North Carolina v. Environmental Protection Agency

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 25, 2008 Decided July 11, 2008

No. 05-1244

STATE OF NORTH CAROLINA,
PETITIONER

v.

ENVIRONMENTAL PROTECTION AGENCY,
RESPONDENT

UTILITY AIR REGULATORY GROUP, ET AL.,
INTERVENORS

Consolidated with
05-1246, 05-1249, 05-1250, 05-1251, 05-1252, 05-1253,
05-1254, 05-1256, 05-1259, 05-1260, 05-1262, 06-1217,
06-1222, 06-1224, 06-1226, 06-1227, 06-1228, 06-1229,
06-1230, 06-1232, 06-1233, 06-1235, 06-1236, 06-1237,
06-1238, 06-1240, 06-1241, 06-1242, 06-1243, 06-1245,
07-1115

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

Robin L. Juni argued the cause for petitioners on SO2
Issues. Bart E. Cassidy argued the cause for petitioners on Title
 2

IV Exempt Units Issues. With them on the briefs were Peter H.
Wyckoff, Jeffrey A. Knight, Lisa M. Jaeger, Brian J. McManus,
William H. Lewis Jr., Steven J. Shimberg, Deborah E. Jennings,
Meredith DuBarry Huston, Michael R. Barr, Sheldon A. Zabel,
Kathleen C. Bassi, Stephen J. Bonebrake, Sam Kalen, Kyle W.
Danish, and Alvin Bruce Davis. Carol F. McCabe entered an
appearance.

Marc D. Bernstein, Special Deputies Attorney General,
Attorney General’s Office of State of North Carolina, argued the
cause for petitioners on North Carolina Issues. With him on the
briefs were Roy Cooper, Attorney General, James C. Gulick,
Senior Deputy Attorney General, J. Allen Jernigan, Special
Deputies Attorney General, and John C. Evans, Assistant
Attorney General.

William M. Bumpers, Robert A. Manning, and Michael W.
Steinberg argued the causes for petitioners on Border State
Issues. With them on the briefs were David A. Savage, Michael
B. Heister, William H. Lewis Jr., and Alvin Bruce Davis. James
S. Alves and Winston K. Borkowski entered appearances.

Alvin B. Davis argued the cause for petitioners on Fuel-
Adjustment Issues. With him on the briefs was David A.
Savage. Joshua B. Frank entered an appearance.

Sheldon A. Zabel, Kathleen C. Bassi, Stephen J. Bonebrake,
and Robert A. Manning were on the briefs of petitioners
Northern Indiana Public Service Company and Florida
Association of Electric Utilities on NOx-Related Claims.

Angeline Purdy and Norman L. Rave, Jr., Attorneys, U.S.
Department of Justice, argued the cause for respondents. With
them on the brief were John C. Cruden, Deputy Assistant
Attorney General, and Steven E. Silverman and Geoffrey Wilcox,
 3

Counsel, U.S. Environmental Protection Agency. Paul D.
Tanaka, Attorney, U.S. Department of Justice, entered and
appearance.

Andrew M. Cuomo, Attorney General, Attorney General’s
Office of the State of New York, Barbara D. Underwood,
Solicitor General, Daniel Chepaitis, Assistant Solicitor General,
J. Jared Snyder, Assistant Attorney General, Richard
Blumenthal, Attorney General, Attorney General’s Office of the
State of Connecticut, Stuart Rabner, Attorney General, Attorney
General’s Office of the State of New Jersey, Joseph R. Biden,
III, Attorney General, Attorney General’s Office of the State of
Delaware, Lisa Madigan, Attorney General, Attorney General’s
Office of the State of Illinois, Douglas F. Gansler, Attorney
General, Attorney General’s Office of the State of Maryland,
Martha Coakley, Attorney General, Attorney General’s Office
of the Commonwealth of Massachusetts, Kelly A. Ayotte,
Attorney General, Attorney General’s Office of the State of New
Hampshire, Gary K. King, Attorney General, Attorney General’s
Office fo the State of New Mexico, Patrick C. Lynch, Attorney
General, Attorney General’s Office of the State of Rhode Island,
and Linda Singer, Attorney General at the time the brief was
filed, Attorney General’s Office for the District of Columbia,
were on the brief of amici states in support of petitioner North
Carolina. Michael J. Myers, Assistant Attorney General,
Attorney General’s Office of the State of New York, Matthew
I. Levine, Assistant Attorney General, Attorney General’s Office
of the State of Connecticut, Jean P. Reilly, Ruth E. Carter, and
Kevin P. Auerbacher, Assistant Attorneys General, Attorney
General’s Office of the State of New Jersey, and James R.
Milkey, Assistant Attorney General, Attorney General’s Office
of the Commonwealth of Massachusetts, entered appearances.

Kristen M. Campfield, Attorney, was on the brief for amicus
curiae Commonwealth of Pennsylvania, Department of
 4

Environmental Protection, in support of petitioner ARIPPA and
seeking remand.

Sean H. Donahue, Vickie L. Patton, and John D. Walke
were on the joint brief of intervenors in support of respondent.

Peter Glaser, Harold P. Quinn, Norman W. Fichthorn, C.
Grady Moore III, P. Stephen Gidiere III, Claudia M. O’Brien,
and Nathan H. Seltzer were on the brief for industry intervenors.

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

Opinion for the Court filed PER CURIAM.

PER CURIAM: These consolidated petitions for review
challenge various aspects of the Clean Air Interstate Rule.
Because we find more than several fatal flaws in the rule and the
Environmental Protection Agency (“EPA”) adopted the rule as
one, integral action, we vacate the rule in its entirety and remand
to EPA to promulgate a rule that is consistent with this opinion.

I. Background

A. Title I of the Clean Air Act

Title I of the Clean Air Act (“CAA”), 42 U.S.C. §§ 7401 et
seq., requires EPA to issue national ambient air quality
standards (“NAAQS”) for each air pollutant that “cause[s] or
contribute[s] to air pollution which may reasonably be
anticipated to endanger public health or welfare [and] the
presence of which in the ambient air results from numerous or
diverse mobile or stationary sources . . . ,” id. § 7408(a)(1)(A),
(B). It also requires EPA to divide the country into areas
designated as “nonattainment,” “attainment,” or “unclassifiable”
 5

for each air pollutant, depending on whether the area meets the
NAAQS. Id. § 7407(c), (d). Title I gives states “the primary
responsibility for assuring air quality” within their borders, id.
§ 7407(a), and requires each state to create a state
implementation plan (“SIP”) to meet the NAAQS for each air
pollutant and submit it to EPA for its approval, id. § 7410. If a
state is untimely in submitting a compliant SIP to EPA, EPA
must promulgate a federal implementation plan (“FIP”) for the
state to follow. Id. § 7410(c)(1).

One provision of Title I requires SIPs to

contain adequate provisions —(i) prohibiting, consistent
with the provisions of this subchapter, any source or
other type of emissions activity 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 [NAAQS] . . . .

42 U.S.C. § 7410(a)(2)(D)(i)(I) (statutory provision to which we
refer throughout this opinion as “section 110(a)(2)(D)(i)(I)”). In
1998, EPA relied on this provision to promulgate the NOx SIP
Call, which imposed a duty on certain upwind sources to reduce
their NOx emissions by a specified amount so that they no longer
“‘contribute significantly to nonattainment in, or interfere with
maintenance by,’ a downwind State.” Finding of Significant
Contribution and Rulemaking for Certain States in the Ozone
Transport Assessment Group Region for Purposes of Reducing
Regional Transport of Ozone, 63 Fed. Reg. 57,356, 57,358 (Oct.
27, 1998) (“NOx SIP Call”). The NOx SIP Call created an
optional cap-and-trade program for nitrogen oxides (“NOx”).
Id. at 57,359. Like the NOx SIP Call, the Clean Air Interstate
Rule—Rule To Reduce Interstate Transport of Fine Particulate
Matter and Ozone (Clean Air Interstate Rule); Revisions to Acid
 6

Rain Program; Revisions to the NOx SIP Call, 70 Fed. Reg.
25,162 (May 12, 2005) (“CAIR”)—which is the rule at issue in
these consolidated petitions for review, also derives its statutory
authority from section 110(a)(2)(D)(i)(I).

B. Title IV of the Clean Air Act

Title IV of the CAA, 42 U.S.C. §§ 7651–7651o, aims to
reduce acid rain deposition nationwide and in doing so creates
a cap-and-trade program for sulfur dioxide (“SO2”) emitted by
fossil fuel-fired combustion devices. Congress capped SO2
emissions for affected units, or electric generating units
(“EGUs”), at 8.9 million tons nationwide, id. § 7651b(a)(1), and
distributed “allowances” among those units. One “allowance”
is an authorization for an EGU to emit one ton of SO2 in a year.
Id. § 7651a(3). Title IV includes detailed provisions for
allocating allowances among EGUs based for the most part on
their share of total heat input of all Title IV EGUs during a
1985–87 baseline period. Id. §§ 7651a(4), 7651c, 7651d, 7651e,
7651h, 7651i. Whenever an EGU emits one ton of SO2 in a
year, it must surrender one allowance to EPA. See id.
§ 7651b(g). But Title IV also permits EGUs to transfer unused
allowances to deficient EGUs throughout the nation or to “bank”
excess allowances and use or sell them in future years. Id.
§ 7651b(b).

Title IV exempts EGUs that are “simple combustion
turbines, or units which serve a generator with a nameplate
capacity of 25 Mwe [megawatt electrical] or less,” 42 U.S.C.
§ 7651a(8), those that are not fossil fuel-fired, id. § 7651a(15),
those that do not sell electricity, id. § 7651a(17)(A)(i), and those
that cogenerate steam and electricity unless they sell a certain
amount of electricity, id. § 7651a(17)(C). It also provides that
certain exempt units—“qualifying small power production
facilities” and “qualifying cogeneration facilities,” defined in 16
 7

U.S.C. § 796(17)(C), (18)(B) (delegating power to FERC to
define the terms), and certain “new independent power
production facilities,” defined in 42 U.S.C. § 7651o(a)(1)—may
elect to become a part of Title IV. 42 U.S.C. § 7651d(g)(6)(A);
see id. § 7651i (detailing “electing-in” provisions).

C. Clean Air Interstate Rule

Pursuant to its Title I authority to ensure that states have
plans in place that implement the requirements in section
110(a)(2)(D)(i)(I), EPA promulgated CAIR. CAIR, 70 Fed.
Reg. at 25,165. CAIR’s purpose is to reduce or eliminate the
impact of upwind sources on out-of-state downwind
nonattainment of NAAQS for fine particulate matter (“PM2.5”),
a pollutant associated with respiratory and cardiovascular
problems, and eight-hour ozone, a pollutant commonly known
as smog. Id. at 25,162. For the most part, EPA defines sources
at the state level. EPA determined that 28 states and the District
of Columbia (“upwind states”) contribute significantly to out-of-
state downwind nonattainment of one or both NAAQS. Id.
Because SO2 “is a precursor to PM2.5 formation, and NOx is a
precursor to both ozone and PM2.5 formation,” CAIR requires
upwind states “to revise their [SIPs] to include control measures
to reduce emissions” of SO2 and NOx. Id. CAIR requires
upwind states to reduce their emissions in two phases. Id. at
25,165. NOx reductions are to start in 2009, SO2 reductions are
to start in 2010, and the second reduction phase for each air
pollutant is to start in 2015. Id. at 25,162. To implement
CAIR’s emission reductions, the rule also creates optional
interstate trading programs for each air pollutant, to which, in
the absence of approved SIPs, all upwind sources are now
subject. Id.; see Rulemaking on Section 126 Petition from North
Carolina To Reduce Interstate Transport of Fine Particulate
Matter and Ozone; Federal Implementation Plans To Reduce
Interstate Transport of Fine Particulate Matter and Ozone;
 8

Revisions to the Clean Air Interstate Rule; Revisions to the Acid
Rain Program, 71 Fed. Reg. 25,328, 25,328 (Apr. 28, 2006)
(“FIP”) (in the absence of approved SIPs for CAIR, applying the
rule’s model trading programs via EPA’s Federal
Implementation Plan to all sources in upwind states). In
addition, CAIR revises Title IV’s Acid Rain Program
regulations governing the SO2 cap-and-trade program and
replaces the NOx SIP Call with the CAIR ozone-season NOx
trading program.

At issue in much of this litigation is the definition of the
term “contribute significantly.” In other words, in order to
promulgate CAIR, EPA had to determine what amount of
emissions constitutes a “significant contribution” to another
state’s nonattainment problem. See 42 U.S.C.
§ 7410(a)(2)(D)(i)(I). CAIR uses several factors to define
“contribute significantly,” including one state’s impact on
another’s air quality, the cost of “highly cost-effective”
emissions controls, fairness, and equity in the balance between
regional and local controls. CAIR, 70 Fed. Reg. at 25,174–75.
The air quality factor is the threshold step in the analysis,
determining whether an upwind state is subject to CAIR, and the
other factors help EPA determine the quantitative level of
emissions reductions required of upwind sources.

