obligations of 22 States

with respect to the 1997 ozone NAAQS. See 63 Fed.

Reg. 57,356, 57,358 (Oct. 27, 1998).

The 1998 NO, Rule did not define “amounts which

will . . . contribute significantly to nonattain-

ment” solely on the basis of downwind air quality im-

pact, as one might have expected given the statutory

text. Rather, EPA also considered how much NO,

could be eliminated by sources in each State if those

sources installed “highly cost-effective” emissions

controls. See Michigan, 213 F.3d at 675. On review,

some States argued that the statutory text required

EPA to order reductions based on air quality impact

alone, not cost of reduction. But the Michigan Court

found no “clear congressional intent to preclude con-

sideration of cost.” Jd. at 677 (citation omitted).

The Court thus held that EPA may “consider differ-

ences in cutback costs, so that, after reduction of all

that could be cost-effectively eliminated, any remain-

10a

ing ‘contribution’ would not be considered ‘signifi-

eant.’” Jd. at 677; see also id. at 677-79. In other

words, EPA could use cost considerations to lower an

upwind State’s obligations under the good neighbor

provision.”

In North Carolina v. EPA, 531 F.3d 896 (D.C. Cir.

2008), we considered a challenge to EPA’s 2005 Clean

Air Interstate Rule, or CAIR. See 70 Fed. Reg.

25,162 (May 12, 2005). CAIR built on the 1998 NO,

Rule and defined 28 States’ good neighbor obligations

with respect to the 1997 ozone NAAQS and the 1997

NAAQS for annual levels of fine particulate matter, or

annual PM... See id.

CAIR employed two different formulas—both of

which incorporated cost considerations—to quantify

each State’s obligations for the pollutants covered by

CAIR, SO, and NO,. The North Carolina decision

held that the formulas went beyond Michigan’s au-

thorization to use cost and that the formulas therefore

exceeded EPA’s statutory author'y. EPA may use

cost to “require termination of only a subset of each

state’s contribution,” the Court explained, but “EPA

can’t just pick a cost for a region, and deem ‘signifi-

* Judge Sentelle dissented. In his view, the statutory text un-

ambiguously “set forth one criterion: the emission of an amount

of pollutant sufficient to contribute significantly to downwind

nonattainment.” Jd. at 696 (Sentelle, J., dissenting); cf; Whitman

v. American Trucking Ass'ns, 531 U.S. 457, 467 (2001) (“We have

therefore refused to find implicit in armbiguous sections of the CAA

an authorization to consider costs that has elsewhere, and so often,

been expressly granted.”).

lla

cant’ any emissions that sources can eliminate more

cheaply.” 531 F.3d at 918 (citation, emphasis, and

some internal quotation marks omitted). The Court

also held that “section 110(a)(2)(D)(i)(1) gives EPA no

authority to force an upwind state to share the burden

of reducing other upwind states’ emissions. Each

state must eliminate its own significant contribution to

downwind pollution.” Jd. at 921. The Court empha-

sized that EPA “may not require some states to exceed

the mark.” /d.

North Carolina thus articulated an important cave-

at to Michigan’s approval of cost considerations. The

statute permits EPA to use cost to lower an upwind

State’s obligation under the good neighbor provision.

See Michigan, 213 F.3d at 675, 677. But EPA may

not use cost to increase an upwind State’s obligation

under the good neighbor provision—that is, to force an

upwind State to “exceed the mark.” North Carolina,

531 F.3d at 921. Put simply, the statute requires

every upwind State to clean up at most its own share

of the air pollution in a downwind State—not other

States’ shares.

The North Carolina Court remanded CAIR without

vacatur, leaving CAIR in place “until it is replaced by a

rule consistent with our opinion.” North Carolina v.

EPA, 550 F.3d 1176, 1178 (D.C. Cir. 2008) (on rehear-

ing).

The Transport Rule is EPA’s attempt to develop a

rule that is consistent with our opinion in North Caro-

lina. EPA proposed the Transport Rule in August

12a

2010 and finalized it in August 2011. See 75 Fed. Reg.

45,210 (Aug. 2, 2010) (proposed); 76 Fed. Reg. 48,208

(Aug. 8, 2011) (final). The Transport Rule addresses

States’ good neighbor obligations with respect to three

NAAQS: the 1997 annual PM,, NAAQS, the 1997

ozone NAAQS, and the 2006 24-hour PM,, NAAQS.

See id. at 48,209.’

The Transport Rule contains two basic components.

First, the Rule defines each State’s emissions reduc-

tion obligations under the good neighbor provision.

Second, the Rule prescribes Federal Implementation

Plans to implement those obligations at the State level.

We describe each component here in some detail.

EPA began by quantifying the “amounts” of pollu-

tion that each State must prohibit under the good

neighbor provision—that is, “amounts which will

. . contribute significantly to nonattainment” or

“interfere with maintenance” of the three NAAQS in

other States. 42 U.S.C. § 7410(a)(2)(D)(i).*

' The 2006 24-hour PM,, NAAQS post-dated and therefore was

not covered by CAIR.

' EPA bases different aspects of the Transport Rule on distinct

sources of statutory authority. EPA relied on its general rule-

making authority under Section 301(a)(1) of the Clean Air Act, 42

U.S.C. § 7601(a)(1), to construe Section 110(a)(2)(D)(iX 1) and to

quantify the States’ obligations to reduce emissions. See Trans-

port Rule, 76 Fed. Reg. at 48,217; see also Michigan, 213 F.3d

at 687. EPA relied on its authority under Section 11((c)(1),

42 U.S.C. § 7410(c)Q1), to issue the Transport Rule FIPs. See

Transport Rule, 76 Fed. Reg. at 48,217.

13a

EPA used a two-stage approach to quantify each

State’s obligations under the good neighbor provision.

In the first stage, EPA determined whether a State

emits “amounts which will . . . contribute sig-

nificantly” to a downwind State’s nonattainment of any

of the three NAAQS. EPA identified the significantly

contributing upwind States based on “linkages” be-

tween each upwind State and specific downwind “non-

attainment” or “maintenance” areas—that is, down-

wind areas that EPA modeling predicted would not

attain, or absent regulation would not maintain, the

NAAQS. Transport Rule, 76 Fed. Reg. at 48,236.

An upwind State was linked to a downwind nonattain-

ment or maintenance area for a given NAAQS if EPA

modeling showed that the upwind State’s contribution

to that downwind area exceeded a numerical “air qual-

ity threshold”—that is, a specific amount of air pollu-

tion sent from the upwind State into the downwind

State’s air. /d. EPA set the air quality threshold for

each pollutant at an amount equal to 1% of the relevant

NAAQS. The resulting thresholds were (i) 0.8 ppb

for ozone, (ii) 0.15 pg/m* for annual PM.,, and (iii) 0.35

ug/m* for 24-hour PM,,. Jd. If modeling showed

that an upwind State would send more than those

amounts into a downwind State’s air, as measured at a

receptor site in a downwind State, the upwind State

was deemed a “significant contributor” to the down-

wind State’s air pollution problem.

Those numerical air quality thresholds determined

which upwind States had to reduce their SO, and NO,

emissions and which upwind States did not—that is,

l4a

the thresholds determined which upwind States’ emis-

sions “contribute significantly” to downwind States’ air

pollution problems. Upwind States “whose contribu-

tions are below these thresholds,” EPA found, “do not

significantly contribute to nonattainment or interfere

with maintenance of the relevant NAAQS” in down-

wind States. Jd. Because their emissions did not

“contribute significantly,” those States were not re-

quired to cut their emissions for purposes of the good

neighbor provision.

As one would expect, this “significant contribution”

threshold produced some close cases at the margins.

For example, Maryland and Texas were covered for

annual PM,,, based on downwind contributions of 0.15

and 0.18 pg/m*, respectively—just barely meeting the

0.15 yg/m* threshold. See id. at 48,240. And Texas

exceeded the annual PM,, threshold at just a single

downwind receptor, in Madison, Illinois. See id. at

48,241.° By contrast, Minnesota and Virginia, with

maximum downwind contributions of 0.14 and 0.12

ug/m*, respectively, just missed being covered for

annual PM,,. See id. at 48,240.

For annual PM.,,, a total of 18 States’ exceeded the

threshold and were therefore deemed “significant

Texas also narrowly exceeded the 0.35 pg/m* threshold for

24-hour PM,,,; its maximum downwind contribution was 0.37 pg/m*.

