[00:00:00] Speaker 00:
Case number 11-1302 at L. EME Homer City Generation LP Petitioner versus Environmental Protection Agency.

[00:00:09] Speaker 00:
Issue 1.

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Issues raised by state petitioners and EPA's response.

[00:00:14] Speaker 00:
For petitioners, Mr. Davis.

[00:00:15] Speaker 00:
For responded EPA, Mr. Rave.

[00:00:17] Speaker 00:
For state and local responded interveners, Mr. Frank.

[00:00:25] Speaker 03:
Good morning.

[00:00:26] Speaker 03:
Judge Griffith, a member of this panel, is ill, but he will be listening to the argument through his computer.

[00:00:37] Speaker 03:
Counsel may proceed.

[00:00:39] Speaker 10:
Good morning, and may it please the court.

[00:00:41] Speaker 10:
Under the Clean Air Act, EPA may promulgate federal implementation plans, or FIPs, only in accordance with Section 7410C1.

[00:00:51] Speaker 10:
Here, EPA exceeded its authority under that provision with respect to a majority of the Transport Rule FIPs for the 1997 standards.

[00:01:01] Speaker 10:
EPA also exceeded its authority under Section 7410K6 in its effort to correct that problem.

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EPA's contrary contentions overlook its successful request on rehearing in North Carolina to keep care in effect

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pending the promulgation of a valid replacement.

[00:01:22] Speaker 10:
I'd like to focus on sections 7410, C1, and K6, and begin with C1, which is the sole source of EPA's FIP authority.

[00:01:32] Speaker 09:
North Carolina hadn't done that?

[00:01:35] Speaker 10:
If the initial decision in North Carolina is all we had and a mandate issued from that vacating care, then EPA would have a good argument, I would think, under the Rivers Doctrine that that would apply.

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But what happened, of course, in North Carolina is that EPA made the request and the court granted it to keep care in effect.

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And so the upshot of that was that care

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defined the applicable requirements of the good neighbor provision.

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And that is significant because of section 7410 K3, which requires EPA to approve a SIP if it meets the applicable requirements of the Clean Air Act, here the good neighbor provision.

[00:02:24] Speaker 03:
I mean, an interesting situation given our precedent where you have an environmental statute or a statute affecting public health.

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where we have said rather than go back to square zero, as it were, will continue in effect on this interim basis what exists.

[00:02:48] Speaker 03:
So does the Rivers Doctrine then have no effect?

[00:02:52] Speaker 10:
It does not have effect when the disposition of the court is not to vacate the rule.

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And that's what we have here.

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The court took the affirmative.

[00:03:01] Speaker 03:
So under Rivers, there must be a return to ground zero.

[00:03:08] Speaker 03:
I just want to be clear about this.

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In other words, this court clearly held in North Carolina that and initially vacated the rule because it did not meet the requirements of the statute.

[00:03:26] Speaker 10:
That's right, Your Honor.

[00:03:29] Speaker 03:
And it was on this interim theory that the court, at the request of EPA and the states, left care in effect.

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And the agency argues, well, left it in effect only for purposes of the trading program.

[00:03:55] Speaker 03:
At least that's what it says in its brief now.

[00:03:58] Speaker 10:
Well, the court left care in effect for all purposes.

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And it did that to preserve the environmental values of care.

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And the effect of that, again, was that care controlled.

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It defined the good neighbor obligations.

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And that's why we had EPA approving care SIPs both before and after North Carolina.

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Those care SIP approvals were compelled by Section K3.

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And they were not in error at the time they were made.

[00:04:27] Speaker 10:
And I'd like to talk about that more in the context of case six.

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But I also want to talk about C1.

[00:04:34] Speaker 09:
Right.

[00:04:35] Speaker 09:
Isn't C1 the problem in the sense that North Carolina means, in essence, as Judge Rogers says, that the state hadn't corrected the deficiency?

[00:04:46] Speaker 10:
Well, here's what EPA is arguing.

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It's saying that the deficiency in section C1s and less clause refers to the deficiency that the court identified in North Carolina.

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But that doesn't comport with the text of the statute.

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The deficiency in section C1s and less clause refers to the text immediately above it.

[00:05:05] Speaker 10:
It is either a C1a failure to submit any SIP whatsoever or a C1b submission of a SIP that EPA

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disapproves.

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EPA's reading of the deficiency is separate and apart from that text.

[00:05:24] Speaker 03:
So if the statute doesn't plainly address this situation and has left a gap for the agency to fill, what's your argument?

[00:05:38] Speaker 10:
We don't believe that there's any gap here because

[00:05:41] Speaker 10:
The deficiency clearly refers to a C1A or C1B deficiency.

[00:05:45] Speaker 03:
Well, you're going to make the timing argument as I understand it, but the court has already held that care was invalid.

[00:05:52] Speaker 10:
The court said that in its initial opinion, but it did not issue a mandate to effectuate that result.

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And in fact, its mandate effectuated the opposite result of keeping care in effect.

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And that's why Section K3 applies here and requires the approval of those care sets.

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If I could move to Section K6, which is the corrections provision, this is an important point because even if EPA is correct about what corrects the deficiency means in Section C1, it's still needed to rely on Section K6 here.

[00:06:31] Speaker 10:
And that's because EPA had on the books CARE CIP approvals on which states relied that said,

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These states have satisfied their obligations under the Good Neighbor provision, and we no longer have FIPP authority.

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And so it had to do something to get rid of those findings.

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And what it did here is remarkable in one sense in that it tried to have two things, two contrary things at once.

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Instead of changing the CARE SIPP approvals to disapprovals, it merely rescinded certain statements in those.

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So what it did was say on the one hand that the CARES SIP approvals are still, they were still made and it did that because it needed to keep implementing CARE at the direction of this court.

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But it rescinded the statement saying that the CARE SIPs had ever even been submitted in an effort to reach back to the 2005 finding of failure to submit any SIPs.

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So it's premising its Transport Real FIP Authority

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on a C1A finding a failure to submit.

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And, of course, those two things are inconsistent with one another.

[00:07:52] Speaker 09:
But what you refer to as remarkable strikes me as perhaps an accurate characterization had there been no North Carolina decision.

[00:08:01] Speaker 09:
I mean, they're trying to deal with that, right?

[00:08:05] Speaker 10:
They are trying to deal with that, but there is another provision in the Clean Air Act that gives them the mechanism to do that here, and that is Section 7410K5, the SIP call provision.

[00:08:16] Speaker 09:
That would have allowed EPA to say... That's why it really goes back to how we interpret North Carolina, I think.

[00:08:22] Speaker 09:
And you, I think, started with that, and you're hinging a lot, maybe everything, on the fact that it wasn't vacated.

[00:08:30] Speaker 10:
That's correct, Your Honor, but we would say, though, that EPA did need to rely on case six.

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And if I could make two textual points about case six.

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The first is the phrase was in error.

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And this ties in with the argument that I began with.

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The CARE SIP approvals were not in error at the time they were made because they were compelled by this Court's decision on rehearing and mandate in North Carolina and Section K3.

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Even assuming, however, that EPA could clear that hurdle, it would next confront the in the same manner language of Section K6.

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And here, it's undisputed that the CARE SIP approvals went through notice and comment rulemaking in the same manner in Section K6.

[00:09:17] Speaker 10:
It means that any corrections of those approvals also have to go through notice and comment rulemaking.

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And they did not.

[00:09:30] Speaker 10:
EPA's response on this point is that it can rely on the good cause exception from the Administrative Procedure Act.

[00:09:38] Speaker 10:
But that's not the case, because under the text of 5 USC 553B, the good cause exception is not available when notice or hearing is required by statute.

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And that's what we have in section K6 in the same manner language.

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Even assuming, however, that EPA could prevail on all of the points I've already mentioned today, it still couldn't rely on the good cause exception here because it cited only the unnecessary prong of that exception.

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And as this court has said in Mack Trucks cited on page 10 of our reply brief,

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That prong of the good cause exception is limited to actions that are routine, insignificant, inconsequential.

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And here, that is certainly not the case.

[00:10:31] Speaker 10:
And the reason it's not the case is because if EPA had complied with the statute and gone through notice and comment, the states would have pointed out the points that I've just made this morning.

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that under what the court said in North Carolina and its mandate in Section K3, EPA was required to approve those care SIPs and that its only option was a SIP call.

[00:10:57] Speaker 10:
And that's significant to the states because under the Clean Air Act, states have the primary responsibility to address air pollution.

[00:11:05] Speaker 10:
They do that through SIPs.

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That's critical to the states.

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because they get to determine through SIPs how to allocate the burden on their sources.

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And if EPA comes in and imposes FIPs, it bypasses that important protection of the Clean Air Act.

[00:11:24] Speaker 10:
Now in our view, this error should result in vacature of the entire rule because it takes out 31 of the rules 59 FIPs.

[00:11:37] Speaker 10:
Now, EPA says that's OK.

[00:11:40] Speaker 10:
The rule can still function as intended.

[00:11:43] Speaker 10:
It's hard for me to see how, if you take more than half the rule out, that could be the case.

[00:11:48] Speaker 10:
But even so, that argument overlooks a couple of things.

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One, it draws an artificial distinction between pre- and post-North Carolina care SIP approvals.

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And as we know it in our brief, if you eliminate that artificial distinction,

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The ozone season NOx trading group, for instance, goes from 20 states to five.

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And it's hard to see, and I'm not sure whether EPA would even say, that that trading group can function as intended with three quarters of the states removed.

[00:12:20] Speaker 10:
The other point is that this argument ignores all of the other points that the states have made in their brief and the industry petitioners have made in their brief.

[00:12:33] Speaker 10:
If we take all of those points, we feel that there's not enough left of this rule to allow it to function as intended.

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And in my remaining time, if I could just address briefly one of those points.

[00:12:48] Speaker 10:
This is point two in the state's brief.

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And that is the requirement under North Carolina to give independent significance to the phrase interfere with maintenance.

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in the good neighbor provision.

[00:13:05] Speaker 10:
This court held that EPA must do that in its replacement to care.

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And EPA did try to do that.

[00:13:12] Speaker 10:
But it never defined what interfere with maintenance means.

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And in imposing cost-effective controls, it created a rule that could require states to go well beyond what they need to do, that is, upwind states, to ameliorate interference with maintenance in downwind areas.

[00:13:32] Speaker 10:
The only break on that was cost.

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And we know from the Supreme Court's opinion that that's not good enough.

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EPA has air quality limits that it must account for under the good neighbor provision.

[00:13:43] Speaker 10:
And in footnote 18 of the Supreme Court's opinion, the court explained that under the maintenance prong, EPA's statutory authority is limited to reducing just enough to eliminate those threats to downwind maintenance.

[00:13:58] Speaker 10:
We've also pointed to the example of Allegan County here

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as demonstrating how EPA's methodology for identifying maintenance sites doesn't square even with its own determinations.

[00:14:11] Speaker 10:
Here the Allegan County maintenance site, EPA confirmed, would have no problems maintaining

[00:14:20] Speaker 10:
the ozone NACs through 2021, and the EPA did that through approving Michigan's maintenance plan and noted that that was true even without the benefits of care, and that any maintenance problems could be resolved through contingency provisions.

[00:14:40] Speaker 10:
Those are in-state measures in Michigan's plan.

[00:14:46] Speaker 10:
Those are the points I intended to cover.

[00:14:47] Speaker 10:
If there are other questions, otherwise I'll reserve the remainder of my time for rebuttal.

[00:14:53] Speaker 03:
Thank you.

[00:15:03] Speaker 11:
Good morning, Your Honors.

[00:15:04] Speaker 11:
May it please the Court?

[00:15:06] Speaker 11:
Norman Ray from the Department of Justice.

[00:15:08] Speaker 11:
With me at council table is Jessica O'Donnell, who will present argument in the second part of the argument, and Stephanie Hogan and Kate Trutin from EPA's Office of General Counsel.

[00:15:18] Speaker 11:
If my speech is a little slurred this morning, Your Honors, it's because I'm recovering from Bell's palsy, a condition that causes a paralysis in half of the face.

[00:15:27] Speaker 11:
I don't think it'll be an issue, but if I need to repeat something, please let me know.

[00:15:34] Speaker 11:
Well, the petitioner's challenges to the transport rule should be rejected or inconsistent with the act, with the court's opinion in North Carolina, and with the Supreme Court's opinion.

[00:15:46] Speaker 11:
The petitioner's claim that EPA's approval of CARE SIPs precluded promulgation of the transport rule of SIPs is clearly inconsistent with what this court actually did in North Carolina.

[00:15:59] Speaker 11:
In North Carolina, in its opinion, the court made explicitly clear

[00:16:03] Speaker 11:
that CARE was not sufficient to satisfy the upwind state's obligation to eliminate their contributions to interstate transport of pollutant, because among other things, CARE imposed no controls on interstate trading.

[00:16:18] Speaker 11:
And the allocations of allowances, both of SO2 and NOx, were not related to the state's contribution.

[00:16:25] Speaker 11:
It therefore found in multiple ways that CARE was invalid and that it did not

[00:16:30] Speaker 11:
address the state's significant contribution obligation.

[00:16:34] Speaker 03:
So let me be clear.

[00:16:36] Speaker 03:
In your brief where you suggest that the only reason, strike only, but the reason the court acted as it did on rehearing was to enable the trading program.

[00:16:52] Speaker 11:
I don't believe we said that, Your Honor.

[00:16:54] Speaker 11:
We certainly didn't intend to convey that impression.

[00:16:57] Speaker 11:
The reason we sought reharing in the case was to avoid what we saw as both economic and environmental problems that would result from vacancy of care.

[00:17:10] Speaker 11:
Environmental problems because while care was flawed, it did achieve substantial reductions in emissions.

[00:17:17] Speaker 11:
and economic issues because there had already been significant banking and trading of allowances up to that point.

[00:17:23] Speaker 03:
And at least as I recall, some of the states were concerned that the attainment dates were fast approaching and they had already invested in the controls necessary to meet those.

[00:17:36] Speaker 11:
That's right, Your Honor.

[00:17:37] Speaker 11:
Many of the petitioners, actually not all, but at least a number of petitioners in that case, did in fact support not vacating the rule in the states.

[00:17:47] Speaker 11:
kept to maintain the training program.

[00:17:48] Speaker 11:
The training program is part of CARE, so we certainly asked the court to maintain CARE in its entirety, but it was not the training program per se.

[00:17:56] Speaker 11:
It was because of the environmental benefits, which in fact have resulted from CARE, and because of the economic issues.

[00:18:04] Speaker 11:
And we did not, but we did not, we simply asked the court to exercise

[00:18:09] Speaker 11:
its equitable discretion in fashioning a remedy to allow EPA to continue to implement care while it promulgated a replacement for the rule.

[00:18:18] Speaker 11:
And that's explicitly what the court said it was doing in its rehearing.

[00:18:23] Speaker 11:
In fact, it explicitly stated that care must be replaced, that care must be replaced expeditiously, and warned that the court would entertain a mandamus petition if the EPA failed to do so.

[00:18:36] Speaker 11:
So there is simply no way that that order on rehearing can be read as reversing the court's findings that care was invalid and that care did not constitute a meeting the state's obligation

[00:18:53] Speaker 11:
to address interstate transport.

