STATE OF NORTH CAROLINA, PETITIONER v. ENVIRONMENTAL

PROTECTION AGENCY, RESPONDENT, UTILITY AIR REGULATORY

GROUP, ET AL., INTERVENORS

No. 05-1244 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

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA

CIRCUIT

531 F.3d 896; 382 U.S. App. D.C. 167; 2008 U.S. App. LEXIS 14733; 67 ERC (BNA)

1151; 38 ELR 20172

March 25, 2008, Argued

July 11, 2008, Decided

SUBSEQUENT HISTORY: Modified by, Rehearing

granted by, in part, Rehearing denied by, in part,

Remanded by North Carolina v. EPA, 2008 U.S. App.

LEXIS 26084 (D.C. Cir., Dec. 23, 2008)

PRIOR HISTORY: [***1]

On Petitions for Review of an Order of the

Environmental Protection Agency.

North Carolina v. EPA, 2006 U.S. App. LEXIS 24597

(D.C. Cir., Sept. 28, 2006)

COUNSEL: Robin L. Juni argued the cause for

petitioners on SO[2] Issues. Bart E. Cassidy argued the

cause for petitioners on Title 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 [***2]

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

NO[x]-Related Claims.

Angeleno 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

Page 1
E. Silverman and Geoffrey Wilcox, 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 [***3] 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 for 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 [***4] 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 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.

JUDGES: Before: SENTELLE, Chief Judge, and

ROGERS and BROWN, Circuit Judges.

OPINION

[*901] [**172] 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

[***5] 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" 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. [**173] [*902] § 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

[***6] nonattainment in, or interfere with

maintenance by, any other State with

Page 2

531 F.3d 896, *; 382 U.S. App. D.C. 167, **;

2008 U.S. App. LEXIS 14733, ***2; 67 ERC (BNA) 1151
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 NO[x] SIP Call, which

imposed a duty on certain upwind sources to reduce their

NO[x] 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)

("NO[x] SIP Call"). The NO[x] SIP Call created an

optional cap-and-trade program for nitrogen oxides

("NO[x]"). Id. at 57,359. Like the NO[x] 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 Rain Program;

Revisions to the NO[x] SIP Call, 70 Fed. Reg. 25,162

(May 12, 2005) ("CAIR")-which is the rule at issue in

these consolidated petitions for [***7] 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

("SO[2]") emitted by fossil fuel-fired combustion

devices. Congress capped SO[2] 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 SO[2] 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 SO[2] 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

[***8] 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 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)-- [*903] [**174]

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 ("PM[2.5]"), a pollutant associated

[***9] 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 SO[2] "is a precursor to

PM[2.5] formation, and NO[x] is a precursor to both

ozone and PM[2.5] formation," CAIR requires upwind

states "to revise their [SIPs] to include control measures

to reduce emissions" of SO[2] and NO[x]. Id. CAIR

requires upwind states to reduce their emissions in two

phases. Id. at 25,165. NO[x] reductions are to start in

2009, SO[2] 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; Revisions to the Clean Air Interstate

Page 3

531 F.3d 896, *902; 382 U.S. App. D.C. 167, **173;

2008 U.S. App. LEXIS 14733, ***6; 67 ERC (BNA) 1151
Rule; Revisions to the Acid Rain Program, 71 Fed. Reg.

25,328, 25,328 (Apr. 28, 2006) [***10] ("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 SO[2] cap-and-trade program

and replaces the NO[x] SIP Call with the CAIR

ozone-season NO[x] 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 [***11] quality threshold

for each of the two pollutants it regulates. A state meets

the air quality threshold for PM[2.5] (and is therefore

subject to CAIR) if it contributes 0.2 micrograms per

cubic meter ("[mu]g/m3") or more of PM[2.5] 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: [**175] [*904] (1) it contributes less

than 2 parts per billion ("ppb") to a 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

[***12] 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 NO[x] and those that "contribute

significantly" to nonattainment for PM[2.5] NAAQS are

subject to CAIR's annual limits for NO[x] and SO[2].