See Transport Rule, 76 Fed. Reg. at 48,242.

" Those States were: Alabama, Georgia, Illinois, Indiana, lowa,

Kentucky, Maryland, Michigan, Missouri, New York, North Caro-

lina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, West

l5a

contributors.” For 24-hour PM,,, a total of 22 States’

exceeded the threshold. See id. at 48,241-42. Those

States were thus included in the Rule’s reduction pro-

grams for SO, and annual NO,, pollutants that con-

tribute to PM,, formation. See id. at 48,210. For

ozone, a total of 26 States* exceeded the threshold.

See id. at 48,245. Those States were thus included in

the Rule’s reduction program for ozone-season NO,,

which contributes to ozone formation. See id. at

48,210; see also 76 Fed. Reg. 80,760 (Dec. 27, 2011)

(finalizing six States’ inclusion in the Transport Rule

for ozone-season NO,).

At the second stage, however, EPA abandoned the

air quality thresholds—that is, the stage one standard

for whether an upwind State’s emissions “contribute

significantly” to a downwind State’s nonattainment of

air quality standards. Instead, at stage two, EPA

used a cost-based standard: EPA determined how

much pollution each upwind State’s power plants could

Virginia, and Wisconsin. See Transport Rule, 76 Fed. Reg. at

48,240.

7 Those States were: Alabama, Georgia, Illinois, Indiana, Iowa,

Kansas, Kentucky, Maryland, Michigan, Minnesota, Missouri,

Nebraska, New Jersey, New York, North Carolina, Ohio, Pennsyl-

vania, Tennessee, Texas, Virginia, West Virginia, and Wisconsin.

See Transport Rule, 76 Fed. Reg. at 48,242.

* Those States were: Alabama, Arkansas, Florida, Georgia, I)-

linois, Indiana, lowa, Kansas, Kentucky, Louisiana, Maryland,

Michigan, Mississippi, Missouri, New Jersey, New York, North

Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennes-

see, Texas, Virginia, West Virginia, and Wisconsin. See Transport

Rule, 76 Fed. Reg. at 48,245.

l6a

eliminate if the upwind State’s plants applied all con-

trols available at or below a given cost per ton of pollu-

tion reduced. The cost-per-ton levels applied without

regard to the size of each State’s “significant contribu-

tion” at stage one. In other words, how much pollu-

tion each upwind State was required to eliminate was

not tied to how much the upwind State contributed to

downwind States’ air pollution problems.

EPA predicted how far emissions would fall if pow-

er plants throughout the State were required to install

controls available at or below various cost levels. The

cost levels, or thresholds, were expressed in terms of

cost per ton of pollutant reduced, with the idea being

that plants would install all controls that cost less than

the designated threshold.”

EPA then added up the emissions from all of the

covered States to yield total regionwide emissions fig-

ures for each pollutant, at each cost threshold. See

" For example, a technology that cost $1,000 to install and elimin-

ated 2 tons of NO, from a power plant’s emissions would cost

$500/ton. In effect, EPA predicted how far emissions would fall if

plants installed all of the controls from $1/ton to $500/ton.

EPA used a computer model to predict the reductions that would

occur in each State at various cost thresholds. See EPA, Docu-

mentation for EPA Base Case v.4.10, at 2-1 (Aug. 2010), J.A.

2339. For example, for annual NO,., EPA modeled cost levels of

$500, $1,000, and $2,500/ton. See Transport Rule, 76 Fed. Reg. at

48,249-50. EPA went as high as $5,000/ton for ozone-season NO,.

See id. at 48,250. For SO,, EPA modeled emissions at cost levels

of $500, $1,600, $2,300, $2,800, $3,300, and $10,000 per ton. See id.

at 48,251. At a later stage in the process, EPA used those predic-

tions to decide how much each State would have to cut.

17a

Transport Rule, 76 Fed. Reg. at 48,250-53. The high-

er the cost level selected, the greater the reduction of

emissions, but also the greater the costs and burdens

imposed on sources within the States.

Next, EPA used cor:, uter modeling to estimate the

downwind air quality effects of imposing different

cost-per-ton levels on the upwind States. /d. at

48,253. EPA modeled the air quality effects of ap-

plying a $500/ton cost level for NO, and ascending

cost-per-ton levels for SO,. See id. At 48,255; EPA,

Analysis to Quantify Significant Contribution Tech-

nical Support Document 15 & n.9 (July 2010), J.A.

2177.

Armed with those two sets of modeling data, EPA

proceeded to choose which regionwide cost-per-ton

threshold to apply for each of the three pollutants—

SO,, annual NO,, and ozone-season NO,. EPA con-

sulted both its cost-of reduction modeling and its air

quality modeling and identified what it termed “signif-

icant cost thresholds”—that is, cost-per-ton levels at

which steep drops in upwind emissions or jumps in

downwind air quality would occur. Transport Rule,

76 Fed. Reg. at 48,255; see also id. at 48,255-56. EPA

then weighed both air quality and cost concerns in a

“multi-factor assessment” to choose the final cost-per-

ton levels. /d. at 48,256. The “multi-factor assess-

ment” did not employ any hard formula to weigh those

factors.

In the end, EPA settled on a single $500/ton thres-

hold for ozone-season and annual NO.. See id. at

48,256-57.

18a

For SO., instead of using a single cost threshold for

all of the SO, States, EPA divided the upwind States

into two groups for the 2014 program year (that is, the

emissions cuts required in 2014). EPA modeling

showed that applying a $500/ton cost threshold re-

solved the attainment problems in the downwind areas

to which seven upwind States were linked. See id. at

48,257. Those seven upwind States became the Group

2 States, which were subject to a $500/ton threshold

for SO,. See id. But $500/ton did not resolve attain-

ment problems in the downwind areas to which 16

other upwind States were linked. Those 16 upwind

States became the Group 1 States, which were subject

to a stricter $2,300/ton cost threshold for SO,. See id.

at 48,259.

EPA determined the amount of SO., annual NO,, or

ozone-season NO, that each covered State could elim-

inate if its power plants installed all cost-effective

emissions controls—that is, those controls available at

or below the applicable cost-per-ton thresholds. See

id. at 48,260. EPA then used those figures to gener-

ate 2012, 2013, and 2014 emissions “budgets” for each

upwind State, for each pollutant for which that State

was covered. See id. at 48,259-63. The budget is the

maximum amount of each pollutant that a State’s

power plants may collectively emit in a given year,

beginning in 2012."

" States may augment their budgets somewhat by buying out-of-

state allowances. See Transport Rule, 76 Fed. Rey. at 48,263-68.

19a

EPA did not stop there and leave it to the States to

implement the required reductions through new or

revised State Implementation Plans, or SIPs. Cf 42

U.S.C. § 7410(k)(5). Instead, EPA simultaneously

promulgated Federal Implementation Plans, or FIPs.

The FIPs require power plants in covered upwind

States to make the SO, and NO, reductions needed to

comply with each upwind State’s emissions budget, as

defined by EPA. The FIPs also create an interstate

trading program to allow covered sources to comply as

cost-effectively as possible. See Transport Rule, 76

Fed. Reg. at 48,271.

The FIPs convert each State’s emissions budget

into “allowances,” which are allocated among power

plants in the State. Under the FIPs, it is EPA, and

not the States, that decides how to distribute the al-

lowances among the power plants in each State. See

id. at 48,284-88."

Each power plant is “required to hold one SO, or one NO,

allowance, respectively, for every ton of SO, or NO, emitted”

during the relevant year. Transport Rule, 76 Fed. Reg. at 48,271;

see also id. at 48,296-97 (describing penalties for noncompliance).

Sources were required by the Rule to begin complying with the

annual SO. and NO, requirements by January 1, 2012 for the

2012-13 budgets and by January 1, 2014 for the post-2014 budgets.

See id. at 48.277. (This Court stayed the Rule before it took

effect.) The ozone-season NO, requirements would kick in on

May 1 of those years. See id EPA chosethose compliance

deadlines in light of this Court’s holding in North Carolina that the

deadlines must be “consistent with the provisions in Title I man-

dating [NAAQS] compliance deadlines for downwind states.” 531

F.3d at 912; see also Transport Rule, 76 Fed. Reg. at 48,277-78.

20a

The Rule retains a limited, secondary role for SIPs.

States have the option of submitting SIPs that modify

some elements of the FIPs. See id. at 48,327-28.