[00:18:56] Speaker 11:
And therefore, because care was invalid, the care SIPs were invalid, because there were two parts to the care SIPs that EPA approved.

[00:19:05] Speaker 11:
The EPA approved the care SIPs.

[00:19:07] Speaker 11:
The primary purpose of approving those SIPs was to allow the states to implement care within the state.

[00:19:15] Speaker 11:
That allowed them to do two things.

[00:19:16] Speaker 11:
It allowed them to change the allocation of allowances to sources within the state.

[00:19:22] Speaker 11:
And it also made them responsible for ensuring that sources within the state complied with care.

[00:19:28] Speaker 11:
That is, that at the end of each year, they had enough allowances to cover their emissions.

[00:19:33] Speaker 11:
That was the purpose.

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of promulgating the CARE SIPs.

[00:19:37] Speaker 11:
No, it was not based on any analysis, independent analysis, that the states had demonstrated that they had met their interstate transport obligations.

[00:19:46] Speaker 11:
It was based solely, before the decision in North Carolina, it was based solely on CARE and on the findings that EPA had made in CARE, that if states complied with CARE, they would meet their obligations.

[00:20:01] Speaker 11:
After CARE, it made clear that it was obvious that the CARE SIPs did not meet the state's interstate transport obligations.

[00:20:10] Speaker 11:
The court had said them so.

[00:20:11] Speaker 11:
The court had said that CARE did not meet their obligations.

[00:20:15] Speaker 11:
And therefore, to the extent that the CARE SIPs had found that the states had met their obligations, they were invalid.

[00:20:23] Speaker 09:
So is this all C1?

[00:20:24] Speaker 09:
Yeah.

[00:20:26] Speaker 11:
Yes, the states, most of the CARE FIFs were based on a finding of failure to submit.

[00:20:33] Speaker 11:
And what, after CARE, it was clear that the states had not submitted a plan that would address their interstate transport obligations.

[00:20:40] Speaker 11:
In fact, they hadn't submitted anything.

[00:20:41] Speaker 11:
After North Carolina?

[00:20:42] Speaker 11:
After North Carolina, I'm sorry.

[00:20:44] Speaker 11:
So yes, so therefore, because the states had not met that obligation, and that was the deficiency,

[00:20:52] Speaker 11:
The deficiency was that the states had not submitted a plan to address their interstate transport obligations.

[00:21:00] Speaker 11:
That's what the court EPA found they had failed to submit.

[00:21:03] Speaker 11:
That was the basis for the CARE FIPs.

[00:21:06] Speaker 11:
And that's what triggered EPA's FIP obligation.

[00:21:09] Speaker 11:
And because the states

[00:21:12] Speaker 11:
Because CARE had not met that obligation, and because that portion of the SIPs were in error, EPA's fifth obligation remained as to all of those states covered by CARE.

[00:21:23] Speaker 09:
So there's obviously debate about K-5 versus K-6, but I'm wondering if we even, if your position on this issue were to prevail, do we even have to say anything about K-5 versus K-6, or is this all

[00:21:41] Speaker 09:
North Carolina plus C1?

[00:21:45] Speaker 11:
Well, Your Honor, we think there are two independent grounds on which the court could uphold EPA.

[00:21:49] Speaker 11:
One is just exactly that, that it's C1 plus North Carolina.

[00:21:53] Speaker 11:
And that's really sort of our primary view, is that EPA's obligation under the fifth had not been discharged by CARE.

[00:22:02] Speaker 11:
So EPA continued to have a statutory obligation.

[00:22:06] Speaker 11:
C1 says that EPA's fifth obligation

[00:22:09] Speaker 11:
is met only if the state addresses the deficiency and EPA approves a SIP.

[00:22:16] Speaker 11:
So we certainly agree that if the court agrees with that, it does not have to address the one K5 and K6.

[00:22:27] Speaker 11:
I'm sorry, Your Honors.

[00:22:30] Speaker 11:
However, EPA did, sort of as an abundance of caution, did decide to go through the corrections process and to correct only that portion of the CARE SIPs where EPA had made a finding, implicit or explicit, that the states had met their obligation.

[00:22:49] Speaker 11:
Because that part was clearly in error after North Carolina.

[00:22:52] Speaker 11:
North Carolina says multiple times

[00:22:55] Speaker 11:
in the opinion that care was deficient because it did not ensure that each state eliminated its significant contribution.

[00:23:03] Speaker 11:
So EPA then invoked its authority under 110K6 to correct that portion of the SIPs.

[00:23:12] Speaker 11:
There was no reason to correct with the administrative portion of the SIPs to keep the states from administering care and allocating allowances and checking with compliance.

[00:23:23] Speaker 09:
And on both of these arguments, I'm worried about the unintended, unforeseen repercussions of anything we might say.

[00:23:33] Speaker 09:
Of course you are.

[00:23:35] Speaker 09:
Obviously, I think North Carolina is very significant to this part of the argument.

[00:23:38] Speaker 09:
But on the C1, how often

[00:23:41] Speaker 09:
does it happen that there's a situation like the one we have in this case?

[00:23:48] Speaker 09:
In other words, a court finding of deficiency, the SIPs are approved subsequently before the FIP, but then a court decision comes in afterwards, pulls the rug out from all that.

[00:24:03] Speaker 11:
I think it's probably pretty unusual.

[00:24:05] Speaker 11:
I'm not aware of any situation on those fours, because this is a somewhat unusual program where EPA develops a region-wide set of requirements or determines how to address a problem on a region-wide basis, implements it initially through a FIP, and then gives states the opportunity to submit SIPs to take over administration of the program.

[00:24:30] Speaker 11:
So it's a fairly unusual circumstance, Your Honor.

[00:24:34] Speaker 09:
Whereas the K-5, K-6 strikes me could open up a lot if we relied on that ground.

[00:24:43] Speaker 09:
But correct me if I'm wrong.

[00:24:44] Speaker 09:
In other words, your view on K-6 does seem like it could be something that has, again, my concern about unforeseen, unintended repercussions of what we say here.

[00:24:58] Speaker 11:
Well, it certainly is a situation that comes up more often, Your Honor, where EPA determines that a SIP approval was an error for one reason or another and invokes K6.

[00:25:08] Speaker 11:
And the argument has certainly been raised in other cases as well that it should have used K5 instead.

[00:25:15] Speaker 09:
It hasn't been litigated.

[00:25:16] Speaker 09:
On the K5, K6, how are we supposed to make sense, just if we were to get into that, how are we supposed to make sense of where the boundary is between K5 and K6?

[00:25:27] Speaker 11:
Well, they do overlap.

[00:25:30] Speaker 11:
There certainly are circumstances where EPA could utilize either one.

[00:25:35] Speaker 11:
K6 is actually more limited than K5.

[00:25:40] Speaker 11:
K6 applies only where the SIP was in error when it was promulgated.

[00:25:47] Speaker 11:
So there has to have been an error at the time.

[00:25:49] Speaker 11:
And it could have been an error that EPA should have known about, or well, arguably should have known this one too.

[00:25:53] Speaker 11:
But certainly, the error here is that

[00:25:56] Speaker 09:
the EPA believed that CARE met the state's obligations.

[00:26:10] Speaker 09:
happen subsequently?

[00:26:12] Speaker 11:
Not always, no, Your Honor, because I mean, I suppose in theory.

[00:26:15] Speaker 11:
But more often, K-5 is a situation where, and K-5 comes up in a number of circumstances.

[00:26:21] Speaker 11:
It comes up where there have been subsequent regulations that states have to incorporate into their SIPs.

[00:26:27] Speaker 11:
And it comes up where the facts have simply changed.

[00:26:30] Speaker 11:
Everybody projected air quality to improve to a certain extent, and it didn't for some circumstance

[00:26:36] Speaker 09:
And on that latter circumstance, is that an inappropriate circumstance for use of K-6?

[00:26:41] Speaker 11:
I mean, I think it may depend on the facts, Your Honor, but in that situation, EPA would generally, my understanding, use this K-5.

[00:26:48] Speaker 11:
K-6 is generally used where either there's this sort of obvious technical error or where there was some error of law in doing that and therefore uses K-6.

[00:26:58] Speaker 11:
And there may be circumstances when EPA could choose to use either one.

[00:27:03] Speaker 11:
It would depend on, and you have to have discretion.

[00:27:07] Speaker 11:
Here it used case six because of, A, because it was obvious that it was an error and there was nothing the states, the states have argued they should have had notice and comment, but there's nothing they could have said.

[00:27:18] Speaker 11:
The court spoke very definitively that care was an error, therefore the six were an error and nothing the states could have said was going to change that.

[00:27:28] Speaker 11:
And also, there was a need, as the court had pointed out, to expeditiously replace CARE with a new rule.

[00:27:35] Speaker 11:
And therefore, case six was simply a much better choice to move forward to get a program into place that met the court's requirements from North Carolina and that addressed the needs of the downwind states to get the reductions they need for attainment.

[00:27:53] Speaker 11:
Any other questions on?

[00:27:57] Speaker 11:
on that issue.

[00:28:01] Speaker 11:
Let me just briefly then say on the issue of maintenance.

[00:28:09] Speaker 11:
EPA did here, in this case, define which areas needed reductions from upwind states in order to avoid maintenance problems.

[00:28:19] Speaker 11:
They did an analysis, a modeling analysis using variations in weather

[00:28:24] Speaker 11:
weather patterns, et cetera, to identify those areas that specifically were at a high risk of coming into non-attainment, that were currently had clean air quality, but given predictable changes in weather patterns might well come into non-attainment, and then only at

[00:28:42] Speaker 11:
brought into the transport rule those states that made a significant contribution, defined as more than 1%, the same threshold it used for non-attainment.

[00:28:53] Speaker 11:
So it did exactly what it was required to do.

[00:28:56] Speaker 11:
It identified those non-attainment areas

[00:28:59] Speaker 11:
that were at risk of coming into attainment in the near future and then identified those states that made a significant contribution and imposed controls on those.

[00:29:08] Speaker 11:
So there is limits.

[00:29:09] Speaker 11:
It certainly complies with this Court's requirement that we address it independently.

[00:29:15] Speaker 11:
In CARE, EPA had only, and I said this explicitly, EPA had only used the attainment, the interference with maintenance prong of the statute to justify continuing controls on areas that had previously contributed to the same area when it was in non-attainment.

[00:29:32] Speaker 11:
And the court found that simply making that prong of the statute sort of an appendage to the non-attainment prong was inappropriate.

[00:29:40] Speaker 11:
And that EPA had to independently look at whether areas that are in attainment but sort of right on the border need help.

[00:29:48] Speaker 11:
And that's what EPA did here.

[00:29:49] Speaker 11:
It did that modeling analysis.

[00:29:51] Speaker 11:
It decided which states made a significant contribution.

[00:29:54] Speaker 11:
And then it used the same level of determining the same matrix for determining the level of control.

[00:30:00] Speaker 11:
which the Supreme Court said was also within EPA's discretion.

[00:30:04] Speaker 11:
So EPA did meet all of the statutory and case law requirements for addressing the maintenance issues.

[00:30:11] Speaker 03:
So your argument is it complied with North Carolina in that respect, and the Supreme Court said you had considerable discretion in this area.

[00:30:24] Speaker 03:
and that your argument is it's a reasonable interpretation of what is required.

[00:30:31] Speaker 03:
Do you have any response to the argument about what I'll call double counting?

[00:30:37] Speaker 03:
In other words, if the downwind state is assuming that the upwind state contributes to 10% of its problem as to a particular pollutant, that the measurement of what is required from an upwind state

[00:30:54] Speaker 03:
should only be in excess of that amount.

[00:30:57] Speaker 03:
Do you understand?

[00:30:57] Speaker 03:
I'm getting it.

[00:30:59] Speaker 11:
I'm not quite sure I do, Your Honor.

[00:31:01] Speaker 03:
Well, if I understood the argument, it was sort of that, given that the downwind state has already taken into account a certain percentage of out-of-state pollution coming into the state, that therefore any obligation on the upwind state

[00:31:24] Speaker 03:
as to maintenance could only be as to the amount that exceeded what the downwind state had already assumed in its planning.

[00:31:34] Speaker 11:
Right.

[00:31:34] Speaker 11:
The problem with that, Your Honor, is that those assumptions and those maintenance plans are based on care.

[00:31:39] Speaker 11:
And care has to be eliminated.

[00:31:41] Speaker 11:
So what we have to do is figure out what the world's going to look like without care.

[00:31:45] Speaker 11:
And therefore, and then determine based on no care.

[00:31:49] Speaker 11:
So you can't say, well, the maintenance plans, which are based on care and these other programs, show that they'll stay in attainment because care is going away.

[00:32:00] Speaker 11:
And therefore, what EPA had to do was look at what's going to happen in the real world in the no care situation, which

[00:32:06] Speaker 11:
the situation we have to face to eliminate care, and determine whether they need continued controls, and those continued controls are those that are imposed by the transport role.

[00:32:16] Speaker 03:
But theoretically, just so I understand it, ignoring care is the agency's interpretation of interference with maintenance consistent with not double counting?

[00:32:34] Speaker 11:
Yes, Your Honor, because EPA based it on actual modeling of air quality.

[00:32:39] Speaker 11:
It did the same kind of analysis it did for non-attainment areas.

[00:32:42] Speaker 11:
It looked at current air quality.

[00:32:45] Speaker 11:
It modeled what it would anticipate air quality to be under a range of

[00:32:50] Speaker 11:
scenarios in these areas and determine, you know, including all the controls that the state had imposed, all federal controls, you know, all existing controls other than the transport rule, and decided that notwithstanding all these other controls, these areas were at risk of non-attainment and of going back into non-attainment and therefore then determined that there were in fact upwind states that significantly contributed and therefore

[00:33:16] Speaker 11:
determine that those upwind states had to reduce their emissions in order to ensure these downwind states should remain in attainment.

[00:33:24] Speaker 11:
I mean, at bottom, Your Honor, there's really no reason to have a different sort of analysis for areas that are just below the NACs as it is for those just above.

[00:33:33] Speaker 11:
In both cases, the upwind state contributions are needed to make sure that, you know, given variability in weather patterns, et cetera, that the areas are able to maintain over the long term.

[00:33:46] Speaker 11:
If this Court has any questions on any other topics in the States, please.

[00:33:51] Speaker 03:
All right.

[00:33:51] Speaker 03:
Thank you very much.

[00:34:00] Speaker 03:
To the interveners, state and local.

[00:34:02] Speaker 07:
That's correct, Your Honor.

[00:34:04] Speaker 07:
For the state and local interveners, including North Carolina, Andrew Frank.

[00:34:09] Speaker 07:
May it please the Court?

[00:34:11] Speaker 07:
I plan to address the error correction and the interference with maintenance issues.

[00:34:15] Speaker 07:
As regards error correction, EPA's use of the error correction provision here was fair, reasonable, and lawful.

[00:34:21] Speaker 07:
Once this Court determined in the initial North Carolina decision that it could not pick and choose any parts of care to preserve and then ruled that the entire rule was unlawful,

[00:34:31] Speaker 07:
as well as the CARE-FIPs, everyone knew or should have known that the CARE-CIPs were also unlawful.

