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DC Circuit Rejects EPA’s Reliance on Guidance Documents in Lieu of Rulemaking in Clean Air Act Case

EPA has recently suffered a series of defeats in court cases challenging its reliance on “guidance documents” that were never adopted as administrative rules. The most recent example has to do with guidance under the Clean Air Act (“CAA” or “Act”). In Natural Resources Defense Council (“NRDC”) v. EPA,[1] the D.C. Circuit held that EPA violated the Administrative Procedure Act (“APA”) by relying on interpretive guidance – rather than a regulation – to allow states to propose alternatives to statutorily required fees for ozone non-attainment areas.

The CAA requires EPA to establish national ambient air quality standards (“NAAQS”) on certain pollutants, including ozone. The Act also includes requirements for “non-attainment” areas – or areas that have not attained the various NAAQS. The CAA imposes deadlines on these non-attainment areas, giving certain areas additional time to come into compliance with the NAAQS.[4] One of these requirements, Section 185 – which is specific to ozone – requires states to impose fees on all major stationary sources in “severe” or “extreme” areas of non-attainment that fail to meet the deadlines.

In 1997, EPA modified the ozone NAAQS, switching from a “1-hour” standard, which prohibited average hourly emission concentrations from exceeding a certain level, to a stricter “8-hour” standard, which limits emissions concentrations over an eight hour period. EPA formally revoked the 1-hour standard in a 2004 rulemaking, leaving only the 8-hour standard in force. In doing so, EPA sought to reconcile the regulatory change in the ozone NAAQS with the CAA’s “anti-backsliding” provision. Although that provision typically applies when EPA “relaxes” a NAAQS, EPA recognized that due to an overall improvement in air quality since the CAA’s 1990 amendments (which contained the 1-hour ozone standard), some non-attainment areas that would have been classified as “severe” or “extreme” under the 1-hour standard would now be in a lower classification, such as “marginal” or “moderate,” under the 8-hour standard. As such, EPA concluded that Section 172(e) should apply even though EPA had strengthened the ozone NAAQS, and implemented some of the non-attainment requirements to these lower-classification areas. In 2006, the D.C. Circuit generally upheld EPA’s interpretation of Section 172(e), but clarified that the fee structure in Section 185 must apply to areas as well.[8] In other words, the ruling required states to impose Section 185 fees on the major stationary sources in an area that failed to meet its attainment deadline under the now-defunct 1-hour standard.[9]

In response to the ruling, EPA issued a guidance document providing alternatives for implementing the Section 185 fee system in non-attainment areas (“Guidance”).[10] The Guidance authorized states to adopt and implement “alternative programs” in 1-hour non-attainment areas in lieu of implementing the Section 185 fee program, as long as those alternatives were “not less stringent” than the Section 185 program.[11] The Guidance also provided an “attainment alternative,” which allowed regions to avoid Section 185 fees if the region attained the 8-hour standard (even if the region remained in non-attainment of the 1-hour standard).[12] EPA sought to satisfy the APA’s notice and comment requirements by specifying that the approval of individual alternatives, either program or attainment based, would occur on a case-by-case basis, and when EPA found an alternative satisfactory, it would proceed with notice and comment to finalize that finding.[13]

NRDC challenged the Guidance on direct review in the D.C. Circuit, alleging that EPA violated the APA by issuing the Guidance without notice and comment. NRDC also alleged that both the program and attainment alternatives in the Guidance violated the Act. In response, EPA raised several procedural arguments, including lack of standing, final agency action, and ripeness, and sought to justify the Guidance as a “policy statement” or “interpretive rule” not subject to the APA’s notice and comment requirements.

EPA has, in recent years, tended to favor the use of interpretive guidance where it can, as the rulemaking process is typically long and arduous. No matter, the D.C. Circuit has joined other courts in holding that guidance is not a substitute for rulemaking. (Marten Law, 7/21/2011)