The first program year for which States can submit

such SIPs is 2014. See id. States may also seek to

ieplace the F1Ps wholesale, as long as the SIP prohib-

its the amounts of NO, and SO, emissions that EPA

specified. See id. at 48,328. EPA says it would “re-

view such a SIP on a case-by-case basis.” /d. But, im-

portantly, the States do not have a post-Rule oppor-

tunity to avoid FIPs by submitting a SIP or SIP revi-

sion: The FIPs “remain fully in place in each covered

state until a state’s SIP is submitted and approved by

EPA to revise or replace a FIP.” /d.

Since it issued the final rule in August 2011, EPA

has taken several subsequent regulatory actions re-

lated to the Transport Rule. See 76 Fed. Reg. 80,760

(Dee. 27, 2011) (finalizing six States’ inclusion in the

Rule for ozone-season NO,); 77 Fed. Reg. 10,324 (Feb.

21, 2012) (making technical adjustments to modeling

and delaying assurance penalty provisions until 2014);

77 Fed. Reg. 34,830 (June 12, 2012) (revising budgets

for 13 States).

The F1Ps use allowance trading to enable covered plants within

the States to comply as cost-effectively as possible. The program

creates four allowance trading markets: one for annual NO,, one

for ozone-season NO,, one for Group 1 SO. States, and one for

Group 2 SO, States. See Transport Rule, 76 Fed. Reg. at 48,271.

Power plants in Group 1 SO. States may not purchase Group 2 SO,

allowances, and vice versa. See id. at 48,271-72. Otherwise, in-

terstate trading is generally permitted.

2la

An array of power companies, coal companies, labor

unions, trade associations, States, and local govern-

ments petitioned for review of EPA’s Transport Rule.

On December 30, 2011, this Court stayed the Rule

pending a decision on the merits. See Order, No.

11-1302, slip op. at 2 (D.C. Cir. Dec. 30, 2011). The

Court’s order instructed EPA to “continue adminis-

tering the Clean Air Interstate Rule pending the

court’s resolution of these petitions for review.” /d.

In Part II of this opinion, we address whether the

Rule exceeds EPA’s authority to order upwind States

to reduce “amounts which will . . . contribute

significantly to nonattainment” in downwind States.

In Part III, we address whether the statute permits

EPA to issue FIPs without giving the States an initial

opportunity to implement the required reductions

through SIPs or SIP revisions. In Part 1V, we con-

sider the remedy.

In this Part, we analyze petitioners’ argument

that EPA exceeded its statutory authority under

the “good neighbor” provision. Under the statute,

EPA is limited to ordering upwind States to reduce

“amounts which will . . . contribute significantly

to nonattainment” in downwind States. 42 U.S.C.

§ 7410(a)(2)(D)(i).

22a

The Transport Rule defines States’ obligations un-

der Section 110(a)(2)(D)(i)U1) of the Clean Air Act, a

provision sometimes described as the “good neighbor”

provision. See 42 U.S.C. § 7410(a)(2)(D)()(1); Michi-

yan v. EPA, 213 F.3d 663, 671 (D.C. Cir. 2000). The

good neighbor provision requires that a State Imple-

mentation Plan, or SIP:

(D) contain adequate provisions—

(i) prohibiting, consistent with the provisions of

this subchapter, any source or other type of emis-

sions activity within the State from emitting any air

pollutant in amounts which will—

(1) contribute significantly to nonattainment

in, or interfere with maintenance by, any other

State with respect to any such national primary

or secondary ambient air quality standard.

42 U.S.C. § 7410(a)(2)(D). The good neighbor provi-

sion recognizes that not all air pollution is locally gen-

erated: Some ambient air pollution “is caused or

augmented by emissions from other states. Emis-

sions from ‘upwind’ regions may pollute ‘downwind’

regions.” Appalachian Power Co. v. EPA, 249 F.3d

1032, 1037 (D.C. Cir. 2001).

Although the statute grants EPA significant discre-

tion to implement the good neighbor provision, the

statute’s text and this Court’s decisions in Michigan

and North Carolina establish several red lines that

cabin EPA’s authority. Those red lines are central to

our resolution of this case.

23a

First, and most obviously, the text of Section

110(a)(2)(D)(i)(1) tells us that the “amounts which will

, contribute” to a downwind State’s nonattain-

ment are at most those amounts that travel beyond an

upwind State’s borders and end up in a downwind

State’s nonattainment area.” The statute is not a

blank check for EPA to address interstate pollution on

a regional basis without regard to an individual upwind

State’s actual contribution to downwind air quality.

Moreover, the statutory text and this Court’s deci-

sion in North Carolina v. EPA demonstrate that EPA

may not force a State to eliminate more than its own

“significant” contribution to a downwind State’s non-

attainment area—that is, to “exceed the mark,” as we

put it in North Carolina. 531 F.3d 896, 921 (D.C. Cir.

2008). Thus, once EPA reasonably designates some

level of contribution as “insignificant” under the stat-

ute, it may not force any upwind State to reduce more

than its own contribution to that downwind State mi-

nus the insignificant amount.”

At oral argument, EPA’s counsel refused to concede this

point.

‘’ For example, suppose that EPA determined that any upwind

State whose contribution to a downwind State was less than 3 units

did not “contribute significantly to nonattainment.” That would

mean EPA had established 3 units as the significance Moor. Other

upwind contributors to that downwind State could not be required

to reduce their downwind contributions below that floor. So an

upwind State whose contribution to that downwind State is 30 units

could be required to reduce its contribution by at most 27 units.

Of course, that is not the only constraint on EPA’s authority to

force the State to reduce its emissions. The other legal con-

24a

Second, under the terms of the statute and as we

explained in North Carolina, the portion of an upwind

State’s contribution to a downwind State that “con-

tribute[s] significantly” to that downwind State’s “non-

attainment” necessarily depends on the relative con-

tributions of that upwind State, of other upwind State

contributors, and of the downwind State itself. Each

upwind State may be required to eliminate only its own

“amounts which will . . . contribute significant-

ly” to a downwind State’s “nonattainment.” As ex-

plained in North Carolina, EPA may not require any

upwind State to “share the burden of reducing other

upwind states’ emissions.” /d. In other words, the

statutory text—which refers to “amounts” which will

“contribute significantly” to a downwind State’s “non-

attainment”—contains not just an absolute component

(meaning that an upwind State’s insignificant amounts

are not covered) but also a relative component (mean-

ing that each State’s relative contribution to the

downwind State’s nonattainment must be considered).

Moreover, the end goal of the statute is attainment

in the downwind State. EPA’s authority to force

reductions on upwind States ends at the point where

the affected downwind State achieves attainment.

Therefore, if the downwind State would attain the

NAAQS but for upwind States’ contributions—that is,

if the entire above-NAAQS amount is attributable to

upwind States’ emissions—then the upwind States’

straints described in this Part can further lower a State’s maximum

obligation.

25a

combined share is the entire amount by which the

downwind State exceeded the NAAQS. And as we

said in North Carolina, when EPA allocates that bur-

den among the upwind States, EPA may not force any

upwind State to “share the burden of reducing other

upwind states’ emissions.” /d. Each upwind State

must bear its own fair share. Therefore, the “signifi-

cance” of each upwind State’s contribution cannot be

measured in a vacuum, divorced from the impact of the

other upwind States. Rather, the collective burden

must be allocated among the upwind States in propor-

tion to the size of their contributions to the downwind

State’s nonattainment. Otherwise, EPA would violate

the statute and our decision in North Carolina."

“Before Congress adopted the current text in the Clean Air Act

Amendments of 1990, the statutory text targeted amounts from an

upwind State that would “prevent attainment” in a downwind State.

42 U.S.C. § 7410(a)(2)(E) (1988) (emphasis added); cf Pub. L.

No. 101-549, § 101(b), 104 Stat. 2399, 2404 (1990). Under the

“prevent attainment” standard, none of the three upwind States in

that hypothetica) would by itself be a but-for cause of the downwind

State’s nonattainment. By moving from “prevent attainment” to

“contribute significantly to nonattainment,” the 1990 Amendments

dropped the requirement that an individual upwind State’s emis-

sions on their own prevent downwind attainment or maintenance.

