LEXSEE 213 F.3D 663

STATE OF MICHIGAN, MICHIGAN DEPARTMENT OF ENVIRONMENTAL

QUALITY AND STATE OF WEST VIRGINIA, DIVISION OF

ENVIRONMENTAL PROTECTION, PETITIONERS v. U.S. ENVIRONMENTAL

PROTECTION AGENCY, RESPONDENT; NEW ENGLAND COUNCIL, INC.,

ET AL., INTERVENORS

No. 98-1497, Consolidated with 98-1499, 98-1500, 98-1501, 98-1502, 98-1504,

98-1518, 98-1556, 98-1567, 98-1573, 98-1585, 98-1588, 98-1590, 98-1596, 98-1598,

98-1601, 98-1602, 98-1608, 98-1609, 98-1611, 98-1615, 98-1616, 98-1617, 98-1618,

98-1619, 98-1621, 99-1070, 99-1093

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA

CIRCUIT

213 F.3d 663; 2000 U.S. App. LEXIS 3209; 50 ERC (BNA) 1161

November 9, 1999, Argued

March 3, 2000, Decided

SUBSEQUENT HISTORY: [**1] Certiorari Denied

March 5, 2001, Reported at: 2001 U.S. LEXIS 1993; 2001

U.S. LEXIS 1992; 2001 U.S. LEXIS 1991.

PRIOR HISTORY: On Petitions for Review of an

Order of the Environmental Protection Agency.

DISPOSITION: EPA's final rule with respect to

Wisconsin, Missouri, and Georgia Vacated. These cases

remanded for further consideration. In all other respects,

petitions for review denied.

COUNSEL: Susan E. Ashbrook, Assistant Attorney

General, State of Ohio, James C. Gulick, Special Deputy

Attorney, State of North Carolina, Andrea B. Field,

Theodore L. Garrett, Todd Palmer, Jonathan S. Martel,

William F. Pedersen and Scott H. Segal argued the causes

for petitioners. With them on the briefs were Betty D.

Montgomery, Attorney General, State of Ohio, Andrew

S. Bergman, Assistant Attorney General, Michael F.

Easley, Attorney General, State of North Carolina, J.

Allen Jernigan, Special Deputy Attorney General, James

P. Longest, Jr., and Amy R. Gillespie, Assistant

Attorneys General, Bill Pryor, Attorney General, State of

Alabama, Tommy E. Bryan, Assistant Attorney General,

Jeffrey Modisett, Attorney General, State of Indiana,

Daniel B. Dovenbarger, Chief Counsel, Jennifer M.

Granholm, Attorney General, State of Michigan, Thomas

Casey, Solicitor General, Alan F. Hoffman, Assistant

Attorney General, Charles M. Condon, Attorney [**2]

General, State of South Carolina, Mark E. Earley,

Attorney General, State of Virginia, Roger L. Chaffe,

Senior Assistant Attorney General, Stewart T. Leeth,

Assistant Attorney General, Thomas H. Zerbe, Senior

Counsel, State of West Virginia, Samuel L. Finklea, III,

Grant Crandall, Eugene M. Trisko, Norman W.

Fichthorn, Mel S. Schulze, David M. Flannery, Kathy

Beckett, Harold P. Quinn, Jr., Michael D. Hockley, J.

Lister Hubbard, R. Brooke Lawson, III, Robert E.

Lannan, II, Terry J. Satterlee, Alok Ahuja, Mark E.

Shere, Bryan G. Tabler, Jeffrey L. Landsman, Jennifer S.

McGinnity, Howard E. Shapiro, Margaret Claiborne

Campbell, Thomas E. Knauer, David R. Straus, Deborah

E. Jennings, Julie R. Domike, Patricia T. Barmeyer, Lisa

G. Dowden, Brian J. Renaud, Rhonda L. Ross, Jeffrey F.

Cherry, Katherine L. Rhyne, John M. Koeppl, Henry J.

Page 1
Handzel, Jeffrey A. Knight, Joan Dreskin, Kevin B.

Belford, Pamela A. Lacey, Gene E. Godley, Michael H.

Levin and Edmund B. Frost. Earle D. Getchell, Jr., Neal

J. Cabral, Christopher D. Man, Jacqueline H. Fine, Jon S.

Faletto and John P. Proctor entered appearances.

James E. Doyle, Attorney General, State of Wisconsin,

and Philip Peterson and Thomas L. [**3] Dosch,

Assistant Attorneys General, were on the brief for

intervenor State of Wisconsin.

Louis E. Tosi and William L. Patberg were on the brief

for amicus curiae Toledo Metropolitan Area Council of

Governments.

Charles S. Carter and Deborah Ann Hottel were on the

brief of amici curiae South Carolina Chamber of

Commerce, Environmental Management Association of

South Carolina, South Carolina Manufacturers Alliance,

and South Carolina Farm Bureau Federation.

Jon M. Lipshultz and Patricia R. McCubbin, Attorneys,

U.S. Department of Justice, argued the causes for

respondent. With them on the brief were Lois J. Schiffer,

Assistant Attorney General, and Jan Tierney, Howard

Hoffman, Amey W. Marrella and Dwight C. Alpern,

Attorneys, U.S. Environmental Protection Agency.

J. Jared Snyder, Assistant Attorney General, State of New

York, argued the cause for state intervenors. With him on

the brief were Elliot Spitzer, Attorney General, Peter H.

Schiff, Deputy Attorney General, Thomas F. Reilly,

Attorney General, State of Massachusetts, William L.

Pardee, Assistant Attorney General, M. Dukes Pepper,

Jr., Assistant Counsel, State of Pennsylvania, Sheldon

Whitehouse, Attorney General, [**4] State of Rhode

Island, Michael Rubin, Environmental Advocate, William

H. Sorrell, Attorney General, State of Vermont, Ronald

A. Shems, Assistant Attorney General, Jennifer L.

Wurzbacher, Assistant Attorney General, State of

Maryland, Richard Blumenthal, Attorney General, State

of Connecticut, Richard F. Webb, Assistant Attorney

General, Andrew Ketterer, Attorney General, State of

Maine, Paul Stern, Deputy Attorney General, Philip

McLaughlin, Attorney General, State of New Hampshire,

and Maureen D. Smith, Assistant Attorney General.

Kathleen L. Millian argued the cause for intervenor Her

Majesty the Queen in Right of Ontario (Province of

Ontario, Canada). With her on the brief was Bruce J.

Terris.

David Hawkins and Raissa Griffin were on the brief for

intervenor Natural Resources Defense Council, et al.

Andrew P. Caputo entered an appearance.

Patrick M. Raher, John G. Roberts, Jr., Catherine E.

Stetson, Michael R. Barr, Michael A. Conley, Theresa

Fenelon Falk, John H. Sharp, Paul G. Wallach and

Kenneth R. Meade were on the brief for industry

intervenors.

Richard A. Wegman was on the brief for intervenor the

Government of Canada.

JUDGES: Before: WILLIAMS, SENTELLE and [**5]

ROGERS, Circuit Judges. Dissenting opinion filed by

Circuit Judge SENTELLE.

OPINION

Opinion [*669] Per Curiam. *

* Judge Williams wrote Parts I.B-C and II.B;

Judge Sentelle wrote Parts I.A, II.A, II.C, and

III.A; Judge Rogers wrote Parts III.B and IV.

Introduction

Under the Clean Air Act the Environmental

Protection Agency promulgates national ambient air

quality standards ("NAAQS") for air pollutants, and

states must then adopt state implementation plans

("SIPs") providing for the implementation, maintenance,

and enforcement of the NAAQS; such plans are then

submitted to EPA for approval. See Clean Air Act

("CAA") § 110(a)(1), 42 U.S.C. § 7410(a)(1) (1994).

Even after a SIP is approved, EPA may at a later time call

for SIP revisions if the Administrator finds a SIP

inadequate to attain or maintain the NAAQS, to meet the

dictates of pollutant transport commissions, or "to

otherwise comply with any requirement of this chapter."

CAA § 110(k)(5), 42 U.S.C. § 7410 [**6] (k)(5). In

October 1998 EPA issued a final rule mandating that 22

states and the District of Columbia revise their SIPs to

mitigate the interstate transport of ozone. 1 See Finding

of Significant Contribution and Rulemaking for Certain

States in the Ozone Transport Assessment Group Region

for Purposes of Reducing Regional Transport of Ozone

("Final Rule"), 63 Fed. Reg. 57,356 (1998). The statutory

hook for EPA's action was a 1990 amendment to the

Clean Air Act which requires that SIPs contain "adequate

provisions" prohibiting

Page 2

213 F.3d 663, *; 2000 U.S. App. LEXIS 3209, **2;

50 ERC (BNA) 1161
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 with respect to any such

national primary or secondary ambient air

quality standard.

CAA § 110(a)(2)(D)(i)(I), 42 U.S.C. §

7410(a)(2)(D)(i)(I) (1994). EPA uniformly required that

each state reduce nitrogen oxides (NOx--an ozone

precursor) by the amount accomplishable by what EPA

dubbed "highly cost-effective controls," namely, those

controls EPA found capable of removing NOX at a cost

[**7] of $ 2000 or less per ton. Numerous petitions for

review challenge various aspects of EPA's decision. In

Part I we reject the following claims: that EPA could not

call for the SIP revisions without convening a transport

commission; that EPA failed to undertake a sufficiently

state-specific determination of ozone contribution; that

EPA unlawfully overrode past precedent regarding

"significant" contribution; that EPA's consideration of the

cost of NOx reduction violated the statute; that EPA's

scheme of uniform controls is arbitrary and capricious;

that CAA § 110(a)(2)(D)(i)(I) as construed by EPA

violates the nondelegation doctrine.

1 The states are Alabama, Connecticut,

Delaware, Georgia, Illinois, Indiana, Kentucky,

Maryland, Massachusetts, Michigan, Missouri,

North Carolina, New Jersey, New York, Ohio,

Pennsylvania, Rhode Island, South Carolina,

Tennessee, Virginia, West Virginia, and

Wisconsin.

In Part II we hold that the record does not support

including Wisconsin in the SIP call, nor does it support

[**8] creating NOx budgets based on the entire

emissions of Missouri or Georgia. We reject the claim

that [*670] South Carolina was improperly included in

the SIP call.

In Part III we reject the claim that EPA

impermissibly intruded on the statutory rights of states to

fashion their SIPs. We also reject the claim that EPA

violated the Regulatory Flexibility Act.

In Part IV we reject the claim that EPA arbitrarily

revised the definition of a "NOx budget unit." We reject

all of the claims raised by the Council of Industrial

Boilers save one: we hold that EPA failed to provide

adequate notice of a change in the definition of an electric

generating unit. We also hold that EPA did not provide

adequate notice of a change in the control level assumed

for large, stationary internal combustion engines, but we

reject the claim that EPA failed to follow its own

standards in defining such engines. Finally, we uphold

EPA's limits on early reduction credits, and EPA's use of

a 15% multiplier for calculating emissions from low mass

emission units.

We note at the outset that one challenge has been

stayed. In 1979, EPA set the acceptable level for ozone in

the ambient air at 0.12 parts per million ("ppm"),

averaged [**9] over intervals of one hour. This standard

is commonly known as the "1-hour standard." By 1997,

EPA had concluded that the 1-hour standard no longer

adequately protected public health. See National Ambient

Air Quality Standards for Ozone, 62 Fed. Reg. 38,856

(1997). Pursuant to the agency's statutory mandate to

review and revise NAAQS as appropriate, 42 U.S.C. §

7409(d)(1), EPA promulgated a new, more stringent

"8-hour standard" which limits ozone levels to 0.08 ppm,

averaged over an 8-hour period. See 62 Fed. Reg. 38,856

(codified at 40 C.F.R. § 50.10).

EPA has undertaken the phasing out of the 1-hour

standard on an area-by-area basis, mandating that the

standard would no longer apply to an area once it is

"determined that the area has air quality meeting the

1-hour standard." 40 C.F.R. § 50.9(b). The call for SIP

revisions in question here requires the covered upwind

states to submit SIP revisions pursuant to the 8-hour

standard even though EPA was not designating any

8-hour nonattainment areas prior to July 1999. See 63

Fed. Reg. at 57,370; Transportation Equity Act for the

21st Century, Pub. L. No. 105-178, § [**10] 6103, 112

Stat. 107, 465 (1998) (providing that states submit

suggested designations no later than July 1999 and EPA

finalize those designations no later than July 2000). EPA

maintains that it has the authority to include the 8-hour

standard in the current § 110(a)(2)(D)-specific SIP call

pursuant to its authority under § 110(a)(1). Section

110(a)(1) provides that

each State shall ... adopt and submit to

[EPA], within 3 years (or such shorter

period as [EPA] may prescribe) after the

promulgation of a national primary

Page 3

213 F.3d 663, *669; 2000 U.S. App. LEXIS 3209, **6;

50 ERC (BNA) 1161
ambient air quality standard (or any

revision thereof) ..., a plan which provides

for implementation, maintenance, and

enforcement of such primary standard in

each air quality control region (or portion

thereof) within such State.

42 U.S.C. § 7410(a)(1).

State and Industry/Labor petitioners initially attacked

the challenged SIP call on the basis that EPA exceeded its

statutory authority and acted arbitrarily in basing the SIP

call on the 8-hour standard when the agency had not yet

designated any areas as being in nonattainment under the

new standard. After petitioners' final briefs were

submitted, we held in American Trucking Ass'ns, Inc. v.

EPA, 175 F.3d 1027, [**11] reh'g granted in part, den'd

in part 195 F.3d 4 (D.C. Cir. 1999), that the new

NAAQS based on the 8-hour standard was derived from a

construction of the Clean Air Act that rendered the

relevant provision an unconstitutional delegation of

legislative power and remanded the case to the agency.