[00:34:38] Speaker 07:
When the court subsequently issued its reconsideration order, that was an order on remedy, not on the merits.

[00:34:45] Speaker 07:
And all the court was doing there was exercising its equitable powers to allow EPA to continue to implement an unlawful but beneficial rule

[00:34:56] Speaker 07:
pending the amount of time necessary for EPA to correct those errors and promulgate a new rule.

[00:35:03] Speaker 07:
In terms of interference with maintenance, EPA's interpretation of the interference with maintenance provision was also fair, reasonable, and lawful.

[00:35:13] Speaker 07:
EPA gave independent effect to that provision.

[00:35:16] Speaker 07:
That's why there are 15 states that are designated for pollution controls for interference with maintenance, but not for significant contribution for ozone.

[00:35:27] Speaker 07:
Once EPA corrected the SIP approvals, it fairly and reasonably and lawfully used FIPs rather than a SIP call.

[00:35:35] Speaker 07:
A SIP call would have introduced unnecessary and unreasonable delay.

[00:35:39] Speaker 07:
This court had said that it did not intend to set an indefinite delay on its substantive mandate in the North Carolina decision.

[00:35:51] Speaker 07:
And that was consistent with the court's concern

[00:35:54] Speaker 07:
with prompt and lawful emissions controls as reflected in its previous order or decision, that there was a necessary connection between the upwind state's good neighbor obligations and the downwind state's maintenance deadlines.

[00:36:09] Speaker 07:
If, however, some of the upwind states feel that it's unfair for them to be operating under the FIPS, the rule gives them the opportunity to submit SIPS, to replace the FIPS.

[00:36:19] Speaker 07:
The rule has given them that opportunity since August 2011.

[00:36:23] Speaker 07:
My understanding is that no state has taken up that opportunity yet.

[00:36:27] Speaker 07:
So to turn back to the interference issue.

[00:36:31] Speaker 07:
It's the downwind states and cities that suffer when an upwind state interferes with maintenance, the downwind states if an area reverts back to non-attainment status.

[00:36:41] Speaker 07:
They have to impose additional pollution control requirements, not only, say, on power plants, but on other industrial and commercial activities.

[00:36:50] Speaker 07:
They have to impose pollution offset requirements.

[00:36:53] Speaker 07:
And of course, it's the people who live in those downwind areas who suffer the increased adverse health effects from the increased pollution.

[00:37:03] Speaker 07:
EPA reasonably and fairly interpreted the interference with maintenance provision to eliminate most of those risks.

[00:37:16] Speaker 07:
It determined which upwind state's emissions caused those risks, and then it eliminated the increment

[00:37:22] Speaker 07:
of those states' emissions that caused those risks.

[00:37:25] Speaker 07:
And so for most of the downwind areas, those risks were eliminated.

[00:37:30] Speaker 07:
Council said that EPA chose those emissions reductions based solely on cost.

[00:37:35] Speaker 07:
That is not correct.

[00:37:36] Speaker 07:
In fact, one of the real

[00:37:38] Speaker 07:
positive changes in this rule as opposed to CARE or the NOxSIP call is that EPA did choose the emissions reductions based not only on cost considerations but on the air quality considerations.

[00:37:54] Speaker 07:
So when EPA reduced the emissions for interference with maintenance, it did so only so far as necessary as to bring the above average, the risky air

[00:38:05] Speaker 07:
amounts, the risky air quality in the downwind states beneath the NACs.

[00:38:11] Speaker 07:
And so there is no over control here because there is a different parameter involved.

[00:38:16] Speaker 07:
My time is almost up, so I will close.

[00:38:21] Speaker 07:
The stakes for clean air in the downwind states are high.

[00:38:25] Speaker 07:
This rule reasonably lawfully and fairly interpreted the good neighbor provisions and upholding the rule would allow the downwind states to finally enjoy the air quality benefits that this 2011 rule provide.

[00:38:43] Speaker 07:
And if the court has no further questions.

[00:38:45] Speaker 07:
Thank you.

[00:38:46] Speaker 07:
Thank you, Your Honors.

[00:38:55] Speaker 10:
On the C1 issue, we agree that the initial opinion in North Carolina said the care was flawed.

[00:39:02] Speaker 10:
But the problem is the court didn't give effect to that holding.

[00:39:06] Speaker 10:
Instead, kept care in effect.

[00:39:10] Speaker 10:
And this is not a matter governed by rivers, but rather by the text of Section 7410.

[00:39:16] Speaker 10:
And to emphasize again, it's Section K3, which states that EPA shall approve a SIP as a whole if it meets all of the applicable requirements of the Clean Air Act, here the Good Neighbor provision.

[00:39:32] Speaker 10:
The applicable requirements were defined by CARE.

[00:39:36] Speaker 10:
And the court's affirmative action of keeping care in effect meant that that was what defined the applicable requirements.

[00:39:44] Speaker 10:
So that's all we're saying here is that under section 7410, EPA had no choice but to approve those care SIPs.

[00:39:57] Speaker 10:
Judge Kavanaugh, you asked about the K-5, K-6 issue and suggested the court may not need to reach it.

[00:40:05] Speaker 10:
I think the court does need to reach it.

[00:40:07] Speaker 10:
And the reason for that is what I mentioned in the opening, that because the CARE SIP approvals were on the books and everyone relied on them and they said the states have done all they need to do under the Good Neighbor provision,

[00:40:20] Speaker 10:
It couldn't just be obvious to everybody that that was wrong.

[00:40:24] Speaker 10:
EPA needed to get rid of those in order to clear the way for FIPs for these states under the Good Neighbor provision.

[00:40:32] Speaker 09:
Why wasn't it obvious after North Carolina?

[00:40:37] Speaker 10:
It wasn't obvious because of the rehearing and because the court kept care in effect.

[00:40:44] Speaker 10:
And the answer here is a SIP call.

[00:40:47] Speaker 09:
But wasn't the contemplation of North Carolina that there'd be a replacement rule in short order and the court, in fact, encouraged might be a light word for expeditious?

[00:40:58] Speaker 10:
That's right.

[00:40:59] Speaker 10:
And here's an important point on that.

[00:41:01] Speaker 10:
The SIP call would not create unreasonable delay, or really any delay, because EPA could have rolled out a SIP call on essentially the same schedule it had here.

[00:41:10] Speaker 10:
If shortly after North Carolina came down, that's January of 2009 for the mandate,

[00:41:17] Speaker 10:
EPA had issued a SIP call saying once care goes away, these SIPs are going to be substantially inadequate.

[00:41:25] Speaker 10:
You need to revise your SIPs.

[00:41:28] Speaker 10:
Under K-5, it has 18, it can give states up to 18 months to do that or a shorter time if it's reasonable.

[00:41:37] Speaker 03:
But remember, let's not forget history here.

[00:41:40] Speaker 03:
States were arguing they couldn't do that because they first had to get their budget set by EPA, and EPA couldn't do that until it figured out what this replacement rule was going to be.

[00:41:52] Speaker 10:
That's right, Your Honor, but EPA consistently took the position that it could do that.

[00:41:58] Speaker 10:
Because it was taking the position all along.

[00:41:59] Speaker 03:
No, but you're representing the states here.

[00:42:01] Speaker 03:
So I'm just trying to get clear what your position was then as opposed to now in terms of criticizing EPA's alternative view of what was lawful under the statute.

[00:42:14] Speaker 10:
The states may have made that argument, but the Supreme Court later confirmed that EPA was correct on being able to call the SIPs.

[00:42:20] Speaker 03:
Right.

[00:42:20] Speaker 03:
But all I'm getting at is you're saying there wouldn't be any delay because EPA could have issued a SIP call.

[00:42:26] Speaker 03:
back at the time of North Carolina.

[00:42:30] Speaker 10:
That's right.

[00:42:31] Speaker 03:
Yeah.

[00:42:31] Speaker 03:
OK.

[00:42:33] Speaker 10:
On interfere with maintenance, Judge Rogers, you asked about our argument based on the emissions that were already accounted for downwind.

[00:42:42] Speaker 10:
And the response I heard was that, well, the maintenance plans relied on care.

[00:42:48] Speaker 10:
But that's not correct.

[00:42:50] Speaker 10:
And the Allegan County

[00:42:52] Speaker 10:
maintenance plan, the approval of that, confirms that.

[00:42:56] Speaker 10:
It says very clearly that CARE doesn't enter the picture here, that the NOC SIP call is doing all the work from the upwind states that's needed.

[00:43:08] Speaker 09:
Can I ask on the K-5, K-6 again?

[00:43:10] Speaker 09:
Sure.

[00:43:13] Speaker 09:
What's wrong with EPA's view that a court decision

[00:43:17] Speaker 09:
that says the administrator's determination was in error qualifies or satisfies case X. In other words, that would be a limited holding that a court decision provides the impetus for showing that it was in error at the time.

[00:43:36] Speaker 10:
Right.

[00:43:36] Speaker 10:
I think if we had the initial decision in North Carolina and a mandate flowing from that, that would make sense.

[00:43:42] Speaker 10:
But again,

[00:43:43] Speaker 09:
It's all about the re-hearing order.

[00:43:46] Speaker 10:
That's right.

[00:43:47] Speaker 10:
And K-3.

[00:43:47] Speaker 10:
It's the combination of those two.

[00:43:50] Speaker 10:
Court keeping care in effect and K-3 saying the applicable requirements are met.

[00:43:57] Speaker 10:
Therefore, you have to approve it.

[00:44:01] Speaker 10:
Are there no further questions?

[00:44:03] Speaker 10:
Thank you.

[00:44:19] Speaker 05:
Good morning, Your Honors, and may it please the Court.

[00:44:21] Speaker 05:
I'd like to begin, if I may, with our as-applied over-control challenges.

[00:44:26] Speaker 05:
And the dispute that remains between the parties on that issue is a dispute not about the facts, but about the law as stated by the Supreme Court.

[00:44:36] Speaker 05:
Section 1 of our opening brief identified those specific states that we contend have been over-controlled.

[00:44:42] Speaker 05:
And our showings are based exclusively on EPA's own data.

[00:44:46] Speaker 05:
And EPA doesn't deny as a factual matter that each of the states we've listed could be regulated significantly less and every downwind location to which they are linked would still attain and maintain the NACs.

[00:45:01] Speaker 05:
EPA instead disputes

[00:45:03] Speaker 05:
that that's the legal test for determining over control.

[00:45:07] Speaker 05:
But that's exactly what the Supreme Court said.

[00:45:10] Speaker 05:
And to quote the operative sentence from the Court's decision, if EPA requires an upwind state to reduce emissions by more than necessary to achieve attainment in every downwind state to which it is linked, the agency will have overstepped its authority under the good neighbor provision

[00:45:28] Speaker 05:
to eliminate amounts that contribute significantly to non-attainment.

[00:45:32] Speaker 05:
That's exactly what we've shown to be the case with respect to those states.

[00:45:36] Speaker 05:
EPA hasn't denied that it's the case, and EPA's argument here is really simply fighting the Supreme Court's test in, I think, two different ways.

[00:45:46] Speaker 05:
The first is that EPA notes that

[00:45:48] Speaker 05:
After saying, as the Supreme Court did, that the test is whether the reductions are more than necessary for attainment in every downwind state to which it is linked, the Court, a few sentences later, says that reductions unnecessary to achieve attainment anywhere

[00:46:06] Speaker 05:
are unlawful.

[00:46:07] Speaker 05:
But the Supreme Court used those two formulations interchangeably because they mean the same thing.

[00:46:14] Speaker 05:
EPA's list of all downwind locations to which a given upwind state is linked is the list of all downwind locations

[00:46:23] Speaker 05:
for which the upwind state either contributes significantly to non-attainment or interferes with maintenance.

[00:46:29] Speaker 05:
The upwind states don't affect any other location within the meaning of the statute.

[00:46:33] Speaker 05:
So when we've shown that those states have been required to reduce by more than necessary for each downwind state to which they are linked to attain and maintain the NACs, we have shown that those reductions are more than necessary for attainment anywhere.

[00:46:49] Speaker 05:
It's the same thing.

[00:46:51] Speaker 05:
The other argument that EPA makes is that it is entitled to use uniform cost thresholds nationwide, even when using those uniform cost thresholds means that some states will be over controlled, as the Supreme Court stated the test.

[00:47:07] Speaker 05:
That's a highest common denominator theory in which if at least one or perhaps a few states need to be controlled at $500 a ton, then all states can be controlled that way because uniformity nationwide is allowed to trump.

[00:47:23] Speaker 05:
really is at war with the Supreme Court's instruction, which it issued at EPA's behest, that these over control issues be addressed and resolved through as applied challenges to individual state emissions budgets.

[00:47:39] Speaker 05:
EPA asked for that remedy as an alternative.

[00:47:42] Speaker 05:
to this Court's across the board uniform invalidation of the rule.

[00:47:48] Speaker 05:
And inherent in an as-applied challenge to an individual state emissions budget is that if that challenge is meritorious, the remedy will be an adjustment to that individual state's emissions budget, which will mean there will be some departure from nationwide uniformity.

[00:48:05] Speaker 05:
It really isn't open to EPA to oppose the uniform across the board invalidation of the rule that emerged from the panel's last decision and urge the Supreme Court instead to have this issue addressed through as applied challenges.

[00:48:21] Speaker 05:
And then when we bring meritorious as applied challenges that require changes in individual state emissions budgets to say that's unacceptable because then there would be no uniformity across the states.

[00:48:33] Speaker 05:
And in fact, it's quite clear that this is how the Supreme Court understood it, because Section 2C of the Supreme Court's opinion, which is where this is addressed, begins by saying that EPA's use of, quote, uniform cost thresholds, ellipsis, thus left open the possibility

[00:48:53] Speaker 05:
that an individual state would be required to reduce more than necessary for attainment in every downwind location to which it's linked.

[00:49:00] Speaker 05:
It went on to say that that type of over control would be unlawful, but that the way to address it is through as applied challenges to an individual state's emissions budget, which is exactly what we've brought.

[00:49:14] Speaker 05:
So if I may turn, unless there are questions about our over control challenge,

[00:49:18] Speaker 09:
Well, suppose you're right on everything you said there.

[00:49:23] Speaker 09:
How does it work in terms of what we say as to particular states?

[00:49:28] Speaker 05:
Let me break that down then for your honor.

[00:49:30] Speaker 05:
First, the

[00:49:31] Speaker 05:
easiest in some respects are the 14 ozone states we've described in Section 1C.

[00:49:37] Speaker 05:
Those are states where EPA projected at the outset of the rulemaking that all of the downwind locations to which any of those states are linked would attain and maintain the NACs in 2014 even if there were no zero good neighbor controls on the upwind states.

[00:49:55] Speaker 05:
It went on, nonetheless, to impose budgets on those 14 states.

[00:50:00] Speaker 05:
For those, the remedy is, I think, a straight vacatur.

[00:50:04] Speaker 05:
There is no ground for imposing budgets on 14 upwind states that are linked exclusively to locations that EPA projected in 2014 would fully attain and maintain the NACs without any good neighbor controls.

[00:50:18] Speaker 03:
All right.

[00:50:19] Speaker 03:
And just so I'm clear, that's the 2014 budget.