See S. REP NO. 101-228, at 21 (1989) (“Since it may be impossible to

say that any single source or group of sources is the one which

actually prevents attainment, the bill changes ‘prevent attainment

or maintenance’ to ‘contribute significantly to nonattainment or in-

terfere with maintenance by,’ thus clarifying when a violation oc-

curs.”). Instead, it now suffices if EPA identifies upwind emis-

sions that, together with emissions from other upwind contribu-

tors, push a given downwind maintenance area above the NAAQS.

26a

A specific example helps illustrate that point.

Suppose the NAAQS is 100 units, but the downwind

State’s nonattainment area contains 150 units. Sup-

pose further that the downwind State contributes 90

units, and three upwind States contribute 20 units

each. Because the upwind States are responsible for

the downwind State’s exceeding the NAAQS by 50

units, the downwind State is entitled to at most 50

units of relief from the upwind States so that the

downwind State can achieve attainment of the NAAQS.

Distributing those obligations in a manner proportion-

al to their contributions, each of the three upwind

States’ significant contribution would be, at most, 16 %

units. Or suppose instead that the three upwind

States contribute 10, 20, and 30 units respectively.

Distributing those obligations in a manner proportion-

al to their contributions, those three States’ significant

contributions would be at most 8 %, 16 %, and 25 units,

respectively, leading to the combined reduction of 50

units needed for the downwind State to reach attain-

ment.”

above the NAAQS, then the entire above-NAAQS amount cannot

be attributed only to upwind States. The downwind State is

responsible for its own share of the above-NAAQS amount. In

that scenario, upwind States that contribute to the downwind State

are collectively on the hook for that share of the above-NAAQS

amount that is attributable to upwind States’ contributions. And,

again, that collective burden must be allocated among the upwind

States in proportion to the size of their contributions to the down-

wind State. Otherwise, one upwind State would be forced to

2%a

In addition, our decisions in Michigan and North

Carolina establish that EPA may consider cost, but

only to further lower an individual State’s obligations.

See Michigan, 213 F.3d at 675; North Carolina, 531

F.3d at 918. Under Michigan, moreover, EPA may

do so in a way that benefits some upwind States more

than others. See 213 F.3d at 679. In other words, in

order to prevent exorbitant costs from being imposed

on certain upwind States, EPA may lower the obliga-

tions imposed on those States.

Third, to conform to the text of the statute, EPA

must also ensure that the combined obligations of the

various upwind States, as aggregated, do not produce

more than necessary “over-control” in the downwind

States—that is, that the obligations do not go beyond

what is necessary for the downwind States to achieve

the NAAQS.

Even when EPA carefully conforms to the above

limits on its authority, the possibility of over-control in

downwind States still arises because multiple upwind

States may affect a single downwind State and, con-

“share the burden of reducing other upwind states’ emissions,” in

violation of the statute. North Carolina, 531 F.3d at 921.

An example helps illustrate that point. Suppose the NAAQS is

100 units, and the downwind State’s air contains 180 units. The

downwind State contributes 120 units, and three upwind States

contribute 20 units each. The downwind State is 80 units over the

NAAQS—but 20 units of that is its own responsibility. The up-

wind States must therefore provide at most 60 units of relief.

Distributing those obligations proportionally, each of the three

upwind States’ significant contribution would be, at most, 20 units.

28a

versely, a single upwind State may affect multiple

downwind States. The requirement to prevent such

over-control comes directly from the text of the stat-

ute: The good neighbor provision of the statute tar-

gets those emissions from upwind States that “con-

tribute significantly to nonattainment” of the NAAQS.

EPA may require only those reductions that are nec-

essary for downwind States to attain the NAAQS.

The good neighbor provision is not a free-standing tool

for EPA to seek to achieve air quality levels in down-

wind States that are well below the NAAQS. There-

fore, if modeling shows that a given slate of upwind

reductions would yield more downwind air quality

benefits than necessary for downwind areas to attain

the NAAQS, EPA must attempt to ratchet back the

upwind States’ obligations to the level of reductions

necessary and sufficient to produce attainment in the

downwind States."

To be sure, as even petitioners acknowledge, there

may be some truly unavoidable over-control in some

downwind States that occurs as a byproduct of the

necessity of reducing upwind States’ emissions enough

'" For example, suppose that under the proportional approach

explained above, State A would have to cut 5,000 tons of NO, to

achieve its largest downwind obligation, while State B would have

to cut 2,000 tons to achieve its largest downwind obligation. If

EPA modeling showed that all downwind nonattainment would be

resolved if those two upwind States’ combined reduction obliga-

tions were, say, 10% lower, EPA would have to ratchet back the up-

wind States’ reduction obligations by a total of 10%. That would

ensure that upwind States were only forced to prohibit those emis-

sions that “contribute significantly to nonattainment.”

29a

to meet the NAAQS in other downwind States. See

Industry & Labor Reply Br. 11 n.2. For those rea-

sons, EPA must have some discretion about how to

reasonably avoid such over-control. Moreover, be-

cause multipie upwind States may affect a single

downwind State, and because a single upwind State

may affect multiple downwind States, it may not be

possible to accomplish the ratcheting back in an en-

tirely proportional manner among the upwind States.

Our cases recognize as much. See Michigan, 213

F.3d at 679; North Carolina, 531 F.3d at 908. But the

point remains: EPA must avoid using the good

neighbor provision in a manner that would result in

unnecessary over-control in the downwind States.

Otherwise, EPA would be exceeding its statutory

authority, which is expressly tied to achieving attain-

ment in the downwind States.

We now apply those principles to the EPA

Transport Rule. “It is axiomatic that an administra-

tive agency’s power to promulgate legislative regula-

tions is limited to the authority delegated by Con-

gress.” Bowen v. Georgetown Univ. Hosp., 488 U.S.

204, 208 (1988); see also Michigan v. EPA, 268 F.3d

1075, 1081 (D.C. Cir. 2001) (“EPA is a federal agency

—a creature of statute,” and may exercise “only those

authorities conferred upon it by Congress.”). An

agency may not exceed a statute’s authorization or

violate a statute’s limits. If a statute is ambiguous, an

agency that administers the statute may choose a

reasonable interpretation of that ambiguity—but the

30a

agency’s interpretation must still stay within the

boundaries of the statutory text. See Chevron U.S.A.

Inc. v. NRDC, 467 U.S. 837, 842-44 (1984).”

In the Transport Rule, EPA used a two-stage ap-

proach to define “amounts which will . . . con-

tribute significantly” to downwind attainment prob-

lems. The first stage identified those upwind States

that were “significant contributors” to downwind at-

tainment problems. EPA determined that a State’s

contribution to a downwind nonattainment or mainte-

nance area was significant if it exceeded a numerical

“air quality threshold” of 0.8 ppb for ozone, 0.15 yg/m*

for annual PM,,, and 0.35 pg/m* for 24-hour PM,,.

Transport Rule, 76 Fed. Reg. 48,208, 48,236 (Aug. 8,

2011). States “whose contributions are below these

thresholds,” EPA found, “do not significantly contrib-

ute to nonattainment or interfere with maintenance of

the relevant NAAQS.” /d. Those upwind States

were off the hook altogether.

But an upwind State that exceeded the significance

threshold at even one downwind State’s receptor was

drawn wholesale into the Rule’s second stage—cost-

based emissions reductions. At that second stage,

'’ We set aside EPA’s action here if “arbitrary, capricious, an

abuse of discretion, or otherwise not in accordance with law,” or if

“in excess of statutory jurisdiction, authority, or limitations, or

short of statutory right.” The standard we apply “is the same”

under the judicial review provision of the Clean Air Act, 42 U.S.C. §

7607(d)(9), as under the Administrative Procedure Act, 5 U.S.C.

§ 706(2). Motor Vehicle Manufacturers Ass'n v. EPA, 768 F.2d

385, 389 n.6 (D.C. Cir. 1985).

3la

EPA abandoned the previous measure of significance

—the numerical air quality thresholds, which were

based on the quantity of pollution an upwind State sent

to a downwind area. Instead, EPA switched over to

relying on cost of reduction alone. EPA required

each State’s power plants to cut all of the emissions

they could eliminate at a given cost per ton of pollution

reduced—regardless of the “amounts” of the State’s

emissions EPA deemed to “contribute significantly” at

stage one and regardless of the relative contributions

of the other upwind States and the downwind State.

We perceive at least three independent but inter-

twined legal flaws in EPA’s approach to the good

neighbor provision. Those flaws correspond to the

three requirements we outlined above that come from

the statutory text.