CAIR uses a different air quality threshold for each of the
two pollutants it regulates. A state meets the air quality
threshold for PM2.5 (and is therefore subject to CAIR) if it
contributes 0.2 micrograms per cubic meter (“µg/m3”) or more
of PM2.5 to out-of-state downwind areas that are in
nonattainment. Id. at 25,174–75, 25,191. CAIR uses a more
complicated process to define the air quality threshold for ozone
NAAQS. CAIR first eliminates a state from inclusion in the
CAIR ozone program if it has the following characteristics:
(1) it contributes less than 2 parts per billion (“ppb”) to a
 9

nonattainment area’s ozone concentration as measured using
either a “zero-out method” or a “source apportionment method,”
or (2) its relative contribution to the nonattainment area’s excess
ozone concentration (the number of particles exceeding 85 ppb)
is less than one percent. Id. at 25,191; see also Rule to Reduce
Interstate Transport of Fine Particulate Matter and Ozone (Clean
Air Interstate Rule): Reconsideration, 71 Fed. Reg. 25,304,
25,320 (Apr. 28, 2006) (“Reconsideration”). States that survive
the screening criteria are then assessed to determine if they
contribute significantly to ozone nonattainment in another state
using three metrics: (1) magnitude of contribution,
(2) frequency of contribution, and (3) relative amount of
contribution to the area’s ozone concentration that exceeds
attainment levels. CAIR, 70 Fed. Reg. at 25,191–92.

States that “contribute significantly” to nonattainment for
ozone NAAQS are subject to CAIR’s ozone-season limits for
NOx and those that “contribute significantly” to nonattainment
for PM2.5 NAAQS are subject to CAIR’s annual limits for NOx
and SO2. The ozone-season NOx limits are a percentage
reduction in the annual limits for NOx calculated for PM2.5
contributors. In order to eliminate a state’s significant
contribution to PM2.5 NAAQS, CAIR sets an annual cap on NOx
and SO2 emissions in the region. Each state participating in
CAIR’s allowance-trading programs receives a budget of
allowances, calculated according to a different formula for SO2
and NOx. If a state develops a SIP that opts out of the trading
programs to which all its upwind sources are now subject in the
absence of an approved SIP, see FIP, 71 Fed. Reg. at 25,328, the
state must limit its emissions to a cap specified by CAIR.

CAIR sets each state’s NOx emissions budget by allocating
the regionwide NOx budget among CAIR states according to
each state’s proportion of oil-, gas-, and coal-fired facilities.
CAIR, 70 Fed. Reg. at 25,230–31. The regionwide budget is
 10

equal to the upwind states’ average annual heat input for EGUs
from 1999 to 2002 multiplied by the uniform emissions rate if
EGUs were to use “highly cost-effective” emissions controls.
Id. at 25,231. For Phase One, which starts in 2009, the
multiplier is 0.15 pounds per million British thermal units
(“lb/mmBtu”) and for Phase Two, which starts in 2015, the
multiplier is 0.125 lb/mmBtu. Id. at 25,230. Even though EPA
determined that emissions controls in both phases are “highly
cost effective,” it only deemed Phase Two to eliminate the
upwind states’ “significant contribution” to downwind
nonattainment. Id. at 25,198. In 2009, EPA has supplemented
the budget of 1.5 million tons of NOx emissions with a one-time
Compliance Supplement Pool of 200,000 NOx allowances. Id.
at 25,231–32. Like SO2 allowances in Title IV, one CAIR NOx
allowance permits an EGU to emit one ton of NOx in one year.
State budgets are based on their average annual heat input,
adjusted by fuel type (coal, gas, oil) during the 1999–2002 time
period. Id. at 25,231. The use of fuel-adjustment factors means
states with higher percentages of gas- and oil-fired facilities
receive comparably fewer NOx allowances than states with
higher percentages of coal-fired facilities. States have discretion
to accomplish their NOx emissions caps as they see fit in their
SIPs, but if a state takes part in the EPA-administered trading
program for NOx, it must follow EPA’s rules for that program.

CAIR sets each state’s SO2 budget using a process similar
to the one used for NOx budgets; it allocates the regionwide SO2
budget among upwind states. However, EPA used a different
method to determine the regionwide budget for SO2. Instead of
using 1999–2002 data, the agency summed all the Title IV
allowances allotted to EGUs in the covered states and reduced
them by 50% for 2010 (Phase One) and 65% for 2015 (Phase
Two). Id. at 25,229. As stated above, Title IV allocates
allowances among EGUs based for the most part on their share
of the total heat input of all Title IV EGUs during a 1985–87
 11

baseline period, not the later time period used for NOx
allowances in CAIR. 42 U.S.C. §§ 7651a(4), 7651c, 7651d,
7651e, 7651h, 7651i. States subject to CAIR may opt into the
EPA-administered trading program for SO2, but if they do not
opt in and at the same time choose to regulate EGUs, their SIPs
must include a mechanism for retiring Title IV SO2 allowances
in excess of the budget CAIR allocates to each state. CAIR, 70
Fed. Reg. at 25,259. A state not participating in CAIR’s trading
program but regulating other sources of SO2 in addition to
EGUs, does not need to surrender quite as many of its Title IV
SO2 allowances. Id. Any surrendered allowance may not be
used for Title IV compliance purposes and is forever out of
circulation. Id. at 25,291. A state does not have to surrender
any Title IV SO2 allowances if it adopts a SIP that regulates only
non-EGUs to accomplish its SO2 cap, id. at 25,295, but EPA
notes that EGUs are projected to contribute 70% of SO2
emissions in 2010, id. at 25,214, making such a scenario
unlikely.

EPA issued two additional rules clarifying CAIR that are
also under review in this proceeding. One rule responds to
various petitions for reconsideration, which are discussed in
more detail below. Reconsideration, 71 Fed. Reg. 25,304.
Another rule, inter alia, sets forth a FIP to regulate EGUs until
upwind states implement EPA-approved SIPs that conform with
CAIR requirements. FIP, 71 Fed. Reg. 25,328.

D. Petitions for Review

Section 307 of the CAA requires petitions for judicial
review of CAIR to be filed within 60 days of the rule’s
publication in the Federal Register. 42 U.S.C. § 7607(b)(1). On
May 12, 2005, EPA published CAIR and on April 28, 2006,
EPA published its Reconsideration and FIP, which describes the
Federal Implementation Plan required of sources while states
 12

formulate their SIPs. CAIR, 70 Fed. Reg. 25,162;
Reconsideration, 71 Fed. Reg. 25,304; FIP, 71 Fed. Reg. 25,328.
In the 60 days after EPA published CAIR and its
Reconsideration, several petitions for review were filed in this
Court.

Among those petitions are North Carolina’s objections to
EPA’s trading programs, EPA’s interpretation of the “interfere
with maintenance” language in section 110(a)(2)(D)(i)(I), Phase
Two’s 2015 compliance date, the NOx Compliance Supplement
Pool, EPA’s interpretation of “will” in “will contribute
significantly,” and the air quality threshold for PM2.5. Several
electric utility companies (“SO2 Petitioners”) contest EPA’s
authority under Title I and Title IV to limit the number of Title
IV allowances in circulation, to set state SO2 budgets as
percentage reductions in Title IV allowances, and to require
units exempt from Title IV to acquire Title IV allowances.
Petitioners Entergy Corporation and FPL Group, to which we
refer as “Entergy,” contest EPA’s authority to base state NOx
budgets on the number of coal-, oil-, and gas-fired facilities a
state has compared to other states in the CAIR region. Electric
utilities operating in Texas, Florida, and Minnesota and one
municipality argue against the inclusion of all or part of those
States in CAIR. And Florida Association of Electric Utilities
petitions for review of EPA’s 2009 start date for Phase One of
NOx restrictions. We consider these petitions below.

II. Analysis

Our jurisdiction derives from the CAA, which also
establishes our standard of review. We “may reverse any such
action found to be . . . arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law; . . . [or] in
excess of statutory jurisdiction, authority, or limitations, or short
of statutory right . . . .” 42 U.S.C. § 7607(d)(9). We refer to the
 13

review standard in 42 U.S.C. § 7607(d) instead of the similar
standard of review set forth in the Administrative Procedure Act
(“APA”) because the CAA directs that its review standard apply
to “such . . . actions as the Administrator may determine.” Id.
§ 7607(d)(1)(V); see Supplemental Proposal for the Rule To
Reduce Interstate Transport of Fine Particulate Matter and
Ozone (Clean Air Interstate Rule), 69 Fed. Reg. 32,684, 32,686
(June 10, 2004) (applying section 307(d), 42 U.S.C. § 7607(d),
“to all components of the rulemaking”).

The petitions under review involve EPA’s construction of
the CAA, a statute it administers. Where the statute speaks to
the direct question at issue, we afford no deference to the
agency’s interpretation of it and “must give effect to the
unambiguously expressed intent of Congress.” Chevron U.S.A.,
Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842–43
(1984). But where the statute does “not directly address[] the
precise question at issue, . . . the question for the court is
whether the agency’s answer is based on a permissible
construction of the statute,” and we only reverse that
determination if it is “arbitrary, capricious, or manifestly
contrary to the statute.” Id. at 843. An action is “arbitrary and
capricious” if it

has relied on factors which Congress has not intended it
to consider, entirely failed to consider an important
aspect of the problem, offered an explanation for its
decision that runs counter to the evidence before the
agency, or is so implausible that it could not be ascribed
to a difference in view or the product of agency
expertise.

Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,
463 U.S. 29, 43 (1983); see Motor Vehicle Mfrs. Ass’n. v. EPA,
768 F.2d 385, 389 n.6 (D.C. Cir. 1985) (noting that “the
 14

standard we apply (i.e., whether the EPA’s actions were in
excess of statutory authority or arbitrary and capricious) is the
same under” the CAA and the APA).

A. North Carolina Issues

Petitioner North Carolina challenges CAIR’s programs for
pollution-trading, EPA’s interpretation of the “interfere with
maintenance” provision in section 110(a)(2)(D)(i)(I), the 2015
compliance deadline for Phase Two of CAIR, the NOx
Compliance Supplement Pool, EPA’s interpretation of the word
“will” that precedes “contribute significantly” in section
110(a)(2)(D)(i)(I), and EPA’s use of a 0.2 µg/m3 air quality
threshold for including upwind states in CAIR’s PM2.5 program.
We grant North Carolina’s petition as to the trading programs,
the “interfere with maintenance” language, and the 2015
compliance deadline, deny its petition as to its interpretation of
“will” and the air quality threshold, and take no action on the
NOx Compliance Supplement Pool issue.

1. Pollution-Trading Programs

North Carolina challenges the lawfulness of CAIR’s trading
programs for SO2 and NOx. North Carolina contests the lack of
reasonable measures in CAIR to assure that upwind states will
abate their unlawful emissions as required by section
110(a)(2)(D)(i)(I), but does not submit that any trading is per se
unlawful. EPA designed CAIR to eliminate the significant
contribution of upwind states, as a whole, to downwind
nonattainment. CAIR, 70 Fed. Reg. at 25,195. EPA did not
purport to measure each state’s significant contribution to
specific downwind nonattainment areas and eliminate them in
an isolated, state-by-state manner. Reasoning that capping
emissions in each state would not achieve reductions in the most
cost-effective manner, EPA decided to take a regionwide
 15

approach to CAIR and include voluntary emissions trading
programs.

In modeling the CAIR . . . EPA assumes interstate
emissions trading. While EPA is not requiring States to
participate in an interstate trading program for EGUs, we
believe it is reasonable to evaluate control costs
assuming States choose to participate in such a program
since that will result in less expensive reductions.

Id. at 25,196. In CAIR’s trading system, states are given initial
emissions budgets, but sources can choose to sell or purchase
emissions credits from sources in other states. As a result, states
may emit more or less pollution than their caps would otherwise
permit.

Because EPA evaluated whether its proposed emissions
reductions were “highly cost effective,” at the regionwide level
assuming a trading program, it never measured the “significant
contribution” from sources within an individual state to
downwind nonattainment areas. Using EPA’s method, such a
regional reduction, although equivalent to the sum of reductions
required by all upwind states to meet their budgets, would never
equal the aggregate of each state’s “significant contribution” for
two reasons. State budgets alone, without trading, would not be
“highly cost effective.” And although EPA has measured the
“air quality factor” to include states in CAIR, it has not
measured the unlawful amount of pollution for each upwind-
downwind linkage. “As noted earlier in the case of SO2, EPA
recognizes that the choice of method in setting State budgets,
with a given regionwide total annual budget, makes little
difference in terms of the levels of resulting regionwide annual
SO2 and NOx emissions reductions.” Id. at 25,230–31. Thus
EPA’s apportionment decisions have nothing to do with each
state’s “significant contribution” because under EPA’s method
 16

of analysis, state budgets do not matter for significant
contribution purposes.