The ozone-season NO[x] limits are a percentage

reduction in the annual limits for NO[x] calculated for

PM[2.5] contributors. In order to eliminate a state's

significant contribution to PM[2.5] NAAQS, CAIR sets

an annual cap on NO[x] and SO[2] 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 SO[2] and NO[x]. 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 NO[x] emissions budget

[***13] by allocating the regionwide NO[x] 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 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 NO[x] emissions with a one-time

Compliance Supplement Pool of 200,000 NO[x]

allowances. Id. at 25,231-32. Like SO[2] allowances in

Title IV, one CAIR NO[x] allowance permits an EGU to

emit one ton of NO[x] in one year. State budgets are

based on their average annual heat input, adjusted by fuel

type (coal, gas, [***14] 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

Page 4

531 F.3d 896, *903; 382 U.S. App. D.C. 167, **174;

2008 U.S. App. LEXIS 14733, ***9; 67 ERC (BNA) 1151
facilities receive comparably fewer NO[x] allowances

than states with higher percentages of coal-fired facilities.

States have discretion to accomplish their NO[x]

emissions caps as they see fit in their SIPs, but if a state

takes part in the EPA-administered trading program for

NO[x], it must follow EPA's rules for that program.

CAIR sets each state's SO[2] budget using a process

similar to the one used for NO[x] budgets; it allocates the

regionwide SO[2] budget among upwind states.

However, EPA used a different method to determine the

regionwide budget for SO[2]. Instead of using 1999-2002

data, the agency summed [*905] [**176] 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 baseline period, not the later time

period used for NO[x] allowances in CAIR. 42 U.S.C. §§

7651a(4), 7651c, 7651d, [***15] 7651e, 7651h, 7651i.

States subject to CAIR may opt into the

EPA-administered trading program for SO[2], 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 SO[2] 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 SO[2] in addition to EGUs,

does not need to surrender quite as many of its Title IV

SO[2] 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 SO[2] allowances if it

adopts a SIP that regulates only non-EGUs to accomplish

its SO[2] cap, id. at 25,295, but EPA notes that EGUs are

projected to contribute 70% of SO[2] 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, [***16] 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 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 NO[x] Compliance Supplement

Pool, EPA's interpretation of "will" in "will contribute

significantly," and the air quality threshold for PM[2.5].

Several electric utility companies ("SO[2] Petitioners")

contest EPA's authority under [***17] Title I and Title

IV to limit the number of Title IV allowances in

circulation, to set state SO[2] 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 NO[x] 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 NO[x] restrictions. We consider these petitions

below.

[*906] [**177] 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 review standard in 42 U.S.C.

§ 7607(d) [***18] 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

Page 5

531 F.3d 896, *904; 382 U.S. App. D.C. 167, **175;

2008 U.S. App. LEXIS 14733, ***14; 67 ERC (BNA) 1151
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, 104 S. Ct. 2778, 81

L. Ed. 2d 694 (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 [***19] 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, 103 S. Ct. 2856, 77 L. Ed. 2d 443

(1983); see Motor Vehicle Mfrs. Ass'n. v. EPA, 247 U.S.

App. D.C. 268, 768 F.2d 385, 389 n.6 (D.C. Cir. 1985)

(noting that "the 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 NO[x] 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 [mu]g/m3 air

quality threshold for including upwind states in CAIR's

[***20] PM[2.5] 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

NO[x] Compliance Supplement Pool issue.

1. Pollution-Trading Programs

North Carolina challenges the lawfulness of CAIR's

trading programs for SO[2] and NO[x]. 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 [*907] [**178] 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 approach to CAIR and

include voluntary emissions trading programs.

In modeling the CAIR . [***21] . . 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

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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"

[***22] 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 SO[2], 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 SO[2] and NO[x]

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 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 PM[2.5] 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 N[x]O and SO[2] allowances to cover

all their current [***23] 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."

[*908] [**179] In Michigan v. EPA, 341 U.S. App.

D.C. 306, 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

NO[x] 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

[***24] to draw the 'significant contribution' line on a

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 NO[x] 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) [***25] 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, 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

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amounts which will "contribute significantly to

nonattainment in, or interfere [***26] 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 [*909] [**180] 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 [***27] 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) ("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 [***28] 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 NO[x] 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." Id. In the NO[x] SIP Call, it

meant that areas monitored to [***29] 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. NO[x] 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 NO[x] 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 [**181] [*910] 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. [***30] Under

EPA's reading of the statute, a state can never "interfere

with maintenance" unless EPA determines that at one

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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 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, 121

S. Ct. 903, 149 L. Ed. 2d 1 (2001). Areas that find

[***31] 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, 99 S. Ct. 2326, 60 L. Ed. 2d 931

(1979). There is no context in section 110(a)(2)(D)(i)(I)

directing an alternate result; [***32] 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 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 [**182]

[*911] no protection for downwind [***33] 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

PM[2.5]. 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

infeasibility when approving a SIP, Union Elec. Co. v.

