Opinion ID: 768833
Heading Depth: 2
Heading Rank: 3

Heading: Federalism and Regulatory Flexibility Act

Text: 86 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 [r]egional 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 providethe 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 significantly to down wind 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 budget 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 limits. See id. 87 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, 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 and only allowed states to implement a more stringent program as an alternative or substitute. We held that 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 id. at 1407-09 (citing Train v. NRDC, 421 U.S. 60, 78-79 (1975)). 88 Our holding in Virginia was mandated by the Supreme Court's decision in Train v. NRDC, 421 U.S. 60 (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 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 (1976) (emphasis added); cf. Virginia, 108 F.3d at 1399, 1401, 1408 (involving asource-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 below, we conclude that the NOx budgets do not fall within the realm of impermissible SIP call regulation as defined in Virginia and Train. 89 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. 90 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 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). 91 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. 92 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. S 7410(k)(3). While the states have considerable latitude in fashioning SIPs, the CAA nonetheless subject[s] 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 rulemaking authority to prospectively inform the states of EPA's significance determinations. 93 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 ofreasonably cost-effective 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 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. 94 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 60,344345; 63 Fed. Reg. at 57,425. Thus, the SIP call cannot be invalidated merely because EPA reasonably chose not to regulate VOCs. 95 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 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.
96 The Regulatory Flexibility Act (RFA), 5 U.S.C. SS 601612, 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, SS 201-253 (codified at 5 U.S.C. SS 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] describe[s] the impact of the proposed rule on small entities, 5 U.S.C. S 603(a), including small businesses, small organizations, and small governmental jurisdictions. See id. S 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 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. S 604(a). 97 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. S 605(b). In the instant case, EPA certified that the proposedand 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. 98 The court has consistently held that the RFA imposes 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, 142 F.3d 449, 467 (D.C. Cir. 1998) (quoting United Distribution Cos. v. FERC, 88 F.3d 1105, 1170 (D.C. Cir. 1996)); see also American Trucking, 175 F.3d at 1044. Therefore, the key issue in evaluating EPA's S 605(b) certification is whether the NOx SIP call regulates small entities. 99 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.