But according to Congress, individual state contributions to
downwind nonattainment areas do matter. Section
110(a)(2)(D)(i)(I) prohibits sources “within the State” from
“contribut[ing] significantly to nonattainment in . . . any other
State . . .” (emphasis added). Yet under CAIR, sources in
Alabama, which contribute to nonattainment of PM2.5 NAAQS
in Davidson County, North Carolina, would not need to reduce
their emissions at all. See CAIR, 70 Fed. Reg. at 25,247 tbl. VI-
8. Theoretically, sources in Alabama could purchase enough
NOx and SO2 allowances to cover all their current emissions,
resulting in no change in Alabama’s contribution to Davidson
County, North Carolina’s nonattainment. CAIR only assures
that the entire region’s significant contribution will be
eliminated. It is possible that CAIR would achieve section
110(a)(2)(D)(i)(I)’s goals. EPA’s modeling shows that sources
contributing to North Carolina’s nonattainment areas will at
least reduce their emissions even after opting into CAIR’s
trading programs. 71 Fed. Reg. at 25,344–45. But EPA is not
exercising its section 110(a)(2)(D)(i)(I) duty unless it is
promulgating a rule that achieves something measurable toward
the goal of prohibiting sources “within the State” from
contributing to nonattainment or interfering with maintenance
“in any other State.”

In Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000), we
deferred to EPA’s decision to apply uniform emissions controls
to all upwind states despite different levels of contribution of
NOx to nonattainment areas caused by the differing quantities of
emissions produced in upwind states and the varying distances
of upwind sources to downwind nonattainment areas. Id. at 679.
We did so because these effects “flow[] ineluctably from the
EPA’s decision to draw the ‘significant contribution’ line on a
 17

basis of cost differentials” and “[o]ur upholding of that decision
logically entails upholding this consequence.” Id. But the flow
of logic only goes so far. It stops at the point where EPA is no
longer effectuating its statutory mandate. In Michigan we never
passed on the lawfulness of the NOx SIP Call’s trading program.
Id. at 676 (“Of course we are able to assume the existence of
EPA’s allowance trading program only because no one has
challenged its adoption.”). It is unclear how EPA can assure
that the trading programs it has designed in CAIR will achieve
section 110(a)(2)(D)(i)(I)’s goals if we do not know what each
upwind state’s “significant contribution” is to another state.
Despite Michigan’s approval of emissions controls that do not
correlate directly with each state’s relative contribution to a
specific downwind nonattainment area, CAIR must include
some assurance that it achieves something measurable towards
the goal of prohibiting sources “within the State” from
contributing to nonattainment or interfering with maintenance in
“any other State.”

Because CAIR is designed as a complete remedy to section
110(a)(2)(D)(i)(I) problems, as EPA claims, FIP, 71 Fed. Reg.
at 25,340, CAIR must do more than achieve something
measurable; it must actually require elimination of emissions
from sources that contribute significantly and interfere with
maintenance in downwind nonattainment areas. To do so, it
must measure each state’s “significant contribution” to
downwind nonattainment even if that measurement does not
directly correlate with each state’s individualized air quality
impact on downwind nonattainment relative to other upwind
states. See Michigan, 213 F.3d at 679. Otherwise, the rule is
not effectuating the statutory mandate of prohibiting emissions
moving from one state to another, leaving EPA with no statutory
authority for its action. Whether EPA could promulgate a
section 110(a)(2)(D)(i)(I) remedy that would bar alternate relief,
such as would be available under section 126, 42 U.S.C. § 7426,
 18

is a question that is not before the court.

2. “Interfere With Maintenance”

Section 110(a)(2)(D)(i)(I) requires EPA to ensure that SIPs
“contain adequate provisions” prohibiting sources within a state
from emitting air pollutants in amounts which will “contribute
significantly to nonattainment in, or interfere with maintenance
by, any other State with respect to any [NAAQS].” 42 U.S.C.
§ 7410(a)(2)(D)(i)(I) (emphasis added). North Carolina argues
that EPA unlawfully ignored the “interfere with maintenance”
language in section 110(a)(2)(D)(i)(I), divesting it of
independent effect in CAIR. It contends that instead of limiting
the beneficiaries of CAIR to downwind areas that were
monitored to be in nonattainment when EPA promulgated CAIR
and were modeled to be in nonattainment in 2009 and 2010,
when CAIR goes into effect, CAIR, 70 Fed. Reg. at 25,244,
EPA should have also included in CAIR upwind states, such as
Georgia, that send pollution into downwind areas that are
projected to barely meet attainment levels of NAAQS in 2010.
North Carolina only contests EPA’s interpretation of the
“interfere with maintenance” prong as applied to EPA’s
determination of which states are beneficiaries of CAIR for the
ozone NAAQS.

North Carolina explains that even though all of its counties
are projected to attain NAAQS for ozone by 2010, several of its
counties are at risk of returning to nonattainment due to
interference from upwind sources. Specifically, it notes that
Mecklenburg County, which projections show will have ozone
levels of 82.5 ppb in 2010 (2.5 ppb below the 85.0 ppb NAAQS)
without help from CAIR, could fall back into nonattainment
because of the historic variability in the county’s ozone levels.
Technical Support Document for the Final Clean Air Interstate
Rule, Air Quality Modeling, at Appendix E (March 2005)
 19

(“Technical Support Document”). EPA has stated that
“historical data indicates that attaining counties with air quality
levels within 3 ppb of the standard are at risk of returning to
nonattainment.” EPA, Corrected Response to Significant Public
Comments on the Proposed Clean Air Interstate Rule, at 148
(April 2005) (“Corrected Response”). “The information also
indicates that even if CAIR receptors were to [be] 3–5 ppb
below the standard, they would have a reasonable likelihood of
returning to nonattainment.” Id. And in the case of Fulton
County, Georgia, EPA determined that the “interfere with
maintenance” provision justified imposing controls on upwind
states in 2015 even though it is projected to attain the NAAQS
by a margin of 7 or 8 ppb because its ozone levels have varied
by at least that margin several times in the recent past. Id. at
150. North Carolina argues that EPA must utilize this “historic
variability” standard to determine which downwind areas suffer
interference with their maintenance in 2010, not just 2015. If it
did so, EPA would see that Mecklenburg County, North
Carolina, has varied by at least 3 ppb (the relevant margin
between attainment and nonattainment for that county in 2010)
six times in the recent past and consequently would include in
CAIR any state, such as Georgia, that is contributing an
unlawful amount of pollution to this downwind area. Id. at
1042.

EPA contends that it interpreted “interfere with
maintenance” just as it did in the NOx SIP Call, in which it gave
the term a meaning “much the same as” the one given to the
preceding phrase, “contribute significantly to nonattainment.”
CAIR, 70 Fed. Reg. at 25,193 n.45. EPA maintains that “the
‘interfere with maintenance’ prong may come into play only in
circumstances where EPA or the State can reasonably determine
or project, based on available data, that an area in a downwind
state will achieve attainment, but due to emissions growth or
other relevant factors is likely to fall back into nonattainment.”
 20

Id. In the NOx SIP Call, it meant that areas monitored to be in
attainment when that rule was promulgated but which were
modeled to be in nonattainment in 2007, when the rule went into
effect, were considered downwind areas with which upwind
sources’ emissions interfered. NOx SIP Call, 63 Fed. Reg. at
57,379. EPA states it gave effect to the “interfere with
maintenance” prong in CAIR by using it as a basis for
implementing further emissions reductions in Phase Two of
CAIR, by which time some downwind states will have attained
NAAQS. CAIR, 70 Fed. Reg. at 25,195.

First, we note that we did not consider EPA’s interpretation
of “interfere with maintenance” in Michigan. Thus any
interpretation it used in that rulemaking cannot provide support
for EPA’s contention that its current interpretation, even if
identical to that in the NOx SIP Call, comports with the statute.
So we analyze EPA’s interpretation of “interfere with
maintenance” for the first time here. Despite using “interfere
with maintenance” as a justification for imposing further
emissions controls in 2015, CAIR gave no independent
significance to the “interfere with maintenance” prong of section
110(a)(2)(D)(i)(I) to separately identify upwind sources
interfering with downwind maintenance. Under EPA’s reading
of the statute, a state can never “interfere with maintenance”
unless EPA determines that at one point it “contribute[d]
significantly to nonattainment.” EPA stated clearly on two
occasions “that it would apply the interfere with maintenance
provision in section 110(a)(2)(D) in conjunction with the
significant contribution to nonattainment provision and so did
not use the maintenance prong to separately identify upwind
States subject to CAIR.” FIP, 71 Fed. Reg. at 25,337 (citing
CAIR, 70 Fed. Reg. at 25,193); see also Corrected Response, at
63. EPA reasoned that this interpretation “avoid[s] giving
greater weight to the potentially lesser environmental effect” and
strikes “a reasonable balance between controls in upwind states
 21

and in-state controls.” FIP, 71 Fed. Reg. at 25,337. EPA stated
that an interpretation that permitted states that are able to attain
NAAQS on their own to benefit from CAIR “could even create
a perverse incentive for downwind states to increase local
emissions.” Id.

All the policy reasons in the world cannot justify reading a
substantive provision out of a statute. See Whitman v. Am.
Trucking Ass’ns, 531 U.S. 457, 485 (2001). Areas that find
themselves barely meeting attainment in 2010 due in part to
upwind sources interfering with that attainment have no recourse
under EPA’s interpretation of the interference prong of section
110(a)(2)(D)(i)(I). 2010 is not insignificant because that is the
deadline for downwind areas to attain ozone NAAQS. See 42
U.S.C. § 7511 (setting forth deadlines for attaining ozone
NAAQS). An outcome that fails to give independent effect to
the “interfere with maintenance” prong violates the plain
language of section 110(a)(2)(D)(i)(I). The provision at issue is
written in the disjunctive: SIPs must “contain adequate
provisions prohibiting . . . any source or other type of emissions
activity within the State from emitting any air pollutant in
amounts which will contribute significantly to nonattainment in,
or interfere with maintenance by, any other State . . . .” 42
U.S.C. § 7410(a)(2)(D)(i)(I) (emphasis added). “Canons of
construction ordinarily suggest that terms connected by a
disjunctive be given separate meanings, unless the context
dictates otherwise . . . .” Reiter v. Sonotone Corp., 442 U.S.
330, 339 (1979). There is no context in section
110(a)(2)(D)(i)(I) directing an alternate result; therefore EPA
must give effect to both provisions in the statute.

EPA contends in its brief that CAIR is just one step in
carrying out its section 110(a)(2)(D)(i)(I) duties, hinting that it
may later choose to give independent effect to the “interfere
with maintenance” language. There is some general language
 22

in the record to support this contention. See CAIR, 70 Fed. Reg.
at 25,175 (“This overall plan is well within the ambit of EPA’s
authority to proceed with regulation on a step-by-step basis.”).
But more specific language in the rule belies this claim. “The
[section 110(a)(2)(D)(i)(I)] violation is eliminated once a State
adopts a SIP containing the CAIR trading programs (or a SIP
containing other emission reduction options meeting the
requirements specified in CAIR), or EPA promulgates a FIP to
achieve those same reductions.” FIP, 71 Fed. Reg. at 25,340.
Because EPA describes CAIR as a complete remedy to a section
110(a)(2)(D)(i)(I) violation and does not give independent
significance to the “interfere with maintenance” language to
identify upwind states that interfere with downwind
maintenance, it unlawfully nullifies that aspect of the statute and
provides no protection for downwind areas that, despite EPA’s
predictions, still find themselves struggling to meet NAAQS due
to upwind interference in 2010. For this reason, we grant North
Carolina’s petition on this issue. Although North Carolina
challenged CAIR on the “interfere with maintenance” issue only
with regard to ozone, the rule includes the same flaw with regard
to PM2.5. The court does not address North Carolina’s separate
contention that EPA failed to comply with notice-and-comment
requirements regarding its proposed test for an “interfere with
maintenance” violation, or the propriety of the test itself.

3. 2015 Compliance Deadline

North Carolina argues that the 2015 deadline for upwind
states to eliminate their “significant contribution” to downwind
nonattainment ignores the plain language of section
110(a)(2)(D)(i), 42 U.S.C. § 7410(a)(2)(D)(i), contradicts EPA’s
goal of “balanc[ing] the burden for achieving attainment
between regional-scale and local-scale control programs,”
CAIR, 70 Fed. Reg. at 25,166, violates the Supreme Court’s
holding that EPA may not consider economic and technological
 23

infeasibility when approving a SIP, Union Elec. Co. v. EPA, 427
U.S. 246 (1976), and departs from the contrary approach it took
in the NOx SIP Call without explanation, NOx SIP Call, 63 Fed.
Reg. at 57,449.