EPA, 427 U.S. 246, 96 S. Ct. 2518, 49 L. Ed. 2d 474

(1976), and departs from the contrary [***34] approach

it took in the NO[x] SIP Call without explanation, NO[x]

SIP Call, 63 Fed. Reg. at 57,449.

North Carolina challenges the 2015 Phase Two

deadline for upwind states to come into compliance with

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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. PM[2.5] 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 PM[2.5] 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

[***35] 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, 374 U.S.

App. D.C. 121, 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 PM[2.5] 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 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 [***36] because the

phrase "consistent with the provisions of this title"

follows the word "prohibiting." Due to this placement,

[**183] [*912] 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 [***37] 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. 42

U.S.C. § 7410(a)(2)(D)(i). As a result, downwind

nonattainment areas must attain NAAQS for ozone and

PM[2.5] 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

[***38] 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. NO[x] Compliance Supplement Pool

North Carolina contends that the NO[x] Compliance

Supplement Pool of 200,000 tons defies section

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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 NO[x]

allowances in 2009, the year in which Phase One of the

CAIR NO[x] limits go into effect. The Compliance

Supplement Pool gives states an incentive make

emissions cuts early; states that can show "surplus"

NO[x] 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 NO[x]

credits are apportioned to states in accordance with their

share of the 2009 regionwide NO[x] budget. Id. at

25,286. States may distribute the credits to sources based

on "(1) [a] demonstration by the source to the State

[***39] of NO[x] emissions reductions in surplus of any

existing NO[x] emission control requirements; or (2) a

demonstration to the State that the facility [**184]

[*913] 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 NO[x]

reductions." Id.

North Carolina first argues that the Compliance

Supplement Pool is unlawful because it permits states to

emit NO[x] in excess of the 1.5 million ton annual

regional NO[x] 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 [***40] 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 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 [***41]

certainty in the NO[x] 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 NO[x] 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." NO[x] 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 nonattainment at the

time it was promulgating the NO[x] 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 [***42] same

rulemaking explained its approach to measuring

nonattainment in more detail:

In determining whether a downwind area

has a nonattainment problem under the

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1-hour standard to which an upwind

[**185] [*914] 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 NO[x] SIP Call, EPA interpreted

"will" to indicate sources that presently and at some point

in the future "will" contribute to nonattainment. Because

the NO[x] 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 [***43] 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 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. PM[2.5] Contribution Threshold

North Carolina argues that EPA acted arbitrarily by

proposing an air quality threshold for PM[2.5] at 0.15

[mu]g/m3 but finally settling on an air quality threshold

of 0.2 [mu]g/m3. The air quality threshold for PM[2.5] is

the amount of PM[2.5] that sources in a state must

contribute to a downwind nonattainment area to be

regulated as an upwind state in CAIR's PM[2.5] program.

North Carolina also challenges [***44] EPA's decision

to truncate, rather than round, the numbers it compared to

the threshold. As a result, states that contributed 0.19

[mu]g/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 [mu]g/m3 threshold. Illinois,

which is already subject to CAIR's requirements for

PM[2.5] 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 PM[2.5] 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 support for this assertion.

North Carolina has standing to raise this issue for

three reasons. First, if in repromulgating [***45] 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 [**186] [*915] 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 [mu]g/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 [***46]

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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 [mu]g/m3. NPR, 69 Fed. Reg. at 4584. In

the Notice of Proposed Rulemaking, EPA stated that a

0.1 [mu]g/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

[mu]g/m3 that is closest to 0.1 [mu]g/m3, which was one

percent. Id. One percent of 15.0 [mu]g/m<3> is 0.15

[mu]g/m<3>, 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 [mu]g/m<3>. 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 PM[2.5]

concentration to the tenths column. CAIR, 70 Fed. Reg. at

25,191; [***47] see id. at 25,190 (commenters). North

Carolina believes it was arbitrary for EPA to round 0.15

[mu]g/m<3> up to 0.2 [mu]g/m<3> instead of reverting

to the earlier 0.1[mu]g/m<3> 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 [mu]g/m<3>

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 [mu]g/m<3> threshold it

originally proposed was too low, requesting comments on

"the use of higher or lower thresholds." NPR, 69 Fed.