See id. at 1033-40. Seizing on this holding, petitioners

added in their reply briefs that if this court does not

accept the contention in their original briefs as to why

EPA impermissibly relied [*671] on the 8-hour

standard, then we should hold that American Trucking

means that EPA cannot rely on the 8-hour standard

because it was promulgated in violation of the

non-delegation doctrine.

Regardless, EPA moved to stay consideration of the

issues involving the 8-hour standard because the agency

has stayed the 8-hour findings contained in the

challenged SIP call. We granted the motion. Because

EPA's stay removes the 8-hour findings as a basis for the

SIP call, we will resolve only the issues involving the

1-hour standard.

I. General Claims

A. Transport Commission

States have the primary responsibility to attain and

maintain NAAQS within their borders. See CAA §

[**12] 107(a), 42 U.S.C. § 7407(a). When EPA

concludes that an "implementation plan for any area is

substantially inadequate to attain or maintain the relevant

[NAAQS], to mitigate adequately the interstate pollutant

transport described in section [176A] or [184], or to

otherwise comply with any requirement of this chapter,"

the CAA requires EPA to order a state to revise and

correct its SIP "as necessary" ("SIP call"). CAA §

110(k)(5), 42 U.S.C. § 7410(k)(5). One such

"requirement of this chapter," is the "good neighbor

provision" of section 110(a)(2)(D). As amended, section

110(a)(2)(D) requires that a SIP "contain adequate

provisions"

(i) prohibiting, consistent with the

provisions of this sub- chapter, 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 with respect to any such national

primary or secondary ambient air quality

standard ... [and]

(ii) insuring compliance with the

applicable requirements of sections [126]

and [115] ... (relating to interstate [**13]

and international pollution abatement).

42 U.S.C. § 7410(a)(2)(D) (emphasis added). Section

126(b) enables an individual state or a political

subdivision of a state to petition EPA to make a "finding

that any major source or group of stationary sources

emits or would emit any air pollutant in violation of the

prohibition of [§ 110(a)(2)(D)(ii)]." 42 U.S.C. § 7426(b).

EPA may make or deny such a finding. See id. Section

115 pertains to petitions made by foreign countries. See

42 U.S.C. § 7415.

Title I, the subchapter referenced in section

110(a)(2)(D), also includes sections 176A and 184, the

provisions referenced in section 110(k)(5). In 1990,

Congress added a provision to section 176A stating that

EPA "may" establish an interstate air pollution transport

region whenever EPA "has reason to believe that the

interstate transport of air pollutants from one or more

States contributes significantly to a violation of a national

ambient air quality standard in one or more other States."

42 U.S.C. § 7506a(a). The section also provides that

whenever EPA "establishes a transport [**14] region ...

[EPA] shall establish a transport commission." 42 U.S.C.

§ 7506a(b)(1). Among other things, a section 176A

commission is to assess the interstate transport situation

in the relevant transport region, assess interstate pollution

mitigation strategies, and recommend to EPA measures

Page 4

213 F.3d 663, *670; 2000 U.S. App. LEXIS 3209, **10;

50 ERC (BNA) 1161
necessary "to ensure that the plans for the relevant States

meet the requirements of [section 110(a)(2)(D)]." 42

U.S.C. § 7506a(b)(2). In addition, section 176A permits a

transport commission to request that EPA "issue a finding

under [section 110(k)(5)] ... that the implementation plan

for one or more of the States in the transport region is

substantially inadequate to meet [section 110(a)(2)(D)

requirements]." 42 U.S.C. § 7506a(c). After public

comment, EPA has the authority to approve, approve in

part, or disapprove such a request. See id.

[*672] In part, section 184, an ozone-specific

provision, establishes an ozone transport region in the

northeast ("NOTR") and sets the deadline for convening

the transport commission required as a result of NOTR's

establishment. See 42 U.S.C. § 7511c [**15] (a). The

section also requires that "in accordance with [section

110] ... each State included [or subsequently included]

within a transport region established for ozone shall

submit a State implementation plan or revision" regarding

vehicle inspection programs and volatile organic

compounds control technology. 42 U.S.C. § 7511c(b). In

addition, section 184 contains provisions giving states

within an established transport region the opportunity to

use their section 176A-established transport commission

to help develop additional ozone control measures. See

42 U.S.C. § 7511c(c).

Efforts to control states' upwind contributions to

ozone pollution continued to fall short during the early

1990s. In 1995, upon the recommendation of the

Environmental Council of the States, thirty-seven states

and representatives from EPA, industry, and

environmental groups formed a national work-group

called the Ozone Transport Assessment Group ("OTAG")

to study and devise solutions to the interstate ozone

transport problem. See 62 Fed. Reg. 60,318, at 60,319;

EPA, Ozone Transport Assessment Group Executive

Report, EPA Document No. [**16] A 95-56, Doc. No.

II-G-05 ("Executive Report") at ii. More specifically,

OTAG's purpose was to "identify and recommend a

strategy to reduce transported ozone and its precursors,

which, in combination with other measures, will enable

attainment and maintenance of the ozone standard in the

OTAG region." Executive Report at ii. OTAG concluded

that upwind states needed to reduce NOx emissions in

order to address the transport problem. However, the

OTAG members could not agree on specific control

measure recommendations. See 62 Fed. Reg. at 60,320.

In response to OTAG's efforts, EPA engaged in further

analysis and devised the SIP call challenged here.

Industry/Labor petitioners argue that the CAA

required EPA to convene a transport commission

pursuant to sections 176A/184 prior to issuing the

challenged SIP call. EPA concedes that OTAG was not a

statutorily-mandated 176A/184 transport commission as

defined in the CAA. If a transport commission is

required, EPA would be bound by statute to follow

certain procedures in establishing and executing its

commission obligation. However, we hold that the CAA

does not require EPA to establish such a commission.

Industry/Labor petitioners [**17] contend that the

reference to the transport commission provisions in

section 110(k)(5) and the mandate of section

110(a)(2)(D) that SIP requirements be consistent with

Title I provisions obligated EPA, prior to issuing the SIP

call, to create a transport commission guided by the terms

in sections 176A and 184 of the statute. Industry/Labor

petitioners also note that sections 176A and 184 reference

both sections 110(a)(2)(D) and 110(k)(5). See 42 U.S.C.

§§ 7506a(b)(2), (c), 7511c(c)(5). From this hodgepodge

of largely unrelated cross-references, Industry/Labor

petitioners argue that EPA can only issue a section

110(k)(5) SIP call to enforce section 110(a)(2)(D)'s

requirement after forming a 176A/184 transport

commission. We disagree.

As a threshold matter, subsections 176A(a) and

(b)(1) make clear that EPA must establish a transport

commission if the agency exercises its discretion to create

a transport region pursuant to section 176A(a). See 42

U.S.C. §§ 7506a(a), (b)(1). However, EPA can address

interstate transport apart from convening a 176A/184

transport commission as subsection (a) provides that EPA

"may" establish a [**18] transport region and subsection

(b)(1) only requires a transport commission upon the

establishment of a transport region because "whenever

the Administrator establishes a transport region under

subsection (a) ..., the Administrator shall establish a

transport commission." Moreover, [*673] the relevant

section 184 requirements apply to states within

established transport regions. See 42 U.S.C. §

7511c(a)-(c). Thus, Industry/Labor petitioners cannot

reason around the determinative statutory language

contained in section 176A. Statutory construction is not

an exercise in picking apart a complex statute and piecing

the parts back together in a manner to effect a particular

end. Ideally, a statute's directive concerning a certain

Page 5

213 F.3d 663, *671; 2000 U.S. App. LEXIS 3209, **14;

50 ERC (BNA) 1161
issue will be plain and clear. Just so here.

B. State-Specific Analysis

Section 110(a)(2)(D)(I)(i) requires that the relevant

offending emissions be "emissions activity within the

State." Several petitioners charge that EPA did not

sufficiently analyze each particular state in determining

which states contributed unduly to ozone downwind.

In issuing its Notice of Proposed Rulemaking

("NPRM"), EPA relied on data collected from [**19]

OTAG. The data were multi-state and regional in nature

and were framed as a model of how ozone was

transported downwind from 12 different regions that

covered the eastern half of the United States. See Final

Rule, 63 Fed. Reg. at 57,382. The OTAG regions do not

track state boundaries, so several states are split between

regions. EPA also relied upon the NOx emissions of the

individual states. See id. at 57,383-84. A potential

shortcoming of the NPRM's approach was that it was too

multi-state in nature. EPA knew how much NOx each

state was emitting, but a state's emissions as a share of

total emissions do not necessarily correspond

proportionately to its share in the creation of ozone in

downwind states. OTAG's multi-state modeling of such

downwind transportation painted with a rather broad

brush.

We need not pass judgment on whether the evidence

and approach of the NPRM would have supported the

final rule. After receiving comments regarding the

insufficiently state-specific analysis of the NPRM, EPA

performed state-specific modeling. Id. at 57,384.

According to EPA, this confirmed the results of the

regional modeling. Id.

The [**20] two types of state-specific modeling go

by the names UAM-V and CAMx. In the UAM-V

approach, the researchers model an affected downwind

area to establish a base case, and then "zero-out" a

particular source state. Thus with UAM-V it can be

estimated what ozone concentrations would be like if a

particular state contributed no ozone or ozone precursors.

The CAMx modeling, on the other hand, is a source

apportionment analysis which tracks modeled ozone from

its precursors (NOx and volatile organic compounds

(VOCs)) through the formation of ozone and subsequent

migration. Whereas UAM-V tells modelers how much

ozone is missing when one state is zeroed out, CAMx

models an ozone concentration and provides

apportionment, i.e., who sent what. An advantage of the

CAMx model used by EPA was that, unlike the UAM-V

modeling, with CAMx EPA could isolate man-made

emissions, or ozone creation based on reactions between

man-made and biogenic emissions. UAM-V modeling

was less discriminating.

Petitioners really do nothing more than quibble with

the state-specific modeling. For example, Industry/Labor

petitioners argue that zero-out modeling is inappropriate

because it models an impossible scenario--the [**21]

elimination of all man-made NOx emissions; but they do

not suggest how much this characteristic is likely to

distort the results. State petitioners charge that sometimes

the results of the two models were inconsistent, with, for

example, the CAMx showing a larger migration of ozone

from a state than the UAM-V showed for all man-made

NOx in that state. EPA itself noted this infrequent

inconsistency. See id. at 57,385. Neither criticism affords

ground for non-expert judges to find a material likelihood

of serious error. See Appalachian Power Co. v. EPA, 328

U.S. App. D.C. 379, 135 F.3d 791, 802 (D.C. Cir. 1998).

[*674] Petitioners complain that EPA did not

provide the data sooner. EPA made the new modeling

available on the Internet six weeks prior to the final rule,

published its availability in the Federal Register a month

before the final rule, and during that time received and

responded to questions and comments regarding the

modeling. Other than what we have already mentioned,

petitioners have evidently not been able to identify

further flaws in the modeling used, and thus have failed

to show any prejudice from EPA's timetable. Personal

Watercraft Indus. Ass'n v. Department of Commerce, 310

U.S. App. D.C. 364, 48 F.3d 540, 544 (D.C. Cir. 1995).

[**22]

C. Determining "Significant" Contribution

Section 110(a)(2)(D)(i)(I) applies only to states that

"contribute significantly" to nonattainment in a

downwind state. Petitioners make essentially four

arguments challenging EPA's determination of

"significance": (1) EPA acted contrary to precedent; (2)

EPA considered forbidden factors, namely, costs of

reduction; (3) EPA irrationally imposed uniform NOx

controls on the states; (4) EPA's determination was so

devoid of intelligible principles as to violate the

nondelegation doctrine.

1. Past Precedent

Page 6

213 F.3d 663, *673; 2000 U.S. App. LEXIS 3209, **18;

50 ERC (BNA) 1161
Before the 1990 amendments to the Clean Air Act, §

110(a)(2)(E)(I) directed the EPA to insist on SIP

provisions adequate to prevent sources within a state

from emitting air pollution that would "prevent

attainment or maintenance [of primary or secondary

standards] by any other State." 42 U.S.C. § 7410(a)(2)(E)

(1982) (emphasis added). In a number of decisions EPA

found, with approval of the courts, that various emissions

of a particular state, having a proportionate impact on

some downwind state greater than the impacts involved

here, did not meet that standard. See New York v. EPA,

271 U.S. App. D.C. 276, 852 F.2d 574 (D.C. Cir. 1988);

[**23] Air Pollution Control Dist. of Jefferson County v.

EPA, 739 F.2d 1071 (6th Cir. 1984); New York v. EPA,

716 F.2d 440 (7th Cir. 1983); New York v. EPA, 710

F.2d 1200 (6th Cir. 1983); Connecticut v. EPA, 696 F.2d

147 (2d Cir. 1982). According to the states, these

decisions, and what they claim to be Congress's implicit

endorsement in the 1990 amendments, bar EPA from

regarding the ozone emissions here as "significant"

within the meaning of § 110(a)(2)(D)(i)(I). Thus the

states would equate the old standard--"prevent

attainment"--with the new standard: "contribute

significantly to nonattainment."

Nothing in the text of the new section or any other

provision of the statute spells out a criterion for

classifying "emissions activity" as "significant." Nor did

EPA, under the then-existing provision, bind itself to any

criterion. Further, given EPA's finding as to the

cumulative effects of the pollutants that generate ozone,

EPA might well be able to distinguish this case from the

sulfur dioxide cases that the states have cited. See 63 Fed.

Reg. at 57,359 ("The chemical reactions that create ozone

take place [**24] while the pollutants are being blown

through the air by the wind, which means that ozone can

be more severe many miles away from the source of

emissions than it is at the source."). But the states point to

nothing suggesting any prior adoption by EPA of any

binding concept of how much was too much, so the claim

falls short at the threshold.