North Carolina challenges the 2015 Phase Two deadline for
upwind states to come into compliance with CAIR as
incompatible with section 110(a)(2)(D)(i)(I)’s mandate that SIPs
contain adequate provisions prohibiting significant contributions
to nonattainment “consistent with the provisions of [Title I].”
42 U.S.C. § 7410(a)(2)(D)(i)(I). Title I dictates the deadlines for
states to attain particular NAAQS. PM2.5 attainment must be
achieved “as expeditiously as practicable, but no later than 5
years from the date such area was designated nonattainment . . .
except that the Administrator may extend the attainment date . . .
for a period no greater than 10 years from the date of
designation as nonattainment . . . .” 42 U.S.C. § 7502(a)(2)(A).
North Carolina, along with the rest of the CAIR states, must
meet PM2.5 NAAQS by 2010. See 40 C.F.R. § 81.301 et seq.
Ozone nonattainment areas must attain permissible levels of
ozone “as expeditiously as practicable,” but no later than the
assigned date in the table the statute provides. 42 U.S.C.
§ 7511. North Carolina’s statutory deadline is June 2010, but it
could be even sooner if EPA upon repromulgating its
regulations sets an earlier deadline. See S. Coast Air Quality
Mgmt. Dist. v. EPA, 472 F.3d 882 (D.C. Cir. 2006). North
Carolina argues that despite the statutory mandate that section
110(a)(2)(D)(i), 42 U.S.C. § 7410(a)(2)(D)(i), be consistent with
the rest of Title I, which requires compliance with PM2.5 and
ozone NAAQS by 2010, CAIR gives states that “contribute
significantly” to nonattainment until 2015 to comply based
solely on reasons of feasibility. CAIR, 70 Fed. Reg. at 25,177;
see also Corrected Response, at 58, 61; CAIR, 70 Fed. Reg. at
25,222–25 (citing feasibility restraints such as the difficulty of
securing project financing and the limited amount of specialized
 24

boilermaker labor to install controls).

EPA contends that the phrase “consistent with the
provisions of [Title I]” does not require incorporating Title I’s
NAAQS attainment deadlines into CAIR. It argues that section
110(a)(2)(D)(i)(I) does not mandate any particular time frame
and that the language about consistency only requires EPA to
make a rule consistent with procedural provisions in Title I, not
substantive ones. It comes to this conclusion because the phrase
“consistent with the provisions of this title” follows the word
“prohibiting.” Due to this placement, EPA argues that the
phrase requiring consistency only modifies the word
“prohibiting.” EPA does not explain how it jumps from this
observation to the conclusion that a phrase modifying the word
“prohibiting” can only refer to procedural requirements. The
word “procedural” is simply not in the statute. If there were any
ambiguity as to Congress’s intent in excluding the limiting
language EPA proposes, an examination of the relevant
language in the context of the whole CAA dispels any doubts as
to its meaning. In the CAA, Congress differentiates between
requiring consistency with provisions in a title and requiring
consistency “with the procedures established” under a title.
Compare 42 U.S.C. § 7410(a)(2)(D)(i), with id. § 7661b(c)
(emphasis added). Section 110(a)(2)(D)(i), 42 U.S.C.
§ 7410(a)(2)(D)(i), is not limited to procedural provisions in
Title I; thus it requires EPA to consider all provisions in Title
I—both procedural and substantive—and to formulate a rule that
is consistent with them.

Despite section 110(a)(2)(D)(i)’s requirement that
prohibitions on upwind contributions to downwind
nonattainment be “consistent with the provisions of [Title I],”
EPA did not make any effort to harmonize CAIR’s Phase Two
deadline for upwind contributors to eliminate their significant
contribution with the attainment deadlines for downwind areas.
 25

42 U.S.C. § 7410(a)(2)(D)(i). As a result, downwind
nonattainment areas must attain NAAQS for ozone and PM2.5
without the elimination of upwind states’ significant
contribution to downwind nonattainment, forcing downwind
areas to make greater reductions than section 110(a)(2)(D)(i)(I)
requires. Because EPA ignored its statutory mandate to
promulgate CAIR consistent with the provisions in Title I
mandating compliance deadlines for downwind states in 2010,
we grant North Carolina’s petition challenging the 2015 Phase
Two deadline. We need not address petitioner’s other
arguments against this provision.

EPA justified the deadline partly on the basis that additional
reductions will be required through the year 2015 in order to
satisfy the “interfere with maintenance” provision of the statute.
Although this may be a valid reason to require maintenance-
based emissions reductions beyond the year 2010, EPA does not
explain why it did not coordinate the final CAIR deadline to
provide a sufficient level of protection to downwind states
projected to be in nonattainment as of 2010.

4. NOx Compliance Supplement Pool

North Carolina contends that the NOx Compliance
Supplement Pool of 200,000 tons defies section
110(a)(2)(D)(i)(I)’s mandate to eliminate the significant
contribution of upwind sources to downwind NAAQS
nonattainment and that the Compliance Supplement Pool is an
arbitrary exercise of power that contradicts EPA’s own record
findings.

Under CAIR without the Compliance Supplement Pool,
states can only begin to bank CAIR NOx allowances in 2009, the
year in which Phase One of the CAIR NOx limits go into effect.
The Compliance Supplement Pool gives states an incentive to
 26

make emissions cuts early; states that can show “surplus” NOx
emissions reductions in 2007 and 2008 can receive bankable
(and tradeable) credits for those reductions. CAIR, 70 Fed. Reg.
at 25,285. The 200,000 NOx credits are apportioned to states in
accordance with their share of the 2009 regionwide NOx budget.
Id. at 25,286. States may distribute the credits to sources based
on “(1) [a] demonstration by the source to the State of NOx
emissions reductions in surplus of any existing NOx emission
control requirements; or (2) a demonstration to the State that the
facility has a ‘need’ that would affect electricity grid reliability.”
Id. EPA created the Compliance Supplement Pool to “mitigat[e]
some of the uncertainty regarding the EPA projections of
resources to comply with CAIR” and to “provide[] incentives
for early, surplus NOx reductions.” Id.

North Carolina first argues that the Compliance Supplement
Pool is unlawful because it permits states to emit NOx in excess
of the 1.5 million ton annual regional NOx cap, which EPA
measured to be the upwind states’ significant contribution to
downwind nonattainment in the years 2009 to 2014. See CAIR,
70 Fed. Reg. at 25,210. EPA contends that North Carolina’s
argument is flawed. EPA based its measurement of upwind
states’ “significant contribution” on the level of reductions that
would be “highly cost effective” in 2015, not 2009. The Phase
One deadline is simply EPA’s measurement of the reductions
that would be feasible by 2009; it is not an independent
measurement of “significant contribution” in that year. See id.
at 25,177. Thus any emissions that exceed the 1.5 million ton
level due to the extra 200,000 allowances from the Compliance
Supplement Pool do not affect the elimination of upwind states’
“significant contribution.” The elimination of upwind states’
significant contribution will not happen until Phase Two’s 2015
deadline.

Because we grant North Carolina’s petition that CAIR’s
 27

Phase Two deadline of 2015 is unlawful, we will not pass
judgment on the lawfulness of the Compliance Supplement
Pool. As EPA explains, it created the Compliance Supplement
Pool under the assumption that 2015 was an appropriate
deadline for CAIR compliance. It is not. EPA does not argue
that it can set a level of emissions that is an upwind state’s
“significant contribution” and then allow that state to exceed it.
On remand, EPA must determine what level of emissions
constitutes an upwind state’s significant contribution to a
downwind nonattainment area “consistent with the provisions of
[Title I],” which include the deadlines for attainment of
NAAQS, and set the emissions reduction levels accordingly.

5. EPA’s Definition of “Will” in “Will Contribute
Significantly”

North Carolina contends that EPA altered its definition of
“will” from a term that meant certainty in the NOx SIP Call to
one that denotes the future tense in CAIR and that EPA made
this change without any explanation. See 42 U.S.C.
§ 7410(a)(2)(D)(i)(I). North Carolina also argues that EPA’s
interpretation of “will” violates the plain text of the statute. As
a result, EPA did not consider upwind states for consideration in
CAIR that contributed to monitored (or “certain”) nonattainment
in North Carolina counties at the time EPA promulgated CAIR;
EPA only included upwind states that contributed to projected
nonattainment in 2010.

In the NOx SIP Call, EPA stated “that the term ‘will’ means
that SIPs are required to eliminate the appropriate amounts of
emissions that presently, or that are expected in the future [to],
contribute significantly to nonattainment downwind.” NOx SIP
Call, 63 Fed. Reg. at 57,375. This isolated phrase provides
some support for North Carolina’s contention that EPA
considered upwind states that contributed to monitored
 28

nonattainment at the time it was promulgating the NOx SIP Call
to be subject to the rule even if those states did not contribute to
projected nonattainment in 2007, the year the rule went into
effect. However, EPA later in the same rulemaking explained
its approach to measuring nonattainment in more detail:

In determining whether a downwind area has a
nonattainment problem under the 1-hour standard to
which an upwind area may be determined to be a
significant contributor, EPA determined whether the
downwind area currently has a nonattainment problem,
and whether that area would continue to have a
nonattainment problem as of the year 2007 assuming
that in that area, all controls specifically required under
the CAA were implemented, and all required or
otherwise expected Federal measures were implemented.
If, following implementation of such required CAA
controls and Federal measures, the downwind area
would remain in nonattainment, then EPA considered
that area as having a nonattainment problem to which
upwind areas may be determined to be significant
contributors.

Id. at 57,377. In the NOx SIP Call, EPA interpreted “will” to
indicate sources that presently and at some point in the future
“will” contribute to nonattainment. Because the NOx SIP Call
was to go into effect in 2007, that rule used 2007 as the relevant
future year for measuring nonattainment. This approach is
identical to the one EPA took in CAIR. Because CAIR goes
into effect in 2009 and 2010 respectively, those are the future
years used in the measurement. See CAIR, 70 Fed. Reg. at
25,241. North Carolina’s claims about an arbitrary change in
EPA’s interpretation of “will” are unfounded because there was
no change. And because “will” can mean either certainty or
indicate the future tense, it was reasonable for EPA to choose to
 29

give effect to both interpretations of the word. Simply because
CAIR does not include states based upon present-day violations
that will be cured by 2010 does not mean that EPA may ignore
present-day violations for which there may be another remedy,
such as relief pursuant to section 126, 42 U.S.C. § 7426.
Therefore we deny North Carolina’s petition on this issue.

6. PM2.5 Contribution Threshold

North Carolina argues that EPA acted arbitrarily by
proposing an air quality threshold for PM2.5 at 0.15 µg/m3 but
finally settling on an air quality threshold of 0.2 µg/m3. The air
quality threshold for PM2.5 is the amount of PM2.5 that sources in
a state must contribute to a downwind nonattainment area to be
regulated as an upwind state in CAIR’s PM2.5 program. North
Carolina also challenges EPA’s decision to truncate, rather than
round, the numbers it compared to the threshold. As a result,
states that contributed 0.19 µg/m3 or less to a downwind
nonattainment area were not linked with North Carolina by
CAIR.

EPA contests North Carolina’s standing to raise this issue.
It notes that only two states would be affected if EPA were to
use the 0.15 µg/m3 threshold. Illinois, which is already subject
to CAIR’s requirements for PM2.5 contributions, would be
subject to the exact same requirements for an additional
reason—its contributions to Catawba County, North Carolina.
Technical Support Document, at Appendix H. This additional
upwind-downwind “link” would not change any of Illinois’s
duties under CAIR; therefore it would not change any effects
felt by Catawba County, North Carolina. The lower threshold
would also subject Arkansas to CAIR’s PM2.5 controls. CAIR,
70 Fed. Reg. at 25,191; Technical Support Document, at 42 tbl.
VII-1. EPA states that Arkansas does not contribute at threshold
levels to nonattainment in North Carolina, but it cites no record
 30

support for this assertion.

North Carolina has standing to raise this issue for three
reasons. First, if in repromulgating CAIR to comply with
section 110(a)(2)(D)(i)(I), EPA removes or modifies its
interstate trading options, Illinois would be barred outright from
contributing significantly to North Carolina’s nonattainment
areas. Second, EPA does not provide support for its assertion
that Arkansas does not contribute to nonattainment areas in
North Carolina because it never modeled the State. North
Carolina claims that models for sources in Louisiana, Missouri,
and Texas, which are further from North Carolina than those in
Arkansas, show that Arkansas contributes at the 0.15 μg/m3
threshold to nonattainment areas in North Carolina. Third,
because EPA designed CAIR to be a complete statutory remedy,
whether North Carolina is linked with Illinois by CAIR under
section 110(a)(2)(D)(i)(I) is likely to affect related remedies that
North Carolina may have against Illinois, for example, pursuant
to section 126, 42 U.S.C. § 7426. Although we cannot
anticipate what a new rule will look like, there is a “substantial
probability” that a favorable decision by this court would redress
the injury North Carolina asserts.

Because North Carolina has demonstrated an injury-in-fact
caused by the rule it is challenging which a favorable decision
by this Court could likely remedy, we can turn to the merits of
North Carolina’s petition. North Carolina notes that EPA first
considered a threshold of 0.1 µg/m3. NPR, 69 Fed. Reg. at
4584. In the Notice of Proposed Rulemaking, EPA stated that
a 0.1 µg/m3 threshold “is the smallest one that can make the
difference between compliance and violation of the NAAQS for
an area very near the NAAQS . . . .” Id. EPA then decided that
it is “on balance, more appropriate to adopt a small percentage
value of the standard level” and chose the percentage of the
NAAQS standard of 15.0 µg/m3 that is closest to 0.1 µg/m3,
 31

which was one percent. Id. One percent of 15.0 µg/m3 is 0.15
µg/m3, so EPA initially chose that number as the threshold. Id.
However, EPA then “request[ed] comments on the use of higher
or lower thresholds for this purpose.” Id. In CAIR, EPA finally
settled on a threshold value of 0.2 µg/m3. It did so because EPA
was “persuaded by commenters[’] arguments on monitoring and
modeling that the precision of the threshold should not exceed
that of the NAAQS,” which only measure PM2.5 concentration
to the tenths column. CAIR, 70 Fed. Reg. at 25,191; see id. at
25,190 (commenters). North Carolina believes it was arbitrary
for EPA to round 0.15 µg/m3 up to 0.2 µg/m3 instead of
reverting to the earlier 0.1 µg/m3 number that “is the smallest
one that can make the difference between compliance and
violation of the NAAQS.” See NPR, 69 Fed. Reg. at 4584.