[00:50:23] Speaker 05:
That's correct, Your Honor.

[00:50:24] Speaker 03:
And I realize that's all your brief has addressed.

[00:50:26] Speaker 03:
But just so I understand, what happens for 2015, 2016, 2017?

[00:50:30] Speaker 05:
Well, the 2014 budgets are the ones that are, in effect, going forward.

[00:50:36] Speaker 05:
So what they call the 2014 budget goes on until they change it.

[00:50:40] Speaker 03:
And that's what I want to understand.

[00:50:42] Speaker 03:
Who changes it?

[00:50:44] Speaker 05:
Well, EPA, if the rule had never been challenged and it just went into effect as planned, then the 2014 budget would just keep on being in effect.

[00:50:53] Speaker 03:
Until EPA notifies the state, and I just want to be clear.

[00:50:59] Speaker 05:
Right.

[00:50:59] Speaker 05:
You know, the NACs are themselves being revised.

[00:51:03] Speaker 05:
There are different things that even when, I know the history of the good neighbor provision has been a series of rules in some cases because of this court's decisions.

[00:51:11] Speaker 05:
But even if there weren't this court's decisions, there would be a need through intervals of time to update it.

[00:51:17] Speaker 05:
So for the 1C states, section 1C, I mean section 1C of our brief, that would be straight vacatur.

[00:51:25] Speaker 05:
For the states we address in 1A and 1B, which are Texas, Alabama.

[00:51:29] Speaker 09:
Those states, just so I'm clear, would have no good neighbor obligations.

[00:51:34] Speaker 05:
Yes, because EPA has projected that they're exclusively linked to downwind locations, which will attain and maintain the NACs, even if there are no good neighbor obligations on the upwind states that are linked to them.

[00:51:45] Speaker 05:
Now, the other four states, which are Texas, Alabama, South Carolina, and Georgia, and we address them in sections 1A and B,

[00:51:52] Speaker 05:
That is a different story because it is not our contention, for example, that Texas should have no emissions budget.

[00:51:59] Speaker 05:
It's our contention that it should be a higher emissions budget, but that there is still a basis for controlling Texas under the Good Neighbor provision.

[00:52:08] Speaker 05:
So to take Texas and PM and explain the remedy with respect to that, EPA said Texas is linked to only one downwind location, Madison, Illinois.

[00:52:18] Speaker 05:
And EPA said at the outset of the rulemaking,

[00:52:21] Speaker 05:
that if every upwind state linked to Madison, Illinois were controlled at $100 a ton, Madison would fully attain and maintain the NACs.

[00:52:30] Speaker 05:
It nonetheless regulated Texas at $500 a ton.

[00:52:33] Speaker 05:
What we would propose for states like Texas where the emissions budget should be changed is that the court remand without vacating because we're in the middle of a compliance year, there's allowance trading going on, we understand the disruption of vacating something completely in the middle of the year.

[00:52:49] Speaker 05:
But it should be remanded so that Texas's emissions budget can be revised upward to take into account the Supreme Court's over-control holding.

[00:52:58] Speaker 09:
Upward to what, though?

[00:53:00] Speaker 05:
EPA's own data shows that Texas could be controlled at $100 a ton, and Madison would still attain and maintain the NAICS.

[00:53:08] Speaker 05:
So that's what we think the level should be.

[00:53:10] Speaker 09:
And that's, again, about on the ozone.

[00:53:12] Speaker 05:
on the ozone they'd have to do more work because the ozone showing they did not break out ozone.

[00:53:19] Speaker 05:
the way they did PM to show $100, $200, $300, $400 a ton.

[00:53:24] Speaker 05:
So we cannot point for ozone to a specific number in their rulemaking that establishes conclusively exactly what it should be.

[00:53:32] Speaker 05:
What we do know about ozone is that Texas was linked solely to two downwind locations, Allergan and East Baton Rouge, and those locations attained

[00:53:43] Speaker 05:
at the level of emissions that Texas was emitting and all the other upwind states linked to them immediately prior to the transport rule.

[00:53:50] Speaker 05:
Nonetheless, EPA says somehow those states need to reduce their emissions from that level even further

[00:53:58] Speaker 05:
in order for these states to attain the ozone tax.

[00:54:00] Speaker 05:
We know that's not true, but we can't give you a number.

[00:54:03] Speaker 05:
That would have to be a remand without vacatur in which EPA would have to recalculate the budget based on the Supreme Court's principle.

[00:54:11] Speaker 03:
So when EPA as to ozone comes back and says its modeling shows that as to the East Baton Rouge receptor that Texas is a contributor to maintenance problem, is that just something that

[00:54:28] Speaker 03:
would be worked out on remand?

[00:54:30] Speaker 05:
Like any of these things, it would be worked out on remand.

[00:54:33] Speaker 05:
And if we were unhappy, we could file a petition for review and complain that the resolution was arbitrary.

[00:54:39] Speaker 05:
But your honor is correct that on that one point, they are relying on their modeling, which we challenge as part of the second argument.

[00:54:48] Speaker 03:
But you started out by saying EPA doesn't even challenge.

[00:54:52] Speaker 03:
Well, on that one, it challenged.

[00:54:53] Speaker 03:
But I just want to go back as to the $100 under

[00:54:57] Speaker 03:
care.

[00:54:59] Speaker 03:
Were you suggesting in response to Judge Kavanaugh's question that this court should say we remand with instructions that the budget be modified to reflect $100 as opposed to $500 or just leave that to EPA?

[00:55:14] Speaker 05:
No, I would not suggest that the court would be that prescriptive, Your Honor.

[00:55:18] Speaker 05:
I think what I would imagine the court would say if we were to prevail on this issue would be EPA's data at the rulemaking show that if all upwind states linked to Madison were controlled at $100 a ton, Madison would still fully attain and maintain the NACs.

[00:55:32] Speaker 05:
It's remanded for EPA to, in light of that, to come up with a new emissions budget.

[00:55:37] Speaker 05:
And it would certainly be open to EPA, if we've missed something, to come back with some other factor that they want to argue about and we could challenge it and all that.

[00:55:47] Speaker 05:
This court orders them to do it at $100 a ton.

[00:55:50] Speaker 05:
But whatever it would be, it would be a lot less than the $500 a ton that they imposed on us simply because they were looking for uniformity and didn't agree that they had an over-control limit.

[00:56:02] Speaker 05:
I mean, that's what is striking about going through this rulemaking.

[00:56:05] Speaker 05:
They generated all of this data at the outset.

[00:56:08] Speaker 05:
which demonstrates things like Madison would be controlled at $100 a ton.

[00:56:13] Speaker 05:
All the ozone states, those 14 states are linked to need no good neighbor controls and they didn't look at it.

[00:56:19] Speaker 05:
They didn't do anything with it.

[00:56:20] Speaker 05:
They didn't consider it.

[00:56:21] Speaker 05:
They generated all this data that we've cited in our brief and then because they didn't agree, I mean this court said in its last opinion that EPA took no steps

[00:56:31] Speaker 05:
to safeguard against over-control.

[00:56:34] Speaker 05:
And it's not surprising that if you don't believe the obligation exists and you take no steps to comply with it, then you will find at the end of the day that there are quite a few states where you have inadvertently over-controlled.

[00:56:45] Speaker 05:
And that's what we're asking to be corrected.

[00:56:48] Speaker 09:
We say the same thing then under your theory.

[00:56:51] Speaker 09:
for Alabama, Georgia, and South Carolina?

[00:56:53] Speaker 05:
Yes.

[00:56:54] Speaker 05:
Yes.

[00:56:55] Speaker 05:
Those states, when you do the exercise with them, they come up differently.

[00:57:00] Speaker 04:
Yes.

[00:57:00] Speaker 05:
You know, one state at $400, one state at $100.

[00:57:02] Speaker 04:
I have to do that exercise.

[00:57:03] Speaker 04:
Right.

[00:57:05] Speaker 05:
My sympathies, Your Honor.

[00:57:07] Speaker 05:
But yes, I mean, it can be different.

[00:57:10] Speaker 05:
For none of those states, is it $500 a ton?

[00:57:12] Speaker 05:
Yeah.

[00:57:12] Speaker 09:
And then Louisiana's mentioned in the state's brief

[00:57:18] Speaker 05:
Yes, I don't think we have raised a challenge with respect to Louisiana, at least not with PM.

[00:57:25] Speaker 05:
And I don't think we have as one of the ozone states either, but I'm not certain of that.

[00:57:31] Speaker 05:
To turn to the issue of air quality modeling, EPA relied on data from 2005 to try to project what air quality would be in 2014.

[00:57:43] Speaker 05:
And commenters urged it to look at the most recent real-world air quality data in order to see whether its projections were lining up with what was going on in the real world.

[00:57:54] Speaker 05:
EPA declined to do so.

[00:57:56] Speaker 05:
And had it done so, it would have had to confront the fact that its projections were producing things that really made no sense.

[00:58:05] Speaker 03:
Let me ask you.

[00:58:06] Speaker 03:
I mean, you've read EPA's brief.

[00:58:07] Speaker 03:
They respond with an explanation.

[00:58:10] Speaker 03:
And you take issue with the explanation.

[00:58:12] Speaker 03:
And there are several explanations.

[00:58:14] Speaker 03:
But given our standard of review and deference on these questions, so intertwined with agency expertise, the fact that EPA decided to compare using a data set other than the data set you have identified, why does that

[00:58:41] Speaker 03:
Why is that consistent with our standard of review to say that EPA modeling must basically be reversed as arbitrary and capricious?

[00:58:52] Speaker 05:
Sure, let me address that, Your Honor, because we certainly understand that this is an area in which agencies get a certain amount of latitude and deference.

[00:59:00] Speaker 02:
Lots from this circuit.

[00:59:02] Speaker 05:
Excuse me, Your Honor?

[00:59:03] Speaker 02:
Lots from this circuit.

[00:59:05] Speaker 05:
Yes, although in the Appalachian power case that they cite for that proposition,

[00:59:10] Speaker 05:
In fact, the matter was remanded to the agency to give a better explanation because the court said the stark disparities between real-world data and what the model was showing required more of an explanation than the agency had given.

[00:59:23] Speaker 03:
But here the agency gave explanations.

[00:59:25] Speaker 03:
That's why I started where I did.

[00:59:26] Speaker 03:
That's right.

[00:59:27] Speaker 03:
You take issue with the explanations.

[00:59:29] Speaker 05:
Well, I would say the explanation was clearly arbitrary for this reason, Your Honor.

[00:59:34] Speaker 05:
We showed that, for example, in nearly half of the locations that EPA looked at,

[00:59:39] Speaker 05:
EPA was saying that when upwind emissions would be further reduced from current levels, pollution concentrations in downwind areas would go up.

[00:59:49] Speaker 05:
Now, that should have been a whole depressive moment when the agency says that is so unusual

[00:59:56] Speaker 03:
But from the agency's perspective, they had an explanation for that because the transport rule is different than care.

[01:00:06] Speaker 03:
You know it as well as I do.

[01:00:09] Speaker 03:
So I mean, how does the court deal with that?

[01:00:12] Speaker 05:
It deals with, and we're not suggesting that the court would rewrite the model or prescribe what the agency, but here's what the court would say.

[01:00:19] Speaker 02:
We would find it arbitrary and capricious.

[01:00:22] Speaker 05:
Yes.

[01:00:23] Speaker 05:
And here is what is arbitrary about it, Your Honor.

[01:00:25] Speaker 05:
They're obligated to give a reasoned explanation for why they refused to look at what we think was clearly probative data, data which would show that their projections were making no sense.

[01:00:35] Speaker 05:
What was their explanation?

[01:00:37] Speaker 05:
Their explanation was we can't look at that data because that data is impacted by care.

[01:00:42] Speaker 05:
Care has been declared unlawful and it's going to be replaced.

[01:00:45] Speaker 05:
So we can't look at the most recent air quality data because that was impacted by care.

[01:00:49] Speaker 05:
That is not a reasoned explanation because that data was factual data that established a relationship, a verified real-world relationship between the level of emissions reductions upwind and the air quality.

[01:01:03] Speaker 02:
Two different regulatory schemes.

[01:01:04] Speaker 02:
But it doesn't matter.

[01:01:06] Speaker 05:
That's what they say, and that's what we say is arbitrary.

[01:01:08] Speaker 05:
They say we can't look at it because it was an old rule that was declared invalid.

[01:01:12] Speaker 05:
But whatever the reason why upwind emissions were reduced, whether it's care or an economic recession or anything else, whatever the reason, that's irrelevant.

[01:01:21] Speaker 05:
Because it's still the case that you know, we all learn from care, that when upwind emissions are reduced to this, downwind air quality is that.

[01:01:30] Speaker 05:
And if you refuse to look at it and refuse to confront the fact that, my God, when we use our model, we're projecting that when upwind emissions are reduced more, downwind pollution concentrations go up.

[01:01:42] Speaker 05:
Whether the upwind emissions were at the level they were at because of care or anything else doesn't change the fact that there was a factual relationship between here's what upwind emissions are, here's what downwind air quality is.

[01:01:54] Speaker 05:
So all we would ask your honor to say, and we're not saying the rule should be vacated,

[01:01:57] Speaker 05:
on this argument?

[01:01:59] Speaker 05:
Again, this would be a remand for them to look at the data, which they have refused to look at, for the arbitrary reason that it was impacted by care, and then they could come back and say, we've looked at the data and we realize we now have to change some of our projections, or they could come back and say, we have a better explanation.

[01:02:15] Speaker 05:
That's always open to them.

[01:02:17] Speaker 09:
Well, isn't this an ongoing process for the agency, too?

[01:02:20] Speaker 09:
going on each year here and looking at, or how's it working?

[01:02:25] Speaker 05:
It's actually not.

[01:02:26] Speaker 05:
It's not.

[01:02:26] Speaker 05:
I mean, these 2014 budgets are it until they initiate a new proceeding, because they've decided it's now on their regulatory agenda to update the transport rule.

[01:02:37] Speaker 05:
So we are stuck with this until there is a new rulemaking, and we don't think we should be.

[01:02:43] Speaker 05:
If I may, if there are no further questions, if I may reserve the remainder of my time?

[01:02:48] Speaker 04:
Thank you.

[01:02:48] Speaker 05:
Thank you, Your Honor.

[01:03:06] Speaker 12:
May it please the court?

[01:03:08] Speaker 12:
My name is Jessica O'Donnell with the Department of Justice.

[01:03:11] Speaker 12:
I'm here today on behalf of EPA.

[01:03:19] Speaker 12:
The Supreme Court endorsed EPA's cost-based approach to determining upwind states' significant contributions to their downwind neighbors' air quality problems.

[01:03:29] Speaker 12:
EPA's emissions reductions required by the transport rule are based on reasonable cost thresholds and require emission reductions that are no more than necessary to address the downwind air quality problems that the agency was aiming to fix.

[01:03:48] Speaker 12:
Petitioners' arguments do not show that EPA went beyond its statutory authority in the Good Neighbor provision or it otherwise acted arbitrarily in establishing emissions budgets.

[01:04:00] Speaker 12:
I'll also address petitioners' challenges to EPA's modeling.