2. Consideration of costs

Petitioners claim § 110(a)(2)(D)(i)(I) does not permit

EPA to take into consideration the cost of reducing

ozone. The full section provides that SIPs must contain

provisions adequately 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 with respect to any such

national primary or secondary ambient air

quality standard.

[*675] 42 U.S.C. § 7410(a)(2)(D)(i)(I) (emphasis

added).

Before reviewing the petitioners' attacks we must

first describe how EPA went about the business at hand.

It first determined that 23 jurisdictions are "significant"

contributors to downwind nonattainment. 63 Fed. Reg.

57,398. [**25] In making this listing EPA drew lines

based on the magnitude, frequency, and relative amount

of each state's ozone contribution to a nonattainment area.

For example, in one calculation it looked at the number

of NOx parts per billion ("ppb") that a candidate state's

emissions made to exceedances in specific downwind

locations (examined as a proportion of those

exceedances). Indiana was found to contribute at least 2

ppb to 4% of the 1-hour ozone exceedances in New York

City, and was deemed a "significant contributor" to

nonattainment there. On the other hand, Alabama,

Georgia, Massachusetts, Missouri, South Carolina,

Tennessee, and Wisconsin were not deemed "significant

contributors" to New York City nonattainment because

none of these states ever contributed more than 2 ppb to a

1-hour exceedance in that area. Although EPA looked at

other measures, e.g., the percentage contribution of a

state's emissions to total concentrations in a specified

area, no one quarrels either with its use of multiple

measures, or with the way it drew the line at this stage.

Although the dividing line was a very low threshold

of contribution, in the end EPA's rule called for

termination of only a subset [**26] of each state's

contribution. EPA decided that the 23 "significant

contributors" need only reduce their ozone by the amount

achievable with "highly cost-effective controls." 63 Fed.

Reg. at 57,403. Thus, once a state had been nominally

marked a "significant contributor," it could satisfy the

statute, i.e., reduce its contribution to a point where it

would not be "significant" within the meaning of §

110(a)(2)(D)(i)(I), by cutting back the amount that could

be eliminated with "highly cost-effective controls." EPA's

design was to have a lot of states make what it considered

modest NOx reductions, uniformly limited to ones that

Page 7

213 F.3d 663, *674; 2000 U.S. App. LEXIS 3209, **22;

50 ERC (BNA) 1161
could be achieved (in EPA's estimate) for less than $

2000 a ton. As a result, naturally, the ultimate line of

"significance," whether measured in volume of NOx

emitted or arriving in nonattainment areas, would vary

from state to state depending on variations in cutback

costs.

State and Industry/Labor petitioners argue that this

approach runs afoul of § 110(a)(2)(D), which they read as

prohibiting any consideration of costs or

cost-effectiveness in determining what contributions are

"significant." So far as appears, none of the states

proposes that [**27] EPA, if reversed, must require

complete extirpation of their NOx emissions. Rather, the

gamble--at least of the small contributors--is evidently

that if EPA were barred from considering costs, it would

never have included such states. Because the attacks from

the states and Industry/Labor are somewhat dissimilar

and have shifted back-and-forth between the opening

briefs, reply briefs, and oral argument, a summary of the

relevant differences and vacillations is in order. We note

that no party makes any claim that EPA was either

confined to adopting rules whose benefits exceeded their

costs, or permitted to use that criterion in selecting its

final rule. 2 Nor has it been argued that [*676] the term

"significant" required consideration of costs.

2 Indeed, accepting EPA's belief that ozone

cannot be held responsible for mortality effects,

see Proposed Rule, 62 Fed. Reg. at 60,321 (not

listing death as a health effect of groundlevel

ozone); compare Final Rule, 63 Fed. Reg. at

57,359 (listing "possible long-term damage to the

lungs or even premature death" as health effects),

and mainly using EPA data, some outside

observers have calculated the benefit per ton of

NOx reduction as ranging from a high of $ 750

per ton (for mobile sources in certain areas) to a

low of negative $ 6 per ton (for other mobile

sources). Alan Krupnick & Virginia McConnell,

"Cost-Effective NOx control in the Eastern U.S."

(Draft July 1999) (Table 4); see Krupnick &

Anderson, A Dilemma Downwind, 137 Resources

for the Future 5, 7 (1999) ("If one assumes that

ozone does not cause deaths, the EPA's proposal

is much too restrictive, incurring costs far out of

proportion with the benefits it would bring.").

[**28] State petitioners initially argued that it was

"arbitrary and unlawful" for EPA to make cost

effectiveness a "controlling factor" or "linchpin" in the

determination of significant contribution under §

110(a)(2)(D). Thus EPA's error, as the states would have

it, was in considering costs too much: "Petitioning States

do not claim that there is no role for cost considerations;

Petitioning States simply stress that EPA must establish a

definition of significance that is dominated by air quality

factors, as air quality is the sole factor mentioned in the

statute." Reply Br. of Petitioning States at 4. In support of

this position, State petitioners cited our en banc decision

in Natural Resources Defense Council v. EPA, 263 U.S.

App. D.C. 166, 824 F.2d 1146, 1163 (D.C. Cir. 1987) (en

banc), where we held that a statutory mandate for EPA to

set a standard with an "ample margin of safety to protect

the public health" did not preclude the consideration of

costs and technological feasibility, but that these concerns

could not be the "primary consideration."

At oral argument, counsel for the states abandoned

this position and decided that the statute flatly prohibits

EPA from [**29] considering costs at all. Transcript of

Oral Argument at 14-17. Indeed, counsel eventually went

so far as to claim that if faced with two states, one of

which could eliminate all relevant emissions at a trivial

cost, while the other could eliminate none at a cost of less

than $ 5000 a ton, EPA must mandate the same cutback

for each. Id. at 16-17.

We should note here that the consequence of this

position is not so extreme as it sounds. EPA's rule allows

ton-for-ton emissions trading between firms based on

allowances determined by each state. See 63 Fed. Reg.

57,456. Obviously the firms with the highest emission

reduction costs will, if permitted by their states, buy up

pollution allowances from firms that are granted

allowances because they have overcontrolled for

NOx--firms, obviously, with low reduction costs. If

transaction costs were zero, the only effect of the initial

assignment of cutbacks would be distributional: firms

would make only the cheaper cutbacks, but firms with

high emission-reduction costs would buy allowances

from those with low costs and thereby transfer wealth to

them. See Ronald H. Coase, The Problem of Social Cost,

3 J. L. & Econ. 1 (1960). [**30] But transaction costs

notoriously are not zero; 3 so the likely effect of the

proposed statutory interpretation would be that any

aggregate cutback would be achieved at considerably

higher cost than under EPA's reading of §

110(a)(2)(D)(i)(I), with absolutely no offsetting

environmental benefit to the public. Of course we are

Page 8

213 F.3d 663, *675; 2000 U.S. App. LEXIS 3209, **26;

50 ERC (BNA) 1161
able to assume the existence of EPA's allowance trading

program only because no one has challenged its adoption.

As the program seems to have no rationale other than cost

reduction, see 63 Fed. Reg. at 57,457, it would

presumably be invalid under petitioners' proposed

reading of § 110(a)(2)(D)(i)(I), in which case the states'

position really is as extreme as it sounds.

3 A glance at EPA's regulations for allowance

trading will convince any doubter that transaction

costs can safely be expected to be substantial. See

63 Fed. Reg. at 57,457-75.

Returning to the positions of the parties, we find

Industry/ Labor engaging in a migration comparable to

that [**31] of the states, though in the opposite direction.

In its opening and reply brief Industry/Labor argued that

" § 110(a)(2)(D) re quires consideration of only air

quality impacts in determining the significance of any

contribution." However, at oral argument Industry/Labor

offered a construction of the statute that seemed to restore

to EPA via § 110(k)(5) what it would take away via §

110(a)(2)(D). Industry/Labor claimed that costs could be

considered when EPA [*677] determines if a SIP is

"adequate" under § 110(k)(5). Transcript of Oral

Argument at 28. The states actually offered this same

reading of § 110(k)(5) in their reply brief (back when

they thought EPA could consider costs) but appeared to

abandon it at oral argument in favor of a flat prohibition

on EPA cost considerations. The argument that costs may

be considered under § 110(k)(5) seems to concede that

the structure of the statutory scheme manifests no

intention to bar the consideration of costs.

And so we are indeed presented with the question

whether § 110(a)(2)(D) bars consideration of costs, but it

is presented to us with the caveat that costs can be

considered later on in the process, and accompanied by a

false start [**32] by the states, who initially said that

EPA could consider costs, just not too much. Against this

backdrop, it would be at the very least ironic for us to say

there is "clear congressional intent to preclude

consideration of cost" under § 110(a)(2)(D). See Natural

Resources Defense Council v. EPA, 263 U.S. App. D.C.

166, 824 F.2d 1146, 1163 (D.C. Cir. 1987) (en banc).

For convenience we repeat the statutory language.

Section 110(a)(2)(D)(i)(I) provides that SIPs must

contain provisions adequately 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 with respect to any such

national primary or secondary ambient air

quality standard.

42 U.S.C. § 7410(a)(2)(D)(i)(I) (emphasis added). By its

terms the statute is focused on "amounts" of "emissions

activity" that "contribute significantly to nonattainment."

The fundamental dispute is over the clarity of the phrase

"contribute significantly." Must EPA simply pick some

flat "amount" of contribution, [**33] based exclusively

on health concerns, such that any excess would put a state

in the forbidden zone of "significance"? 4 Or was it

permissible for EPA to consider differences in cutback

costs, so that, after reduction of all that could be

cost-effectively eliminated, any remaining "contribution"

would not be considered "significant"? In deciding on the

permissible ceiling, EPA used "significant" in the second

way.

4 We deal below with a related question: Did

EPA act irrationally in setting the level of

significance without regard for varying levels of

downwind impact? See part I.C.3 below.

The term "significant" does not in itself convey a

thought that significance should be measured in only one

dimension- here, in the petitioners' view, health alone.

Indeed, "significant" is a very odd choice to express

unidimensionality; consider the phrase "significant

other." In some contexts, "significant" begs a

consideration of costs. In finding a threshold requirement

of "significant risk" in § 3(8) of the Occupational [**34]

Health and Safety Act, 29 U.S.C. § 652(8), a plurality of

the Supreme Court understood a "significant" risk as

something more than a "mathematical straitjacket," and

held that "some risks are plainly acceptable and others are

plainly unacceptable." Industrial Union Dept., AFL-CIO

v. American Petroleum Institute ("Benzene"), 448 U.S.

607, 655, 65 L. Ed. 2d 1010, 100 S. Ct. 2844 (1980)

(plurality opinion). The plurality withheld judgment on

whether the Act required a "reasonable correlation

between costs and benefits," id. at 615, but the upshot of

inserting the adjective "significant" was a consideration

of which risks are worth the cost of elimination. OSHA

has since interpreted § 3(8) and regulation of "significant

risk" to require "cost-effective protective measures" and

Page 9

213 F.3d 663, *676; 2000 U.S. App. LEXIS 3209, **30;

50 ERC (BNA) 1161
set standards with an eye toward "the costs of safety

standards [being] reasonably related to their benefits."

See International Union v. OSHA (Lockout/Tagout II), 37

F.3d 665, 668-69 (D.C. Cir. 1994) (quoting OSHA's final

rule). OSHA's reaction to the term "significant" seems to

confirm what some commentators have asked

rhetorically: [**35] "Can an agency sensibly [*678]

decide whether a risk is 'significant' without also

examining the cost of eliminating it?" Stephen G. Breyer,

Richard B. Stewart, Cass R. Sunstein & Matthew L.

Spitzer, ADMINISTRATIVE LAW AND

REGULATORY POLICY 65 (4th ed. 1999).

Petitioners conspicuously fail to describe the

intellectual process by which EPA would determine

"significance" if it may consider only health. EPA has

determined that ozone has some adverse health

effects--however slight--at every level. See National

Ambient Air Quality Standards for Ozone, 62 Fed. Reg.

38,856 (1997). Without consideration of cost it is hard to

see why any ozone-creating emissions should not be

regarded as fatally "significant" under §

110(a)(2)(D)(i)(I). Perhaps EPA might (under such a

rule) let the upwind states off at the stringency level of

the programs imposed on non-attainment areas, but

petitioners do not explain how "significance" can exclude

cost but admit equity.

Although the ambiguity of the word "significant" and

the implications of a health-only reading are potentially

fatal flaws in petitioners' theory (aside from their own

inability to discern the "plain language" consistently),

[**36] the most formidable obstacle is the settled law of

this circuit. It is only where there is "clear congressional

intent to preclude consideration of cost" that we find

agencies barred from considering costs. NRDC, 824 F.2d

at 1163; see also George E. Warren Corp. v. EPA, 333

U.S. App. D.C. 26, 159 F.3d 616, 622-24 (D.C. Cir.

1998), reh'g granted, 164 F.3d 676 (D.C. Cir. 1999);

Grand Canyon Air Tour Coalition v. FAA, 332 U.S. App.

D.C. 133, 154 F.3d 455, 475 (D.C. Cir. 1998), cert.

denied, 526 U.S. 1158, 144 L. Ed. 2d 214, 119 S. Ct.

2046 (1999); NRDC v. EPA, 290 U.S. App. D.C. 323, 937

F.2d 641, 643-46 (D.C. Cir. 1991); cf. International

Bhd. of Teamsters v. United States, 237 U.S. App. D.C.

89, 735 F.2d 1525, 1528-29 (D.C. Cir. 1984) (construing

mandate to adopt "reasonable requirements" for safety as

allowing consideration of cost).

