Former air chief Holmstead discusses impact of cross-state rule rejection

Last month, in a split decision, the U.S. Court of Appeals for the District of Columbia Circuit ruled that U.S. EPA's Cross-State Air Pollution Rule be remanded to the agency. What does the decision mean for the Obama EPA's overall approach to air regulation? During today's OnPoint, Jeff Holmstead, a partner at Bracewell & Giuliani and a former assistant administrator for air and radiation at EPA, discusses the impact of the court's ruling and explains what the next steps are for the agency. He also weighs in on states' rights following the decision.


Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Jeff Holmstead, a partner at Bracewell & Giuliani and a former assistant administrator for air and radiation at U.S. EPA. Jeff, always a pleasure to have you on the show.

Jeff Holmstead: Nice to be here, thank you.

Monica Trauzzi: Jeff, last month the D.C. Circuit Court of Appeals, in a split decision, ruled that EPA's Cross-State Air Pollution Rule be remanded to the agency and they left CAIR in place. With CSAPR though, wasn't EPA responding to a request that the court had made back in 2008? And why didn't this rule qualified as an appropriate response to some of those technical questions that the court had raised back in 2008?

Jeff Holmstead: Well, as you may remember, last time I talked to you I predicted that we would get a 2-1 decision striking down CAIR, so I don't think the decision itself is really a surprise. I think what happened was there certainly were ways that EPA could have just responded to the court's decision in 2008, but they really did overreach in some significant ways. And, you know, I think, and I'm happy to go into those, but the bottom line is they really did overreach and ended up coming away with nothing. And the thing that's frustrating to me is, you know, the CAIR decision came as a surprise to a lot of people. You know, no one had asked CAIR to be vacated and various challengers, you know, had complaints about different pieces of it. And so when that decision came out, it really took a lot of people by surprise. There was an effort by many people to codify CAIR, just to say let's at least lock this in and EPA said, no, we think CAIR is not strong enough. So, rather than doing I think what a lot of people thought, they said, no, we want to be more aggressive and now they end up with something that is -- well, they've ended up basically with nothing.

Monica Trauzzi: Well, they end up with CAIR, essentially that's what.

Jeff Holmstead: They ended up with CAIR for now, but the problem with that is because of the CAIR decision on the SO2 allowances, I mean CAIR really does accomplish significant reductions in NOX, but the SO2 reductions are much less than would have been expected under CAIR, because everyone knew that the Title V allowances would no longer be valid currency. So, you know, we're kind of a half a loaf.

Monica Trauzzi: So, how much of a blow is the court's decision to the Obama EPA's overarching push on air regulations?

Jeff Holmstead: It's a big deal and it certainly is a significant setback. On the other hand, I think it's fair to say the Obama administration's view on coal-fired power plants is that they ought to install, you know, the full modern, state-of-the-art controls, no matter how small they are, and unless they do, they should shut down. The thing that -- the ruled that still shuts down the most plants is the MATS rule. So, relatively speaking, you know, the CSAPR is certainly a disappointment for EPA, but they are really depending a lot on the MATS rule, which is also under review right now. And I think there's a chance that rule will get struck down.

Monica Trauzzi: So, even if they did come up with a replacement rule, which could take years for CSAPR ...

Jeff Holmstead: Right.

Monica Trauzzi: With things like the MATS rule in place, does that even matter?

Jeff Holmstead: Well, yes and no. If the MATS rule stays in place as is, there really is going to be a fair number of coal-fired power plants that shut down in 2015 or 2016. But I think as we get closer to those dates, even if there is a second Obama administration, there's going to be a fair amount of pushback, especially if the economy starts to recover. You just can't afford to lose that much generation. So, as I say, I think there's significant legal vulnerability with MATS. We've already seen that EPA, after one court decision on MATS, they said, well, we're going to reconsider the new source standards. So, you know, the frustrating thing for me, again, is when I was at EPA back in 2002, we told the Hill and we told the environmental community, this is an issue, this interstate air transport and mercury is an issue. Let's do a legislative fix and basically what we were told is unless you are willing to put CO2 on the table, we're not interested in talking with you about it. So, I mean what I can say pretty definitively is had there been a proper legislative solution back in 2002, we'd have lower emissions now and there would be much more certainty for the industry and for ratepayers. You know, this kind of off-again/on-again kind of regulatory approach is costly for the industry and, therefore, for ratepayers.

Monica Trauzzi: And it's been this sort of lengthy game of ping-pong between EPA and the courts. So what happens next in terms of how EPA might respond to this and then how industry might respond to what EPA does?

Jeff Holmstead: Well, the big question of course is whether EPA tries to appeal this decision. I think they will go back and ask the full DC Circuit to review it. Judge Rogers wrote a very long dissent, clearly with an eye toward convincing some of her colleagues. So I think EPA probably does ask for what's called a rehearing en banc. I think the chances of getting that are very low, but I think they'll feel the need to at least ask for that and maybe ask for a Supreme Court review. I think the likelihood of either of those things happening is very, very low. Assuming that the decision stands, and I think it will, EPA will probably go back and try to think of what the response would do. You read the decision and the way they've analyzed 110A2D, EPA kind of has to start from scratch and go back through and redo their analysis and couldn't be nearly as aggressive either on the caps or on the timing. And so EPA is going to have to think to itself, well, are we going to spend a lot of time and effort doing this when the MATS rule is coming up and that's going to get its most what we want anyway?

Monica Trauzzi: Something that we're hearing about around town is Section 126 and whether states have the right to petition EPA to force upwind states to reduce emissions. How do you see that? This is something that the environmental community is sort of rallying around.

Jeff Holmstead: And I've seen, and my good friend John Walke has been promoting that as an idea.

Monica Trauzzi: Right.

Jeff Holmstead: The problem is, from the environmentalist perspective, the -- what you can do under 126 is tied to what you can do under Section 110A2D, it's cross referenced. So 126 has a separate role when it comes to new plants, but when it comes to existing plants, a state can only seek under 126 the kind of reductions that the court has said they can get under section 110A2D. So states could come in with a petition, they could come in tomorrow, but there's no way they could develop the kind of analysis that would be needed to support a petition. So, I think if I were John, I would be touting the benefits that he and EPA hope they're going to get under MATS, because I think the ability to use 126 is pretty limited and it runs into the exact same problems that the court has already identified in its ruling on CSAPR.

Monica Trauzzi: You just got back from the Republican convention. How might the outcome of the election impact how EPA moves forward?

Jeff Holmstead: I do think it will be important in part because the Romney campaign has already come out in support of the Inhofe resolution of disapproval, suggesting that the Romney campaign is on the record as saying, well, we don't like MATS. And my guess is that if there is a Romney presidency, that there would be some kind of an effort to rationalize this whole thing. And that could involve, again, going back to Congress 10 years later and saying, look, this issue of interstate transport and mercury emissions is something that Congress needs to address, as opposed to having, you know, EPA creatively try to use the statute in ways that the court has now said we can't. So we may be back again talking about a so-called three-P bill or Clear Skies II, but we'll have to see.

Monica Trauzzi: The debate continues. All right, we'll end it there. Thank you for coming on the show Jeff.

Jeff Holmstead: My pleasure, thanks for having me.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]



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