[01:04:07] Speaker 09:
But at bottom... On the main argument, what do you do with the section of the Supreme Court's opinion

[01:04:15] Speaker 09:
that talks about the as-applied challenges, because it wasn't obvious if the Supreme Court was going to rule with the agency in EME Homer as it did, that it was going to include a section like that.

[01:04:27] Speaker 09:
But it did include the section like that, and it really comes right out of oral argument, it seems, and the briefs as well.

[01:04:33] Speaker 09:
But oral argument, Justice Sotomayor asked the question, and then Chief Justice Roberts asked a specific question to EPA's counsel, including the over-control argument, or would that have been done?

[01:04:44] Speaker 09:
And the answer to that was, no, that wasn't done, I'm paraphrasing now, by EPA's counsel representing the Supreme Court and the Chief Justice in that answer that these challenges would be available.

[01:04:55] Speaker 09:
And that would mean that there would not be uniform cost thresholds.

[01:04:59] Speaker 09:
And so it seems to me that you told the Chief Justice one thing, and coming back, and then that's in the opinion.

[01:05:07] Speaker 09:
You can see a direct line, I think, if you've

[01:05:09] Speaker 09:
look at this between that colloquy and the opinion and now you're coming back and you started by emphasizing the uniformity.

[01:05:16] Speaker 09:
As applied challenges are inconsistent with uniformity.

[01:05:20] Speaker 12:
I don't think that as applied challenges are entirely inconsistent with uniformity.

[01:05:24] Speaker 12:
And I don't think the fact that the Supreme Court mentioned that there were the possibility of as applied challenges meant that those as applied challenges would necessarily be meritorious as applied challenges.

[01:05:40] Speaker 09:
No doubt.

[01:05:41] Speaker 09:
I agree completely.

[01:05:43] Speaker 09:
But there is the possibility, or let me just ask you this.

[01:05:48] Speaker 09:
There is the possibility of as applied challenges in which a successful as applied challenge would have a different cost threshold for a particular state than other states have, correct?

[01:05:59] Speaker 12:
I would not go so far.

[01:06:02] Speaker 12:
I would say that there is a possibility.

[01:06:03] Speaker 12:
I don't think that anything in the Supreme Court's opinion requires EPA to set an individualized cost threshold for a particular state, which is what the petitioners here are asking for.

[01:06:15] Speaker 12:
In fact, I think that would be contrary to the primary holding of the Supreme Court, which is that EPA's use of the cost thresholds were

[01:06:22] Speaker 09:
So I might agree with you that there's some, and Justice Scalia certainly pointed this out, there was some tension between that section of the court's opinion and its main holding.

[01:06:32] Speaker 09:
But obviously, the court, whether through compromise or whatever, came up with an opinion that said, yes, you can use uniform cost thresholds, but also have as-applied challenges.

[01:06:42] Speaker 12:
Well, and the touchstone for the court in terms of determining what might be over control would be the downwind

[01:06:50] Speaker 12:
air quality, whether those downwind areas were meeting the NACs or were maintaining the NACs.

[01:06:59] Speaker 12:
So I think that what the Supreme Court was saying in Section 2C was if you had a group of states or a single state that was only

[01:07:12] Speaker 12:
linked to one downwind receptor, and it was a completely closed universe of upwind and downwind linkages.

[01:07:20] Speaker 12:
In other words, no other upwind, there would be, you know, the other upwind states would not have other downwind linkages, which is exactly the situation that you have with Texas.

[01:07:29] Speaker 12:
and Madison.

[01:07:32] Speaker 12:
Madison is the only downwind linkage for Texas.

[01:07:36] Speaker 12:
However, Madison has numerous other upwind contributors, all of whom contribute to other downwind states.

[01:07:42] Speaker 12:
The Supreme Court specifically recognized the interwoven and connected nature of the causation problem that EPA was trying to solve and recognized that, you know,

[01:07:56] Speaker 12:
that uniform cost thresholds were appropriate to the extent that they did not require an upwind state to reduce its emissions more than necessary to achieve attainment in any downwind state.

[01:08:10] Speaker 09:
to which it is linked.

[01:08:11] Speaker 12:
Well, I recognize that that language is in the Supreme Court's opinion.

[01:08:15] Speaker 12:
That's critical.

[01:08:17] Speaker 09:
It's like the most important phrase in the opinion on this part of the issue, to which it is linked.

[01:08:24] Speaker 12:
I think positioners are putting too much emphasis on that language.

[01:08:26] Speaker 12:
I think that language has in mind the examples that the Supreme Court, the hypothetical situations the Supreme Court was discussing throughout the opinion, which all involved

[01:08:38] Speaker 12:
the situation that I describe where you have a closed universe of upwind states and downwind states and not the situation like you have with Texas where there are other upwind linkages that have downwind air quality effects.

[01:08:51] Speaker 12:
And if you change the cost threshold that would apply to Texas and those other upwind states, which is not the same by the way, would have ripple effects on the downwind states that are attached to those other upwind states.

[01:09:03] Speaker 03:
I mean, your brief makes the point that it might affect the training program,

[01:09:08] Speaker 03:
The rule itself already has non uniform cost controls.

[01:09:15] Speaker 03:
That's right.

[01:09:17] Speaker 12:
That's right, Your Honor.

[01:09:18] Speaker 12:
And I would say that even assuming that petitioner's reading of the Supreme Court opinion is right, I think ultimately EPA's application of the cost thresholds and EPA's development of the cost thresholds has to be judged by a reasonableness standard.

[01:09:34] Speaker 12:
The Supreme Court also said that EPA must have leeway to balance its obligation to avoid

[01:09:42] Speaker 12:
over control with its statutory duty to maximize downwind non-attainment and maintenance.

[01:09:49] Speaker 12:
EPA here did take into account, they did essentially what petitioners are asking them to do.

[01:09:55] Speaker 12:
They took into account the possible differences in the magnitude of the downwind air quality problem that might be facing different sets of receptors and upwind linkages.

[01:10:11] Speaker 12:
and applied a lower cost threshold to those states where the downwind problems were resolved more easily.

[01:10:22] Speaker 12:
The $500 per ton threshold represents the level that EPA determined

[01:10:30] Speaker 12:
all downwind problems for those states would be met.

[01:10:34] Speaker 12:
But as Judge Rogers noted, EPA also established a $2,300 per ton threshold for states who were linked to higher downwind areas where they had more intractable air quality problems.

[01:10:49] Speaker 03:
No, but that cuts against your argument is what I'm suggesting here.

[01:10:54] Speaker 03:
And I need to understand why it doesn't.

[01:10:57] Speaker 03:
You've already acknowledged that now.

[01:10:59] Speaker 03:
As I understand the argument that's being made that you're protesting here is that uniformity of cost thresholds is a principle that is critical to a reasonable interpretation of the statutory requirement.

[01:11:22] Speaker 03:
But I don't see you arguing that, and let's take the Texas example.

[01:11:27] Speaker 03:
that were the Texas budget increased, as Council was discussing, that somehow that would throw out the calculation as to whether or not there will be attainment or interference with maintenance.

[01:11:45] Speaker 03:
I mean, nothing changes other than

[01:11:49] Speaker 03:
that state's budget.

[01:11:51] Speaker 03:
Otherwise, your scheme remains in place.

[01:11:54] Speaker 12:
Well, I have two responses to that.

[01:11:56] Speaker 12:
One is that we do disagree that Texas has shown that all of Madison's downwind problems would be resolved at $100 per ton threshold.

[01:12:07] Speaker 03:
Well, that's not its argument, as I understand it.

[01:12:11] Speaker 03:
I mean, as I read your brief, you were saying, and I think that's perhaps why council started with that anywhere discussion.

[01:12:23] Speaker 03:
Your notion is that at Madison, because there are hypothetically five states contributing, Texas is only one.

[01:12:32] Speaker 03:
Therefore, there's this magic balance that's been developed in concluding that

[01:12:39] Speaker 03:
Madison will attain.

[01:12:41] Speaker 03:
And yet, the only argument is looking at EPA's own data, it shows that that same result will occur even if the Texas budget is increased.

[01:12:55] Speaker 12:
Well, petitioners are relying on analyses that EPA did at the proposal stage.

[01:13:02] Speaker 12:
EPA changed the inputs, and the analysis that EPA did was not the same as the analysis that EPA did at the final stage in terms of applying the cost thresholds to the states.

[01:13:15] Speaker 12:
For example, I don't believe EPA was applying both the NOX thresholds and the SO2 thresholds at the same time or at the same level.

[01:13:25] Speaker 12:
So that's one difference.

[01:13:27] Speaker 12:
The other problem I think that is if you

[01:13:37] Speaker 12:
The problem with saying that you can just increase Texas' emissions budget is really twofold.

[01:13:43] Speaker 12:
The first is what do you do with the other states who are linked to Madison who are paying the $2,300 threshold and who are required to do that because of other linkages that they have?

[01:13:54] Speaker 12:
Do you lower their threshold?

[01:13:58] Speaker 12:
No.

[01:14:00] Speaker 12:
How do you analyze?

[01:14:02] Speaker 09:
The answer, right?

[01:14:03] Speaker 12:
I think that changes the analysis of whether if you lower the cost threshold for Texas, but the other states remain constant, then that area would still attain, and Texas would not be doing the work.

[01:14:16] Speaker 12:
The area would attain based on the emissions reductions of those other states.

[01:14:19] Speaker 09:
They have the higher budget because of their linkages to other downward states or receptors apart from Madison.

[01:14:27] Speaker 12:
That's right, but the Supreme Court recognized that an incidental benefit of having an area exceed attainment doesn't necessarily rank as over control.

[01:14:40] Speaker 09:
No doubt.

[01:14:42] Speaker 09:
If you have linkage to A and B and you can't reduce one without pulling one below attainment, pulling the other below attainment, then you have to keep with the higher number.

[01:14:57] Speaker 09:
And that would be the case of those other hypothetical states you're talking about who are linked to Madison.

[01:15:02] Speaker 09:
They have to stay

[01:15:03] Speaker 09:
hypothetically at 2,300 because of the linkages to other state downward receptors that they have, right?

[01:15:10] Speaker 12:
That's right.

[01:15:10] Speaker 09:
That's right.

[01:15:11] Speaker 09:
And so if Texas is... But Texas doesn't, and that's the whole concept of the as applied challenge, I think.

[01:15:18] Speaker 12:
Well, then I will turn to the second problem that will occur with lowering Texas's, the cost threshold.

[01:15:26] Speaker 12:
If Texas's costs are lower, that means that, I mean, because you're not just looking at, it's not just that the cost thresholds apply uniformly, but you're looking at the electricity grid.

[01:15:39] Speaker 12:
And my understanding is that if you lower the cost threshold, and this was part of EPA's rationale for establishing the uniform cost thresholds and applying them the way that they did.

[01:15:47] Speaker 12:
and limiting the number of cost thresholds that you could have.

[01:15:52] Speaker 12:
If you lower the cost thresholds with regard to Texas, that will increase the cost, excuse me, decrease the cost of generation in Texas, which means that generation will shift there and emissions will increase there.

[01:16:06] Speaker 12:
And that will have ripple effect on downwind areas.

[01:16:08] Speaker 12:
So you can't just lower the, you can't just.

[01:16:12] Speaker 08:
Repeat that last sentence.

[01:16:15] Speaker 08:
If you can, the ripple effects.

[01:16:18] Speaker 12:
That will have ripple effects elsewhere.

[01:16:20] Speaker 12:
And with regard to Madison, I mean, if you increase Texas's, if Texas's emissions increase as a result of having lower costs, that will have an adverse impact on the air quality in Madison, the area to which it's linked.

[01:16:35] Speaker 09:
But it won't pull it below attainment.

[01:16:40] Speaker 12:
If the emissions are greater than what EPA anticipated based on a $500 per ton cost threshold.

[01:16:48] Speaker 09:
Based on EPA's own data, even if Texas's budget is increased, Madison will still attain

[01:16:58] Speaker 12:
Based on EPA's analysis for the proposal, it indicated that a 100-perton threshold could potentially resolve the downward problems.

[01:17:11] Speaker 12:
EPA changed the inputs into the models between proposal and final.

[01:17:15] Speaker 12:
So we don't know if that still is true.

[01:17:17] Speaker 09:
I know, and I can only imagine the battles that would happen on remand.

[01:17:21] Speaker 09:
But in any event, taking that data as it is,

[01:17:25] Speaker 09:
if the 100 were the right number, Madison will still attain even if, and just take the hypothetical for a second, if 100 is the number that was in the data and Madison would still attain even if Texas were given $100 a ton

[01:17:45] Speaker 12:
I don't know if you could say that because the emissions budgets were based on also the projections of electricity usage.

[01:17:54] Speaker 12:
And if electricity usage is increased in Texas because the cost is lower, that will change the ultimate output that Texas, the ultimate emissions levels in Texas.

[01:18:07] Speaker 03:
Where will I find this ripple effect analysis?

[01:18:10] Speaker 12:
Well, I think that that is a good point that you raise, Your Honor, because this issue about applying lower cost thresholds to certain states is not something that was raised below or that EPA addressed.

[01:18:29] Speaker 08:
But the Supreme Court was raised above.

[01:18:32] Speaker 12:
Which is more important.

[01:18:36] Speaker 03:
At the agency's invitation.

[01:18:38] Speaker 12:
With regard to the ripple effect, I could point you to the portions of our brief that discuss what will happen.

[01:18:45] Speaker 03:
Not your brief.

[01:18:47] Speaker 03:
When I was preparing for this case, what I was looking for was a theory of uniform cost controls, and I thought there might be a technical document somewhere that

[01:18:58] Speaker 03:
might explain this.

[01:19:00] Speaker 03:
I didn't find that.

[01:19:01] Speaker 03:
And in your brief, I didn't find the argument that sort of this is a house of cards and you pull out one and the whole scheme collapses.

[01:19:11] Speaker 03:
So at this point, all we have is the data that EPA produced, its conclusions.

[01:19:22] Speaker 03:
And with that, it may be a jump to the conclusion that

[01:19:27] Speaker 03:
Increasing Texas' budget will not have an effect on attainment and maintenance.

[01:19:36] Speaker 03:
But there isn't anything that causes, at least on the record we have before us, that I have found that causes me to doubt that at this point in terms of a remand.

[01:19:51] Speaker 12:
I think the best discussion that I could point you to would probably be EPA's discussion of the cost threshold and the different factors that it analyzed in terms of looking at those cost thresholds.

[01:20:02] Speaker 03:
I saw that.

[01:20:02] Speaker 12:
But that doesn't address this.

[01:20:03] Speaker 12:
I saw that.

[01:20:04] Speaker 12:
And that would be it.

[01:20:05] Speaker 03:
But that's it.

[01:20:06] Speaker 12:
48.256 through about 260.

[01:20:10] Speaker 12:
That doesn't address.

[01:20:11] Speaker 12:
I admit that it does not address this particular issue.

[01:20:15] Speaker 09:
But I lost.

[01:20:16] Speaker 09:
The ripple effects, too.

[01:20:17] Speaker 09:
I mean, just to go back to the Supreme Court,

[01:20:19] Speaker 09:
Justice Sotomayor asked the question about the as-applied.