In NRDC we considered § 112 of the Clean Air Act,

requiring EPA to set an air quality standard for hazardous

pollutants with an "ample margin of safety" to protect the

public health. We held that this phrase did not preclude a

consideration of costs. 824 F.2d at 1155, 1163. [**37]

In George E. Warren Corp. we acknowledged that the

statutory scheme for the reformulated gasoline program

had the "overall goal" of improving air quality and

"reducing air pollution." 159 F.3d at 622. But because

there was nothing "in the text or structure of the statute to

indicate that the Congress intended to preclude the EPA

from considering the effects a proposed rule might have

upon the price and supply of gasoline," id. at 623, we

found no such preclusion even though the provision at

issue contained no allusion whatever to such effects.

Similarly, in Grand Canyon Air Tour the statute required

the FAA to devise a plan for "substantial restoration of

the natural quiet" in the Grand Canyon area, but we found

nothing impermissible in the FAA's consideration of

costs to the air tourism industry in deciding how

"substantial" that restoration must be. 154 F.3d at 475.

In NRDC v. EPA we considered whether EPA

permissibly used cost-benefit analysis in refusing to

classify a particular polluting source as "major." The

petitioners argued that cost considerations were

precluded, and we stated: "While the statutory language

and legislative history [**38] do not bar petitioners'

construction, they provide little support and no necessity

for it." 937 F.2d at 645. We affirmed EPA's use of

cost-benefit analysis.

These cases are unexceptional in their general view

that preclusion of cost consideration requires a rather

express congressional direction. See Edward W. Warren

& Gary E. Marchant, "More Good Than Harm": A First

Principle for Environmental Agencies and Reviewing

Courts, 20 Ecology L.Q. 379, 421 (1993) ("The need to

compare benefits and costs has long played a role in

judicial review of agency actions regulating health and

safety risks."); Cass R. Sunstein, Interpreting [*679]

Statutes in the Regulatory State, 103 Harv. L. Rev. 405,

487 (1989) (suggesting an "interpretive principle" drawn

from case law, including NRDC v. EPA, 263 U.S. App.

D.C. 166, 824 F.2d 1146, that reviewing courts will read

statutes as authorizing regulations with benefits at least

"roughly commensurate with their costs, unless there is a

clear legislative statement to the contrary"). Three of the

cases, moreover--the two NRDC cases and Grand

Canyon--, involve statutory language with just the same

structure as [**39] here. A mandate directed to some

environmental benefit is phrased in general quantitative

Page 10

213 F.3d 663, *677; 2000 U.S. App. LEXIS 3209, **34;

50 ERC (BNA) 1161
terms ("ample margin of safety," "substantial

restoration," and "major"), and contains not a word

alluding to non-health trade-offs; in each case we found

that in making its judgments of degree the agency was

free to consider the costs of demanding higher levels of

environmental benefit. So too here.

Petitioners point to no evidence of the requisite

"clear congressional intent to preclude consideration of

cost." NRDC, 824 F.2d at 1163. The text, we have

already seen, works no such preclusion. As for the

statutory structure, petitioners willingly concede that

costs may be considered under § 110(k)(5) in determining

the adequacy of a state plan. Why would a Congress

intent on precluding cost considerations allow such an

escape hatch? The petitioners cite no legislative history

suggesting that cost considerations should be barred.

In sum, there is nothing in the text, structure, or

history of § 110(a)(2)(D) that bars EPA from considering

cost in its application.

3. Uniform Controls

As we have seen, EPA required that all of the

covered jurisdictions, regardless of amount of [**40]

contribution, reduce their NOx by an amount achievable

with "highly cost-effective controls." Petitioners claim

that EPA's uniform control strategy is irrational in two

distinct ways. First, they observe that where two states

differ considerably in the amount of their respective NOx

contributions to downwind nonattainment, under the EPA

rule even the small contributors must make reductions

equivalent to those achievable by highly cost-effective

measures. This of course flows ineluctably from the

EPA's decision to draw the "significant contribution" line

on a basis of cost differentials. Our upholding of that

decision logically entails upholding this consequence.

The second objection is that because of distance and

the vagaries of pollutant migration and ozone formation,

a molecule of NOx emitted in Indiana (for example) may

cause far less adverse health impact than a molecule

emitted in eastern Pennsylvania. EPA acknowledges that

"sources that are closer to the nonattainment area tend to

have much larger effects on air quality than sources that

are far away." 63 Fed. Reg. at 25,919. While EPA's

cost-effectiveness standard and emissions trading seem to

mean that EPA will [**41] secure the resulting aggregate

NOx reduction at roughly the lowest possible cost, they

do not necessarily mean that it will have secured the

resulting aggregate health benefits at the lowest cost.

Petitioners ask, in effect, why EPA did not, by one means

or another (e.g., in the emissions trading system), make

reductions from sources near the nonattainment areas (or

otherwise more damaging, molecule for molecule) more

valuable than ones from distant sources?

EPA considered this approach, modeling the efficacy

of regional alternatives compared to its uniform strategy.

See Final Rule, 63 Fed. Reg. at 57,423. Its researchers

found that non-uniform regional approaches by

comparison did not "provide either a significant

improvement in air quality or a substantial reduction in

cost." Id. The complaining states offer no material

critique of EPA's methodology in reaching this answer,

which in fact some independent investigators have

confirmed. See Krupnick & Anderson, A Dilemma

[*680] Downwind, 137 Resources for the Future 5, 6

(1999) ("[Even with] spatial differences, when viewed

across the entire study region, RFF concluded that there

was no clear benefit to an exposure-based [**42] trading

system, compared with simple ton-for-ton NOx trading.

Public health benefits would be approximately the same,

and there would be no significant difference in costs to

the utilities."). We have no basis to upset EPA's

judgment.

4. Nondelegation

In their opening brief and more prominently in their

reply brief, state petitioners argue that EPA has not

determined "significant contribution" based on any

intelligible principles. Petitioners rely heavily on our

decision in American Trucking Ass'ns, Inc. v. EPA, 175

F.3d 1027, reh'g granted in part, den'd in part 195 F.3d 4

(D.C. Cir. 1999), essentially arguing that nothing about

EPA's analysis explains how much of a NOx contribution

was too much (i.e., worthy of a SIP call).

We must recognize here that EPA's

cost-effectiveness criterion is a radically incomplete

line-drawing device. EPA has effectively ruled that each

affected state must get down to the NOx emissions levels

that would prevail if it removed all NOx emissions

costing $ 2000/ton or less to remove. This satisfies its

"cost-effectiveness" criterion because (if states also seek

to minimize costs subject to the EPA's constraint) only

[**43] these relatively low-cost tons will be removed.

But while EPA indicates that it rested the $ 2000/ton

figure on "NOx emissions controls that are available and

of comparable cost to other recently undertaken or

Page 11

213 F.3d 663, *679; 2000 U.S. App. LEXIS 3209, **39;

50 ERC (BNA) 1161
planned NOx measures," Final Rule, 63 Fed. Reg. at

57,400, it neither rests that benchmark on anything in the

language or function of § 110(a)(2)(D)(i)(I), nor

otherwise explains why the resulting cut-off point

represents the right degree of "cost-effectiveness" (i.e.,

why "highly cost-effective" should be at that "height").

Accordingly, we must read EPA as having understood

that its selection of the cut-off point was essentially

unbounded.

But petitioners have ignored a limit to the

nondelegation doctrine that we relied on in American

Trucking and even more emphatically in its immediate

precursor, International Union, UAW v. OSHA

("Lockout/Tagout I"), 938 F.2d 1310 (D.C. Cir. 1991).

There we noted that the scope of the agency's "claimed

power to roam" was "immense, encompassing all

American enterprise." Id. at 1317. Quoting verbatim from

Synar v. United States, 626 F. Supp. 1374, 1383 (D.D.C.

1986) (three-judge [**44] panel), aff'd sub nom.

Bowsher v. Synar, 478 U.S. 714, 92 L. Ed. 2d 583, 106 S.

Ct. 3181 (1986), we said, "When the scope increases to

immense proportions, as in [A.L.A. Schechter Poultry

Corp. v. United States, 295 U.S. 495, 79 L. Ed. 1570, 55

S. Ct. 837 (1935)], the standards must be correspondingly

more precise." Lockout/Tagout I, 938 F.2d at 1317. We

noted that a mass of cases in courts had upheld

delegations of effectively standardless discretion, and

distinguished them precisely on the ground of the

narrower scope within which the agencies could deploy

that discretion. Id. American Trucking, perhaps too

succinctly for petitioners to notice, incorporated the

Lockout/Tagout I discussion of the point. American

Trucking, 175 F.3d at 1037.

Nominally, of course, § 110(a)(2)(D)(i)(I)

encompasses "all American enterprise." But as a practical

matter EPA must make a number of threshold

determinations that in practice appear to have confined

the statute to a modest role. Before assessing

"significance," EPA must find (1) emissions activity

within a state; (2) show with modeling or other evidence

that [**45] such emissions are migrating into other

states; and (3) show that the emissions are contributing to

nonattainment. We do not mean to minimize the scope of

EPA's action in the present case. Nearly half of the nation

is affected and control costs will be substantial. And it

may ultimately prove that the dam constituted by these

criteria will [*681] burst, subjecting "all American

industry" to EPA's § 110(a)(2)(D)(i)(I) discretion. But in

practice, so far, these threshold criteria appear to have so

limited EPA's activity under the section as to make the

rule in question here the sole example of §

110(a)(2)(D)(i)(I) rulemaking. Accordingly, the grounds

on which we remanded in Lockout-Tagout I and

American Trucking for confining agency constructions

are absent here.

II. Inclusion of Specific States

A. Wisconsin

Wisconsin industry petitioners separately challenge

Wisconsin's inclusion in the SIP call. The Wisconsin

petitioners argue that the emissions from the state do not

contribute significantly to nonattainment in any other

state. Section 110(a)(2)(D)(i)(I) requires that a state

"contribute significantly to nonattainment in ... any other

State" in order to be included [**46] in the challenged

SIP call. 42 U.S.C. § 7410(a)(2)(D)(i)(I) (emphasis

added). As explained below, EPA erroneously included

Wisconsin in the SIP call because EPA failed to explain

how Wisconsin contributes to nonattainment in any other

state.

EPA contends that Wisconsin contributes

significantly to other states' nonattainment because the

state significantly contributes ozone over the Lake

Michigan region. Despite EPA's Lake Michigan

concerns, the agency does not show on the record that

Wisconsin's ozone contribution affects any onshore state

nonattainment. At oral argument, counsel for EPA

conceded that "the part that's missing [from the record] is

a thorough explanation to support our modeling data and

things of that nature between the Lake Michigan receptor

area and the onshore states." Oral Arg. Tr. at 107. When

asked for more, counsel could only respond that "the best

evidence ... is simply the narrative statements in the [final

rule's] preambles.... There's nothing else there." Id.

Because EPA conceded at oral argument that it has no

record evidence directly linking Wisconsin's ozone

contribution over Lake Michigan to nonattainment in any

[**47] state and because EPA must "demonstrate[] a

reasonable connection between the facts on the record

and its decision" made pursuant to its statutory authority,

Ethyl Corp. v. EPA, 311 U.S. App. D.C. 163, 51 F.3d

1053, 1064 (D.C. Cir. 1995), we hold that EPA acted

unlawfully by including Wisconsin in a SIP call limited

by statute to states contributing significantly to

nonattainment in any other state and therefore set aside

Wisconsin's inclusion in the SIP call. See 5 U.S.C. §

Page 12

213 F.3d 663, *680; 2000 U.S. App. LEXIS 3209, **43;

50 ERC (BNA) 1161
706(2)(A), (C) (1994) ("The reviewing court shall ... hold

unlawful and set aside agency action ... found to be ...

arbitrary, capricious, an abuse of discretion, or otherwise

not accordance with law [or] in excess of statutory

jurisdiction, authority, or limitations, or short of statutory

right.").

B. Missouri and Georgia

Missouri and Georgia were on the geographical

perimeter of EPA's SIP call. No state west of Missouri

was included, nor were the two states directly to its north

(Iowa and Minnesota) and south (Arkansas). Georgia was

a bit more in the thick of things, surrounded on three

sides by included states--Alabama, Tennessee, North

Carolina, and [**48] South Carolina; but the southern

portion of Georgia borders the excluded state of Florida.

Industrial petitioners within Missouri and Georgia

challenge EPA's decision to calculate NOx budgets for

these two states based on the entirety of NOx emissions

in each state. Petitioners argue that there is record support

only for the proposition that emissions from, roughly

speaking, the eastern half of Missouri and the north ern

two-thirds of Georgia "contribute" to downwind

concentrations; accordingly, they say, the NOx budgets

for Missouri and Georgia should be based solely on those

emissions.

We must here explain how EPA calculated NOx

budgets. It projected the total amount of NOx emissions

that sources in a [*682] state would emit in the year

2007, in light of expected growth and other controls

required by the CAA. EPA then projected total NOx

emissions if "highly cost-effective controls" were

implemented. The resulting calculation became the state's

NOx budget, with the difference between the base case

and the controlled case being the "significant"

contribution discussed above. Obviously a state's NOx

budget will vary depending on whether EPA considers all

of the NOx emissions in the state, [**49] or instead

considers only emissions located in a smaller portion of

the state (assuming emissions are dispersed throughout

the state, which is the case here and without which the

issue would be immaterial, as nonexistent emissions need

not be controlled). For Missouri and Georgia, as for all

other included states, NOx budgets were calculated using

all NOx emissions in the state.