First, and most fundamentally, the Transport Rule

is flawed because the requirement that EPA imposed

on upwind States was not based on the “amounts” from

upwind States that “contribute significantly to nonat-

tainment” in downwind States, as required by the

statute and our decision in North Carolina.

Petitioners claim that the initial stage of EPA’s

analysis—the numerical air quality thresholds, which

used a bright-line test for whether a State’s downwind

emissions “contribute significantly”—created a “floor’

below which any contribution is, by definition, viewed

as insignificant.” Industry & Labor Br. 20. Peti-

tioners argue that EPA has no statutory authority to

compel States to reduce amounts of pollution that are

“insignificant.” Therefore, petitioners contend that

32a

EPA could not ignore that floor at the later stage,

when it calculated each State’s “significant contribu-

tion” based on cost.”

‘" The dissent contends that this point was not preserved for

judicial review and that the agency was not aware of this issue

during the agency proceedings. See 42 U.S.C. § 7607(d)(7)(B).

For several reasons, we are convinced EPA had more than “ade-

quate notification of the general substance” of petitioners’ argu-

ment. NRDC v. EPA, 571 F.3d 1245, 1259 (D.C. Cir. 2009) (quot-

ing South Coast Air Quality Mgmt. Dist. v. EPA, 472 F.3d 882, 891

(D.C. Cir. 2006)). Indeed, one of the central questions in the long

history of EPA's efforts to implement the good neighbor provision

has been whether EPA has complied with the basic statutory limits

on its authority. So it is here.

First, the Transport Rule proceeding arose out of this Court’s

decision in North Carolina, on which petitioners’ argument relies.

See Transport Rule, 76 Fed. Reg. at 48,211 (“EPA is promulgating

the Transport Rule in response to the remand of the Clean Air

Interstate Rule (CAIR) by the U.S. Court of Appeals for the Dis-

trict of Columbia Circuit”). In North Carolina v. EPA, this Court

explained the applicable statutory limitations and instructed EPA

on remand to craft a new rule “consistent with our opinion.” 550

F.3d 1176, 1177 (D.C. Cir. 2008) (on rehearing). Instructing EPA

to proceed in a manner “consistent with” North Carolina presup-

poses that EPA is aware of the Court’s opinion. And the opinion

made clear that once EPA defines each upwind State’s “significant

contribution,” it may not “require some states to exceed the mark.”

531 F.3d at 921. In sum, EPA knew from the beginning that it

was required to comply with North Carolina, including that part of

the Court’s hoiding on which petitioners rely here.

Second, EPA considered—and rejected—precisely the same ar-

gument in CAIR. EPA first acknowledged the comment: “Some

commenters stated, more broadly, that the threshold contribution

level selected by EPA should be considered a floor, so that upwind

States should be obliged to reduce their emissions only to the level

33a

at which their contribution to downwind nonattainment does not

exceed that threshold level.” CAIR, 70 Fed. Reg. 25,162,

25,176-77 (May 12, 2005). It then dismissed that argument:

“Most important for present purposes, as long as the controls yield

downwind benefits needed to reduce the extent of nonattainment,

the controls should not be lessened simply because they may have

the effect of reducing the upwind State’s contribution to below the

initial threshold.” /d. at 25,177. EPA's rejection of the same ar-

gument in a prior rulemaking—indeed, in a prior rulemaking that

is the direct progenitor of the current one—is highly relevant to

whether the argument is preserved here. See, e.g., American

Petroleum Institute v. EPA, 52 F.3d 1113, 1120 n.1 (D.C. Cir.

1995); NRDC v. EPA, 824 F.2d 1146, 1151 (D.C. Cir. 1987) (en

banc); see also Appalachian Power Co. v. EPA, 135 F.3d 791, 818

(D.C. Cir. 1998) (“The purpose of the exhaustion requirement is to

ensure that the agency is given the first opportunity to bring its

expertise to bear on the resolution of a challenge to a rule.”).

EPA’s prior rejection of the same argument in CAIR, together

with this Court’s opinion in North Carolina, show that EPA “had

notice of this issue and could, or should have, taken it into account.”

NRDC, 824 F.2d at 1151.

Third, EPA’s statements at the proposal stage indicated EPA was

not open to reconsidering CAIR’s earlier rejection of petitioners’

argument. See Proposed Transport Rule, 75 Fed. Reg. 45,210,

45,299 (Aug. 2, 2010) (“EPA evaluated a number of alternative

approaches to defining significant contribution and interference

with maintenance in addition to the approach proposed in this rule.

Stakeholders suggested a variety of ideas. EPA considered all

suggested approaches. . . . EPA is not proposing any of the

alternative approaches listed here.”). By that point, EPA had

already dismissed the two air quality-only approaches it considered

and had indicated its firm commitment to the cost-based approach.

See EPA, Alternative Significant Contribution Approaches Evalu-

ated Technical Support Document 7 (July 2010) (EPA, Significant

contribution TSD), J.A. 2312 (uniform cost-per- ton approach “has

been successfully implemented before, with excellent environmen-

34a

We agree with petitioners. The Transport Rule

includes or excludes an upwind State based on the

amount of that upwind State’s significant contribution

to a nonattainment area in a downwind State. That

much is fine. But under the Rule, a State then may

be required to reduce its emissions by an amount grea-

tal results”); see also id. at 3-7, J.-A. 2308-12. In light of the indi-

cations that EPA was aware of their objection but had no intention

to revisit its approach (and indeed had already rejected the objec-

tion), the specificity of commenters such as Wisconsin and Tennes-

see was “reasonable” under the circumstances. 42 U.S.C.

§ 7607(d)(7)(B); see, e.g., Wisconsin Cmt., J.A. 1293 (“EPA needs to

primarily depend on air quality results instead of control costs in

defining” significant contributions); Tennessee Cmt., J.A. 556 (“A

lower cost threshold should be considered for any State that can

reduce their contribution below 1% significance using cost thresh-

olds below the maximum values ($2,000/ton for SO, and $500/ton for

NO,), if applicable. . . . We would like to see a summary for

each State and pollutant that indicates, independently of cost, the

amounts necessary to eliminate the significant contribution and

interference with maintenance from upwind States.”); Delaware

Cmt., J.A. 1756 (challenging EPA’s decision to depart from the air

quality thresholds used for inclusion and to quantify States’ signif-

icant contributions based on cost considerations, not air quality);

see also Appalachian Power, 135 F.3d at 817 (“the word ‘reasona-

ble’ cannot be read out of the statute in favor of a hair-splitting

approach”); id. at 818 (an objection need not be “phrased in exactly

the same way in each forum”); South Coast, 472 F.3d at 891 (peti-

tioners have “some leeway in developing their argument” on re-

view).

In sum, we are confident here that EPA had more than “adequate

notification of the general substance of the complaint.” South

Coast, 472 F.3d at 891. EPA was plainly on notice that its disre-

gard of the significance floor was a potential legal infirmity in its

approach.

35a

ter than the “significant contribution” that brought it

into the program in the first place. That much is not

fine.

Put more plainly, EPA determined that a State was

subject to the good neighbor provision if it contributed

at least a certain threshold amount to air pollution in a

downwind State. But EPA then imposed restrictions

based on regionwide air quality modeling projections;

those restrictions could require upwind States to re-

duce emissions by more than the amount of that con-

tribution.

EPA’s approach poses a fundamental legal problem

—one that derives from the text of the statute and

from our precedents. Our decision in Michigan held

that EPA may use cost considerations to require “ter-

mination of only a subset of each state’s contribution.”

213 F.3d at 675. And our decision in North Carolina

made clear that EPA may not use cost to force an

upwind State to “exceed the mark.” 53) F.3d at 921.”

'S The Court in North Carolina reached these conclusions in its

discussion of EPA's use of power plant fuel mix to distribute NO,

reduction obligations among the CAIR States. See 531 F.3d at

904, 918-21. EPA claims that the reasoning of that analysis is not

relevant here because it did not relate to “general significant con-

tribution issues,” but rather to the manner of calculating each

State’s emissions budget. EPA Br. 23.

That is a distinction without a difference. The fuel mix analysis

increased some States’ obligations and reduced others’. EPA's

argument overlooks that no step in its analysis—however the step

is labeled—may impose burdens on States or private entities unless

those burdens are anchored in statutory authority. Under the

statute, States are required to prohibit only those “amounts which

36a

By using a numerical threshold at the initial stage—

and thereby creating a floor below which “amounts” of

downwind pollution were not significant—-EPA defined

the “mark,” to use the term employed in North Caro-

lina. EPA could not then ignore that mark and rede-

fine each State’s “significant contribution” in such a

way that an upwind State’s required reductions could

be more than its own significant contribution to a

downwind State.”