[01:20:23] Speaker 09:
Then the Chief Justice says, including the over-control argument, or would that have been done?

[01:20:29] Speaker 09:
That's the point where EPA counsel could have said that would have been done because of ripple effects, et cetera, what you just said.

[01:20:36] Speaker 09:
That's not what was said.

[01:20:38] Speaker 09:
What was invited there to the Supreme Court was the concept of as-applied challenges for over-control.

[01:20:45] Speaker 09:
No mention of ripple effects or anything like that.

[01:20:47] Speaker 09:
and then you see it in the opinion.

[01:20:49] Speaker 09:
So I'm concerned about a theory that was presented to the Supreme Court and now a new theory that's presented to us that would be inconsistent with what the Supreme Court relied on, I think quite clearly relied on in that section of its opinion.

[01:21:07] Speaker 09:
So I've said that a couple times, but that's a concern I have about at least

[01:21:12] Speaker 09:
taking your position right now as opposed to remanding for further, obviously you can come up with new analyses, new data on remand.

[01:21:19] Speaker 12:
Right.

[01:21:21] Speaker 12:
If there are no further questions on that topic, I'd like to move on to the petitioner's argument with regard to the ozone, the states affected by the, or the states that petitioners claim should now,

[01:21:32] Speaker 12:
The states where petitioners are claiming the rule should be vacated because the 2014 base case projections show no attainment or maintenance problems with no controls.

[01:21:49] Speaker 12:
I'll be honest that it has been somewhat unclear to me the argument that petitioners were making.

[01:21:54] Speaker 12:
I mean, in their opening brief, petitioners, I think, said they argued very clearly that the rule should be vacated with regard to those states.

[01:22:04] Speaker 12:
In their reply brief, they seem to suggest that they abandoned any claim that EPA did not properly determine that those states did contribute significantly to downwind nonattainment and maintenance in 2012.

[01:22:19] Speaker 12:
The rule is based on EPA's air quality projections for 2012, which show that all of those states have significant contributions above the threshold to non-attainment and maintenance issues.

[01:22:35] Speaker 12:
And petitioners abandoned any claim that EPA appropriately made that determination or included the states in the rule for that purpose.

[01:22:45] Speaker 12:
It seems that petitioners are now arguing that EPA should have concluded that EPA should not have imposed any requirements on them, on those states, not withstanding their downwind contributions because of what EPA's projections showed with regard to 2014.

[01:23:06] Speaker 12:
That is inconsistent with what the statute requires.

[01:23:09] Speaker 12:
It's inconsistent with what this court required in North Carolina.

[01:23:12] Speaker 12:
And it simply wouldn't make any sense to run a regulatory program assuming that you could lift emissions reductions based on something that may or may not occur in the future.

[01:23:24] Speaker 12:
EPA imposed the requirements starting in 2012 based on its conclusion

[01:23:32] Speaker 09:
If the projections show for a given year that attainment will occur and maintenance will occur even without any good neighbor obligation in certain upwind states, doesn't that mean that EPA is without authority to impose good neighbor obligations on those particular upwind states?

[01:23:53] Speaker 12:
The 2012 projections show that those states would... But the 2014 projections show that they wouldn't, right?

[01:24:03] Speaker 12:
Right.

[01:24:04] Speaker 12:
But EPA was basing the requirements of the rule based on the 2012 projections.

[01:24:10] Speaker 12:
And so therefore, EPA had the statutory authority to include them in the rule.

[01:24:15] Speaker 12:
If petitioners thought that, or if the states think that, and I think that Council for Petitioners even recognize this, that once you're in a regulatory program, you're in.

[01:24:25] Speaker 12:
If an EPA properly included the states, and petitioners don't really contest that here.

[01:24:31] Speaker 09:
When EPA's setting new budgets for a particular year, if it's established that

[01:24:37] Speaker 09:
your upwind emissions are not contributing to any non-attainment or interference with maintenance in a downwind state.

[01:24:46] Speaker 09:
EPA, just because they're quote in, doesn't mean they can still impose a good neighbor obligation, correct?

[01:24:52] Speaker 12:
I think that if the state thought that circumstances,

[01:24:55] Speaker 12:
If the state thought that circumstances were changed in 2014, they could submit a proposed SIP to EPA to be removed from the FIP.

[01:25:04] Speaker 12:
I think that would be an appropriate course.

[01:25:07] Speaker 12:
People don't get out of regulatory programs, regulated sources don't get out of regulatory programs based on

[01:25:13] Speaker 12:
future projections.

[01:25:14] Speaker 12:
I mean, if they were, say, for example, it was a facility that was obtaining a permit for NSR, non-attainment NSR, the facility, the permit requirements would not be lifted on the facility just because the area was redesignated from attainment to non-attainment.

[01:25:31] Speaker 12:
There would have to be some sort of a process for purposes of changing, if it was appropriate, those permit limits.

[01:25:37] Speaker 09:
I'll also point out that... This sounds arbitrary to require a good neighbor obligation if the good neighbor obligation is not necessary for the particular year.

[01:25:46] Speaker 09:
And all we have are projections for a particular year to achieve attainment in the downwind state.

[01:25:52] Speaker 12:
Well, EPA didn't base the budgets on the projections, as far as I understand.

[01:25:56] Speaker 12:
EPA did not base the budgets for...

[01:26:00] Speaker 12:
those states on the 2014 projections.

[01:26:02] Speaker 12:
EPA based the budgets on information in the 2012 base case.

[01:26:08] Speaker 12:
The 2014 projections that petitioners were relying on were not used for any regulatory purpose in terms of developing the rule.

[01:26:15] Speaker 12:
They were simply something that EPA prepared for purposes of the regulatory impact analysis.

[01:26:20] Speaker 12:
So it wasn't, EPA didn't rely on them in establishing emissions budgets.

[01:26:25] Speaker 03:
So spin this out for me.

[01:26:27] Speaker 03:
As I understand your argument is that when EPA projected the budgets for 2014, in 2012, it found significant contributions.

[01:26:45] Speaker 03:
The regulatory system is such that what happens in 2014 where EPA's, just take this as hypothetical if you wish,

[01:26:56] Speaker 03:
The data shows there will be no significant contribution.

[01:27:01] Speaker 03:
There will be no interference with maintenance.

[01:27:06] Speaker 03:
I think if the data just drop out or you're saying no, the state has to submit a SIP to say we are in compliance and therefore

[01:27:18] Speaker 12:
The state would have to submit a SIP, and there was an important reason for that.

[01:27:21] Speaker 12:
In order for downwind states to rely on any of the emissions reductions that are obtained by the transport rule or any rule under the Good Neighbor provision, those reductions have to be permanent and enduring.

[01:27:36] Speaker 12:
And so downwind states could not rely on emissions reductions if EPA were only going to leave them in place for two years.

[01:27:45] Speaker 12:
So, but if, you know, if the circumstances have, that's why I say if the circumstances have changed and the upwind state can show that, that they are no longer significantly contributing to the downwind state's air quality problems, they can submit that in a revised SIP to EPA.

[01:28:05] Speaker 12:
But I'll note that if they did that, they would have to show that they wouldn't be interfering with any of the requirements, applicable requirements, including the new, any additional interference with any additional or more stringent NACs that EPA could have promulgated in the intervening time.

[01:28:29] Speaker 12:
Here, we know EPA has established a more stringent 2008 NACs for ozone.

[01:28:35] Speaker 03:
So your understanding of the regulatory system is if State A was subject to the transport rule because of significant contributions in year one, but by year 10, State A is no longer making significant contributions according to EPA's own analysis.

[01:29:06] Speaker 03:
State A continues to be subject to the rule until State A submits something to EPA?

[01:29:15] Speaker 12:
Well, I don't think that you can say that it's based on EPA's own analysis.

[01:29:19] Speaker 12:
I mean, I know the projections say what the projections say, but EPA did not undertake those projections for purposes of establishing the requirements for the rule.

[01:29:30] Speaker 12:
So ordinarily how it would work is that if

[01:29:34] Speaker 12:
you know, once you're in the rule, you would not drop out unless the state could show, and I'll remind you that this is initially the state's obligation to submit the SIPs.

[01:29:46] Speaker 12:
EPA to address their downwind contributions to downwind air quality problems.

[01:29:54] Speaker 12:
EPA is promulgating the rule here because the states have

[01:29:57] Speaker 12:
had a long-running failure to address those problems.

[01:30:00] Speaker 12:
And so EPA is, it's not required by EPA under the statute to determine how long, you know, on the horizon those problems will persist.

[01:30:15] Speaker 12:
The states have the ability to submit.

[01:30:18] Speaker 12:
If the states think that there is no longer a problem and that they're no longer contributing to the downwind state's air quality problems, they're able to submit a SIP to replace the FIP.

[01:30:31] Speaker 12:
In fact, they're able to do that at any time.

[01:30:33] Speaker 03:
And I gather no state has.

[01:30:46] Speaker 03:
No.

[01:30:47] Speaker 12:
State has no, no state has submitted any proposed SIP.

[01:30:53] Speaker 03:
To get out from under 2014 or any other budget year.

[01:30:58] Speaker 12:
No.

[01:30:59] Speaker 12:
I see that my time is up.

[01:31:01] Speaker 12:
I just had one point to make about the EPA's air quality modeling.

[01:31:07] Speaker 12:
Yeah.

[01:31:08] Speaker 12:
And that is, EPA did not refuse to look at the, and I'm not going to go over the point that, you know, EPA, I think the court understands EPA's point that care is simply, there's no technical basis, there's no,

[01:31:26] Speaker 12:
reason you would compare results under care with the results that EPA was projecting under the transport rule because they're simply not the same rules and they're not the same allocations of emissions.

[01:31:39] Speaker 12:
The methodology is different, so I'm not going to address that further.

[01:31:43] Speaker 12:
The point I did want to make though is that EPA did not refuse to look at the recent air quality data.

[01:31:50] Speaker 12:
EPA said that it was not going to validate or test the model using that data because that would be inappropriate.

[01:31:58] Speaker 12:
But EPA did look at that data and EPA said that there were, it's not simply a linear relationship between emissions levels and downwind air quality.

[01:32:08] Speaker 12:
There are other factors that affect EPA's, that affect

[01:32:14] Speaker 12:
that relationship, meteorology being one of them.

[01:32:17] Speaker 12:
And EPA noted in the final rule with regard to the 2009 data that yes, EPA recognized that there was unusually low design values during that time period, but that was affected in large part by the meteorology at the time.

[01:32:34] Speaker 12:
And so you can simply assume that emissions that are particular, that there's a linear relationship between the emissions.

[01:32:41] Speaker 12:
And that's the final point that I wish to make.

[01:32:44] Speaker 12:
Thank you.

[01:32:56] Speaker 03:
Public Health Respondent and Interveners.

[01:33:07] Speaker 06:
Yes, good morning.

[01:33:08] Speaker 06:
May it please the Court?

[01:33:09] Speaker 06:
Graham McCann for the Public Health Interveners.

[01:33:13] Speaker 06:
If I may, I'd like to briefly address the 2014 base case issue, as well as one quick point on the over control issue.

[01:33:21] Speaker 06:
First, on the base case issue, if you look at the same 2014 base case projections that were described in industry petitioners footnote 13, they list six downwind receptors where they say those locations would be underneath the attainment or maintenance threshold in 2014.

[01:33:41] Speaker 06:
Those same projections, however, show that those six downward receptors would all be in violation in 2014 of the 2008, the more stringent 2008 ozone NACs of 75 parts per billion.

[01:33:54] Speaker 06:
had design values above 80 parts per million.

[01:33:58] Speaker 06:
Achieving the health-based NACs is the core focus of the act.

[01:34:02] Speaker 06:
And it would have been an affront to this goal if EPA had disregarded this data in front of it, showing that there were going to be remaining non-attainment issues in 2014 under a newer standard and allowed states contributing to that problem to increase their emissions.

[01:34:22] Speaker 06:
At page 48 to 19 of the preamble to the final rule, EPA said it is mindful of the need to provide for continuing ozone progress to meet the 75 part per billion level of the 2008 ozone NACs.

[01:34:37] Speaker 06:
And in not releasing upwind states of their obligations, their budgets in 2014, that was a reasonable approach to that data in front of it.

[01:34:49] Speaker 06:
The other point I'd like to make is that the approach urged by industry is inconsistent with the Clean Air Act's emphasis on keeping pollution controls in place.

[01:34:59] Speaker 06:
at least until an area violating the NACS, shows that it has actually attained the standard due to permanent and enforceable reductions, and that it will stay clean for 10 years.

[01:35:10] Speaker 06:
And that structure is outlined in 74-07D3E of the Act, 107D3E of the Act, which is alluded to in industry respondents brief at footnote one.

[01:35:26] Speaker 06:
I'd also like to point out on that point that the EPA at page 68 of its final rule emissions inventory, TSD, it says that the 2014 base case modeling included projected economic changes and fuel usage for EGUs in the mobile sector.

[01:35:45] Speaker 06:
So these were not, you know, locked in benefits in 2014 absent good neighbor reduction.

[01:35:51] Speaker 06:
You know, the vagaries of the economy, industrial changes, natural gas prices.

[01:35:58] Speaker 06:
And that is not a basis.

[01:36:00] Speaker 06:
That would be inconsistent to rely on that basis for relieving upwind states of their pollution reduction obligations would not be consistent with that.

[01:36:09] Speaker 06:
I see my time is over.

[01:36:11] Speaker 06:
I just had one point to make on the over control, if I may.

[01:36:14] Speaker 06:
Yes.

[01:36:16] Speaker 06:
I think industry petitioners' argument with regard to Texas provides an incentive, sort of a free rider.

[01:36:25] Speaker 06:
This is a collective action problem, a thorny causation problem that the Supreme Court recognized.

[01:36:31] Speaker 06:
And if for future rule makings, or even looking at the time when EPA has to act,

[01:36:37] Speaker 06:
It looks at all upwind states having to act simultaneously to reduce their emissions.

[01:36:43] Speaker 06:
So why is Texas the first in line to get their reductions accounted for to Madison as opposed to the other group two states that also contribute or are at the $500.

[01:36:52] Speaker 09:
The other states can't reduce it without it causing a problem in other downwind receptors.

[01:36:59] Speaker 06:
And so if you sort of pull on individual threads, as the industry petitioners have, rather than acknowledging the interwoven and overlapping connections in this rule, then you provide an incentive in future rulemakings for the court to say, well, I'm going to, for each state to say, you know, I'm not going to fulfill my

[01:37:21] Speaker 06:
good neighbor obligations as set forth in the statute, as required by the statute, within my border, each state must address its emissions within its borders, because I'll just see how it's gonna play out with all the other states.

[01:37:34] Speaker 06:
And so it doesn't, there's this dynamic that it could lead to if you accept the petitioner's argument.

[01:37:43] Speaker 09:
Can you play that out, because that's an important point.

[01:37:48] Speaker 09:
but it's not in the Supreme Court opinion, so that's a first problem, but that's a legal problem.

[01:37:52] Speaker 09:
But I'm more interested in just the real-world significance of what you're explaining and how that would play out.

[01:37:57] Speaker 09:
If you could give me a concrete example of what you're anticipating.