The challenge basically stems from the character of

OTAG's modeling, and its resulting recommendations to

EPA. OTAG's ozone transport model used grids drawn

across most of the eastern half of the United States. The

first grid was the most precise, with grid cells of 12

kilometers squared (244 square kilometers)--the "fine

grid." A second grid extended beyond the perimeter of

the fine grid and had cells of 36 kilometers squared

resolution--the "coarse grid." For a variety of reasons to

be discussed shortly, the fine grid did not track state

boundaries, and Missouri and Georgia were among

several states that were split between the fine and coarse

grids. OTAG then ran modeling for both grids, but in the

final analysis did not find emissions from the coarse grid

worthy of special concern. OTAG's executive summary

[**50] stat ed: "The focus on ozone air quality impacts

in the fine grid raised questions about the need for

controls in the coarse grid. The recommendations adopted

by the Policy Group recognize that the OTAG analyses

demonstrated that transport impacts of the coarse grid

areas on the fine grid are minimal and therefore, do not

include the coarse grid areas for recommended control

measures other than those that would be applied

nationally." Petitioners argue that EPA should base NOx

budgets for Missouri and Georgia only on portions of

these states within the fine grid.

EPA offers three reasons for including the entire

states of Missouri and Georgia:

(1) The division of individual States by

OTAG was based, in part, on

computational limitations in OTAG's

modeling analyses; (2) the additional

upwind emissions from full, as opposed to

partial, States would provide additional

benefit to downwind nonattainment areas;

and, (3) State-wide emissions budgets

create fewer administrative difficulties

than a partial-State budget.

Final Rule, 63 Fed. Reg. at 57,424. We review

deferentially, searching for the reasonableness of EPA's

action, Appalachian Power, 135 F.3d at 802, [**51]

whether that be EPA's interpretation of the statute, see

Chevron, 467 U.S. 837, 842-43, 104 S. Ct. 2778, 81 L.

Ed. 2d 694 or EPA's explanation for its policy choice, see

Motor Vehicle Mfrs. Ass'n v. State Farm Mutual Auto.

Ins. Co., 463 U.S. 29, 43, 77 L. Ed. 2d 443, 103 S. Ct.

2856 (1983). The two inquiries can and do overlap. See

Animal Legal Defense Fund v. Glickman, 204 F.3d 229,

2000 U.S. App. LEXIS 1205, *13, No. 97-5009 (D.C. Cir.

Feb. 1, 2000).

Page 13

213 F.3d 663, *681; 2000 U.S. App. LEXIS 3209, **47;

50 ERC (BNA) 1161
On its face the statute neither mandates nor prohibits

an all-or-nothing statewide perspective. It directs EPA to

make sure that SIPs (which of course are state plans)

adequately prohibit "any source or other type of

emissions activity within the State from emitting" in

excess of the substantive limit. The critical issue is

whether the targeted "source" or "emissions activity"

"contributes significantly to nonattainment" in another

state.

EPA's first argument is that the fine grid split

Missouri and Georgia in part because of computer

limitations--every extension of the fine grid modeling

was costly [*683] in terms of both computer memory

and data collection. Document No. II-A-14, Draft OTAG

Final Report Regional and Urban Scale

Modeling--Chapter 2, 2-7 (undated). [**52] But the

OTAG modelers allocated their scarce resources

purposefully, by reference to known air quality data,

explicitly taking into consideration the "locale of various

problem areas (as represented by urban-area modeling

domains), and emissions density." Id. Thus it was no

mere techno-fortuity that the fine grid included enough of

Missouri to include the city of St. Louis and enough of

Georgia to include Atlanta: both cities are designated

nonattainment areas for ozone under the 1-hour NAAQS.

See Final Rule, 63 Fed. Reg. at 57,359. Moreover, the

fine grid portions of both states are the closest to other

nonattainment areas, such as Chicago and Birmingham,

and generally higher ozone density.

Of course the fine grid modeling of parts of Missouri

and Georgia showed emissions in the aggregate meeting

the EPA's threshold "contribution" criteria. Thus fine grid

modeling of each in its entirety would presumably also

have done so. But that is a simple arithmetic necessity (a

state is necessarily composed of its parts) and provides no

reason for EPA to ignore the very air quality factors that

influenced the design of the modeling that did occur.

OTAG itself clearly [**53] did not think those factors

magically lost their force, for it recommended against

controlling the rump areas. And EPA itself acknowledged

part of the reason this should be so when it observed,

"Sources that are closer to the nonattainment area tend to

have much larger effects on air quality than sources that

are far away." 63 Fed. Reg. at 25,919. Indeed, even if the

line between areas for which there was evidence and ones

for which there was none were explained solely by

fortuity, EPA would still be required to act upon the

evidence that was generated. See Chemical

Manufacturers Ass'n v. EPA, 859 F.2d 977, 989 (D.C.

Cir. 1988) (holding that EPA must consider "all the

evidence--including the industry evidence").

This leads us to EPA defenses other than modeling

design. The first is that "the larger the geographic area

that is controlled, the greater the downwind benefits."

Final Rule, 63 Fed. Reg. at 57,424. This reason can only

stand if the emissions at issue contribute significantly to

nonattainment in another state. OTAG concluded they did

not. Id. EPA claims that its state-specific modeling,

which supplemented OTAG's more regional [**54]

modeling, supports including the coarse grid areas. See

id. Yet EPA's explanation and technique make clear that

emissions from the fine grid areas may have been the sole

source of the finding. Indeed, EPA says as much: "If

emissions from part of a State contribute significantly to

downwind nonattainment or maintenance problems,

emissions from the entire State contribute significantly to

downwind nonattainment or maintenance problems." Id.

This of course is also true as a matter of logic (a state is

the sum of its parts). But it is completely consistent with

the rump portion being innocent of downwind effect, and

thus is scarcely a reason for ruling that significant

contributions from a border city should rope in the entire

state.

Aware of this problem, EPA simply throws the

burden of persuasion onto the states. "There is no

peculiar meteorological phenomenon that would indicate

that emissions from some portion of [each of the affected

states] would not impact downwind nonattainment or

maintenance problems." Id. In addition, "the atmosphere

is constantly in motion and has no limitations at

geo-political boundaries." Id. If this is "evidence" of

contribution, [**55] it proves too much. If the simple

proposition that the prevailing westerlies carry pollutants

eastward were enough, EPA could, on the basis of a plant

in Pennsylvania, use § 110(a)(2)(D)(i)(I) to control all

NOx emissions east of the Rocky Mountains. While we

uphold EPA's determination that a "significant"

contribution is a [*684] cost-effectively controllable

contribution, EPA must first establish that there is a

measurable contribution. Interstate contributions cannot

be assumed out of thin air.

In the end administrative convenience is EPA's only

real defense for basing NOx budgets on the entirety of a

state's emissions. There seem to be two species of this

argument. First, EPA seems to claim that it is just easier

Page 14

213 F.3d 663, *682; 2000 U.S. App. LEXIS 3209, **51;

50 ERC (BNA) 1161
to calculate a NOx budget based on all the emissions in

the state instead of only a portion of such emissions. EPA

provides no explanation of why this is so, and it seems

dubious. Within a state are counties, air quality control

regions, and for some unfortunate states, nonattainment

areas. EPA also has emissions data on specific sources,

some of which may be susceptible of "highly

cost-effective controls," and others of which may not be.

See, e.g., Emissions [**56] Data For Power Plants,

<www.epa.gov/acidrain/emissions> (visited January 26,

2000). Without data from such state subdivisions and

specific sources, EPA could never have performed

modeling or even set a statewide budget. EPA has not

explained how calculation of a budget for sources in only

half of the state would be any more onerous than for all

sources in the state. Unless it is relying on data that exist

only for the state as a whole, calculation seems on its face

easier for a half than for a whole.

EPA offers a second administrative problem. If the

concern for not allowing § 110(a)(2)(D)(i)(I) to

encompass unproven areas compels an insistence on

proof of contribution from ever smaller geographic

subdivisions, any area's specific contribution may appear

insubstantial, even though collectively there are

significant contributions. In other words, unlike bologna,

which remains bologna no matter how thin you slice it,

significant contribution may disappear if emissions

activity is sliced too thinly.

While this argument was stressed on appeal, it is

nowhere to be found in the proposed or final rule, except

insofar as it may have lurked behind the vague invocation

of "administrative [**57] difficulties." See Final Rule, 63

Fed. Reg. at 57,424; Proposed Rule, 62 Fed. Reg. at

60,342. As a result it is quite undeveloped. But it appears

to be based on a distortion of the claims of Missouri and

Georgia. They are not asserting a right to bologna tactics,

to slice down the unit of measurement to a point of

insignificance. All they are claiming is that where the

data--calculated under EPA's supervision--inculpate part

of a state and not another, EPA should honor the resulting

findings.

Such a proposition would of course leave EPA free

to select states as the unit of measurement. In turn, states

(or the areas of states that believed themselves innocent

of material contributions, or sources located therein),

might respond by offering finer-grained computations.

Such a process seems more like a healthy search for truth

than the collapse into infinite regress that EPA claims to

fear.

EPA also points to state flexibility: "Since each State

has the flexibility to determine which sources to control

in order to meet the budget, a State can structure its

control strategy to require fewer reductions in certain

portions of the State and greater controls [**58] in other

areas." Final Rule, 63 Fed. Reg. at 57,424. This theory

presents at least two difficulties. First, it overlooks the

fact that state budgets not only encompass the whole state

but are calculated on the basis of hypothesized cutbacks

from areas that have not been shown to have made

significant contributions. Thus the "flexibility" comes at

the cost of a burden that is heavier in the aggregate,

where the added weight accomplishes no purpose

relevant to § 110(a)(2)(D)(i)(I). Second, a state's use of

flexibility to pursue a purely in-state set of tradeoffs

between cost and benefit (and thus unrelated to the goals

of § 110(a)(2)(D)(i)(I)) may actually diminish the

cutbacks in areas that are making a [*685] contribution

to other states' nonattainment.

Thus nowhere has EPA reasonably explained why

NOx budgets based on every state source are the best

stopping point with respect to states on the perimeter of

the ozone problem.

Therefore we vacate EPA's final rule with respect to

Missouri and Georgia and remand to the agency for

reconsideration in light of this opinion.

C. South Carolina

Petitioner Santee Cooper challenges South Carolina's

inclusion [**59] in the SIP call by alleging that the

state's downwind ozone nonattainment impact is

"minuscule" and therefore not significant. We will hold

unlawful EPA's decision to include South Carolina in the

SIP call if we find EPA's decision "arbitrary, capricious,

an abuse of discretion, or otherwise not accordance with

law." 5 U.S.C. § 706(2)(A). In order for EPA's decision to

include South Carolina in the SIP call to survive review,

the agency must "demonstrate[] a reasonable connection

between the facts on the record and its decision," Ethyl

Corp., 51 F.3d at 1064. We conclude that the record

supports EPA's decision to include the state as a

significant contributor to downwind nonattainment. See

Proposed Rule, 62 Fed. Reg. at 60,337-339. EPA

considered the analyses submitted by the objecting

petitioner but disagreed with the petitioner's conclusions

Page 15

213 F.3d 663, *684; 2000 U.S. App. LEXIS 3209, **55;

50 ERC (BNA) 1161
as drawn from the relevant information. Specifically,

EPA conducted additional modeling and interpreted the

data in context and found that South Carolina

significantly contributed to ozone nonattainment. See id.;

Final Rule, 63 Fed. Reg. at 57,394-396.

For example, under [**60] the 1-hour standard, the

UAM-V zero-out modeling results indicated that South

Carolina had a high maximum contribution (16 ppb) and

a high frequency of contribution (at least 2 ppb to 15% of

the exceedences and at least 10 ppb to 5% of the

exceedences) to Atlanta. See OFFICE OF AIR AND

RADIATION, U.S. ENVIRONMENTAL PROTECTION

AGENCY, DOC. NO. VI-B-11, AIR QUALITY

MODELING TECHNICAL SUPPORT DOCUMENT

FOR THE NOX SIP CALL C-5, H-2 (1998). The CAMx

modeling results were comparable (25 ppb maximum

contribution and a frequency of at least 2 ppb to 30% of

the exceedences). See id. at C-5, G-6. Among the upwind

states, only Alabama had a higher maximum

contribution. See id. at Apps. G & H. Moreover, South

Carolina's contribution to 1-hour nonattainment in

Atlanta was no more "insignificant" than many of the

other linkages that were found to be significant (e.g.,

Indiana's contribution to New York City). See id. at

C-13, H-16.

In contrast, the petitioner seeks to show that the data,

when viewed in isolation, makes South Carolina's

contribution appear insignificant. In the end, we reject the

challenge made on behalf of South Carolina because the

petitioner attacks, not [**61] so much the accuracy of

EPA's data, but rather EPA's reasonable analysis and

application of the data.

III. Federalism and Regulatory Flexibility Act

A. NOx Budgets

Building on OTAG's work, EPA ordered the

challenged SIP call under the authority of section

110(k)(5) in order to address significant contribution to

1-hour ozone nonattainment as described under section

110(a)(2)(D). 5 In fashioning the SIP call, EPA focused

on OTAG's determination that "regional NOx emissions

reductions are effective in producing ozone benefits."

Proposed Rule, 62 Fed. Reg. 60,318, at 60,320. EPA also

took into consideration OTAG's conclusion that while

NOx controls are effective in addressing regional ozone

problems, VOC controls are most effective locally and

are most advantageous to urban nonattainment areas. See

id. Because OTAG concluded that NOx reductions

provide [*686] the key to addressing regional ozone

problems, EPA's SIP call addresses regional ozone

nonattainment through NOx emissions "budgets"

established by the agency for each covered state. The

budgets represent the amount of allowable NOx

emissions remaining after a covered state prohibits the

NOx amount contributing [**62] significantly to

downwind nonattainment. See Final Rule, 63 Fed. Reg.

57,356, at 57,368. While EPA calculated the budgets

using highly cost-effective emission controls, the agency

allows the states to choose the control measures

necessary to bring their emissions within the bud get

requirements. See id. at 57,377; id. at 57,400. Under

EPA's budget plan, a state "may choose from a broader

menu of cost-effective, reasonable alternatives" including

alternatives that "may even be more advantageous in light

of local concerns." Id. at 57,369-370. In fact, EPA has

stated that the states have "full discretion in selecting the

controls, so that [the states] may choose any set of

controls that would assure achievement of the budget."