EPA now claims that the Rule’s air quality thresh-

olds were established for a “limited analytical pur-

pose” and “otherwise say nothing about what part

of each State’s contribution should be considered ‘sig-

nificant.” EPA Br. 33. That claim rings hollow.

EPA itself said in the final rule that “states whose

contributions are below these thresholds do not signif-

icantly contribute to nonattainment or interfere with

maintenance of the relevant NAAQS.” Transport

Rule, 76 Fed. Reg. at 48,236. EPA therefore acknow-

ledged that amounts below the threshold are not

will . . . contribute significantly to nonattainment” or “inter-

fere with maintenance.” 42 U.S.C. § 7410(aX2)D)(i); see also

North Carolina, 531 F.3d at 919.

*” This particular issue was not presented in Michigan. In the

1998 NO, Rule, EPA balanced various air quality factors using a

“weight-of-evidence approach.” 63 Fed. Reg. 57,356, 57,381 (Oct.

27, 1998). Unlike the Transport Rule, the 1998 NO, Rule did not

employ a numerical threshold, nor any other “bright line criterion,”

to screen out States at the first stage. Jd. at 57,383.

37a

“amounts which will . . . contribute significant-

ly” to downwind attainment problems.”

In short, EPA used the air quality thresholds to

establish a floor below which “amounts” of air pollution

do not “contribute significantly."” The statute re-

quires a State to prohibit at most those “amounts”

which will “contribute significantly’—and no more.

If amounts below a numerical threshold do not con-

tribute significantly to a downwind State’s nonattain-

ment, EPA may not require an upwind State to do

more. The Transport Rule does not adhere to that

EPA cannot avoid North Carolina by declining to quantify the

“amount” of each State’s downwind contribution, “beginning its

analysis with cost,” 531 F.3d at 918, and simply designating the

output of that cost-based analysis each State’s “significant contri-

bution.” The statutory term “amounts which will . . . con-

tribute significantly” is not so elastic. See id. at 920 (“When a

petitioner complains EPA is requiring a state to eliminate more

than its significant contribution, it is inadequate for EPA to re-

spond that it never measured individual states’ significant contri-

butions.”). As explained above, “amounts which will ;

contribute” logically cannot exceed the amount of a pollutant that

leaves a State’s borders and reaches a nonattainment area. And

insignificant amounts must be excluded. Moreover, the “signifi-

cance” of an upwind State’s emissions for a downwind area's at-

tainment problem cannot be divorced from the relative impact of

other States’ contributions to that problem.

“ EPA protests that it used the numerical thresholds only to

determine “which upwind State contributions to downwind prob-

lems are so small as to warrant exclusion.” EPA Br. 31. But

that must mean those “amounts” that are “so small as to warrant

exclusion” are not “significant.” (It would be illogical to carve out

a de minimis exception for emissions that are statutorily “signifi-

cant.”)

38a

basic requirement of the statutory text and our prece-

dents.*

Second, EPA’s Transport Rule also runs afoul of

the statute’s proportionality requirement as described

in our decision in North Carolina: EPA has “no

authority to force an upwind state to share the burden

of reducing other upwind states’ emissions.” 531 F.3d

at 921; see Industry & Labor Br. 33 (in imposing SO,

budgets, EPA “did not even consider the relative con-

tributions of the various States”). EPA’s “redistribu-

tional instinct may be laudatory,” North Carolina, 531

F.3d at 921, but it cannot trump the terms of the stat-

ute. Under the statute, each upwind State that con-

tributes to a downwind nonattainment area is respon-

sible for no more than its own “amounts which will

contribute significantly” to the downwind

State’ s pollution problem. To be sure, under Michi-

gan, EPA may rely on cost-effectiveness factors in

order to allow some upwind States to do less than their

full fair share. See 213 F.3d at 675; cf. Petitioning

States’ Br. 17, Michigan, 213 F.3d 663 (No. 98-1497).

“ EPA seems reluctant to acknowledge any textual limits on its

authority under the good neighbor provision. At oral argument,

EPA suggested that “reasonableness” is the only limit on its au-

thority to use cost-effectiveness to force down States’ emissions.

Tr. of Oral Arg. at 44-45. EPA would not rule out the possibility

that under the good neighbor provision, it could require a State to

reduce more than the State's total emissions that go out of State.

See id. at 43-45. But such a claim of authority does not square

with the statutory text—‘“amounts” of pollution obviously cannot

“contribute” to a downwind State’s pollution problem if they don’t

even reach the downwind State.

39a

t when EPA asks one upwind State to eliminate

nore than its statutory fair share, that State is neces-

sarily being forced to clean up another upwind State’s

share of the mess in the downwind State. Under the

statute and North Carolina, that is impermissible.

Here, EPA’s Transport Rule violated the statute

because it made no attempt to calculate upwind States’

required reductions on a proportional basis that took

into account contributions of other upwind States to

the downwind States’ nonattainment problems.

In the same vein, EPA’s Transport Rule failed to

take into account the downwind State’s own fair share

of the amount by which it exceeds the NAAQS. See

Industry & Labor Br. 24-25. How “significantly” an

upwind State contributes to a downwind State’s non-

attainment also depends in part on how much of the

above-NAAQS amount comes from the downwind

State itself. As we explained above, EPA therefore

must factor in the downwind State’s own contribution,

alongside those of the various upwind States. But

EPA did not do that here.

Third, and relatedly, EPA also failed to ensure that

the collective obligations of the various upwind States,

when aggregated, did not produce unnecessary over-

control in the downwind States. EPA’s statutory au-

thority, once again, is limited to attaining the NAAQS

in the downwind States. EPA may not require up-

wind States to do more than necessary for the down-

40a

wind States to achieve the NAAQS. Here, EPA did

not try to take steps to avoid such over control.”

In sum, EPA’s authority derives from the statute

and is limited by the statutory text.” EPA’s reading

of Section 110(a)(2)(D)(i(1)—a narrow and limited

provision—reaches far beyond what the text will bear.

“ At the proposal stage in the proceeding that culminated in the

Transport Rule, EPA considered a proportional approach that

reflected many of the essential principles described above. See

EPA, Significant Contribution TSD at 6-7, J.A. 2311-12. Under

that approach, the upwind contributors to a given downwind area

would collectively have to provide a “defined air quality improve-

ment” to the downwind State, in the amount by which the down-

wind State exceeded the NAAQS. /d. at 6, J.A. 2311. And the

upwind States’ individual shares of that collective duty would be

defined “in direct proportion to their original contribution[s]” to

the downwind State. /d EPA ultimately chose not to adopt that

approach, however.

“” The statute also requires upwind States to prohibit emissions

that will “interfere with maintenance” of the NAAQS in a down-

wind State. “Amounts” of air pollution cannot be said to “inter-

fere with maintenance” unless they leave the upwind State and

reach a downwind State's maintenance area. To require a State to

reduce “amounts” of emissions pursuant to the “interfere with

maintenance” prong, EPA must show some basis in evidence for

believing that those “amounts” from an upwind State, together

with amounts from other upwind contributors, will reach a specific

maintenance area in a downwind State and push that maintenance

area back over the NAAQS in the near future. Put simply, the

“interfere with maintenance” prong of the statute is not an open-

ended invitation for EPA to impose reductions on upwind States.

Rather, it is a carefully calibrated and commonsense supplement to

the “contribute significantly” requirement.

4la

Although the statutory text alone prohibits EPA’s

Rule the statutory context provides additional support

for our conclusion. The Supreme Court, in analyzing

Section 109 of the Clean Air Act, rejected the premise

that Congress would “alter the fundamental details of

a regulatory scheme” in “ancillary provisions”—in

other words, that Congress would “hide elephants in

mouseholes.” Whitman v. American Trucking

Ass'ns, 531 U.S. 457, 468 (2001). The good neighbor

provision is one of more than 20 SIP requirements in

Section 110(a)(2). It seems inconceivable that Con-

gress buried in Section 110(a)(2)(D)(i)(1)—the good

neighbor provision—an open-ended authorization for

EPA to effectively force every power plant in the up-

wind States to install every emissions contro} technol-

ogy EPA deems “cost-effective.” Such a reading

would transform the narrow good neighbor provision

into a “broad and unusual authority” that would over-

take other core provisions of the Act. Gonzales v.