Reg. at 4584. And in raising the threshold number, EPA

was responding to comments citing concerns about the

"measurement precision of existing PM[2.5] monitors."

CAIR, 70 Fed. Reg. at 25,190. We cannot say in this

circumstance that EPA's decision to round the 0.15

[mu]g/m<3> threshold to 0.2 [mu]g/m<3> [***48]

instead of reverting to the original threshold considered

of 0.1 [mu]g/m<3> was wholly unsupported by the

record.

Likewise, we cannot say that EPA's decision to

truncate rather than round the PM[2.5] contribution levels

it compared to the 0.2 [mu]g/m<3> threshold was

arbitrary. The parties dispute which C.F.R. provision

applies to the number it compares to the [**187] [*916]

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 PM[2.5] contribution] from three successive

years," is the contribution of PM[2.5] from one upwind

state to a nonattainment area. CAIR, 70 Fed. Reg. at

25,190. Section 4.3(a) applies to annual PM[2.5] 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 PM[2.5] for three consecutive years, 40 C.F.R.

pt. 50 App. N § 4.1(b), but design values are

measurements of PM[2.5] levels [***49] in a stationary

area--not levels of PM[2.5] 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

PM[2.5] 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 [mu]g/m<3> threshold as long as its

choice is reasonable. EPA chose to truncate numbers

because the "truncation convention for PM[2.5] is similar

to that used in evaluating modeling results in applying the

ozone significance screening criterion of 2 ppb in the

NO[x] 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 [mu]g/m<3> threshold and EPA's

choice to truncate the numbers compared to it.

B. SO[2] and NO[x] Budgets

SO[2] Petitioners and petitioner Entergy challenge

CAIR's budgets for the SO[2] and NO[x] trading

programs. EPA [***50] set states' SO[2] budgets for

2010 to 50% (35% in 2015) of the allowances the states'

EGUs receive under Title IV. SO[2] Petitioners argue

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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 NO[x], 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 SO[2] and NO[x]

are precursors to ozone and PM[2.5] 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. [***51] SO[2] Budgets

We first address EPA's choice of SO[2] budgets.

EPA claims to have based state budgets for SO[2] and

NO[x] 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, 341 U.S. App. D.C. 306, 213 F.3d 663

(D.C. Cir. 2000). We observe initially that state SO[2]

budgets are unrelated to the criterion (the "air quality

factor") by which [**188] [*917] EPA included states

in CAIR's SO[2] program. Significant contributors, for

purposes of inclusion only, are those states EPA projects

will contribute at least 0.2 [mu]g/m<3> of PM[2.5] 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 NO[x] 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 [***52] SO[2]

Petitioners do not quarrel with EPA drawing the line at

0.2 [mu]g/m<3> or its different measure of significance

for determining states' SO[2] budgets. Again, we do not

disturb this approach.

Even so, EPA's method in setting the SO[2] 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 [***53] to draw the 'significant

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 SO[2] 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 SO[2]

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 PM[2.5] NAAQS. And while "Congress chose

[***54] 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

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rain, could be relevant to 2015 levels of an air pollutant,

PM[2.5].

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

[*918] [**189] 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

"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 [PM[2.5]].'"

[***55] 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.

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

SO[2] and NO[x]." 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 SO[2] caps of,

coincidentally, "50 percent and 67 percent from . .

. title IV cap levels." Id.

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 [***56] on the cost

of reducing that "contribution," here EPA did not draw

the line at all. It simply verified sources could meet the

SO[2] 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 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 SO[2]

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. NO[x] Budgets

Next, we address EPA's use of "fuel factors" to

allocate the regional NO[x] cap among the CAIR

[***57] states. EPA determined the cap by multiplying

NO[x] 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 NO[x] 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 [*919] [**190] 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 NO[x] analysis began, inauspiciously, in a

manner similar to its SO[2] decisions. But instead of

beginning with "the existing title IV annual SO[2] cap," it

began with the existing NO[x] SIP Call emissions rate of

0.15 pounds of NO[x] emitted per mmBtu of heat input.