EPA did not explain why it chose the larger number instead
of the smaller number in the final rule; it only explained why it
chose a number that ended at the tenths column. CAIR, 70 Fed.
Reg. at 25,191. Based on EPA’s reasoning in the Notice of
Proposed Rulemaking, it may have made more sense to return
to the 0.1 µg/m3 threshold instead of “[r]ounding the proposal
value of 0.15,” which is what it did. See id. But EPA was
concerned that the 0.15 µg/m3 threshold it originally proposed
was too low, requesting comments on “the use of higher or
lower thresholds.” NPR, 60 Fed. Reg. at 4584. And in raising
the threshold number, EPA was responding to comments citing
concerns about the “measurement precision of existing PM2.5
monitors.” CAIR, 70 Fed. Reg. at 25,190. We cannot say in
this circumstance that EPA’s decision to round the 0.15 µg/m3
threshold to 0.2 µg/m3 instead of reverting to the original
threshold considered of 0.1 µg/m3 was wholly unsupported by
the record.

Likewise, we cannot say that EPA’s decision to truncate
rather than round the PM2.5 contribution levels it compared to
 32

the 0.2 µg/m3 threshold was arbitrary. The parties dispute which
C.F.R. provision applies to the number it compares to the
threshold—one mandating rounding, 40 C.F.R. pt. 50, App. N,
§ 4.3(a) (preferred by petitioner), or another mandating
truncating, 40 C.F.R. pt. 50, App. N § 3.0(b) (preferred by
EPA). The number EPA compares to the threshold, which is
measured as “the average of annual means [of PM2.5
contribution] from three successive years,” is the contribution of
PM2.5 from one upwind state to a nonattainment area. CAIR, 70
Fed. Reg. at 25,190. Section 4.3(a) applies to annual PM2.5
standard design values. Design values “are the metrics (i.e.,
statistics) that are compared to the NAAQS levels to determine
compliance.” 40 C.F.R. pt. 50 App. N § 1.0(c). Design values
are composed of the average of annual means of PM2.5 for three
consecutive years, 40 C.F.R. pt. 50 App. N § 4.1(b), but design
values are measurements of PM2.5 levels in a stationary
area—not levels of PM2.5 moving from one area to another.
Because the contribution level is not a design value, section
4.3(a)’s rounding mandate does not apply. Similarly, section
3.0(b)’s truncation mandate applies to PM2.5 hourly and daily
measurement data and says nothing about the contribution level
EPA is assessing in CAIR.

Without a rule mandating any particular method, EPA is
free to round or truncate the numbers it is comparing to the 0.2
µg/m3 threshold as long as its choice is reasonable. EPA chose
to truncate numbers because the “truncation convention for
PM2.5 is similar to that used in evaluating modeling results in
applying the ozone significance screening criterion of 2 ppb in
the NOx SIP call and the CAIR proposal, as well as today’s final
action.” CAIR, 70 Fed. Reg. at 25,191 n.42 (internal citation
omitted). EPA’s choice to truncate the numbers is reasonable.
As a result, we deny North Carolina’s petition challenging the
0.2 µg/m3 threshold and EPA’s choice to truncate the numbers
compared to it.
 33

B. SO2 and NOx Budgets

SO2 Petitioners and petitioner Entergy challenge CAIR’s
budgets for the SO2 and NOx trading programs. EPA set states’
SO2 budgets for 2010 to 50% (35% in 2015) of the allowances
the states’ EGUs receive under Title IV. SO2 Petitioners argue
EPA never explained how these budgets related to section
110(a)(2)(D)(i)(I)’s mandate of prohibiting significant
contributions to downwind nonattainment. Therefore, they
claim, the budgets and the regionwide cap, are “arbitrary,
capricious, . . . or otherwise not in accordance with law,” 42
U.S.C. § 7607(d)(9)(A). As for NOx, EPA reduced states’
budgets to the extent their EGUs burned oil or gas. Entergy
claims EPA made this adjustment purely in the interests of
fairness—an improper reason under section 110(a)(2)(D)(i)(I).
We grant the petitions, agreeing EPA chose the budgets for both
pollutants in an improper manner. In short, the fact that SO2 and
NOx are precursors to ozone and PM2.5 pollution does not give
EPA plenary authority to reduce emissions of these substances.
Section 110(a)(2)(D)(i)(I) obligates states to prohibit emissions
that contribute significantly to nonattainment or interfere with
maintenance downwind, and EPA must exercise its authority
under this provision to make measurable progress towards those
goals.

1. SO2 Budgets

We first address EPA’s choice of SO2 budgets. EPA claims
to have based state budgets for SO2 and NOx on the amount of
emissions sources can eliminate by applying controls EPA
deems “highly cost-effective controls”—an approach EPA says
we approved in Michigan v. EPA, 213 F.3d 663 (D.C. Cir.
2000). We observe initially that state SO2 budgets are unrelated
to the criterion (the “air quality factor”) by which EPA included
 34

states in CAIR’s SO2 program. Significant contributors, for
purposes of inclusion only, are those states EPA projects will
contribute at least 0.2 µg/m3 of PM2.5 to a nonattainment area in
another state. While we would have expected EPA to require
states to eliminate contributions above this threshold, EPA
claims to have used the measure of significance we mentioned
above: emissions that sources within a state can eliminate by
applying “highly cost-effective controls.” EPA used a similar
approach in deciding which states to include in the NOx SIP
Call, which Michigan did not disturb since “no one quarrel[ed]
either with its use of multiple measures, or the way it drew the
line at” the inclusion stage. 213 F.3d at 675. Likewise here, the
SO2 Petitioners do not quarrel with EPA drawing the line at
0.2 µg/m3 or its different measure of significance for
determining states’ SO2 budgets. Again, we do not disturb this
approach.

Even so, EPA’s method in setting the SO2 budgets is not
what Michigan approved. In that case, the petitioners argued
section 110(a)(2)(D)(i)(I) does not permit EPA to consider the
cost of reducing ozone. After reconciling petitioners’ shifting
(and somewhat conflicting) arguments, we answered a well-
defined question: Could EPA, in selecting the “significant”
level of “contribution” under section 110(a)(2)(D)(i)(I), choose
a level corresponding to a certain reduction cost? Michigan, 213
F.3d at 676–77. Answering that question in the affirmative, we
held EPA may “after [a state’s] reduction of all [it] could . . .
cost-effectively eliminate[ ],” consider “any remaining
‘contribution’” insignificant. Id. at 677, 679.

Michigan also rejected claims that applying a uniform cost-
criterion across states was irrational because both smaller and
larger contributors had to make reductions achievable by the
same highly cost-effective controls. This, we said, “flow[ed]
ineluctably from the EPA’s decision to draw the ‘significant
 35

contribution’ line on a basis of cost.” Id. at 679. Upholding that
decision “logically entail[ed] upholding this consequence.” Id.
And while EPA’s approach did not necessarily ensure
“aggregate health benefits” at roughly the lowest cost, EPA
researched alternatives, and found none that significantly
improved air quality or reduced cost. Id. Since no one offered
a “material critique” of this research, we did not upset EPA’s
judgment. Id.

Here, EPA did not use cost in the manner Michigan
approved. Even worse, EPA’s choice of SO2 budgets does not
track the requirements of section 110(a)(2)(D)(i)(I). That much
is evident from EPA’s decision to base the budgets on
allowances states’ EGUs receive under Title IV. Those
allowances are not, as EPA asserts, a “logical starting point” for
setting CAIR’s SO2 emissions caps, CAIR, 70 Fed. Reg. at
25,229. Congress designed the Title IV allowance scheme using
EGU data from 1985 to 1987 to address the national acid rain
problem. Nowhere does EPA explain how reducing Title IV
allowances will adequately prohibit states from contributing
significantly to downwind nonattainment of the PM2.5 NAAQS.
And while “Congress chose a policy of not revisiting and
revising these allocations and, apparently, believed that its
allocation methodology would be appropriate for future time
periods,” Reconsideration, 71 Fed. Reg. at 25,308, it is unclear
how the quantitative number of allowances created by 1990
legislation to address one substance, acid rain, could be relevant
to 2015 levels of an air pollutant, PM2.5.

EPA also explains that it chose Title IV as a starting point
“to preserve the viability and emissions reductions of the highly
successful title IV program.” Id. This goal may be valid, but it
is not among the objectives in section 110(a)(2)(D)(i)(I). And
if it is somehow compatible with states’ obligations to include
“adequate provisions” in their SIPs, prohibiting emissions
 36

“within the State from . . . contribut[ing] significantly” to
downwind nonattainment, then EPA should explain how. It has
failed to do so. Apart from the arbitrary Title IV baseline, EPA
has insufficiently explained how it arrived at the 50% and 65%
reduction figures. Though unclear, these numbers appear to
represent what EPA thought would be “‘a cost-effective and
equitable governmental approach to attainment with the
NAAQS for [PM2.5].’” CAIR, 70 Fed. Reg. at 25,199 (quoting
Proposed CAIR, 69 Fed. Reg. 4566, 4612 (Jan. 30, 2004)).1 As
with the need to “preserve the viability” of the Title IV program,
EPA’s notions of what is an “equitable governmental approach
to attainment” is not among the objectives of section
110(a)(2)(D)(i)(I). Nor does EPA even attempt to reconcile its
choice of “equitable” emissions caps with those objectives.

Having chosen these equitable caps for the CAIR region,
EPA then “ascertained the costs of these reductions and . . .
determine[d] that they should be considered highly cost
effective.” Id. at 25,176. EPA’s use of cost in this manner is
not what we approved in Michigan. Whereas Michigan permits
EPA to draw the “significant contribution” line based on the cost
of reducing that “contribution,” here EPA did not draw the line
at all. It simply verified sources could meet the SO2 caps with
controls EPA dubbed “highly cost-effective.” Nor would EPA
necessarily cure this problem merely by beginning its analysis
with cost. While EPA may require “termination of only a subset
of each state’s contribution,” by having states “cut[ ] back the

1
EPA briefly summarized a series of analyses and dialogues with
various stakeholder groups in which the participants considered
“regional and national strategies to reduce interstate transport of SO2
and NOx.” See CAIR, 70 Fed. Reg. at 25,199. The most recent of
these, EPA’s analysis in support of the proposed Clear Skies Act,
considered nationwide SO2 caps of, coincidentally, “50 percent and 67
percent from . . . title IV cap levels.” Id.
 37

amount that could be eliminated with ‘highly cost-effective
controls,’” Michigan, 213 F.3d at 675 (emphasis added), EPA
can’t just pick a cost for a region, and deem “significant” any
emissions that sources can eliminate more cheaply. Such an
approach would not necessarily achieve something measurable
toward the goal of prohibiting sources “within the State” from
contributing significantly to downwind nonattainment.

Because EPA did not explain how the objectives in section
110(a)(2)(D)(i)(I) relate to its choice of SO2 emissions caps
based on Title IV allowances, we conclude that choice was
“arbitrary, capricious, . . . or not otherwise in accordance with
law,” 42 U.S.C. § 7607(d)(9)(A).

2. NOx Budgets

Next, we address EPA’s use of “fuel factors” to allocate the
regional NOx cap among the CAIR states. EPA determined the
cap by multiplying NOx emissions rates (0.15 mmBtu in 2010
and 0.125 mmBtu in 2015) by the heat input of states in the
CAIR region. Then, EPA distributed to each state, as its budget
of NOx emissions allowances, its proportionate share of the
regional cap. But in determining these shares, EPA adjusted
each state’s heat input for the mix of fuels its power plants used:
while a coal-fired EGU contributed its full heat input to the state
total, an oil-fired EGU counted for only 60% of its heat input
and a gas-fired EGU only 40%. Entergy argues this fuel
adjustment was irrational because EPA made it purely for the
sake of sharing the burden of emissions reductions fairly. We
agree EPA’s notion of fairness has nothing to do with states’
section 110(a)(2)(D)(i)(I) obligations to prohibit significant
contributions to downwind nonattainment.

EPA’s NOx analysis began, inauspiciously, in a manner
similar to its SO2 decisions. But instead of beginning with “the
 38

existing title IV annual SO2 cap,” it began with the existing NOx
SIP Call emissions rate of 0.15 pounds of NOx emitted per
mmBtu of heat input. CAIR, 70 Fed. Reg. at 25,205. It is not
clear why EPA considered this rate a useful starting point
beyond the fact that such an emissions rate had been “considered
in the past.” Id. So far as we can tell, these numbers represent,
like the SO2 caps, EPA’s effort “‘to set up a reasonable balance
of regional and local controls to provide a cost-effective and
equitable governmental approach to attainment.’” Id. at 25,199
(quoting Proposed CAIR, 69 Fed. Reg. at 4612). Thus, rather
than explaining how its planned emissions rates related to states’
significant contributions to downwind nonattainment, EPA
simply asserted they would create an equitable balance of
controls. As with the SO2 caps, EPA did not draw the
“significant contribution” line on the basis of cost, Michigan,
213 F.3d at 676–77, or, for that matter, draw the significance
line at all. Instead, EPA “determin[ed] the regionwide control
level” and then “evaluat[ed] it to assure that it is highly cost-
effective.” CAIR, 70 Fed. Reg. at 25,206.