Oregon, 546 U.S. 243, 267 (2006). We “are confident

that Congress could not have intended to delegate a

decision of such economic and political significance to

an agency in so cryptic a fashion.”. FDA v. Brown &

Williamson Tobacco Corp., 529 U.S. 120, 160 (2000).

* * *

States are obligated to prohibit only those

“amounts” of pollution “which will . . . contrib-

ute significantly” to downwind attainment problems—

and no more. Because the Transport Rule exceeds

those limits, and indeed does not really try to meet

those requirements, it cannot stand.

42a

II]

There is a second, entirely independent problem

with the Transport Rule. EPA did not stop at simply

quantifying each upwind State’s good neighbor obliga-

tions. Instead, in an unprecedented application of the

good neighbor provision, EPA also simultaneously

issued Federal Implementation Plans, or FIPs, to

implement those obligations on sources in the States.

EPA did so without giving the States an initial oppor-

tunity to implement the obligations themselves

through their State Implementation Plans, or SIPs.

The Clean Air Act ordinarily gives States the initial

opportunity to implement a new air quality standard

on sources within their borders; States do so by sub-

mitting SIPs. See 42 U.S.C. §§ 7407(a), 7410(a)(1).

Here, by preemptively issuing FIPs, EPA denied the

States that first opportunity to implement the reduc-

tions required under their good neighbor obligations.

EPA justifies its “F1P-first” approach by pointing to

its earlier findings that the States had failed to meet

their good neighbor obligations. But those findings

came before the Transport Rule quantified the States’

good neighbor obligations. EPA’s approach punishes

the States for failing to meet a standard that EPA had

not yet announced and the States did not yet know.

Under the Act, EPA has authority to set standards,

but the statute reserves the first-implementer role for

the States. That division of labor applies not just to

the NAAQS but also to the good neighbor provision,

Section 110(a)(2)(D)(i)(1), as EPA itself has recognized

several times in the past. When EPA defines States’

43a

good neighbor obligations, it must give the States the

first opportunity to implement the new requirements.

“Under the Clean Air Act, both the Federal Gov-

ernment and the States exercise responsibility for

maintaining and improving air quality.” American

Trucking Ass’ns v. EPA, 600 F.3d 624, 625 (D.C. Cir.

2010). The Act sets forth a basic division of labor:

The Federal Government establishes air quality stan-

dards, but States have primary responsibility for at-

taining those standards within their borders. See

Train v. NRDC, 421 U.S. 60, 63-67 (1975); American

Trucking, 600 F.3d at 625-26; Virginia v. EPA, 108

F.3d 1397, 1406-10 (D.C. Cir. 1997); see also 42 U.S.C.

§ 7401(a) (“The Congress finds . . . that air pol-

lution prevention (that is, the reduction or elimination,

through any measures, of the amount of pollutants

produced or created at the source) and air pollution

control at its source is the primary responsibility of

States and local governments. . . . ”); 42 U.S.C.

§ 7407(a) (“Each State shall have the primary respon-

sibility for assuring air quality within the entire geo-

graphic area comprising such State. . . .”)*

* The 1970 Amendments, which “sharply increased federal au-

thority” in setting air quality standards, at the same time “explicit-

ly preserved the principle” of State primacy in implementing pol-

lution controls. Train, 421 U.S. at 64. The 1990 Amendments,

which enacted the current text of Section 110(a)(2)(D)(i)(1), “did not

alter the division of responsibilities between EPA and the states in

the section 110 process.” Virginia, 108 F.3d at 1410.

44a

That statutory division of authority is strict. This

Court has described the Train-Virginia line of cases

as erecting a statutory “federalism bar” under Section

110 of the Act. See Appalachian Power Co. v. EPA,

249 F.3d 1032, 1046 (D.C. Cir. 2001) (citing Train, 421

U.S. 60; Virginia, 108 F.3d 1397); Michigan v. EPA,

213 F.3d 663, 687 (D.C. Cir. 2000). That statutory

federalism bar prohibits EPA from using the SIP

process to force States to adopt specific control mea-

sures. See Michigan, 213 F.3d at 687; Virginia, 108

F.3d at 1410.

In Train, the Supreme Court invoked that statutory

division of labor in holding that the Clean Air Act gives

EPA “no authority to question the wisdom of a State’s

choices of emission limitations,” so long as the State’s

SIP submission would result in “compliance with the

national standards for ambient air.” 421 U.S. at 79.

The Court stated:

The Agency is plainly charged by the Act with the

responsibility for setting the national ambient air

standards. Just as plainly, however, it is relegat-

ed by the Act to a secondary role in the process of

determining and enforcing the specific, source-by-

source emission limitations which are necessary if

the national standards it has set are to be met.

Id. (emphasis added); see also Union Electric Co. v.

EPA, 427 U.S. 246, 256, 269 (1976) (EPA may not

reject a SIP on grounds of technical or economic in-

feasibility; that “would permit the Administrator or a

federal court to reject a State’s legislative choices in

regulating air pollution, even though Congress plainly

45a

left with the States, so long as the national standards

were met, the power to determine which sources would

be burdened by regulation and to what extent”).

Similarly, in Virginia, this Court held that EPA had

no authority under Section 110 to condition its approv-

al of northeastern States’ SIPs on the States’ adoption

of California’s vehicle emission contro! measures. See

108 F.3d at 1401-10. The Court relied on the basic

principle that the States, not EPA, are the primary

implementers under Section 110. See id. at 1410

(“section 110 does not enable EPA to force particular

control measures on the states”).

In sum, Title I of the Act establishes a “partnership

between EPA and the states.”. NRDC v. Browner, 57

F.3d 1122, 1123 (D.C. Cir. 1995). The terms of that

partnership are clear: EPA sets the standards, but

the States “bear primary responsibility for attaining,

maintaining, and enforcing these standards.” Amer-

ican Lung Ass’n v. EPA, 134 F.3d 388, 389 (D.C. Cir.

1998).

With that basic structure in mind, we consider the

question presented here: whether EPA may use its

rulemaking authority to quantify States’ obligations

under Section 110(a)(2)(D)(i)(I) and simultaneously

issue Federal Implementation Plans, without giving

the States a first opportunity to comply.

We begin by briefly describing the set of statutory

provisions on which EPA relies here.

46a

EPA is the first mover in regulating ambient air

pollution in Title I of the Clean Air Act. Section 109

requires EPA to promulgate NAAQS for common air

pollutants. See Whitman v. American Trucking

Ass’ns, 531 U.S. 457, 462 (2001) (citing 42 U.S.C.

§ 7409(a)). But once EPA sets a NAAQS, “responsi-

bility under the Act shifts from the federal govern-

ment to the states.” Lead Industries Ass’n v. EPA,

647 F.2d 1130, 1137 (D.C. Cir. 1980).

Section 110 governs State Implementation Plans.

Section 110(a)(1) requires States to submit SIPs to

implement each new or revised NAAQS. See 42

U.S.C. § 7410(a)(1). Section 110(a)(2) lists many

elements that a SIP must contain in order to ensure

that the Plan will be comprehensive enough to enable

the State to attain the NAAQS. See 42 U.S.C.

§ 7410(a)(2)." The good neighbor provision, Section

110(a)(2)(D)()()), is one of those required elements.

*T See, e.g., 42 U.S.C. § 7410(aX(2)(A) (SIP shall “include en-

forceable emission limitations and other control measures,” “as

wel] as schedules and timetables for compliance”), 7410(a)(2)(B)

(SIP shall provide for means to “monitor, compile, and analyze data

on ambient air quality” and provide the data to EPA upon request),

741W(aX(2)(C) (SIP shall “include a program to provide for the en-

forcement of” the control measures required by subparagraph (A)),

7410(a)(2E) (SIP shall provide assurances that State and local

authorities “will have adequate personnel, funding, and authority”

under State and local law “to carry out such implementation plan”),

7410(aX2)F) (SIP shall require “the installation, maintenance, and

replacement of equipment” by “stationary sources to monitor emis-

sions from such sources”).