CAIR, 70 Fed. Reg. at 25,205. It is not clear why

[***58] 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 SO[2] caps, EPA's effort "'to

set up a reasonable balance of regional and local controls

to provide a cost-effective and equitable governmental

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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 SO[2] 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 NO[x] 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) [***59] 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 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 NO[x] 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 [***60] 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, 258 U.S. App. D.C. 6, 809 F.2d 847, 854

(D.C. Cir. 1987); see also Lead Indus. Ass'n v. EPA, 208

U.S. App. D.C. 1, 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, 104 S. Ct. 2778, 81 L. Ed. 2d 694, 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 [*920] [**191] 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, [***61] which necessarily received "larger

NO[x] 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. 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 NO[x] 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.

2 To be sure, the unadjusted [***62] 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.

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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 SO[2] and NO[x]

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 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 [***63] 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 [*921] [**192] 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 [***64] not to

participate in the NO[x] 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).

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 [***65] Allowances

SO[2] Petitioners and a trade association of

waste-coal EGUs (together "SO[2] Petitioners") also

challenge EPA's effort to "harmonize" CAIR's regulation

of SO[2] with the existing program for trading SO[2]

emissions allowances under Title IV of the CAA. Since

EPA set states' SO[2] 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 SO[2] under CAIR and could be expected to have

substantial numbers of excess Title IV allowances to emit

SO[2]. 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 SO[2] 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 [***66] opting into the program.

SO[2] 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

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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

SO[2] 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 [*922] [**193]

agree that this section does not grant [***67] EPA any

authority. 4

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.

Thus, EPA claims section 110(a)(2)(D)(i)(I) gives it

authority to set up a program for trading SO[2] 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

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)). [***68] 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, 195 U.S. App.

D.C. 30, 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, 79 S. Ct. 818, 3 L. Ed. 2d 893 (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

SO[2] Petitioners the burden of explaining why "two

independent programs . . . would produce a better result."

Resp't's Br. 87. Lest EPA forget, [***69] 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,

348 U.S. App. D.C. 6, 348 U.S. App. D.C. 7, 268 F.3d

1075, 1081 (D.C. Cir. 2001). 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, 95 S. Ct.

1470, 43 L. Ed. 2d 731 (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.

[*923] [**194] D. Border State Issues

Under Title I of the CAA, there is a presumption of

state-level regulation [***70] 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)

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2008 U.S. App. LEXIS 14733, ***66; 67 ERC (BNA) 1151
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 contributions" to the state's overall downwind

pollution. Id.; see Appalachian Power Co. v. EPA, 346

U.S. App. D.C. 38, 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 [***71] 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.

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.

1. Texas

The final rule included the State of Texas due to its

maximum downwind contribution of 0.29 [mu]g/m<3> to

PM[2.5] nonattainment, which is above the air quality

threshold of 0.2 [mu]g/m<3>. Petitioners unsuccessfully

sought reconsideration of inclusion of that part of the

State west of the north-south I-35/I37 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 [***72] 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 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 [mu]g/m<3> 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 [*924]

[**195] 0.05 [mu]g/m<3>. Neither did petitioners claim

that they were unable to present modeling without

assistance from EPA and that such assistance [***73]

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 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 [***74] 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

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2008 U.S. App. LEXIS 14733, ***70; 67 ERC (BNA) 1151
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,

360 U.S. App. D.C. 419, 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, 293 U.S. App. D.C. 117,

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 [***75] 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 [mu]g/m<3> of PM[2.5] 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.

2. Florida

The final rule included the State of Florida for ozone

and PM[2.5]. However, the proposed rule had included

the State only for PM[2.5]. Petitioners sought

reconsideration contesting the inclusion of the State as a

whole for ozone and the inclusion of southern subregions

for ozone and for PM[2.5]. 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, 341 U.S.

App. D.C. 306, 213 F.3d 663, EPA was required to

exclude parts of [**196] [*925] Southern [***76]

Florida (south of latitude 28.67 for ozone and south of

latitude 29.2 for PM[2.5]) that do not make a significant

contribution to nonattainment, or at least the area south of

latitude 26 for both ozone and PM[2.5] because EPA

initially had no data for this area. The record supports

EPA's reasoned explanation for including the entire State

for ozone and PM[2.5].

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, 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 [***77]

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.

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.

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

[***78] 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.

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2008 U.S. App. LEXIS 14733, ***74; 67 ERC (BNA) 1151
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 convention that is reasonable on this record. See

42 U.S.C. § 7607(d)(9)(A).

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.