Nevertheless, Entergy does not challenge the regional NOx
emissions rate. It argues that if EPA thinks a certain rate reflects
a state’s level of “significant contribution” to downwind
nonattainment, then section 110(a)(2)(D)(i)(I) requires EPA to
assign each state a budget equal to the emissions rate times the
state’s heat input. The fuel adjustment reduces a state’s budget
below that level if, say, its power plants use gas instead of coal,
without any justification besides fairness. Remarkably, EPA
does not deny that fairness is the only reason for the fuel
adjustment. According to EPA, “[t]he factors would reflect the
inherently higher emissions rate of coal-fired plants, and
consequently the greater burden on coal plants to control
emissions,” thereby creating “a more equitable budget
distribution.” Id. at 25,231. Instead, EPA criticizes Entergy’s
preferred method of distributing credits as being equally
 39

unjustified. In the EPA’s view, assigning credits without the
fuel adjustment is just one of “a number of ways that EPA could
have distributed the regionwide NOx emissions budget,” among
which the fuel adjustment is another, equally valid method, and
EPA reasonably chose the fuel adjustment as the fairest method.
Resp’t’s Br. 105.

Not all methods of developing state emission budgets are
equally valid, because an agency may not “trespass beyond the
bounds of its statutory authority by taking other factors into
account” than those to which Congress limited it, nor “substitute
new goals in place of the statutory objectives without explaining
how [doing so comports with] the statute.” Indep. U.S. Tanker
Owners Comm. v. Dole, 809 F.2d 847, 854 (D.C. Cir. 1987); see
also Lead Indus. Ass’n v. EPA, 647 F.2d 1130, 1150 (D.C. Cir.
1980). Section 110(a)(2)(D)(i)(I) addresses emissions “within
the State” that contribute significantly to downwind pollution.
Naturally we defer to EPA’s interpretation of the Clean Air Act
so far as it is reasonable, Chevron, 467 U.S. 837, and we have
recognized that significance may include cost, Michigan, 213
F.3d at 677–79. However, EPA’s interpretation cannot extend
so far as to make one state’s significant contribution depend on
another state’s cost of eliminating emissions.

Yet that is exactly what EPA has done. For example,
Louisiana’s EGUs use more gas and oil than most states’ EGUs.
Consequently, instead of the budget of 42,319 tons per year that
would be Louisiana’s proportional share of the regionwide cap
without fuel adjustment, the State only received 29,593 tons per
year. The rest of those credits went to states with more coal-
fired EGUs than average, which necessarily received “larger
NOx emissions budgets” than their unadjusted proportional
shares. Resp’t’s Br. 103. EPA favored coal-fired EGUs in this
way because they face a “greater burden . . . to control
emissions” than gas- and oil-fired EGUs. CAIR, 70 Fed. Reg.
 40

at 25,231. In essence, a state having mostly coal-fired EGUs
gets more credits because Louisiana can control emissions more
cheaply.

EPA responds by suggesting that any allocation of the NOx
cap would amount to equitable burden-sharing because EPA did
the analysis “on a regionwide basis,” and therefore not even the
unadjusted shares have any relation to states’ significant
contributions. Resp’t’s Br. 104; CAIR, 70 Fed. Reg. at 25,231.2
If so, that is a weakness of CAIR generally. Having chosen not
to evaluate contributing emissions on a state-by-state basis, EPA
cannot now rely on the resulting paucity of data to justify its ad
hoc approach to spreading the burden of reducing them. When
a petitioner complains EPA is requiring a state to eliminate more
than its significant contribution, it is inadequate for EPA to
respond that it never measured individual states’ significant
contributions.

No doubt all this pother seems unnecessary to EPA, since
it believed “the choice of method in setting State budgets . . .
makes little difference in terms of the levels of resulting
regionwide annual SO2 and NOx emissions reductions.” CAIR,
70 Fed. Reg. at 25,230–31. Since EPA planned a market for
emissions credits, it assumed EGUs would trade credits as
necessary to achieve the “least-cost outcome,” which would not
depend “on the relative levels of individual State budgets.” Id.
at 25,231. As we noted in Michigan, the market would only

2
To be sure, the unadjusted shares would not correspond much
better to a state’s downwind contribution in 2010 and 2015 because
EPA based the regional cap on heat input data from 1999 to 2002
without accounting for the growth in states’ economies. See CAIR, 70
Fed. Reg. 25,230–31. In any case, a budget allocation based on such
shares would only be hypothetical at this point, so we express no
opinion as to its propriety.
 41

bear out that assumption if the transaction costs of trading
emissions were small, which is hardly likely. 213 F.3d at 676 &
n.3. But even if the state budgets affect only the distribution of
the burden, not the regionwide aggregate of emissions, that
distribution is important.3 EPA contends the greatest reductions
will take place where the greatest emissions are, because that is
where most cost-effective reductions are available. Resp’t’s Br.
168. Of course, those states with the greatest emissions are
those with mainly coal-fired EGUs, which are precisely the
states that get extra credits under EPA’s fuel-adjustment
method. See CAIR, 70 Fed. Reg. at 25,231 n.88 (“States
receiving larger budgets . . . are generally expected to be those
having to make the most reductions.”). Presumably those
EGUs will make their greater reductions and sell them to other
EGUs, in states the fuel-adjustment method docked, to recoup
their investment in reductions. The net result will be that states
with mainly oil- and gas-fired EGUs will subsidize reductions
in states with mainly coal-fired EGUs. Again, EPA’s approach
contravenes section 110(a)(2)(D)(i)(I); the statute requires each
state to prohibit emissions “within the State” that contribute
significantly to downwind pollution, not to pay for other states
to prohibit their own contributions.

3
In focusing on the beneficial regionwide results from trading,
EPA completely ignores the fact that any state that elected not to
participate in the NOx trading program would receive a maladjusted
budget as a mandatory cap on its emissions. We do not focus on this
problem because EPA had, by the time it promulgated CAIR, already
found all the relevant states to have violated section 110(a)(2)(D), 42
U.S.C. § 7410(a)(2)(D), with respect to the CAIR pollutants, so that
EPA’s Federal Implementation Plan, incorporating the trading
program, covers all of them until they submit SIPs complying with
CAIR. FIP, 71 Fed. Reg. 25,328, 25,340 (Apr. 28, 2006); 70 Fed.
Reg. 21,147 (Apr. 25, 2005) (finding of violation).
 42

EPA’s redistributional instinct may be laudatory, but
section 110(a)(2)(D)(i)(I) 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. While CAIR should
achieve something measurable towards that goal, it may not
require some states to exceed the mark. Because the fuel-
adjustment factors shifted the burden of emission reductions
solely in pursuit of equity among upwind states—an improper
reason—the resulting state budgets were arbitrary and
capricious.

C. Title IV Allowances

SO2 Petitioners and a trade association of waste-coal EGUs
(together “SO2 Petitioners”) also challenge EPA’s effort to
“harmonize” CAIR’s regulation of SO2 with the existing
program for trading SO2 emissions allowances under Title IV of
the CAA. Since EPA set states’ SO2 budgets for 2010 to 50%
(35% in 2015) of the allowances the states’ EGUs receive under
Title IV, EGUs in the region would emit significantly less SO2
under CAIR and could be expected to have substantial numbers
of excess Title IV allowances to emit SO2. Concerned about this
sudden excess, EPA structured CAIR so that EGUs in states
electing to trade give up 2 allowances per ton in 2010, and 2.68
allowances per ton in 2015. (Recall, a Title IV allowance gives
the holder the right to emit one ton of SO2 within the Title IV
program.) States electing not to trade must have SIP provisions
for retiring excess allowances. In addition, CAIR regulates
waste-coal EGUs that do not receive Title IV allowances
because they are exempt from Title IV. Thus, waste-coal EGUs
in trading states must acquire Title IV allowances by purchasing
allowances from EGUs in the Title IV program, or, as EPA
suggests, by opting into the program.
 43

SO2 Petitioners argue EPA lacks authority to terminate or
limit Title IV allowances, either through a trading program
under section 110(a)(2)(D), 42 U.S.C. § 7410(a)(2)(D), or by
requiring that SIPs have allowance retirement provisions. We
agree and grant the petition on this issue. We do not, however,
consider whether CAIR unlawfully forces waste-coal EGUs into
the Title IV program, or irrationally includes waste-coal units
while excluding other waste-burning units. That argument
assumes EPA has the authority to terminate or limit Title IV
allowances.

In demonstrating EPA’s absence of authority, the SO2
Petitioners cite a variety of Title IV provisions supposedly
showing that Title IV allowances are fixed currency, the value
of which EPA may not manipulate. However, the allowances
are “limited authorization[s] to emit sulfur dioxide” and
“[n]othing . . . in any . . . provision of law shall be construed to
limit the authority of the United States to terminate or limit”
such authorizations. 42 U.S.C. § 7651b(f). While EPA and
petitioners quibble over whether EPA is the “United States” to
which § 7651b(f) applies, both agree that this section does not
grant EPA any authority.4

Thus, EPA claims section 110(a)(2)(D)(i)(I) gives it
authority to set up a program for trading SO2 emissions
allowances, and to require EGUs to use Title IV allowances as
currency. Once EGUs spend Title IV allowances in the CAIR
market, EPA says it can terminate the authorization the
allowances provide within the Title IV market. CAIR, 70 Fed.
Reg. at 25,292. But whatever authority EPA may have to
establish such a trading program, we find nothing in section

4
In view of EPA’s absence of authority to terminate or limit
Title IV allowances, we express no opinion on the meaning of “United
States” in this provision.
 44

110(a)(2)(D)(i)(I) granting EPA authority to remove Title IV
allowances from circulation in the Title IV market.

Environmental groups, intervening in support of EPA, argue
section 301(a) of the CAA also provides EPA authority. That
provision authorizes EPA “to prescribe such regulations as are
necessary to carry out [its] functions under” the CAA. 42
U.S.C. § 7601(a). EPA does not rely on section 301(a), and for
good reason: EPA cannot claim retiring excess Title IV
allowances is “necessary” for EPA to ensure SIPs comply with
section 110(a)(2)(D)(i)(I). Nor does section 301(a), 42 U.S.C.
§ 7601(a), “provide [EPA] Carte blanche authority to
promulgate any rules, on any matter relating to the Clean Air
Act, in any manner that the [EPA] wishes.” Citizens to Save
Spencer County v. EPA, 600 F.2d 844, 873 (D.C. Cir. 1979).

Lacking a statutory foundation, EPA appeals to “logic.”
Logically, says EPA, it was not “required to structure CAIR as
a stand-alone program without taking account whatsoever of the
effect this might have on the pre-existing” Title IV program.
Resp’t’s Br. 82. Environmental intervenors add some legal
flavoring here, analogizing EPA’s action to a court’s
interpretative obligation to “fit, if possible, all parts” of a statute
“into a harmonious whole,” FTC v. Mandel Bros., 359 U.S. 385,
389 (1959). Although it may be reasonable for EPA, in
structuring a program under section 110(a)(2)(D)(i)(I), to
consider the impact on the Title IV market, it does not follow
that EPA has the authority to remove allowances from that
market. Nor can EPA cure its absence of authority by foisting
onto SO2 Petitioners the burden of explaining why “two
independent programs . . . would produce a better result.”
Resp’t’s Br. 87. Lest EPA forget, it is “a creature of statute,”
and has “only those authorities conferred upon it by Congress”;
“if there is no statute conferring authority, a federal agency has
none.” Michigan v. EPA, 268 F.3d 1075, 1081 (D.C. Cir. 2001).
 45

So too here: no statute confers authority on EPA to terminate or
limit Title IV allowances, and EPA thus has none.

Similarly, EPA cannot require non-trading states to have
SIP provisions for retiring excess Title IV allowances. Although
such provisions are “related to harmonizing a State’s choice of
reduction requirements” with the Title IV program, Resp’t’s Br.
92, the CAA “gives [EPA] no authority to question the wisdom
of a State’s choices of emission limitations if they are part of a
plan which satisfies the standards of § 110(a)(2).” Train v.
Natural Res. Def. Council, 421 U.S. 60, 79 (1975) (emphasis
added). SIPs prohibiting emissions within a state from
contributing significantly to downwind nonattainment satisfy
section 110(a)(2)(D)(i)(I). Because provisions retiring Title IV
allowances are unrelated to achieving that goal, EPA cannot
require states to adopt them.

