Are you subsidizing another state's air pollution?

You might have to, if the Environmental Protection Agency gets its way in the U.S. Supreme Court on Tuesday. 

The court will hear oral arguments in a case dealing with the EPA’s ability to regulate cross-state, or interstate, air pollution.  The lower court found EPA’s rule, known as the Cross-State Air Pollution Rule, illegal. So the EPA and various environmental groups are now asking the Supreme Court to reverse the lower court’s decision.  They argue that, if left in place, the lower court's decision will "substantially delay emissions reductions" and “thwart timely attainment of the nation’s health-based air quality standards.” 

But the truth is that the case has more to do with interstate cost sharing and economics than it does with air quality improvements.  At stake are tens of billions of dollars in compliance costs, and the question is which states will have to pay and how much. 

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EPA's rule regulated cross-state power plant pollution pursuant to a short clause in the federal Clean Air Act, commonly called the “good neighbor” provision.  That provision requires states to eliminate in-state air pollution that significantly contributes to air quality problems in neighboring states.  For example, if the City of Chicago’s air pollution is significantly contributing to air quality problems in Wisconsin, Illinois is required to eliminate that pollution.  Otherwise, Illinois is not being a good neighbor.

Although this sounds simple, it’s not. EPA has tried for years to regulate cross-state air pollution coming from power plants in the eastern half of this country, and the courts have consistently shot down EPA’s attempts.  The challenge for EPA is that the more polluting states are not necessarily the states with the cheapest plants to clean up.  

For example, Illinois’ power plants are more expensive to clean up than Wisconsin’s plants; yet Illinois sends more harmful pollution to other states than Wisconsin does. Is it fair to require Wisconsin’s utilities and electric ratepayers to spend more to compensate for Illinois’ pollution, if society as a whole is better off?  EPA believes the answer is yes.  As a citizen of Wisconsin, I disagree.

EPA’s rule set each state’s emission reduction requirement based on how much it would cost that state’s power plants to reduce air pollution. But the lower court found that EPA exceeded its authority under the “good neighbor” provision because the emission reduction requirements were not based on how much each state is actually contributing to neighboring states’ air quality problems.  EPA’s rule was requiring states like Wisconsin to be more than just good neighbors, and the lower court said that was illegal.

The Supreme Court will now decide, and its decision could have enormous economic impacts.  On the low-end, EPA estimates an annual cost to comply with the rule of about $2 billion, while the non-partisan American Legislative Exchange Council estimates that compliance costs will exceed $120 billion within the first few years of implementation.

Under EPA’s rule, Texas, South Carolina, New York, Wisconsin and numerous other states would have to pay more than their fair share so that other states can continue to pollute.  On the flip side, the states that are the largest contributors to downwind air quality problems are Ohio, Illinois, Indiana, Missouri, West Virginia and Kentucky.  These states were relative winners under EPA’s rule because their contributions were offset by reductions required in other states.  If the lower court’s decision stands, however, EPA’s next cross-state rule will likely require these states to spend billions more on pollution control technology.  Residential and business consumers in the states will face higher electric bills, thereby hurting the local economies.

Regardless of which upwind states ultimately bear the cost, EPA will use the “good neighbor” provision to try to fix all downwind air quality problems.  That’s why this case is not really about air quality; it’s about who’s going to pay to improve it. 

I, for one, don’t want to pay more than my fair share.  Do you?

Potts is a partner at the law firm of Foley & Lardner LLP and has authored articles on the Clean Air Act in law journals published by Yale, Harvard, N.Y.U., and Berkeley.