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 [***79] not exonerate a subregion

and does not undermine EPA's inclusion of the area south

of latitude 26 for either ozone or PM[2.5]. Given the

rulemaking record, EPA appropriately determined

[**197] [*926] that the State of Florida as a whole

should be included.

In regard to inclusion of the area south of latitude

29.2 for PM[2.5], 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 PM[2.5]. 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 PM[2.5].

See Michigan, 213 F.3d at 684. The northern

[***80] part of the State's contributions range

from 0.11 to 0.20 [mu]g/m<3> and the

contributions from the southern area appear to be

quite similar, ranging from 0.09 to 0.15

[mu]g/m<3>, with even the minimum in the

southern range almost half the threshold for

inclusion of the entire State.

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 [***81] 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 PM[2.5] was 0.39 [mu]g/m<3>, well

above the air quality threshold of 0.2 [mu]g/m<3> needed

for inclusion in CAIR. In the preamble to the final rule,

however, EPA indicated that it had recalculated

Minnesota's contribution to be 0.21 [mu]g/m<3>, and

included the State in CAIR. Upon reconsideration, EPA

again recalculated and determined that the State's

contribution was actually 0.20 [mu]g/m<3>, the exact

threshold for inclusion.

Minnesota Power challenges the inclusion of the

State for PM[2.5] as resting on two types of unaddressed

flawed [***82] data resulting in an overstatement of

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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 [*927] [**198] 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 [***83]

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 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

[mu]g/m<3>, after removing about 16,500 tons of NO[x]

and about 5,800 tons of SO[2] 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.

10 The May 2005 letter [***84] stated that

"[t]he total SO[2] emitted from Boswell unit 4

appears to be overstated by a factor of two or

4000 to 5000 tons" and that "SO[2] 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).

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, 328

U.S. App. D.C. 379, 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 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 [***85] 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 [*928] [**199] Agencies v. EPA, 376 U.S.

App. D.C. 385, 489 F.3d 1221, 1231 (D.C. Cir. 2007)

(quotation omitted).

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.

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

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2008 U.S. App. LEXIS 14733, ***82; 67 ERC (BNA) 1151
Hibbard and Sherco units in the May 2005 letter and

January [***86] 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 PM[2.5] remains uncertain. EPA

acknowledges on appeal that 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 [mu]g/m<3>. 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 [***87] 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 NO[x] SIP Call allowances

that resulted from its acceleration of the first-phase

NO[x] 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 [***88] issue of what allowances

may be used in compliance with CAIR's NO[x] 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, 360 U.S. App.

D.C. 129, 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 [**200] [*929] reconsideration of the

compliance deadline, NO[x] 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 NO[x] 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 [***89] 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 on its own." Davis County Solid

Waste Mgmt. & Energy Recovery Special Serv. Dist. v.

EPA, 323 U.S. App. D.C. 425, 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,

235 U.S. App. D.C. 28, 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 SO[2] and NO[x]

programs assuming all states would participate in the

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2008 U.S. App. LEXIS 14733, ***85; 67 ERC (BNA) 1151
trading programs as implemented in CAIR's Model Rule,

[***90] 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 SO[2]

allowances." Id. Moreover, EPA justified the SO[2] and

NO[x] portions of CAIR as complementary measures to

mitigate PM[2.5] 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, 300 U.S. App. D.C. 198, 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, 344 U.S. App. D.C. 97, 233 F.3d 625,

635 (D.C. Cir. 2000). But the threat of [***91]

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, 376 U.S. App. D.C. 414, 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 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). [*930]

[**201] 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 SO[2] reductions simply to their

Title IV allowances, tampering unlawfully with the Title

IV trading program. The SO[2] regionwide caps are

[***92] entirely arbitrary, since EPA based them on

irrelevant factors like the existence of the Title IV

program. The allocation of state budgets from the NO[x]

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 NO[x] SIP Call eight years ago. But as

we have explained, the similarities with the NO[x] 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

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.

Finally, we note that in the absence of CAIR, the

NO[x] SIP Call trading program will continue, because

EPA terminated the program only as part of the CAIR

rulemaking. CAIR, 70 Fed. Reg. at 25,317 [***93]

(codified at 40 C.F.R. § 51.121(r)). The continuation of

the NO[x] SIP Call should mitigate any disruption that

might result from our vacating CAIR at least with regard

to NO[x]. 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,

SO[2] 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 PM[2.5] 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.

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