47a

Section 110(c)(1) creates a federal backstop if the

States fail to submit adequate SIPs. When EPA finds

that a State “has failed to make a required submission”

or “disapproves a State implementation plan submis-

sion in whole or in part” because of a SIP “deficiency,”

EPA must “promulgate a Federal implementation

plan” within two years, “unless the State corrects the

deficiency” in the meantime in a manner approved by

EPA. 42 U.S.C. § 7410(c)(1). In essence, the issue

here is whether a State’s implementation of its good

neighbor obligation can be considered part of the

State’s “required submission” in its SIP (or whether

the SIP can be deficient for failing to implement the

good neighbor obligation) even before EPA quantifies

the State’s good neighbor obligation. We think not.

EPA’s quantifying of a State’s good neighbor obliga-

tion and setting of a State’s emissions budget is what

“require|s]” the State to make a “submission” imple-

menting that obligation on sources within the State.

After EPA has set the relevant emissions budgets for

each State, EPA may require States to submit new

SIPs under Section 110(a)(1) or to revise their SIPs

under Section 110(k)(5). That is the approach EPA

has used in the past. In short, once EPA defines or

quantifies a State’s good neighbor obligation, the State

must have a reasonable time to implement that re-

quirement with respect to sources within the State.”

* Section 110(k)(5), the SIP call provision, authorizes EPA to

“establish reasonable deadlines” not to exceed 18 months for SIP

revisions, once notice is given. 42 U.S.C. § 7410(k)(5); cf. 1998 NO,

Rule, 63 Fed. Reg. at 57,451 (12-month deadline).

48a

In short, the triggers for a FIP are EPA’s finding

that the SIP fails to contain a “required submission” or

EPA’s disapproving a SIP because of a “deficiency.”

But logically, a SIP cannot be deemed to lack a re-

quired submission or be deemed deficient for failing to

implement the good neighbor obligation until] after

EPA has defined the State’s good neighbor obligation.

Once it defines the obligation, then States may be

forced to revise SIPs under Section 110(k)(5) or to

submit new SIPs under Section 110(a)(1). Only if

that revised or new SIP is properly deemed to lack a

required submission or is properly deemed deficient

may EPA resort to a FIP for the State’s good neighbor

obligation.

In light of Section 110(c)(1), EPA here made “a

finding of failure to submit and/or disapproved a SIP

submission” for each State with respect to each

NAAQS for which that State would be covered. EPA

Br. 44 (citing 42 U.S.C. § 7410(c)(1)); see also EPA,

Status of CAA 110(a)(2)(D)Gi)(1) Slis Final Rule

Technical Support Document (July 2011) (EPA, SIPs

TSD), J.A. 3167.“ On the basis of those findings,

~ EPA was cognizant of another potential obstacle: its own

past approval of CAIR SIPs. CAIR covered the 1997 ozone and

annual PM,,, NAAQS, two of the three NAAQS at issue here. See

70 Fed. Reg. 25,162, 25,165 (May 12, 2005). Many covered States

had submitted and received EPA approval of CAIR SIPs. See

EPA, SIPs TSD, J.A. EPA apparently was concerned that those

49a

EPA asserted authority to issue the Transport Rule

F IPs.

But EPA’s many SIP disapprovals and findings of

failure to submit share one problematic feature: EPA

made all of those findings before it told the States what

emissions reductions their SIPs were supposed to

achieve under the good neighbor provision. See EPA,

SIPs TSD, J.A. 3167.

EPA sees no problem with that. In EPA’s view,

there is no difference between a State’s obligation to

comply with the NAAQS and a State’s good neighbor

approved CAIR SIPs might deprive EPA of authority under Sec-

tion 110(c)(1) to issue Transport Rule F IPs for those two NAAQS.

EPA tried to address this in the final rule. It claimed that be-

cause North Carolina invalidated CAIR, approved CAIR SIPs no

longer fulfilled States’ Section 110(a)(2)D)i){I) obligations. See

Transport Rule, 76 Fed. Reg. 48,208, 48,219 (Aug. 8, 2011). It

bears noting, however, that EPA continued to approve CAIR SIPs

after North Carolina. See, e.g., 74 Fed. Reg. 65,446 (Dec. 10,

2009).

But to try to make sure, in the final Transport Rule EPA retro-

spectively “corrected” its past approvals of CAIR SIPs, to clarify

its view that an approved CAIR SIP did not shield a State from the

Transport Rule FIPs. See 76 Fed. Reg. at 48,219; see also 42

U.S.C. § 7410(k)(6) (EPA may “revise” any approval the Adminis-

trator determines “was in error”). EPA made those “corrections”

without using notice and comment rulemaking, despite the statu-

tory requirement that EPA make any corrections “in the same

manner as the approval.” 42 U.S.C. § 7410(k)(6).

Because the Transport Rule must be vacated in any event, we

need not address here whether EPA's “corrections” of CAIR SIP

approvals exceeded its authority under Section 110(k)(6).

50a

obligation: States must submit SIPs addressing both

within three years of a NAAQS or face F IPs.

But there is a difference—a glaring one—between

the two obligations. A NAAQS is a clear numerical

target. For example, the NAAQS for annual PM,, is

15 y»g/m*. Every State knows precisely what nu-

merical goal its SIP must achieve. If a State misses

that clear numerical target, it has only itself to ble me.

By contrast, the good neighbor obligation is not a

clear numerical target—far from it—until EPA defines

the target. Even after EPA sets a NAAQS, an up-

wind State’s good neighbor obligation for that pollu-

tant is nebulous and unknown. The statutory stand-

ard is “amounts” of pollution which will “contribute

significantly to nonattainment” or “interfere with

maintenance” of the new NAAQS in a downwind State.

There is no way for an upwind State to know its obli-

gation without knowing levels of air pollution in down-

wind States and then apportioning its responsibility

for each downwind State’s nonattainment. Therefore,

the upwind State’s obligation remains impossible for

the upwind State to determine until EPA defines it.”

As EPA itself has recognized in the past: “The precise na-

ture and contents of such a submission is {sic] not stipulated in the

statute. EPA believes that the contents of the SIP submission

required by section 110(a)(2)(D)(i) may vary depending upon the

facts and circumstances related to the specific NAAQS.” EPA,

Guidance for State Implementation Plan Submissions to Meet Cur-

rent Outstanding Obligations Under Section 110(a)(2)(D)(i) for the

8-Hour Ozone and PM, , Nationa] Ambient Air Quality Standards 3

(Aug. 15, 2006) (EPA, 2006 Guidance).

5la

Without further definition by EPA, a prohibition on

“amounts which will . . . contribute significant-

ly” is like a road sign that tells drivers to drive “care-

fully.” The regulated entities—here, the upwind

States—need more precise guidance to know how to

conform their conduct to the law. A SIP logically

cannot be deemed to lack a “required submission” or

deemed to be deficient for failure to meet the good

neighbor obligation before EPA quantifies the good

neighbor obligation.

EPA faults the States for not hitting that

impossible-to-know target with their SIP submissions.

In effect, EPA’s view is that the only chance States

have to hit the target is before EPA defines the target.

By the time EPA makes the target clear, it’s already

too late for the States to comply.

Interestingly, outside of this litigation, EPA has it-

self recently and repeatedly recognized that it makes

no sense for States to act until EPA defines the target.

Just a few weeks ago, for example, in a separate pro-

ceeding EPA said that while some elements of a SIP

submission are “relatively straightforward,” “others

clearly require interpretation by EPA through rule-

making, or recommendations through guidance, in or-

der to give specific meaning for a particular NAAQS.”

77 Fed. Reg. 46,361, 46,363 (Aug. 3, 2012). “For ex-

ample, section 110(a)(2)(D)(i) requires EPA to be sure

that each state’s SIP contains adequate provisions to

prevent significant contribution to nonattainment of

the NAAQS in other states. This provision contains

numerous terms that require substantial rulemaking

52a

by EPA in order to determine such basic points as

what constitutes significant contribution.” /d. at n.7.

Thus, EPA has said that the good neighbor provision

“clearly require[s}] interpretation by EPA through

rulemaking, or recommendations through guidance, in

order to give specific meaning for a _ particular

NAAQS.” /d.; see also, e.g., 77 Fed. Reg. 45,320,

45,323 & n.7 (July 31, 2012) (same); 77 Fed. Reg.

43,196, 43,199 & n.7 (July 24, 2012) (same); 77 Fed.

Reg. 22,533, 22,536 & n.7 (Apr. 16, 2012) (same); 76

Fed. Reg. 40,248, 40,250 & n.5 (July 8, 2011) (same).

In this litigation, however, EPA insists that the text

of Section 110(c)(1) compel

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