Id. at 57,378. In addition, each state has the option of

adopting an interstate trading program that allows it to

purchase NOx "allowances" from sources that have

elected to over-control. Id. at 57,430. The SIP call also

gives the states the option in some circumstances to use

"banked" allowances (i.e. allowances from prior years) to

comply with emissions [**63] limits. See id.

5 As noted above, we will not address the 8-hour

portion of the SIP call.

Petitioners assert that EPA's NOx budget program

impermissibly intrudes on the statutory right of the states

to fashion their SIP submissions in the first instance. In

support of this position, the petitioners primarily rely on

our decision in Virginia v. EPA, 323 U.S. App. D.C. 368,

108 F.3d 1397 (D.C. Cir.), modified on other grounds,

116 F.3d 499 (D.C. Cir. 1997), where we held that EPA

may not use a section 110(k)(5) SIP call to order states to

adopt a particular approach to achieving the SIP

requirements listed in section 110. Under the rule at issue

in Virginia, EPA required states to adopt California's

vehicle emission program and in effect set the numerical

emissions limitations and mandated the means for the

states to achieve the necessary emissions reductions. That

case involved an EPA rule that required several states to

reduce ozone precursors by a particular program [**64]

and only allowed states to implement a more stringent

program as an alternative or substitute. We held that

Page 16

213 F.3d 663, *685; 2000 U.S. App. LEXIS 3209, **59;

50 ERC (BNA) 1161
EPA's approach exceeded its authority under section 110

because each state retains the authority to determine in

the first instance the necessary and appropriate control

measures needed to satisfy section 110's standards. See

108 F.3d at 1407-09 (citing Train v. NRDC, 421 U.S. 60,

78-79, 95 S. Ct. 1470, 43 L. Ed. 2d 731 (1975)).

Our holding in Virginia was mandated by the

Supreme Court's decision in Train v. NRDC, 421 U.S. 60,

95 S. Ct. 1470, 43 L. Ed. 2d 731 (1975). Train involved a

challenge to Georgia's procedures for revising

source-specific emission limits adopted in a SIP. See id.

at 68-71. The Train Court held that states have the

authority under the CAA to initially propose specific

emission limitations. See id. at 79. The Court defined

"emission limitations" as "regulations of the composition

of substances emitted into the ambient air from such

sources as power plants, service stations, and the like.

They are the specific rules to which operators of

pollution sources are subject, and which if enforced

should result in ambient air which meets the [**65]

national standards." Id. at 78 (emphasis added). The

Court further held that EPA has only "a secondary role in

the process of determining and enforcing the specific,

source-by-source emission limitations." Id. at 79

(emphasis added). The Train decision and subsequent

precedent make clear that section 110 left to the states

"the power to [initially] determine which sources would

be burdened by regulation and to what extent." Union

Elec. Co. v. EPA, 427 U.S. 246, 269, 49 L. Ed. 2d 474, 96

S. Ct. 2518 (1976) (emphasis added); cf. Virginia, 108

F.3d at 1399, 1401, 1408 (involving a [*687]

source-specific program); Riverside Cement Co. v.

Thomas, 843 F.2d 1246, 1247-48 (9th Cir. 1988) (citing

Train and noting EPA's secondary role in enforcing

source-by-source emissions limitations). As we

elaborated in Virginia, "the Supreme Court decided ...

that [section 110] did not confer upon EPA the authority

to condition approval of [a state's] implementation plan ...

on the state's adoption of a specific control measure."

Virginia, 108 F.3d at 1408. For the reasons set forth

[**66] below, we conclude that the NOx budgets do not

fall within the realm of impermissible SIP call regulation

as defined in Virginia and Train.

Given the Train and Virginia precedent, the validity

of the NOx budget program underlying the SIP call

depends in part on whether the program in effect

constitutes an EPA-imposed control measure or emission

limitation triggering the Train Virginia federalism bar: in

other words, on whether the program constitutes an

impermissible source-specific means rather than a

permissible end goal. However, the program's validity

also depends on whether EPA's budgets allow the

covered states real choice with regard to the control

measure options available to them to meet the budget

requirements.

Section 110(a)(2)(D) requires SIPs to contain

adequate provisions prohibiting emissions from "any

source or other type of emissions activity within the

State" that "contribute significantly" to NAAQS

nonattainment in another state. Here, EPA mandates that

22 states and the District of Columbia implement section

110(a)(2)(D) using its NOx budget system. In essence,

the NOx budget in question is an EPA mandate

prohibiting NOx emissions in the 23 [**67] jurisdictions

from exceeding a tonnage specific to that jurisdiction.

See 63 Fed. Reg. 57,356 at 57,491-493 (1998). Of

concern to petitioners, the budget rule prohibits states

from seeking compliance, in whole or part, by controlling

VOC emissions even though VOCs as well as NOx

emissions contribute to ozone problems. See, e.g., id. at

57,359; see also 40 C.F.R. § 52.31(b)(7) (1998) (defining

ozone precursors).

Yet, the budget plan's defining aspects do not

necessarily cause the program to conflict with the

limiting principles contained in Train and Virginia.

Analyzing the budget rule together with the relevant

precedent, we hold that based on section 110's silence,

EPA reasonably interpreted section 110 as providing it

with the authority to determine a state's NOx significant

contribution level and agree with EPA that the NOx

budget plan does no more than project whether states

have reduced emissions sufficiently to mitigate interstate

transport. See 63 Fed. Reg. at 57,368.

Under section 110, EPA must "approve a [SIP]

submittal as a whole if it meets all of the applicable

requirements of [the Act]." 42 U.S.C. § 7410 [**68]

(k)(3). While the states have considerable latitude in

fashioning SIPs, the CAA "nonetheless subjects the

States to strict minimum compliance requirements" and

gives EPA the authority to determine a state's compliance

with the requirements. Union Elec. Co., 427 U.S. at

256-57 (referring to the requirements contained in the

statute). Given EPA's authority to ensure that submitted

SIPs adequately prohibit significantly contributing

emissions, EPA permissibly relied on its general

Page 17

213 F.3d 663, *686; 2000 U.S. App. LEXIS 3209, **64;

50 ERC (BNA) 1161
rulemaking authority to prospectively inform the states of

EPA's significance determinations.

Moreover, EPA does not tell the states how to

achieve SIP compliance. Rather, EPA looks to section

110(a)(2)(D) and merely provides the levels to be

achieved by state-determined compliance mechanisms.

Specifically, EPA set NOx reduction levels based, in part,

on assumptions about reductions obtainable through

highly cost-effective controls. See Final Rule, 63 Fed.

Reg. at 57,426. However, EPA made clear that states do

not have to adopt the control scheme that EPA assumed

for budget-setting purposes. See id. at 57,369-370. States

can choose from a myriad of [*688] reasonably

cost-effective [**69] options to achieve the assigned

reduction levels. See, e.g., id. at 57,438 (noting

possibilities with regard to mobile sources); id. at 57,378

(noting possibilities with regard to stationary sources); id.

at 57,416. While EPA bases the budgets here on "highly

cost-effective" control measures, the states remain free to

implement other "cost-effective" or "reasonably

cost-effective" measures in place of the ones identified by

EPA. See id. at 57,378; 63 Fed. Reg. 60,318 at 60,328

(1997) (noting that "one State may choose to primarily

achieve emissions reductions from stationary sources

while another State may focus on emissions reductions

from the mobile source sector"). More importantly, EPA

went so far as to give the states "full discretion in

selecting ... controls," 63 Fed. Reg. at 57,378, thereby

allowing states to attain their budgets by imposing even

quite unreasonable, very cost-ineffective controls. In

Virginia, we did not bar EPA from permitting more

costly alternatives but rather alternatives states would

consider "unreasonable or impracticable." Here, EPA

accommodates Virginia's mandate by allowing

reasonable control alternatives [**70] and allowing

states to focus reduction efforts based on local needs or

preferences. See 63 Fed. Reg. at 57,369; id. at

57,399-405; 62 Fed. Reg. at 60,328. Thus, real choice

exists for the covered states.

Regarding EPA's decision not to rely on VOC

reductions, EPA reasonably concluded that long-range

ozone transport can only be addressed adequately through

NOx reductions. Petitioners' reliance and emphasis on

VOC reductions in lieu of NOx reductions ignores the

scientific basis for EPA's rule. OTAG and EPA

concluded that VOC controls would not effectively

address interstate ozone transport. Furthermore, states can

cure any NOx reduction "disbenefits" with corresponding

optional VOC controls. See 62 Fed Reg. at 60,344-345;

63 Fed. Reg. at 57,425. Thus, the SIP call cannot be

invalidated merely because EPA reasonably chose not to

regulate VOCs.

In sum, we conclude that EPA's NOx budget

program reasonably establishes reduction levels and

leaves the control measure selection decision to the

states. In addition, unlike the rule invalidated in Virginia,

states implementing alternative control measures will

[**71] not be penalized with more stringent emissions

targets. Since the challenged budget program does not

mandate a "specific, source-by-source emission

limitation[]," the NOx budget plan does not run afoul of

Train or Virginia. B. Regulatory Flexibility Act The

Regulatory Flexibility Act ("RFA"), 5 U.S.C. §§ 601-612,

as amended in 1996 by the Small Business Regulatory

Enforcement Fairness Act ("SBREFA"), Pub. L. No.

114-121, Title II, 110 Stat. 847, 857-74, §§ 201-253

(codified at 5 U.S.C. §§ 601-612 (1994 & Supp. II

1996)), requires an agency, when proposing a rule for

notice and comment, to "prepare and make available for

public comment an initial regulatory flexibility

analysis.... [that] describes the impact of the proposed

rule on small entities," 5 U.S.C. § 603(a), including small

businesses, small organizations, and small governmental

jurisdictions. See id. § 601(6). In addition, when

promulgating a final rule, an agency must "prepare a final

regulatory flexibility analysis" that describes, among

other things, "a summary of the significant issues raised

by the public comments in response to the initial [**72]

regulatory flexibility analysis, a summary of the

assessment of the agency of such issues," and "the steps

the agency has taken to minimize the significant

economic impact on small entities." Id. § 604(a).

However, these analyses are not required if the

agency "certifies that the rule will not, if promulgated,

have a significant economic impact on a substantial

number of small entities." Id. § 605(b). In the instant

case, EPA certified that the proposed [*689] and final

rule will not have a significant economic impact on a

substantial number of small entities and, accordingly, did

not perform any regulatory flexibility analysis. See Final

Rule, 63 Fed. Reg. at 57,478; Proposed Rule, 62 Fed.

Reg. at 60,375. RFA petitioners contend that EPA's

certification was improper and in violation of the RFA.

We disagree.

The court has consistently held that the RFA imposes

Page 18

213 F.3d 663, *687; 2000 U.S. App. LEXIS 3209, **68;

50 ERC (BNA) 1161
"no obligation to conduct a small entity impact analysis

of effects on entities which it does not regulate." Motor &

Equip. Mfrs. Ass'n. v. Nichols, 330 U.S. App. D.C. 1, 142

F.3d 449, 467 (D.C. Cir. 1998) (quoting United

Distribution Cos. v. FERC, 319 U.S. App. D.C. 42, 88

F.3d 1105, 1170 (D.C. Cir. 1996)); [**73] see also

American Trucking, 175 F.3d at 1044. Therefore, the key

issue in evaluating EPA's § 605(b) certification is

whether the NOx SIP call "regulates" small entities.

EPA based its certification on its view that the NOx

SIP call "would not establish requirements applicable to

small entities" because "it would require States to

develop, adopt, and submit SIP revisions that would

achieve the necessary NOx reductions and would leave to

the States the task of determining how to obtain those

reductions, including which entities to regulate." Final

Rule, 63 Fed. Reg. at 57,478. We agree with EPA's

statement that the SIP call does not directly regulate

individual sources of emissions. The instant case is thus

analogous to American Trucking, which upheld EPA's

certification under § 605(b) because the revised NAAQS

at issue "regulate small entities only indirectly--that is,

insofar as they affect the planning decision of the States."

American Trucking, 175 F.3d at 1044. Therefore, we

conclude that EPA's certification under § 605(b) is

justified.

IV. Remaining Claims

A. Definition of "NOx Budget Unit"

RFA petitioners also [**74] contend that EPA

arbitrarily revised the definition of a "NOx budget unit"

to bring certain small sources within the scope of the core

group of emission-producing sources to which the NOx

Budget Trading Rule ("model trading rule") applies. 6

This contention is meritless.

6 To assist states in meeting their budgets and to

facilitate the most cost-effective reductions, the

SIP call established a model rule for interstate

trading of NOx "allowances." Each state can

choose whether to adopt the model rule, which

will be administered by EPA, to adopt its own

trading program, or to have no trading program at

all. See Final Rule, 63 Fed. Reg. at 57,456-58.

The core group definition is used to set the

minimum requirements that a State would have to

include in its trading rule in order to participate in

the EPA-managed multi-state trading program.

See id. at 57,461. EPA viewed that setting such

requirements was necessary for controlling the

administrative costs of managing the trading

program. See id.

[**75] In the proposed rule, a "NOx budget unit"

was defined as a boiler that either serves electricity

generators with a capacity greater than 25 megawatts

("MW") or does not serve generators but has a design

heat capacity of greater than 250 million Btu/hr

("mmBTu/hr"). See Supplemental Notice for the Finding

of Significant Contribution and Rulemaking for Certain

States in the Ozone Transport Assessment Group Region

for Purposes of Reducing Regional Transport of Ozone

("Supplemental Notice of Proposed Rule"), 63 Fed. Reg.

25,902, 25,978 (1998). EPA sought comment on "the

appropriateness of including [such] categories ..., whether

the size cut-offs should be higher or lower for these

source categories, and the appropriateness of including

other source categories in the core group." Id. at 25,923.

