## Facts

- EPA promulgated the Clean Air Interstate Rule (CAIR) under the Clean Air Act (CAA) “good neighbor” provision, CAA § 110(a)(2)(D)(i)(I), to address interstate transport of SO₂ and NOₓ affecting downwind attainment and maintenance of NAAQS for PM₂.₅ and ozone.
- CAIR covered 28 eastern states and the District of Columbia, setting state emissions budgets and offering EPA-administered cap-and-trade programs for SO₂ and NOₓ as a compliance path.
- CAIR’s reductions were phased in, with full implementation scheduled for 2015, while some downwind areas faced earlier statutory attainment deadlines.
- North Carolina and other petitioners challenged CAIR, arguing it failed to ensure each upwind state eliminated emissions that “contribute significantly” to downwind nonattainment or interfere with maintenance.
- Petitioners also challenged CAIR’s unrestricted interstate trading design and EPA’s treatment of Title IV Acid Rain Program SO₂ allowances.

## Issues

1. Whether CAIR’s method for determining and eliminating each upwind state’s “significant contribution” and “interference with maintenance” complied with CAA § 110(a)(2)(D)(i)(I).
2. Whether CAIR’s unrestricted interstate trading and regional caps were consistent with the statutory requirement that each state prohibit its own significant contribution to downwind nonattainment and maintenance problems.
3. Whether CAIR unlawfully altered the operation and effect of Title IV SO₂ allowances.

## Decision

- The D.C. Circuit granted the petitions for review and held CAIR unlawful in multiple fundamental respects.
- The court concluded CAIR did not ensure elimination of each upwind state’s significant contribution to downwind nonattainment or maintenance problems, because it did not determine what each state must reduce to cease significant contribution.
- The court held CAIR’s unlimited interstate trading was impermissibly disconnected from state-specific obligations to particular downwind areas and could allow significant contributors to continue emitting while others overcontrolled.
- The court held CAIR’s timeline failed to ensure upwind controls would occur in time for downwind areas to meet statutory attainment deadlines.
- The court held EPA lacked authority to change the effect of Title IV SO₂ allowances as CAIR attempted to do.
- Remedy (in the merits decision): CAIR was vacated in its entirety and remanded to EPA; on later rehearing in part, the court remanded without vacatur to keep CAIR temporarily in place pending a lawful replacement rule.

## Legal Principles

- Under CAA § 110(a)(2)(D)(i)(I), EPA must ensure each upwind state prohibits emissions that significantly contribute to downwind nonattainment or interfere with maintenance; a regional approach cannot substitute for addressing each state’s quantified obligations to specific downwind problems.
- Cap-and-trade is not categorically barred under the good-neighbor provision, but any trading mechanism must be structured so that it does not allow a state to remain a significant contributor to a particular downwind area through geographic disconnection of reductions.
- EPA must implement upwind emission controls on a schedule that allows downwind areas a meaningful opportunity to meet statutory attainment deadlines.
- EPA may not effectively amend or rewrite Title IV’s SO₂ allowance scheme through a separate rulemaking absent statutory authorization.
- When a rule contains fundamental statutory defects, vacatur is an available remedy; the court may nevertheless remand without vacatur where immediate vacatur would cause substantial disruption while the agency promulgates a lawful replacement.

## Conclusion

The D.C. Circuit held CAIR inconsistent with the Clean Air Act because it failed to tie each upwind state’s obligations to eliminating its significant contribution to specific downwind nonattainment and maintenance problems, permitted trading that could misplace reductions, did not assure timely attainment, and impermissibly altered Title IV SO₂ allowances; the rule was remanded for a replacement consistent with these constraints.


North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008)