Federal Court Overturns Bush Clean Air Rule

Published May 1, 2006

In a stunning setback for the Bush administration’s environmental and energy policies, a federal court on March 17 tossed out a key provision of a clean air rule that would have allowed for less-stringent emissions restrictions for aging coal-fired power plants and other industrial facilities in the United States.

Revisions Sought Clarity

A three-judge panel of the U.S. Court of Appeals for the District of Columbia ruled unanimously that the administration’s effort to bring regulatory clarity to a convoluted, 1970s-era rule known as New Source Review (NSR) violated the “plain language” of the Clean Air Act. The New Source Review rules require new power plants, refineries, and other industrial facilities to install state-of-the-art pollution control equipment.

As for older facilities, particularly coal-fired ones, the Environmental Protection Agency (EPA) held for more than 20 years that these plants could carry out routine maintenance without triggering the expensive NSR requirements. They were, in effect, “grandfathered” under the assumption they would be shut down in the coming years and replaced by more modern power plants.

That assumption, however, could not have been more erroneous, as an expanding economy, growing population, and the onset of the digital revolution led to soaring demand for energy. As a result, the older power plants stayed in operation.

Disincentives to Modernize

In the 1990s, the Clinton administration reversed EPA’s course and declared even routine maintenance of older facilities constituted a “new source” of emissions that required these facilities to comply with the NSR. The Clinton EPA brought suit against utilities it said were in violation of NSR.

After taking office in January 2001, Bush environmental officials sought, by regulatory means, to spare utilities and consumers the burdens brought on by the Clinton administration’s reinterpretation of New Source Review.

From the Bush administration’s standpoint, the utilities were in a bind. If they delayed “routine maintenance” for fear of triggering expensive NSR requirements, emissions would rise and the environment would suffer. But if older power plants were shut down, electricity prices would rise accordingly. Both outcomes were undesirable.

New Rule Struck Down

The Bush administration’s response was its own interpretation of NSR, unveiled in 2002 and supplemented in 2003. Among other things, it included a definition of “routine maintenance.” The Bush interpretation exempted companies from NSR requirements whenever they made improvements to their facilities amounting to less than 20 percent of the replacement cost of the equipment.

Last year, a three-judge panel upheld part of the Bush NSR policy by giving its approval to the way EPA measures emissions by companies making upgrades in equipment or operations. But the effort to set a 20 percent threshold for making equipment modifications before triggering NSR requirements was struck down in the court’s latest ruling.

“EPA’s approach would ostensibly require that the definition of ‘modification’ include a phrase such as ‘regardless of size, cost, frequency, effect,’ or other distinguishing characteristic,” argued Judge Judith W. Rogers, who wrote the opinion. “Only in a Humpty Dumpty world would Congress be required to use superfluous words while an agency could ignore an expansive word that Congress did use. We decline to adopt such a world-view.”

Activists Overjoyed

The decision was music to the ears of several state attorneys general and environmental groups who had challenged the Bush NSR rule. “This is an enormous victory over the concerted efforts of the Bush administration to dismantle the Clean Air Act,” New York Attorney General Eliot Spitzer told the New York Times on March 18. Spitzer said the ruling “shows that the administration’s effort to misinterpret and undermine the statute is illegal.”

Scott Segal, director of the Electric Reliability Coordinating Council, a trade group, lamented the court’s ruling. “This is a missed opportunity for reform that would have made it easier to improve power plant efficiency and workplace safety, and that’s bad news for consumers and the environment,” Segal told the Washington Post on March 18.

Victimized by Inconsistency

The Bush administration did itself no favors by sending mixed signals on NSR. While arguing against the Clinton administration’s interpretation, it inexplicably allowed attorneys at EPA and the U.S. Justice Department to continue pursuing cases against utilities based entirely on the Clinton-era interpretation.

Joel Schwartz, a visiting fellow at the American Enterprise Institute who has written extensively on air quality issues, blamed the Bush administration for the outcome of the court’s decision. “They tried to tinker around with the Clinton NSR policy instead of trying to change the law to remove the NSR’s perverse incentives,” Schwartz said. He added, “The irony here is that we still have the NSR structure in place that discourages the modernization of aging facilities.”

Schwartz also dismissed claims by state attorneys general and environmental groups that the Bush NSR initiative would have increased pollution and undermined public health. “NSR is not an air pollution-reduction program,” he said. “Ambient air quality in the U.S. continues to improve primarily as a result of caps placed in recent years on emissions of sodium dioxide and nitrogen oxides.”

At press time, the administration had 45 days from March 17 to appeal the three-judge panel’s decision.

Bonner R. Cohen ([email protected]) is a senior fellow at the National Center for Public Policy Research in Washington, DC.