In the final rule, EPA discussed and revised the definition

to expand the core group by including large boilers--those

with design heat capacity of greater than 250

mmBtu/hr--even if they served generators with a capacity

less than 25 MW. See Final Rule, 63 Fed. Reg. at 57,518.

EPA explained that it was making this change in order to

address [**76] the concern [*690] raised in the

comments about excluding large boilers with high levels

of emission just because they happen to serve small

generators. See id. at 57,461.

EPA's revision is reasonable. The only argument that

RFA petitioners seem to have against the change is that it

contradicts EPA's statement elsewhere that "small

electrical generators less than 25 MW ... will be exempt

under the final model rule." Id. at 57,463. It is unclear

why this statement renders EPA's final action arbitrary.

EPA's definition of a NOx budget unit and the reasons for

its change are set forth in the preamble to the final rule,

and the most that the RFA petitioners have demonstrated

is that EPA made at least one statement that was, as EPA

concedes in its brief, "incomplete in that it did not

address the case of large boilers with small generators."

Such a minor oversight in the drafting of the preamble to

the final rule does not render the substantive decision by

EPA arbitrary. B. Council of Industrial Boiler Owners

1. Introduction

In the rulemaking, EPA distinguished between

Page 19

213 F.3d 663, *689; 2000 U.S. App. LEXIS 3209, **72;

50 ERC (BNA) 1161
electricity generating units ("EGUs") and non-electricity

generating units ("non-EGUs"). [**77] Council of

Industrial Boiler Owners ("CIBO"), a trade association

whose membership consists of companies and

universities operating industrial boilers and turbines

("industrial boilers"), which constitute one category of

non-EGUs, challenges the NO[x ]SIP call for being based

on the following arbitrary and capricious actions by EPA:

EPA's failure to determine whether non-EGUs are

significant contributors, EPA's flawed cost assumptions

in its determination of cost-effective control measures for

non-EGUs, EPA's erroneous calculation of non-EGU

budgets, and EPA's arbitrary redefinition of the term

"EGU." We agree only that EPA's redefinition of EGUs

was arbitrary and capricious.

2. Significant Contribution of Industrial Boilers

CIBO challenges EPA's decision to include

non-EGU boilers in the rule without having isolated

non-EGU emissions to determine whether they

"significantly contribute" to the interstate ozone transport

problem and whether implementing highly cost-effective

emissions reduction measures on industrial boilers would

ameliorate nonattainment in downwind states. CIBO

maintains that non-EGU boilers typically have

significantly shorter stacks than EGUs and that their

[**78] emissions, as a result, fall below the "mixing

layer" that promotes long-range NOx transport.

Therefore, CIBO contends, industrial boilers as a group

can have no impact on long-range ozone transport.

However, this factual claim fails in view of contrary

evidence in the record. OTAG's Executive Report states

as one of its major conclusions that "both elevated (from

tall stacks) and low-level NOx reductions are effective."

Executive Report at 4. EPA reiterated this finding by

OTAG in the NPRM, see Proposed Rule, 62 Fed. Reg. at

60,332, it relied on the finding, and it appears that

members of CIBO never challenged it during the

comment period. Therefore, we cannot say EPA's

inclusion of non-EGUs in the group of significantly

contributing sources was arbitrary.

3. Cost-Effectiveness Calculation for Industrial

Boilers'

Control Measures CIBO also challenges EPA's

conclusion that industrial boilers could achieve a 60%

emissions reduction using highly cost-effective control

measures, see Final Rule, 63 Fed. Reg. at 57,418, as

based on flawed cost calculations. More specifically,

CIBO lists the following alleged problems in EPA's cost

assumptions:

- [**79] EPA's assumption of 10 years

as the lifetime of all control measures for

industrial boilers, except for selective

catalytic reduction and selective

non-catalytic reduction controls, for which

20 years was assumed.

[*691] - EPA's use of a 10%

discount rate, not 7%, in its

cost-effectiveness analysis.

- EPA's failure to take into account

the fact that control effectiveness can vary

by as much as 10% to 20%.

- EPA's failure to take into account

cost and feasibility implications of load

variability and firing of multiple fuels.

- EPA's assumption of NO[x

]emission allowance costs of $ 2,000 per

ton, when emission allowances trade for $

5,500 to $ 6,300 per ton.

The general problem of these criticisms is that CIBO

merely lists several items as problems and labels all of

them "irrational" without explaining why its claims

should concern the court. Given that almost all of CIBO's

challenges involve technical details on which the court

generally defers to the agency's expertise, CIBO's failure

to explain why the so-called problems it identifies

amount to an arbitrary and capricious decisionmaking is

fatal to its claims. 7 Therefore, we reject CIBO's claims

regarding EPA's underlying cost [**80] assumptions

about industrial boilers.

7 For instance, the last item on the list, that it is

arbitrary and capricious for EPA to assume NO[x

]emission allowance costs of $ 2,000 per ton

when emission allowances now trade for $ 5,500

to $ 6,300 per ton, is insufficiently explained. Of

course, if the firms in the market generating

entitlement prices of $ 5,500 to $ 6,300 per ton

were regulated at the same degree of stringency as

EPA contemplates for firms expected to be

burdened under the present rule, the market price

would be strong evidence that compliance would

Page 20

213 F.3d 663, *690; 2000 U.S. App. LEXIS 3209, **76;

50 ERC (BNA) 1161
cost far more than the $ 2,000 per ton figure that

EPA has used. No one would pay $ 6,000 for an

entitlement to emit a ton that he could remove at a

cost of $ 2,000; the price of an entitlement could

not exceed the marginal removal cost. But if the

prices to which CIBO points arose among firms

more stringently regulated, there would be no

such contradiction. CIBO has not even

endeavored to show equivalent stringency.

4. Determination of Non-EGU Component [**81] of

State NOx Budgets

CIBO contends that EPA's calculation of the

non-EGU component for the State NO[x ]budget lacks

adequate support in the record and lists the following as

problems:

- Non-EGU inventories had errors.

- EPA's use of Bureau of Economic

Analysis growth factor to project 2007

emission levels have "inherent error."

- EPA employed "crude

extrapolations" to identify large non-EGU

boilers.

- The "default boiler capacity file" is

not in the record and the record does not

reveal how EPA manipulated the data.

- The source of Bureau of Economic

Analysis growth factors is not identified in

the record, and the record does not show

how EPA manipulated the data.

- It is unknown whether EPA credited

NOx reductions from fluidized-bed

combustion technology.

Again, CIBO merely presents a list of problems

without explaining why these alleged errors render EPA's

rulemaking arbitrary or capricious. In addition, CIBO

members had repeated opportunities to provide correct

information for some of these items during the

rulemaking process. CIBO's poorly articulated, blanket

accusations at this late stage contribute little to improve

the quality of agency rulemaking; therefore, [**82] we

reject CIBO's challenges regarding EPA's calculation of

NOx budgets for non-EGUs.

5. Definition of EGU

More persuasively, CIBO contends that EPA revised

the definition of "EGU" without adequate notice.

Throughout the rulemaking, EPA defined an EGU as it

did under the acid rain program, which excludes from the

category of "utility units" those cogeneration units that

sell less than one-third of their potential electrical output

capacity or less than 25 MW per year. See 42 U.S.C. §

7651a(17)(C). However, two months after the

promulgation of the rule, EPA [*692] redefined an EGU

as a unit that serves a "large" generator (greater than

25MW) that sells electricity. CIBO contends that EPA

did not provide sufficient notice and opportunity to

comment on this revision, especially considering that the

industrial boilers have relied on the previous definition

for a number of years. We agree.

EPA maintains that it provided adequate notice in the

May 1998 supplemental notice, stating that "deregulation

of electric utilities" means that "it is not clear how

ownership of the electricity generating facilities will

evolve." Supplemental Notice of Proposed Rule, 63 Fed.

Reg. at 25,923. [**83] Given that "there is no relevant

physical or technological difference between utilities and

other power generators," EPA proposed, "all large

electricity generating sources, regardless of ownership,"

should be treated the same. Id. There are several

problems with EPA's response. First, it is undisputed that

EPA was departing from the definition of EGUs as used

in prior regulatory contexts, and EPA was not explicit

about the departure from the prior practice until two

months after the rule was promulgated. Neither the

proposed rule-making in November 1997 nor the final

rule in October 1998 introduced the new definition. EPA

waited until the December 1998 correction notice to

announce that it will "classify as an EGU any boiler ...

that is connected to a generator greater than 25 MWe

from which any electricity is sold." Correction and

Clarification to the Finding of Significant Contribution

and Rulemaking for Purposes of Reducing Regional

Transport of Ozone ("Correction Notice to Final Rule"),

63 Fed. Reg. 71,220, 71,223 (1998). After the December

correction notice, EPA reopened the comment period for

sixty days for comments on this and other issues. In

EPA's May 1999 [**84] response to the comments, EPA,

for the first time, discussed why the change was

necessary and offered a justification largely based on

Page 21

213 F.3d 663, *691; 2000 U.S. App. LEXIS 3209, **80;

50 ERC (BNA) 1161
recent changes in the electric power industry. See

Responses to the 2007 Baseline Sub-Inventory

Information and Significant Comments for the Final NOx

SIP Call 10-12 (May 1999) ("Responses to Final

Comments").

As to the statement in the May 1998 supplemental

notice that EPA claims constitutes notice, this statement

was given in EPA's discussion of how the core group of

sources for the model trading rule should be defined, and

not in the context of a discussion about the general

distinction between EGUs and non-EGUs for the

purposes of calculating state budgets. Cf. Small Refiner

Lead Phase-Down Task Force v. EPA, 227 U.S. App.

D.C. 201, 705 F.2d 506, 550 (D.C. Cir. 1983). Moreover,

EPA also explicitly observed in the same May notice

discussion about the model trading rule that "many of the

definitions ... are the same as those used in ... the Acid

Rain Program regulations, in order to maintain

consistency among programs." Supplemental Notice of

Proposed Rule, 63 Fed. Reg. at 25,923. Given the vague

and conflicting [**85] signals that EPA was sending, it

is an exaggeration to state that some general "theme" of

the regulatory consequences of deregulation of the utility

industry throughout rulemaking meant that EPA's

last-minute revision of the definition of EGU should have

been anticipated by industrial boilers as a "logical

outgrowth" of EPA's earlier statements. See American

Water Works Ass'n. v. EPA, 309 U.S. App. D.C. 235, 40

F.3d 1266, 1274-75 (D.C. Cir. 1994).

EPA contends that even assuming that CIBO did not

have adequate notice and opportunity to comment on the

EGU definition, the error has been cured because it

reopened the comment period on this issue after its

announcement of the revision. See Correction Notice to

Final Rule, 63 Fed. Reg. at 71,221-23. This response is to

no avail. During the new comment period, some

commenters complained that there had not been sufficient

notice and opportunity to comment on the EGU

redefinition. See Responses to Final Comment, at 12.

EPA's response to this charge primarily relied on the

claim that there had been [*693] adequate notice prior to

the redefinition, see id., and we have already rejected

that argument.

Therefore, [**86] we conclude EPA did not provide

sufficient notice and opportunity to comment for its

redefinition of EGUs and remand the rulemaking to EPA

for further consideration in light of this opinion.

C. INGAA

Interstate Natural Gas Association of America

("INGAA"), a trade association that represents major

interstate natural gas transmission companies in the

United States, contends that EPA did not provide

adequate notice and opportunity to comment on the

control level assumed for "large" stationary internal

combustion ("IC") engines in its determination of state

NOx budgets. We agree.

EPA's NPRM in November 1997 assumed a 70%

control level for large IC engines, see Proposed Rule, 62

Fed. Reg. at 60,354, after considering and rejecting an

80% control level. See id. at 60,348. Then, in the

supplemental notice in May 1998, EPA continued to

assume the 70% control level. See Supplemental Notice

of Proposed Rule, 63 Fed. Reg. at 25,908. EPA stated in

the same notice that it "intends to further analyze" control

approaches for IC engines and said that "as the above

analyses are completed, EPA intends to place them in the

docket." Id. at 25,909. [**87] EPA did not present a new

analysis until September 4, 1998, when it concluded that

a 90% control level was more appropriate for large IC

engines. See Technical Support Document for Stationary

International Combustion Engines 2 (September 4, 1998).

When the rule was finally promulgated in October 1998,

EPA stated that it was assuming a 90% control level. See

Final Rule, 63 Fed. Reg. at 57,418.

INGAA contends that EPA's switch from 70% to

90% for large IC engines was unanticipated and that EPA

should have allowed comments on the issue. Considering

EPA's repeated affirmation of the 70% assumption

throughout rule-making and rejection of a higher, 80%

assumption earlier, a revision in its assumption less than

one month before the final rule was promulgated hardly

provided adequate notice, especially given the magnitude

of the consequences of the proposed change on the

regulated bodies. Therefore, we remand for further

consideration on this issue. 8 In addition, INGAA

challenges EPA's definition of large IC engines. EPA, in

the final rule, distinguished between large and small

sources by defining a "cutoff level." 63 Fed. Reg. at

57,414. EPA assumed no [**88] control for sources

below the cutoff level and defined small sources as units

with a capacity less than or equal to 250 mmBtu/hr and

with emissions less than or equal to one ton per day. See

id. at 57,415. EPA added that "EPA is relying on a

capacity approach first and a tons per day approach

Page 22

213 F.3d 663, *692; 2000 U.S. App. LEXIS 3209, **84;

50 ERC (BNA) 1161
second (where a capacity data is not available or

appropriate)" to define small sources. Id. at 57,416.

Then, in the December correction notice, EPA largely

repeated the same methodology for determining the

cutoff level, but added that "[a] stationary internal

combustion engine and a cement plant were determined

to be 'large' if its 1995 average daily ozone season

emissions were greater than one ton." Correction Notice

to Final Rule, 63 Fed. Reg. at 71,224.