D. Border State Issues

Under Title I of the CAA, there is a presumption of state-
level regulation generally, see, e.g., 42 U.S.C. § 7407(a); Union
Elec., 427 U.S. at 256, 267, and the text of section 110, 42
U.S.C. § 7410, establishes the state as the appropriate primary
administrative unit to address interstate transport of emissions.
To take action regarding a state pursuant to section
110(a)(2)(D)(i)(I) EPA need only have evidence that emissions
“within the State” contribute significantly to another state’s
nonattainment or interfere with its maintenance of a national
ambient air quality standard (“NAAQS”), unless there is
evidence that exculpates part of the upwind state from that
determination. See Michigan, 213 F.3d at 684. Thus, in
developing a rule, EPA may select states as the unit of
measurement. Id. The burden is on the party challenging
inclusion of part of a state to present “finer-grained
computations” showing that it is “innocent of material
 46

contributions” to the state’s overall downwind pollution. Id.;
see Appalachian Power Co. v. EPA, 249 F.3d 1032, 1050–51
(D.C. Cir. 2001). In response to such data, EPA must ensure
that the contested area makes a “measurable contribution,”
Michigan, 213 F.3d at 684, such that it is “part of the problem”
of the state’s aggregate downwind impact, Appalachian Power,
249 F.3d at 1050.

Various utilities and one municipality,5 but not the States
themselves, challenge inclusion in CAIR of the upwind States
of Texas, Florida, and Minnesota. The court denies all except
Minnesota Power’s petition.

1. Texas

The final rule included the State of Texas due to
its maximum downwind contribution of 0.29 µg/m3 to PM2.5
nonattainment, which is above the air quality threshold of 0.2
µg/m3. Petitioners unsuccessfully sought reconsideration of
inclusion of that part of the State west of the north-south I-35/I-
37 corridor (“West Texas”), submitting modeling that showed
few emitting facilities were located in West Texas. Petitioners
contend that under Michigan, 213 F.3d at 681–85, EPA, on its
own initiative, should have excluded West Texas given the
State’s size, location, low emissions density, and logical
intrastate dividing line, and that EPA’s concern about “in-state
pollution havens” developing in West Texas is unfounded. See
Corrected Response, at 230. They also contend that EPA acted

5
Southwestern Public Service Company d/b/a Xcel Energy,
Occidental Permian Ltd., and the City of Amarillo, Texas petition
regarding the State of Texas. The Florida Association of Electric
Utilities and FPL Group, Inc. petition regarding the State of Florida.
Minnesota Power petitions regarding the State of Minnesota. In this
part, we refer to “petitioners” generally.
 47

unreasonably in denying reconsideration in view of the
modeling data showing that sources in West Texas
“demonstrably were not significant contributors to
nonattainment in downwind states.” Pet’rs’ Br. at 14. However,
the record establishes that EPA appropriately included all of the
State in CAIR.

The record includes data showing that the State of Texas
makes a maximum downwind contribution greater than the 0.2
µg/m3 air quality threshold for inclusion. Petitioners have
neither challenged this threshold nor presented data that would
require EPA to determine whether West Texas makes a
“measurable contribution.” See Michigan, 213 F.3d at 684.
Instead, their comments on the proposed rule and the August
2004 Notice of Data Availability speculated that West Texas’s
contribution level was likely to be less than 0.05 µg/m3. Neither
did petitioners claim that they were unable to present modeling
without assistance from EPA and that such assistance was
refused. After EPA released updated data in November 2004,
petitioners did submit comments expressing concern about
EPA’s analysis, but again did not include any new modeling or
indicate that they could not do so without EPA assistance that
was denied. EPA effectively responded to petitioners’ concerns
by referring to the possibility that dividing the State could create
“in-state pollution havens” in West Texas where exclusion from
CAIR would lead to increased capacity with a consequent
increase in emissions, Corrected Response, at 230; there is at
least one western source connected to the eastern grid and a
possibility that more could be integrated through the Electric
Reliability Council of Texas. In these circumstances, EPA had
no duty to divide the State or to model West Texas separately.

In seeking reconsideration, petitioners for the first time
presented new modeling on West Texas. However, EPA found,
as the record shows, that petitioners had already had a
 48

meaningful opportunity to comment on the inclusion of West
Texas and had not shown that it was impracticable for them to
present the new modeling sooner or that a new issue arose
after the close of the comment period. See 42 U.S.C.
§ 7607(d)(7)(B). Although petitioners insist that they could not
satisfy their evidentiary burden without receiving data from
EPA, they do not explain why the data from August and
November 2004 on which they commented was insufficient to
allow them to do so. That they may have failed to realize that
EPA had not already conducted more detailed, subregional
modeling is beside the point; the lack of record discussion of
West Texas should have alerted them to the need to present data
to challenge its inclusion. Because petitioners did not request
assistance duplicating EPA’s modeling until after the final rule
was promulgated, they fail to advance a reason for
reconsideration or demonstrate prejudice due to EPA’s late
disclosure of data, see, e.g., West Virginia v. EPA, 362 F.3d 861,
869 (D.C. Cir. 2004); see also Am. Radio Relay League v. FCC,
524 F.3d 227, 237–38 (D.C. Cir. 2008), which they also have
not shown was any more than “supplementary” as to the State,
see Solite Corp. v. EPA, 952 F.2d 473, 484 (D.C. Cir. 1991).6

6
Although petitioners object that EPA has not defined the
“measurable contribution” standard, they do so only in their reply
brief and did not present this issue to EPA; therefore, the court does
not address it. See 42 U.S.C. § 7607(d)(7)(B); S. Coast Air Quality
Mgmt. Dist., 472 F.3d at 891. In any event, West Texas contributes
0.05 µg/m3 of PM2.5 to downwind areas, which is one-quarter of the
amount of pollution needed for the State as a whole to meet the air
quality threshold, and thus should qualify at least as a “material”
amount “worthy of special concern.” See Michigan, 213 F.3d at 682,
684; Appalachian Power, 249 F.3d at 1050.
 49

2. Florida

The final rule included the State of Florida for ozone and
PM2.5. However, the proposed rule had included the State only
for PM2.5. Petitioners sought reconsideration contesting the
inclusion of the State as a whole for ozone and the inclusion
of southern subregions for ozone and for PM2.5. Upon
granting reconsideration as to ozone only, EPA affirmed its
determination that the State should be included in CAIR.
Petitioners now object to EPA’s use of rounding at an initial
screening stage for including the State for ozone as arbitrary and
capricious. See 42 U.S.C. § 7607(d)(9)(A). Alternatively they
contend that under Michigan, 213 F.3d 663, EPA was required
to exclude parts of Southern Florida (south of latitude 28.67 for
ozone and south of latitude 29.2 for PM2.5) that do not make a
significant contribution to nonattainment, or at least the
area south of latitude 26 for both ozone and PM2.5 because EPA
initially had no data for this area. The record supports EPA’s
reasoned explanation for including the entire State for ozone and
PM2.5.

As an initial screening indicator of whether to include a
state in CAIR for ozone, EPA considered whether the state’s
average contribution to ozone nonattainment in a downwind area
was “less than one percent of total nonattainment in the
downwind area.”7 CAIR, 70 Fed. Reg. at 25,191. If so, then
EPA would not test the state further; if not, then EPA would
perform additional analysis to determine whether the state
should be included. EPA found the State of Florida’s average
percent of contribution to nonattainment in Fulton County,

7
The average percent contribution of nonattainment metric is
calculated by dividing the concentration of total ozone in the
nonattainment area into the state’s contribution. See Reconsideration,
71 Fed. Reg. at 25,320 n.14.
 50

Georgia to be 0.81 percent. Upon rounding up to one percent,
EPA determined after further analysis that the State makes
“large and frequent contributions . . . to elevated ozone
concentrations in Fulton Co[unty]” and should be included for
ozone. Reconsideration, 71 Fed. Reg. at 25,320. Although
petitioners characterize this rounding as “creating the nonsense
result of transforming a number . . . that is clearly ‘less than one
percent’ to one,” Pet’rs’ Br. at 28, the court owes substantial
deference to EPA’s technical expertise, see Appalachian Power,
249 F.3d at 1051–52, absent a showing of legal or factual error.

Because petitioners challenge only the initial screening
indicator and not the record evidence showing that the State of
Florida meets the air quality threshold,8 they can hardly protest
that rounding did not serve the appropriate purpose of
identifying the State for further analysis. EPA treated this State
no differently than others at the initial screening stage. Even
assuming the rounding convention were flawed, it was not
dispositive of the State’s inclusion in CAIR. Hence, no
prejudice could be shown on the basis of that error alone. EPA
reasonably explained that its use of the rounding convention is
“commonplace” and “customary” as well as a reasonable means
of creating a “conservative” initial indicator that “cast[s] a wider
net, with further winnowing to occur in subsequent steps when
more detailed analysis is applied.” Reconsideration, 71 Fed.
Reg. at 25,320. Petitioners neither identify error resulting from
use of rounding at the initial screening stage nor offer any
persuasive reason to question EPA’s choice of a technical

8
Petitioners’ additional reasons not to include the State of
Florida are unpersuasive because they concede that the air quality
threshold is a lawful basis for inclusion in CAIR. That Fulton County,
Georgia may attain the ozone NAAQS by 2015 does not justify
excluding the State of Florida as 2010 is the determinative year in
CAIR to provide downwind relief.
 51

convention that is reasonable on this record. See 42 U.S.C.
§ 7607(d)(9)(A).

Neither have petitioners shown that EPA should have
excluded any part of Southern Florida. EPA was not obligated
to measure pollution coming from each possible slice of the
State. See Michigan, 213 F.3d at 684. The lack of information
about a subregion conceivably might result in a miscalculation
of the downwind contribution of the State as a whole, see id. at
682, but alone could not exonerate a subregion and does not
undermine EPA’s inclusion of the area south of latitude 26
for either ozone or PM2.5. Given the rulemaking record, EPA
appropriately determined that the State of Florida as a whole
should be included.

In regard to inclusion of the area south of latitude 29.2 for
PM2.5, petitioners submitted no modeling or data during the
comment period to show that it was “innocent” of contributing
to the State’s collective downwind pollution impact. See id. at
684; Appalachian Power, 249 F.3d at 1050–51. Instead, their
first request to EPA for assistance in duplicating EPA’s
modeling results came after the final rule was promulgated.
They offer no reason why they could not present such modeling
during the comment period. EPA thus properly
denied reconsideration on inclusion of the State for PM2.5. See
42 U.S.C. § 7607(d)(7)(B).9

9
Petitioners did not present the issue of the “standard for a
portion-of-a-state’s contribution to nonattainment,” Reply Br. at 20,
to EPA; see supra note 6. In any event, their data does not show that
the area south of latitude 29.2 is “innocent of material contributions”
for PM2.5. See Michigan, 213 F.3d at 684. The northern part of the
State’s contributions range from 0.11 to 0.20 µg/m3 and the
contributions from the southern area appear to be quite similar,
ranging from 0.09 to 0.15 µg/m3, with even the minimum in the
 52

In regard to ozone, petitioners submitted data in support of
their request for reconsideration of inclusion of the area south of
latitude 28.67. EPA declined to exclude this area. First, EPA
found that the data was unpersuasive inasmuch as it has
authority to regulate an upwind area even if its “specific
contribution may appear insubstantial” as long as it contributes
a “measurable” amount of pollution to the State’s “collective
contribution to downwind nonattainment.” Reconsideration, 71
Fed. Reg. at 25,321. The court agrees; EPA was not required to
exclude an area that petitioners have drawn precisely in order to
avoid the significance threshold. See Michigan, 213 F.3d at
684; Appalachian Power, 249 F.3d at 1050. Second, EPA found
that the area south of latitude 28.67 is not “innocent of material
contribution” but “contribute[s] [a] substantial portion[] of the
total ozone loading from Florida to Fulton County[, Georgia].”
Reconsideration, 71 Fed. Reg. at 25,321 (citing Michigan, 213
F.3d at 683–84). As the contested area contributes almost one-
third of the State’s entire downwind ozone contribution,
petitioners’ challenge to its inclusion fails. Petitioners’ other
concerns, such as the test for “measurable contribution” and the
alleged departure from EPA precedent, were not presented to
EPA and thus the court does not address them. See supra notes
6 & 9; 42 U.S.C. § 7607(d)(7)(B); S. Coast Air Quality Mgmt.
Dist., 472 F.3d at 891.

3. Minnesota

In the proposed rule, EPA included the State of Minnesota
after determining that its downwind contribution of PM2.5 was
0.39 µg/m3, well above the air quality threshold of 0.2 µg/m3
needed for inclusion in CAIR. In the preamble to the final rule,
however, EPA indicated that it had recalculated Minnesota’s

southern range almost half the threshold for inclusion of the entire
State.
 53

contribution to be 0.21 µg/m3, and included the State in CAIR.
Upon reconsideration, EPA again recalculated and determined
that the State’s contribution was actually 0.20 µg/m3, the exact
threshold for inclusion.