[01:38:01] Speaker 06:
So I would disagree that this dynamic is not in the Supreme Court opinion.

[01:38:06] Speaker 09:
Not in the key section.

[01:38:09] Speaker 09:
Which may be inconsistent with the other section of the opinion, which is, I think, your point, but we have to follow

[01:38:15] Speaker 09:
We have to try to follow all the sections.

[01:38:17] Speaker 06:
So I would point to the Supreme Court's approving citation to the legislative history at 1595 of the Supreme Court's opinion, where they talk about going from the prevent standard in the 1977 version of the good neighbor provision to the contribution standard in the 1990 provision.

[01:38:38] Speaker 06:
And in that report, they said, it's impossible to say that any single source or group of sources is the one which actually prevents attainment downwind.

[01:38:47] Speaker 06:
And this is the contribution problem.

[01:38:49] Speaker 06:
And so Texas would say, we have modeling to show that Madison, despite the fact that we contribute above the 1% threshold to Madison, Illinois, at year three after a new NAICS comes out,

[01:39:03] Speaker 06:
they say we're going to sit on our hands.

[01:39:06] Speaker 06:
We're either going to sit on our hands or we're going to make a demonstration to EPA that says Madison, Illinois' air quality problems will be addressed just as well by Indiana or

[01:39:18] Speaker 06:
Missouri or Wisconsin.

[01:39:21] Speaker 06:
We'll show you that modeling.

[01:39:21] Speaker 06:
So we don't have to submit, or we can submit a plan laying out this rationale for why we don't have to make any reductions.

[01:39:31] Speaker 06:
But every state is required to act at that three-year deadline after a new NACS issues.

[01:39:36] Speaker 06:
And so there's this dynamic of each state saying, oh, if I can just

[01:39:43] Speaker 06:
If another state contributing to that same problem also makes the reductions, then I'm off the hook and I don't have to meet my statutory burden to address the emissions from within my own borders that contribute to this problem downwind.

[01:39:57] Speaker 09:
Okay.

[01:39:57] Speaker 09:
Thank you.

[01:39:58] Speaker 06:
Nothing further.

[01:39:59] Speaker 09:
Thank you.

[01:40:00] Speaker 06:
Thank you.

[01:40:11] Speaker 03:
Industry respondent.

[01:40:12] Speaker 01:
May it please the court, Brendan Collins for the industry respondent intervenors.

[01:40:17] Speaker 01:
And our clients are profound champions of the use of allowance markets to deal with the problem of interstate pollution and other environmental problems that can be so managed.

[01:40:31] Speaker 01:
I'd like to address a few of the panel's questions about the tension and the implication of uniform costs versus the shifting

[01:40:41] Speaker 01:
pollution burdens that are talked about I'd like to begin actually by directing the court to page 48 263 of the Federal Register Joint Appendix pages 332 and 333 and also a somewhat later section 48 271 of the Federal Register pages Joint Appendix 340 and 341 because these frame

[01:41:05] Speaker 01:
the tensions that the difference between using uniform costs and the difference between using different costs for different states pose on this model.

[01:41:15] Speaker 01:
I want to make sure that before I leave the podium, all the court's questions on that issue are answered.

[01:41:22] Speaker 01:
When uniformity means, uniform costs mean that one would expect to find uniform allowance prices in Texas, in Pennsylvania, in Alabama.

[01:41:36] Speaker 01:
And when uniform allowance prices exist, what it means is that power plants in all those states compete on a level playing field.

[01:41:46] Speaker 01:
That's important for air pollution as well as it is for economics.

[01:41:51] Speaker 01:
Electricity takes no heat of state borders.

[01:41:54] Speaker 01:
When power demand exists, power demand is answered by the power plant that can generate that electricity most cheaply.

[01:42:02] Speaker 01:
And cheaply in this case includes what we call variable cost in the industry including things like allowances that you're going to have to buy to emit the pollution that you're going to emit when you make your energy or

[01:42:15] Speaker 01:
offsettingly and very importantly and critical to this rule, the actual cost you incur to run your scrubber or to run your selective catalytic reduction equipment in order to eliminate the emissions, which is of course what EPA wants people to do.

[01:42:30] Speaker 01:
And that's why it chose a price to begin its modeling efforts that would be sufficiently high

[01:42:38] Speaker 01:
so that it would yield an allowance price which was sufficiently high, so that plants would say, I'm going to run my scrubber because I can do that cheaper than I can go out and buy an allowance.

[01:42:47] Speaker 01:
And guess what?

[01:42:48] Speaker 01:
If I buy an allowance, I still emit a ton of pollution.

[01:42:51] Speaker 01:
If I run my scrubber, I don't.

[01:42:53] Speaker 01:
So only when I run my scrubber do I ameliorate the downwind impacts of my operation in generation electricity.

[01:43:03] Speaker 01:
Sorry, Judge Rodger.

[01:43:05] Speaker 01:
Go ahead.

[01:43:05] Speaker 01:
So if state A and state B, and all these states are connected by wires, if state A and state B have different allowance prices because EPA used a different cost to determine the budget, if they have different allowance prices, A is 500, B is 100, the power plants in B are going to be able to run more cheaply.

[01:43:28] Speaker 01:
And what does that mean?

[01:43:29] Speaker 01:
That means they're going to run more.

[01:43:31] Speaker 01:
And when they run more, they're going to emit more pollution,

[01:43:35] Speaker 01:
because the allowance prices are cheaper than running the controls.

[01:43:38] Speaker 01:
And the downwind air impacts are going to go up, up, up.

[01:43:42] Speaker 01:
So one of the flaws with the argument that we heard on behalf of Texas, and I think you were getting at this, Judge Kavanaugh, in your questions, is, well, you know, but it says 100 would do it for Texas.

[01:43:52] Speaker 01:
Well, 100 might do it for Texas, assuming that's true.

[01:43:54] Speaker 01:
And that was in the proposed rule modeling.

[01:43:57] Speaker 01:
And there were all sorts of problems with that that I won't get into.

[01:43:59] Speaker 01:
But assuming that was true, it also assumed that everybody else was doing 102.

[01:44:04] Speaker 01:
And we know that 100 isn't enough for everybody else to do, right?

[01:44:07] Speaker 01:
So when Texas is doing 100, the state next to it was doing 100.

[01:44:10] Speaker 01:
And so the power plants in Texas weren't any cheaper than the power plants in Louisiana or the power plants in Arkansas and so on and so forth all across the Casper region.

[01:44:19] Speaker 01:
So uniformity plays this role of assuring that when a uniform cost is used, a uniform allowance price will be yielded.

[01:44:29] Speaker 01:
And those states will then be able to trade with each other.

[01:44:33] Speaker 09:
I mean, you make a compelling policy argument, but obviously in the Supreme Court's decision, that did not carry the day for eliminating the possibility of as-applied challenges, which are necessarily, I think,

[01:44:50] Speaker 09:
inconsistent with uniformity because the as applied challenge means you're going to get out from under the uniform cost threshold that otherwise you would have to comply with.

[01:45:00] Speaker 01:
That's absolutely not true.

[01:45:03] Speaker 01:
Okay.

[01:45:03] Speaker 01:
As applied challenges embrace far more than just challenges based upon the uniform cost used by EPA.

[01:45:11] Speaker 01:
The budgets that states have which reflect

[01:45:14] Speaker 01:
There's sort of the mirror image of the amount of pollution that contributes significantly to non-attainment or interferes with maintenance.

[01:45:22] Speaker 01:
The budgets that states have are a product of two things, the methodology and the application of the methodology to the facts.

[01:45:32] Speaker 01:
And the Supreme Court upheld unequivocally the methodology here, starting with the uniform cost, using that in the statutory scheme

[01:45:44] Speaker 01:
to define what the amount is in 110.

[01:45:49] Speaker 01:
And the translation of that to budget, though,

[01:45:53] Speaker 01:
actually operates through an enormous filter of facts.

[01:46:00] Speaker 01:
And those facts include for every power plant where it is, what kind of fuel it uses, what its efficiency is, what the emissions are, what its emission controls are, but its cost of operation is.

[01:46:11] Speaker 01:
Because that information has been aggregated at immense effort

[01:46:17] Speaker 01:
part by EPA and its information collection request, but also in part by the private sector, the company called ICF that developed the IPM, the Integrated Planning Module that we're really talking about.

[01:46:29] Speaker 01:
If that's it, you know, if the

[01:46:32] Speaker 01:
budget assumption, the uniform cost assumption is the hot water and the budget's the tea.

[01:46:37] Speaker 01:
Well, that big tea bag in the middle that filters through all that hot water and turns the water into tea is the IPM model and all of its factual assumptions.

[01:46:46] Speaker 01:
Now, the petitioners acknowledge that that, and that was a big part of their as applied challenges, right, that there can be

[01:46:55] Speaker 01:
errors in that factual matrix through which the uniform cost assumption is filtered.

[01:47:02] Speaker 01:
And in fact, on page 27 turning Dross into gold of the industry and labor reply brief, they point out to these rules that have succeeded the cross-state air pollution rule and changed budgets because of information that has been brought to EPA's attention of places in which that tea bag

[01:47:24] Speaker 01:
had erroneous information in it and therefore yielded different results.

[01:47:29] Speaker 01:
So those as applied challenges are completely consistent with the notion that EPA can start with that uniform cost that is so important to making the plan go and work, and work in a way that aligns with rather than conflicts with the way that electric power is generated and transmitted throughout the country.

[01:47:50] Speaker 01:
To circle back to those references, I see I'm grievously out of time and I apologize.

[01:47:55] Speaker 01:
Oh, please continue.

[01:47:57] Speaker 01:
The information that you were looking for, Judge Rogers, about an explanation from EPA's lips in the rulemaking about why having different control costs mandates isolation between trading

[01:48:13] Speaker 01:
groups, which is something we've raised in our briefs, too, is found on 48.263, where EPA not so much talking about the cost assumptions and the importance of uniformity, but talking about why it needs to segregate Group 1 and Group 2 states.

[01:48:29] Speaker 01:
And that discusses why it has to happen.

[01:48:34] Speaker 01:
If a state in which a $2,300 per ton price was used to generate allowances, those allowances are going to be sort of presumed to have a price of about $2,300 is

[01:48:47] Speaker 01:
in trading with a state that has a $500 allowance price, that's going to shift the emissions to the state with a $500 allowance price, because it's so much cheaper to run the power there.

[01:48:59] Speaker 01:
And that state's going to emit more pollutants.

[01:49:04] Speaker 01:
Or the state which has a $2,300 a ton burden if it bought

[01:49:09] Speaker 01:
you know, its own allowances, could buy the allowances from the $500 state.

[01:49:14] Speaker 01:
Well, those allowances are going to be emitted in the state which has the higher emissions to begin with and yield those problems.

[01:49:21] Speaker 01:
So that's discussed there.

[01:49:23] Speaker 03:
So it boils down to, as I understand what you're saying, is that somewhat that the as applied challenges that the Supreme Court has said are

[01:49:38] Speaker 03:
to be made available are matters that should be addressed to the agency, not this court.

[01:49:51] Speaker 03:
In other words, I understood counsel's argument on the legal interpretation of the Supreme Court's opinion, but just focusing on the as applied, that because of the factual matrix that you have pointed out,

[01:50:07] Speaker 03:
These are matters that the agency has to take into account.

[01:50:11] Speaker 03:
And a state, hypothetically, the Texas state argument, it may get a budget that's different.

[01:50:18] Speaker 03:
But we don't know based on the information that we have in the record that EPA would have concluded under the transport rule that the Madison receptor would attain

[01:50:35] Speaker 03:
with only a $100 budget rather than a $500 budget measure.

[01:50:44] Speaker 03:
I mean, that's what I hear you telling me, that this is complex matter, that while you can agree on what the Supreme Court said, the application may not be as simplistic as my questions may have implied.

[01:51:02] Speaker 01:
That's correct, Your Honor.

[01:51:07] Speaker 01:
I'll talk a minute about what Texas budget is today, because that budget is not before this Court.

[01:51:12] Speaker 01:
But the implication that an as-applied challenge equals a challenge to the uniform cost rule is just wrong.

[01:51:25] Speaker 01:
There's no need for this court to conclude that, and there's no indication by the Supreme Court that that was what it meant.

[01:51:31] Speaker 01:
What the Supreme Court talked about was not its amount, and these limiting factors

[01:51:41] Speaker 01:
The Supreme Court didn't talk about whether or not this was an amount of pollution that interferes with maintenance or contributes substantially to downwind attainment.

[01:51:51] Speaker 01:
The Supreme Court talked about in these carve-outs, lowering the budget to a point which was beneath that which was necessary for the downwind state to achieve maintenance or attainment.

[01:52:03] Speaker 01:
So it's targeted to a level of air quality.

[01:52:08] Speaker 01:
It's not targeted to the amount calculation.

[01:52:10] Speaker 01:
That's not what the court linked it to, which is where the uniform cost assumption comes in.

[01:52:16] Speaker 01:
And second of all, that's before we even get to the qualification.

[01:52:24] Speaker 01:
The Supreme Court reasoning, as I understand it, reconciling these sections as best as I can, Your Honor, is that the Supreme Court concluded that EPA was reasonable in deciding that it would determine what the amount

[01:52:43] Speaker 01:
of pollution that an upwind state emits that contributes substantially to downwind non-payment or interferes with maintenance.

[01:52:50] Speaker 01:
It would make the determination of that amount by using uniform cost and the court said that's reasonable.

[01:52:55] Speaker 01:
And then later in this section that we're focused on in this decision because it has to do with as applied challenges, it talks about

[01:53:02] Speaker 01:
reducing a state being forced to reduce its contributions, to reduce its emissions to a point that's more than is necessary to achieve attainment.

[01:53:12] Speaker 01:
So we started with endorsing EPA's view of looking at cost as determining the amount, and then we changed over to look at, to check the outcome of that analysis against the actual air quality standards and see what it does.

[01:53:28] Speaker 01:
And as Mr. McCann pointed out, and as Ms.

[01:53:30] Speaker 01:
O'Donnell pointed out,

[01:53:32] Speaker 01:
there's a lot of linkages between even as it would perhaps characterize itself as the one receptor state or the lone receptor state, maybe, to as Texas,

[01:53:49] Speaker 01:
The Texas is connected not just to Madison, but to all the states that contribute to Madison and so on and so forth down the road.

[01:53:58] Speaker 09:
So on and so forth, I don't understand.

[01:54:00] Speaker 01:
Well, I mean, all those states also have burdens.

[01:54:03] Speaker 09:
Texas is linked to Madison for the PM.

[01:54:07] Speaker 01:
For the PM, that's right.

[01:54:08] Speaker 01:
And then to Michigan and Louisiana for the others.

[01:54:13] Speaker 01:
And Mr. McCann,

[01:54:16] Speaker 01:
address that, as did Ms.

[01:54:18] Speaker 01:
McDonald, the need to treat states in like situations in like ways.

[01:54:23] Speaker 01:
But I don't want to get too far away from the uniformity point that I'm trying to make in the analysis of the Supreme Court decision.

[01:54:31] Speaker 01:
When the state is looking at its receptors in that regard,

[01:54:35] Speaker 01:
The state is going to be, excuse me, the court is going to have to find an air quality reason to release Texas from its obligations.