8 INGAA further contends that, even putting

aside the notice issue, the documents that EPA

relies on do not support EPA's assumption of 90

control level. Because we are remanding on the

basis of the conclusion that there was inadequate

notice, we do not reach the merits of the issue.

[**89] INGAA contends that EPA did not follow

its own standard in the correction notice and singled out

IC engines and cement plants without explanation.

Although EPA's various statements on this issue

throughout rulemaking have not always been very clear

or entirely consistent, EPA went through an extensive

comment [*694] period on this issue, see Final Rule, 63

Fed. Reg. at 57,415-17, and we agree with EPA that the

change that INGAA criticizes for being arbitrary is

merely a minor clarification that satisfies the

reasonableness standard.

D. PP&L

1. EPA's Restrictions on Early Reduction Credits

PP&L, an electric utility that owns several

generating stations in Pennsylvania, contends that EPA

arbitrarily limited the number of "early reduction credits"

("ERCs"). We disagree.

Under the SIP call, a source can generate ERCs if it

reduces its NOx emissions before May 2003 to a level

below that is required by any regulatory scheme. ERCs

can then be used to compensate for emitting emissions

above required levels in a later time period. See Final

Rule, 63 Fed. Reg. at 57,430. EPA limited the amount of

available ERCs for each state to the size of each state's

[**90] compliance supplement pool ("CSP"). See id. at

57,474. The CSP is an additional allowance of emissions

that allows states to emit 200,000 tons of NOx in the

2003-2004 ozone seasons over the state emissions

budgets. Id. at 57,428. EPA created the CSP in response

to the comments that if all utilities had to install pollution

control equipment by May 1, 2003, there might be

disruptions in electricity supply. See id. If a state chooses

to use the CSP, it can either provide ERCs or distribute

the allowances to sources that demonstrate a need for the

compliance supplement. See id. at 57,429-30.

PP&L contends that imposing this limit on the

number of ERCs is arbitrary and capricious because

placing any limit on ERCs is environmentally

counterproductive. We do not find this contention

persuasive. EPA noted during the comment period that

ERCs, although generally beneficial, can be costly in that

they allow states to exceed their budgets. See Responses

to Significant Comments on the Proposed Finding of

Significant Contribution and Rulemaking for Certain

States in the Ozone Transport Assessment Group

(OTAG) Region for Purposes of Reducing [**91]

Regional Transport of Ozone 346 (September 1998)

("Responses to Comments"). EPA noted further that the

CSP, by establishing a cap on the number of allowances

to be distributed, limited such potential costs. Id. EPA's

decision is thus reasonable.

PP&L also contends that EPA has not demonstrated

why the "flow control mechanism" is not sufficient to

address its concern. Under the flow control mechanism,

the use of banked allowances exceeding 10% of the

emissions budget for sources in the trading program is

either flatly prohibited or discouraged by discounting the

value of ERCs used as such, and states can choose

between either method. See Final Rule, 63 Fed. Reg. at

57,431-32. This complaint by PP&L overlooks the fact

that EPA included the flow control mechanism in the

regulatory scheme "as a final safeguard limiting the

impact of additional allowances eligible for banking in

the system." Responses to Comments, at 346. Therefore,

it was a safeguard created in addition to the CSP

limitation. It was within EPA's discretion to devise

multiple limitations to contain the environmental cost of

ERCs.

PP&L further contends that, even if it is rational for

EPA to place [**92] a limit on the amount of ERCs,

EPA's choice of setting the limit at the same amount as

the CSP is arbitrary and capricious. This contention fails

as well. The record shows that EPA allowed ERCs

merely as a mechanism for managing the CSP, not as an

independent program with a purpose separate from that of

the CSP. See Final Rule, 63 Fed. Reg. at 57,428-33.

Therefore, EPA's decision to limit the amount of ERCs to

Page 23

213 F.3d 663, *693; 2000 U.S. App. LEXIS 3209, **88;

50 ERC (BNA) 1161
the size of the CSP was reasonable.

2. Emissions Multiplier for Low Mass Emission

Units

PP&L also contends that EPA arbitrarily required

"low mass emission units" [*695] ("LMEUs") to use a

15% multiplier to calculate their emissions. We disagree.

EPA allows LMEUs either to use a generic default

NOx or to determine a unit-specific NOx emission rate

by conducting a stack test once every five years. Because

EPA found that the stack test results can vary by 15% or

more depending on atmospheric conditions, EPA requires

an LMEU to calculate its emissions rate by adding 15%

to the stack test result. See Final Rule, 63 Fed. Reg. at

57,490.

PP&L contends that this is unreasonable because

EPA has stated that the testing would likely

underestimate emissions [**93] during cooler less humid

conditions. See id. PP&L reasons that because the SIP

call applies only during summer seasons (when ozone

forms), that the stack test underestimates emissions

during the winter cannot justify the 15% multiplier. This

contention is to no avail. Because the record contains

evidence that NOx rates determined by the stack test can

vary widely even during the ozone season, EPA's

decision was reasonable. See Docket A-97-35, Item

IV-A-1 at 43-54 (August 26, 1998).

Conclusion

We vacate EPA's final rule with respect to

Wisconsin, Missouri, and Georgia (see Part II.A-B).

These cases are remanded for further consideration in

light of this opinion. We hold that EPA failed to provide

adequate notice of a change in the definition of an electric

generating unit (see Part IV.B.5), and that EPA did not

provide adequate notice of a change in the control level

assumed for large stationary internal combustion engines

(see Part IV.C). These cases are also remanded.

In all other respects, the petitions for review are

denied.

So ordered.

DISSENT BY: SENTELLE

DISSENT

SENTELLE, Circuit Judge, dissenting: Unlike the

majority's journey through this regulatory [**94]

scheme, mine is neither lengthy nor complex, because I

get off at the first stop. In promulgating the regulations at

issue, EPA purported to exercise the authority Congress

conferred upon it to enforce the requirements of 42

U.S.C. § 7410(a)(2)(D)(i)(I) which empowers the

Administrator to police the contents of State

Implementation Plans ("SIPs"), specifically to ensure that

such plans 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 with respect to any such

national primary or secondary ambient air

quality standard....

42 U.S.C. § 7410(a)(2)(D)(i)(I) (1994) (emphasis added).

EPA is a federal agency--a creature of statute. It has no

constitutional or common law existence or authority, but

only those authorities conferred upon it by Congress. If

there is no statute conferring authority, a federal agency

has none. The only statute upon which EPA purports to

rely in the current controversy is § 7410(a)(2)(D)(i)(I).

[**95] That section provides authority for EPA to

require States to act in a certain fashion based upon the

presence of sources or activities which emit "pollutants in

amounts which will ... contribute significantly to

nonattainment." It would appear to me that Congress

clearly empowered EPA to base its actions on amounts of

pollutants, those amounts to be measured in terms of

significance of contribution to downwind nonattainment.

Instead, EPA has chosen, doubtless in the pursuit of

beneficent ends, to assert authority to require the SIPs to

contain provisions based not on the amounts of

pollutants, nor even on the relative significance of the

contributions of such pollutants to downwind

nonattainment, but on the relative cost effectiveness of

alleviation. I agree with the State petitioners that it is

undeniable that EPA has exceeded its statutory authority.

[*696] We have before had occasion to remind

EPA that its mission is not a roving commission to

achieve pure air or any other laudable goal. In American

Petroleum Institute v. United States EPA, 311 U.S. App.

D.C. 268, 52 F.3d 1113 (D.C. Cir. 1995), we reviewed an

Page 24

213 F.3d 663, *694; 2000 U.S. App. LEXIS 3209, **92;

50 ERC (BNA) 1161
EPA rule requiring that thirty percent of the oxygen

[**96] in reformulated gasoline be derived from

renewable sources, such as ethanol. The statutory

authority under which EPA operated, 42 U.S.C. §

7545(k)(1) empowered EPA to promulgate regulations

achieving "the greatest reduction in emissions of ozone

forming volatile organic compounds...." 42 U.S.C. §

7545(k)(1). Although EPA advanced commendable goals

of economic benefit for its inclusion of the additional

goal of ethanol market protection, we struck down the

overreaching and reminded EPA that "it is axiomatic that

an administrative agency's power to promulgate

legislative regulations is limited to the authority

delegated by Congress." API, 52 F.3d at 1119 (quoting

Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208,

102 L. Ed. 2d 493, 109 S. Ct. 468 (1988)).

Similarly, in Ethyl Corp. v. EPA, 311 U.S. App. D.C.

163, 51 F.3d 1053 (D.C. Cir. 1995), we considered EPA's

denial of a Clean Air Act waiver application based on

health considerations. We did not suggest that EPA acted

in bad faith or that health considerations were not

important, but we repaired to the statutory grant of

authority [**97] in 42 U.S.C. § 7545(f)(4), which based

the Administrator's authority to deny waiver solely on the

property of an additive to "cause or contribute to a failure

of any emission control device or system...." 42 U.S.C. §

7545(f)(4). We again granted the petition for review of

the Administration's action, reminding EPA that where

"the plain language of a provision makes it clear that ...

decisions are to be based on one criterion, the EPA

cannot base its decision on other criteria," even on a

criterion as laudable as the health of the public. Ethyl

Corp., 51 F.3d at 1058.

For all the majority's discussion of inconsistent

arguments by States and the possibility of taking costs

into account elsewhere raised by the Administration and

adopted by the majority, I do not see why the present

controversy does not fall squarely within the four corners

of API and Ethyl Corp. Congress set forth one criterion:

the emission of an amount of pollutant sufficient to

contribute significantly to downwind nonattainment. EPA

adopted a different criterion: the cost effectiveness of

alleviation. I would remind the agency once more of the

[**98] lessons of API and Ethyl Corp., allow the

petitions for review, and end the case.

The majority makes a fundamental mistake by

divorcing the adverb "significantly" from the verb it

modifies, "contribute." The majority compounds its error

by divorcing significantly from the rest of the statutory

provision in issue. Maj. Op. at 19-23. By focusing on

"significance" or what it means to be "significant," the

majority ignores the fact that the statute permits EPA to

address that which is "contributed significantly." 42

U.S.C. § 7410(a)(2)(D)(i)(I) (emphasis add ed). And

what should EPA look for as being contributed

significantly? Congress clearly answered that question for

the agency as being an "amount" of an "air pollutant." Id.

Considering that Congress expressly gave EPA authority

with regard to "any air pollutant in amounts which will ...

contribute significantly to nonattainment ...," id.

(emphasis added), I marvel at an interpretation that

permits cost effectiveness to find a place in a statutory

provision addressing amounts of air pollutant

contribution. While the contribution must affect

nonattainment significantly, no reasonable [**99]

reading of the statutory provision in its entirety allows the

term significantly to springboard costs of alleviation into

EPA's statutorily-defined authority. Given §

7410(a)(2)(D)(i)(I)'s mandate as a whole, it becomes

clear that EPA and the majority have to contort the

statute's language by isolating the term significantly and

ignoring the terms air pollutant, amounts, and contribute

in order to work cost considerations into the statute. I just

cannot [*697] agree with such an unusual exercise in

statutory construction.

I see nothing in Chevron U.S.A. Inc. v. NRDC, Inc.,

467 U.S. 837, 81 L. Ed. 2d 694, 104 S. Ct. 2778 (1984),

that either compels or counsels the majority's result. EPA

argues that Congress did not define significant

contribution. True, it did not. Neither did it define

amount. But neither EPA nor the majority have offered

any reasonable interpretation of those words which

makes them depend upon or even relate to the cost

effectiveness of alleviation. 1 EPA comes close to

arguing: Congress has not expressly forbidden us to use

this criterion, therefore we may use it. As we said in

Ethyl Corp.:

To suggest, as the [EPA] effectively

does, that [**100] Chevron step two is

implicated any time a statute does not

expressly negate the existence of a

claimed administrative power ..., is both

flatly unfaithful to the principles of

administrative law ... and refuted by

precedent.

Page 25

213 F.3d 663, *696; 2000 U.S. App. LEXIS 3209, **95;

50 ERC (BNA) 1161
51 F.3d at 1060. Because the majority's deference to

EPA's unreasonable statutory interpretation as couched in

the agency's scurrilous "second-step" cost effectiveness

analysis ventures off track, as I said, I am getting off at

the first stop.

1 Contrary to the suggestion of the majority,

neither of the cases cited by the majority bear any

implication that the cost of alleviating or

otherwise dealing with risk expressed as a noun or

a verb has any effect upon the definition of

"significant" or "significantly" used as an

adjective or adverb modifying that noun or verb.

The portion of Industrial Union Department v.

American Petroleum Institute, 448 U.S. 607, 655,

65 L. Ed. 2d 1010, 100 S. Ct. 2844 (1980)

(plurality opinion) quoted by the majority to the

effect "that a 'significant' risk ... is not a

mathematical straitjacket," (Maj. Op. at 20) does

not deal in any fashion with the cost of

alleviation. Rather, Justice Stevens in that opinion

was contrasting the significance of a

one-in-a-billion chance of cancer from drinking

chlorinated water against the one-in-a-thousand

risk that regular inhalation of certain

benzene-containing vapors would be fatal.

Obviously, the "significance" of the risk deals

with its importance, not the cost of its alleviation.

Equally off point is International Union, United

Auto Workers v. OSHA, 37 F.3d 665, 668-69

(D.C. Cir. 1994), which concerned the

cost-effectiveness of alleviating measures directed

at risk theretofore determined to have been

significant, not with the use of cost-effectiveness

in determining the significance of the risk vel non.

[**101] Because I would invalidate the regulatory

scheme before us at its inception, I will not address the

subsidiary issues pursued by my colleagues.

Page 26

213 F.3d 663, *697; 2000 U.S. App. LEXIS 3209, **100;

50 ERC (BNA) 1161