Minnesota Power challenges the inclusion of the State for
PM2.5 as resting on two types of unaddressed flawed data
resulting in an overstatement of emissions: (1) projecting units’
emissions as of 2010 to be at a significantly higher rate than as
of 2001, with some above the permitted level, and
(2) misallocating energy production or heat input projections
between units. In view of these claimed errors, Minnesota
Power contends that EPA has failed to provide a
“complete analytic defense,” Appalachian Power, 249 F.3d at
1054 (quotation omitted), of its model’s treatment of Minnesota.
The court grants the petition because EPA’s failure to address
the claimed errors was unjustifiable. Although EPA maintains
that this concern was not timely presented or with sufficient
specificity to satisfy CAA § 307(d)(7)(B), 42 U.S.C.
§ 7607(d)(7)(B), and thus the issue has been forfeited, see S.
Coast Air Quality Mgmt. Dist., 472 F.3d at 891, the record is to
the contrary.

Prior to the deadline for petitioning for reconsideration,
Minnesota Power raised its emissions overstatement concern,
and identified three units with disparities between 2001 actual
and 2010 projected emissions. After EPA released additional
analysis of the State that included changes based upon
comments received about the Metropolitan Emission Reduction
Proposal (“MERP”), Minnesota Power set forth by letter of May
10, 2005 to EPA claimed errors in the new analysis, including
emissions measurements for the Boswell Energy Center, and the
 54

predominantly wood waste unit of Hibbard Energy Center.10
The final rule was promulgated on May 12, 2005, and
Minnesota Power timely petitioned for reconsideration to
challenge the “moving target” of EPA’s data and determination
regarding the State, and referred to its May 2005 letter. Minn.
Power, Pet. for Recon. at 7 (Aug. 5, 2005), docketed as EPA-
HQ-OAR-2003-0053-2211. In granting reconsideration in
December 2005, EPA again recalculated the State’s contribution
to be 0.20 µg/m3, after removing about 16,500 tons of NOx and
about 5,800 tons of SO2 emissions, and requested comments on
the corrected 2010 inputs. Minnesota Power submitted
comments on January 13, 2006, again raising the measurement
issue and attaching the May 10, 2005 letter describing as
examples the claimed errors at the Boswell and Hibbard units
and referring as well to error at the Sherco unit. Minnesota
Power also met with EPA officials on February 2, 2006
regarding its measurement concerns.

Nothing in the CAA requires a petitioner’s comments to be
more specific or to raise every potential explanation for claimed
disparities in order to receive a response to timely concerns. See
Appalachian Power Co. v. EPA, 135 F.3d 791, 817–18 (D.C.
Cir. 1998). EPA thus lacked discretion not to address the
claimed errors in view of the timely May 2005 letter, petition for

10
The May 2005 letter stated that “[t]he total SO2 emitted from
Boswell unit 4 appears to be overstated by a factor of two or 4000 to
5000 tons” and that “SO2 emissions from the Hibbard Energy Center
appear to be significantly overstated, by over 2000 tons. This appears
to be a result of how the units can burn a mix of wood waste, natural
gas and coal . . . . 80% to 90% of energy input is from wood waste,
making overstatement of emissions a prospect if coal combustion is
presumed.” Letter from Michael Cashin, Sr. Env’tl Eng’r, Minn.
Power, to Sam Napolitano, Ofc. of Air & Radiation, EPA (May 10,
2005), docketed as attachment to EPA-HQ-OAR-2003-0053-2284.2
(Jan. 13, 2006).
 55

reconsideration, and January 2006 comments. See 42 U.S.C.
§§ 7607(d)(6)(B), (7)(B). EPA’s suggestion that the May 2005
letter was part of a “data dump” in the reconsideration
comments, Resp’t’s Br. at 53, ignores that the comments
referred to the May 2005 letter on the first page. Even if EPA
had previously overlooked the May 2005 letter,11 as of January
2006 there was no need for EPA “to cull through” more than a
few pages of comments to confront the claimed errors. See
Nat’l Ass’n of Clean Air Agencies v. EPA, 489 F.3d 1221, 1231
(D.C. Cir. 2007) (quotation omitted).

EPA twice reanalyzed Minnesota’s contribution to address
the MERP issue, but never addressed the claimed measurement
errors at the Boswell, Hibbard, or Sherco units. On
reconsideration, EPA explained that it was not responding
because it was “unable to find any [such] instances [of a double
value],” i.e., overstated emissions. Reconsideration, 71 Fed.
Reg. at 25,318. Yet a double value was identified by Minnesota
Power at the Boswell unit and other substantial disparities were
identified at the Hibbard and Sherco units in the May 2005 letter
and January 2006 comments. EPA’s suggestion that “many
other factors . . . may change in the future” leading to greater
projected than actual emissions, id., is insufficient in view of the
fact that these claimed errors, if confirmed by EPA, could affect
inclusion of the State in CAIR. See West Virginia v. EPA, 362
F.3d at 869.

The inclusion of the State of Minnesota in CAIR was a
borderline call, and the State’s actual downwind contribution to
PM2.5 remains uncertain. EPA acknowledges on appeal that

11
It is unclear why the May 2005 letter did not become part of
the rulemaking record until January 13, 2006 as EPA has not stated
that it did not receive the letter. Regardless, the letter was timely
presented with the reconsideration comments.
 56

even after two recalculations it is still an open question “whether
the information would . . . change[] [EPA’s] determination” to
include the State in CAIR. Resp’t’s Br. at 47. Minnesota Power
estimates that corrected inputs could remove 25,911.4 tons of
emissions and thus reduce the State’s contribution below the
threshold, to the amount of 0.1878 µg/m3. Contrary to EPA’s
suggestion, Minnesota Power is not challenging the Integrated
Planning Model itself, see Appalachian Power, 249 F.3d at
1052–53; rather, the claimed data disparities would require a
response regardless of methodology. The claims of error
involving the Boswell, Hibbard, and Sherco units, including the
treatment of Hibbard as a coal rather than predominantly
biomass unit, do not appear to be an improper request for a
“selective[]” rather than “holistic[]” methodological approach.
See Reconsideration, 71 Fed. Reg. at 25,318. Instead,
Minnesota Power has presented these units as examples to
illustrate that the overstatement objection requires a response
from EPA. A remand is therefore appropriate. See Appalachian
Power, 249 F.3d at 1054. On remand, EPA also should respond
to Minnesota Power’s concern about shifting of heat input
allocations between units. See Pet’rs’ Br. at 23–25.

E. Phase I Compliance Deadline

The Florida Association of Electric Utilities contends that
EPA failed to provide adequate notice of the nullification of
vintage 2009 NOx SIP Call allowances that resulted from its
acceleration of the first-phase NOx compliance deadline from
January 1, 2010 to January 1, 2009. However, in the NPRM
EPA requested comments on the timing of each phase of CAIR,
specifically asking “whether the first phase deadline should be
as proposed, or adjusted earlier or later, in light of [] competing
factors.” 69 Fed. Reg. at 4623. EPA’s Supplemental Proposal
made the same request. Id. at 32,690. Because the issue of what
allowances may be used in compliance with CAIR’s
 57

NOx program is directly linked with the start of the program, see
CAIR, 70 Fed. Reg. at 25,285, the resulting nullification was a
“logical outgrowth” of changing the compliance deadline. Ne.
Md. Waste Disposal Auth. v. EPA, 358 F.3d 936, 951 (D.C. Cir.
2004). Petitioner has not demonstrated that it was impracticable
to raise such objection within the comment period or that the
grounds for such objection arose afterward, much less that such
objection is of central relevance. 42 U.S.C. § 7607(d)(7)(B).
Although petitioner vaguely alludes to EPA’s “incorrect factual
assumptions” as a reason mandating reconsideration of
the compliance deadline, NOx Br. at 8, it fails to support this
assertion. Therefore, petitioner fails to demonstrate a statutory
ground that would require reconsideration.

In any event, EPA’s change to the NOx compliance deadline
was not arbitrary. EPA explained that the earlier date is better
coordinated with the ozone and fine particulate attainment dates
mandated by the CAA. CAIR, 70 Fed. Reg. at 25,216. Having
determined that the earlier deadline is preferable, EPA
concluded that the change is consistent with its CAA obligation
“to require emission reductions for obtaining NAAQS to be
achieved as soon as practicable.” Id.

III. Remedy

The petitioners disagree about the proper remedy, with
positions ranging from Minnesota Power’s demand that we
vacate CAIR with respect to Minnesota to North Carolina’s
request that we vacate only the Compliance Supplement Pool
but remand most of CAIR for EPA to make changes to the
compliance date, the set of included states, and the trading
program. Unfortunately, we cannot pick and choose portions of
CAIR to preserve. “Severance and affirmance of a portion of an
administrative regulation is improper if there is ‘substantial
doubt’ that the agency would have adopted the severed portion
 58

on its own.” Davis County Solid Waste Mgmt. & Energy
Recovery Special Serv. Dist. v. EPA, 108 F.3d 1454, 1459 (D.C.
Cir. 1997). Whether a regulation is severable “depends on the
issuing agency’s intent.” North Carolina v. FERC, 730 F.2d
790, 795–96 (D.C. Cir. 1984). EPA has been quite consistent
that CAIR was one, integral action. It developed both the SO2
and NOx programs assuming all states would participate in the
trading programs as implemented in CAIR’s Model Rule, and it
modeled the crucial cost-effectiveness of the caps “assum[ing]
interstate emissions trading.” CAIR, 70 Fed. Reg. at 25,196.
The model also took into account “the use of the existing title IV
bank of SO2 allowances.” Id. Moreover, EPA justified the SO2
and NOx portions of CAIR as complementary measures to
mitigate PM2.5 pollution. See id. at 25,184. In sum, CAIR is a
single, regional program, as EPA has always maintained, and all
its components must stand or fall together.

Indeed, they must fall. We have, in reviewing EPA actions
under 42 U.S.C. § 7607(d)(9), ordinarily applied the two-part
test of Allied-Signal, Inc. v. Nuclear Regulatory Comm’n, 988
F.2d 146, 150–151 (D.C. Cir. 1993), under which this answer
“depends on ‘the seriousness of the order’s deficiencies (and
thus the extent of doubt whether the agency chose correctly) and
the disruptive consequences of an interim change.’” See Davis
County, 108 F.3d at 1459 (applying Allied-Signal in
§ 7607(d)(9) review). We are sensitive to the risk of interfering
with environmental protection, which is one potential disruptive
consequence, see Nat’l Lime Ass’n v. EPA, 233 F.3d 625, 635
(D.C. Cir. 2000). But the threat of disruptive consequences
cannot save a rule when its fundamental flaws “foreclose EPA
from promulgating the same standards on remand,” Natural Res.
Def. Council v. EPA, 489 F.3d 1250, 1261–62 (D.C. Cir. 2007).

We must vacate CAIR because very little will “survive[ ]
remand in anything approaching recognizable form.” Id. at
 59

1261. EPA’s approach—regionwide caps with no state-specific
quantitative contribution determinations or emissions
requirements—is fundamentally flawed. Moreover, EPA must
redo its analysis from the ground up. It must consider anew
which states are included in CAIR, after giving some
significance to the phrase “interfere with maintenance” in
section 110(a)(2)(D), 42 U.S.C. § 7410(a)(2)(D). It must decide
what date, whether 2015 or earlier, is as expeditious as
practicable for states to eliminate their significant contributions
to downwind nonattainment. The trading program is unlawful,
because it does not connect states’ emissions reductions to any
measure of their own significant contributions. To the contrary,
it relates their SO2 reductions simply to their Title IV
allowances, tampering unlawfully with the Title IV trading
program. The SO2 regionwide caps are entirely arbitrary, since
EPA based them on irrelevant factors like the existence of the
Title IV program. The allocation of state budgets from the NOx
caps is similarly arbitrary because EPA distributed allowances
simply in the interest of fairness. It is possible that after
rebuilding, a somewhat similar CAIR may emerge; after all,
EPA already promulgated the apparently similar NOx SIP Call
eight years ago. But as we have explained, the similarities with
the NOx SIP Call are only superficial, and CAIR’s flaws are
deep. No amount of tinkering with the rule or revising of the
explanations will transform CAIR, as written, into an acceptable
rule. Of course the Federal Implementation Plan EPA imposed
is intimately connected to CAIR, and we vacate the FIP as
well.12

Finally, we note that in the absence of CAIR, the NOx SIP
Call trading program will continue, because EPA terminated the

12
EPA published its decision on North Carolina’s petition under
42 U.S.C. § 7426 in the same notice as the FIP, but that decision is
subject to challenge in a separate case still pending. Today’s decision
takes no action with respect to that petition.
 60

program only as part of the CAIR rulemaking. CAIR, 70 Fed.
Reg. at 25,317 (codified at 40 C.F.R. § 51.121(r)). The
continuation of the NOx SIP Call should mitigate any disruption
that might result from our vacating CAIR at least with regard to
NOx. In addition, downwind states retain their statutory right to
petition for immediate relief from unlawful interstate pollution
under section 126, 42 U.S.C. § 7426.

To summarize, we grant the petitions of Entergy, SO2
Petitioners, and Minnesota Power. We grant North Carolina’s
petition with respect to the “interfere with maintenance”
language, CAIR’s 2015 compliance date, and the unrestricted
trading of allowances; we deny it with respect to EPA’s
definition of “will” in “will contribute significantly,” and the
PM2.5 contribution threshold. We deny the petitions of the
Florida and Texas petitioners, and the Florida Association of
Electric Utilities. Accordingly, we vacate CAIR and its
associated FIP and remand both to the EPA.

So ordered.