[01:54:47] Speaker 01:
The final thing I want to say before I sit down is this.

[01:54:50] Speaker 01:
I got some good news for you.

[01:54:52] Speaker 01:
Of the four states that the petitioners, industry and labor petitioners point to, three of them all have new budgets already, subsequent rule-makings.

[01:55:02] Speaker 01:
So the budgets that are being challenged here on an as-applied basis are moot.

[01:55:08] Speaker 01:
The numbers have changed to subsequent rule-makings, actually both of which are cited on page 27 of the industry and labor petitioners reply.

[01:55:15] Speaker 01:
So the court has a very simple approach to those in its remedy, their moot.

[01:55:20] Speaker 01:
And with respect to the 14 states that the petitioners allege based upon this 2014 modeling, first of all, apparently today is 2012 in terms of the regulatory scheme imposed by the statute.

[01:55:37] Speaker 01:
The scheme that's in place today and the budgets that are in place today were intended to remedy the conditions in 2012.

[01:55:44] Speaker 01:
But more importantly,

[01:55:46] Speaker 01:
as a matter of law.

[01:55:49] Speaker 01:
All of those areas that were in 2014 that petitioners point to some modeling and says EPA predicted that they would be in attainment in 2014, as a matter of law, all of those areas, all of those receptors are in non-attainment unless and until they are re-designated by EPA in accordance with the procedures in section 107.

[01:56:18] Speaker 01:
Until that time, monitoring results don't matter.

[01:56:24] Speaker 01:
They're in non-attainment.

[01:56:26] Speaker 01:
They stay in non-attainment until they are pulled out.

[01:56:28] Speaker 01:
There may be a remedy for states once they are re-designated through the process, once they are determined to be in attainment.

[01:56:37] Speaker 01:
States then, not only the states in which those receptors are, but upwind states who can maintain that that's their only link to the program could

[01:56:48] Speaker 01:
could file a new SIP or otherwise receive relief through a petition EPA, this is a matter of public health.

[01:56:56] Speaker 01:
And this case demonstrates, if it demonstrates nothing, this case demonstrates how

[01:57:02] Speaker 01:
difficult it is to bring into effect regulation of these types of interstate pollution problems.

[01:57:10] Speaker 01:
And this Court should not mistake a prediction that EPA made in 2010 when it was preparing the final rule and 2011 for

[01:57:23] Speaker 01:
attainment because that's a very different legal thing.

[01:57:26] Speaker 01:
This is addressed on page six of our brief and was addressed again by Mr. McKenna's argument.

[01:57:32] Speaker 01:
I thank the panel very much for its indulgence with this extra time.

[01:57:36] Speaker 04:
Thank you.

[01:57:37] Speaker 04:
Thank you.

[01:57:43] Speaker 05:
Your Honor, if I may, I'd like to address four points.

[01:57:46] Speaker 05:
I'd like to talk about Texas and Madison and what's been said about that.

[01:57:49] Speaker 05:
about the ozone states.

[01:57:51] Speaker 05:
I'd like to talk about uniform cost thresholds and what's been said about that.

[01:57:54] Speaker 05:
And also Judge Kavanaugh, I'd like to address the point you raised about whether there's a tension in the Supreme Court's decision because while we lost some aspects of that and therefore in a sense would disagree with some portions of it that aren't at issue here, I think it actually all does hang together and that the tension you're on refers to isn't there.

[01:58:11] Speaker 05:
But to begin with Texas and Madison, EPA counsel pointed out that Texas isn't the only upwind state linked to Madison, and that's right.

[01:58:20] Speaker 05:
There are others, and they've been controlled at higher levels because even though EPA found that Madison would attain if every upwind state linked to it was controlled at $100 a ton,

[01:58:29] Speaker 05:
These other states, like Kentucky, are also linked to different downwind locations, which require more reductions.

[01:58:36] Speaker 03:
That's why... I think Judge... I can't speak for Judge Kavanaugh, but I think we got your legal argument opening, and I'd be interested in your response to what we just heard.

[01:58:47] Speaker 05:
Sure.

[01:58:48] Speaker 05:
I mean, I think everything that Mr. Collins said is about the need to have, you know, a broader market for trading.

[01:58:56] Speaker 05:
There is no statutory requirement that there be trading.

[01:59:00] Speaker 05:
There is a statutory requirement to avoid over control.

[01:59:04] Speaker 03:
I'm sorry, I wasn't clear.

[01:59:06] Speaker 03:
Okay.

[01:59:06] Speaker 03:
In other words, where does this decision get made initially?

[01:59:11] Speaker 03:
In other words, when the Supreme Court talks about as applied, one might think that the matter would go back to the agency

[01:59:20] Speaker 03:
let, whenever a state wants to come in and talk to the agency about its budget, the agency would make a decision and then, who knows, we might be back here again.

[01:59:31] Speaker 03:
But that that would be the procedural posture as distinct from trying to decide anything about these as applied challenges.

[01:59:43] Speaker 03:
At this stage,

[01:59:45] Speaker 03:
for some of the reasons that were just discussed and also discussed by EPA counsel.

[01:59:52] Speaker 05:
Yes, Your Honor.

[01:59:54] Speaker 05:
The remand that the Supreme Court ordered was the one that Deputy Solicitor General Malcolm Stewart said would be appropriate in response to the questions from Justice Sotomayor and Chief Justice Roberts.

[02:00:04] Speaker 05:
And that portion of the transcript is very clear.

[02:00:06] Speaker 05:
He was saying that that would be a remand to the Court of Appeals to consider as-applied challenges.

[02:00:12] Speaker 03:
But that often happens, as you probably know better than I. They send it back to the Circuit Court of Appeals, and then often the case may go back to the agency or even to a district court.

[02:00:25] Speaker 05:
And certainly our vision of this, Your Honor, is that this does go back to the agency for more proceedings to determine the proper emissions budgets.

[02:00:32] Speaker 05:
But the question is whether there is an intermediate step in which this court articulates the legal principles that need to guide that remand.

[02:00:39] Speaker 05:
And there are very substantial legal disputes here.

[02:00:42] Speaker 03:
No, I understand that.

[02:00:43] Speaker 03:
And I thought that was a thrust of your opening argument, candidly.

[02:00:46] Speaker 05:
Yes, yes.

[02:00:47] Speaker 05:
And so there would be a remand except for those 14 ozone states.

[02:00:52] Speaker 05:
And with respect to those 14 ozone states, our position is just very simple.

[02:00:57] Speaker 05:
EPA projected that in 2014, those downwind locations wouldn't need any good neighbor controls.

[02:01:03] Speaker 05:
Ms.

[02:01:03] Speaker 05:
O'Donnell says they didn't base their budgets on those projections.

[02:01:08] Speaker 05:
But that's our complaint.

[02:01:09] Speaker 05:
There are facts in the record which show no good neighbor controls were necessary, but EPA nonetheless imposed reductions.

[02:01:17] Speaker 05:
The fact that they didn't base their budgets on the projections they made is not a justification.

[02:01:22] Speaker 05:
It's exactly what's wrong with what happened below.

[02:01:26] Speaker 05:
With respect to uniform cost thresholds, Judge Rogers, you're absolutely right.

[02:01:31] Speaker 05:
There are no uniform cost thresholds right now.

[02:01:33] Speaker 05:
There are two groups with two different cost thresholds.

[02:01:36] Speaker 05:
And that's because EPA said in the rulemaking, and we quote this on page 7 of our reply brief, we believe it is appropriate to use multiple thresholds

[02:01:45] Speaker 05:
where one group of states can, for a lower cost, eliminate non-attainment and maintenance for all the downwind areas to which they're linked, which is exactly... Right.

[02:01:54] Speaker 03:
That's not inconsistent with what we just heard, that there is a theory of uniform cost controls consistent with what EPA has done by grouping states in a manner such that

[02:02:12] Speaker 03:
depending on the level of correction still needed, it makes sense to group in that matter.

[02:02:18] Speaker 05:
And Your Honor, if we were coming in here saying Texas should instead be regulated at $495 a ton.

[02:02:22] Speaker 05:
Oh, I understand.

[02:02:24] Speaker 03:
Right.

[02:02:24] Speaker 05:
We're not saying that.

[02:02:26] Speaker 05:
We're talking about the difference between $500 a ton and $100 a ton.

[02:02:30] Speaker 05:
We're talking about the difference between 14 states which are regulated.

[02:02:33] Speaker 05:
Florida has to cut more than 25% of its Knox budget.

[02:02:37] Speaker 05:
It shouldn't be regulated at all.

[02:02:38] Speaker 05:
This isn't in that margin where they get leeway.

[02:02:41] Speaker 05:
This is way outside that.

[02:02:43] Speaker 05:
And the only other thing I'd like to address, Judge Kavanaugh, is your point about the tension in the opinion, because I do think the opinion is internally consistent in the following sense.

[02:02:53] Speaker 05:
If you look at Section 2B, where the Supreme Court addressed proportionality, what it was saying is that uniform cost thresholds can be used to allocate that increment by which states have to reduce in order to enable downwind locations to attain.

[02:03:11] Speaker 05:
But every numerical example it gave made clear that you first decide what is that increment, that minimum necessary to reduce in order to enable the downwind locations to attain and maintain the next.

[02:03:22] Speaker 05:
Once you establish that over control ceiling, then yes, you use uniform cost thresholds to allocate that among the states.

[02:03:31] Speaker 05:
But then when they got to Section 2C, they said, we recognize that uniform cost thresholds does leave open the possibility that there will be over control, and that's to be addressed in as applied challenges.

[02:03:43] Speaker 05:
And I think what's going on here is that

[02:03:45] Speaker 05:
You know, the court determined that there is this ceiling that has to be observed through as applied challenges.

[02:03:50] Speaker 05:
And once that's observed, then the remainder that needs to be reduced can be allocated using uniform cost thresholds.

[02:03:57] Speaker 05:
What's happened here is that we have accepted the part of the decision that we lost on proportionality.

[02:04:02] Speaker 05:
And we have no longer argued, obviously, that you cannot allocate that overage uniformly, instead have to do a proportional to each state's fiscal contribution.

[02:04:12] Speaker 05:
But EPA has not accepted the proposition

[02:04:15] Speaker 05:
that there is this other limit, the part of the decision that they lost, which says that if EPA requires an upwind state to reduce emissions by more than is necessary to enable every downwind location to which it is linked to attain the NACs, it has overstepped its authority.

[02:04:29] Speaker 09:
Well, can you address, Ms.

[02:04:32] Speaker 09:
O'Donnell talked about ripple effects in Texas?

[02:04:36] Speaker 05:
Yeah, there are no ripple effects that I understand here.

[02:04:42] Speaker 05:
Recall that EPA found that if all of the upwind states linked to Madison were regulated at $100 a ton, Madison would attain.

[02:04:51] Speaker 05:
So when people refer to ripple effects or free riding, there's no free riding.

[02:04:57] Speaker 05:
Texas, at $100 a ton, reduces the entirety of its significant contribution.

[02:05:03] Speaker 05:
Madison, we know, still attains and maintains the NAICS, because that's what EPA has said.

[02:05:08] Speaker 05:
It said if everyone's regulated at $100 a ton, they attain and maintain.

[02:05:12] Speaker 05:
So there are no ripple effects to Madison.

[02:05:14] Speaker 05:
As Mr. Donald said, it's possible Madison's air quality will be slightly worse.

[02:05:17] Speaker 09:
There are ripple effects in Texas, I think.

[02:05:19] Speaker 09:
In other words, with a lower.

[02:05:21] Speaker 05:
Well, but if it's Texas, then it's not a subject of the Good Neighbor provision.

[02:05:25] Speaker 05:
effects of one state on another state.

[02:05:27] Speaker 05:
There are a whole bevy of other provisions that control what Texas has to do to control its own emissions.

[02:05:32] Speaker 05:
And by the way, no other upwind state has to do any more because Texas is reduced to $100 a ton.

[02:05:39] Speaker 05:
They're doing what they're doing, as Your Honors noted, because they're linked elsewhere.

[02:05:42] Speaker 05:
So there's no free riding.

[02:05:43] Speaker 05:
Texas reduces its significant contribution.

[02:05:46] Speaker 05:
The downwind location attains the NACs, and other states do what they have to do.

[02:05:51] Speaker 03:
I guess my concern here

[02:05:53] Speaker 03:
council is you and I just heard an explanation of the uniform cost theory and how in fact it works in terms of ultimately setting up budgets.

[02:06:11] Speaker 03:
And it's not a simple calculus we can sort of pull one state out of the uniform threshold and get the same result.

[02:06:23] Speaker 03:
It may work out that way.

[02:06:25] Speaker 03:
But the only question is, can this court make that determination?

[02:06:32] Speaker 03:
Or I get your point about saying EPA didn't even take into account its own figures.

[02:06:38] Speaker 03:
That's one thing.

[02:06:38] Speaker 03:
So you get the remand.

[02:06:40] Speaker 03:
But how can we go further than that?

[02:06:42] Speaker 05:
Well, and as I indicated in the first round in response to Your Honor's question, we're not saying the court should direct $100 a ton.

[02:06:49] Speaker 05:
So if there's something EPA wants to say in the remand, it can.

[02:06:53] Speaker 05:
And that will be tested through the process.

[02:06:56] Speaker 03:
But that wouldn't be true, as I understand your argument, as to the 14 states.

[02:07:00] Speaker 05:
Well, that's right.

[02:07:01] Speaker 05:
Because on that, the projection is just crisp and clear.

[02:07:05] Speaker 05:
And they've given no explanation.

[02:07:07] Speaker 05:
You know, I mean, the other thing to say, Your Honor, is that the answer to everything we've said has been this is a seamless web.

[02:07:15] Speaker 05:
You pull one thread, everything dissolves.

[02:07:17] Speaker 05:
Everything is exactly perfect the way it is.

[02:07:19] Speaker 05:
And if you just jostle it a little bit, the whole world is going to come crashing down.

[02:07:24] Speaker 05:
This is not the way it is because it's a seamless, carefully crafted web.

[02:07:28] Speaker 05:
It's the way it is because they did not believe they had any obligation to avoid overcontrol.

[02:07:33] Speaker 05:
And so there are lots of states where, because they didn't look at it, they overcontrolled based on their own data.

[02:07:40] Speaker 05:
Nothing we're saying with respect to at least the first four states

[02:07:44] Speaker 05:
would preclude them from saying on remand that there's some factor that they haven't identified.

[02:07:49] Speaker 05:
But with respect to the 14 states, you have a record which says no good neighbor controls are needed.

[02:07:55] Speaker 05:
You have to vacate the budgets there, we think.

[02:07:58] Speaker 05:
If the court has no further questions.

[02:08:01] Speaker 03:
Thank you.

[02:08:01] Speaker 05:
Thank you, Your Honor.

[02:08:07] Speaker 03:
No further.

[02:08:08] Speaker 09:
Are we done?

[02:08:09] Speaker 03:
Are we done?

[02:08:10] Speaker 03:
All right, we will take the case under advisement.

[02:08:13] Speaker 03:
Thank you, counsel.

[02:08:41] Speaker 04:
Yeah.