NRDC v. Gorsuch: D.C. Circuit Bursts EPA's Nonattainment Area Bubble

P. D. Reed

On August 17, 1982, a three-judge panel of the Court of Appeals for the District of Columbia Circuit overturned the Environmental Protection Agency's (EPA's) October 14, 1981 redefinition of "source" for nonattainment area programs in Natural Resources Defense Council, Inc. v. Gorsuch.¹ The court found a surprisingly simple solution for what has been a difficult and recurring problem of statutory interpretation, but, as a result created perhaps unintended problems for EPA's energetic, but still emerging, emissions trading program. At issue was the question of whether emissions trading could be used to exempt from Cleand Air Act new source review requirements major modifications of industrial plants located in "nonattainment areas," i.e. those areas that have not attained the national ambient air quality standards (NAAQS). The court answered this limited question in the negative, but also stated its rationale so broadly that it will raise questions about the legality of other, very different components of the program which is EPA's most important substantive regulatory reform.

Emissions trading is a modification to the basic regulatory programs of the Clean Air Act that offers the promise of making them more flexible and less expensive without interfering with their effectiveness in cleaning up the air. Several different applications of the trading concept have been developed over the last half dozen years. With EPA's issuance last spring of comprehensive proposed guidance spelling out consistent rules for all the applications and making them easier to use, especially in nonattainment areas, the program seemed on the verge of a significant expansion. This prospect dismayed environmental groups, who feared that the expansion was being achieved by sacrificing constraints necessary for attainment of air quality standards.The result in NRDC, if it survives the likely petition for rehearing and any subsequent appeal, will give them heart. It will, at a minimum, make it more difficult for EPA and states to defand other potentially widespread nonattainment area uses of emissions trading. While there are good reasons to limit the decision to its holding, the court's broad language nevertheless creates uncertainty about EPA's authority to carry out this reform program, uncertainty that could best be resolved by congressional action to delineate the proper scope of Clean Air Act emission trading.

Background

In NRDC the court was called upon to address the interaction of two very different Clean Air Act programs. The nonattainment area program is a collection of strict remedial measures for parts of the country that failed to attain the NAAQS by the original deadlines prescribed by Congress in 1970. The emissions trading program is an administrative creation designed to soften the impact of emission control requirements, which the Act imposes very rigidly on some types of sources, by allowing industry the flexibility, where it makes economic sense, to comply with those requirements by cutting pollution at other sources beyond what the law otherwise requires.

The nonattainment program is designed to rectify the persistent inability of many areas to attain the NAAQS by the statutory deadlines. In order to achieve the NAAQS, the 1970 Act² prescribed a mix of stringent federal standards for "new" sources, including new source performance standards (NSPS) for "stationary" sources, and federally supervised state implementation plans (SIPs) for existing sources. When it became clear that these measures would fail to achieve their goals by 1977 in virtually every urban area in the country, Congress imposed tough additional requirements for new and existing sources in these areas. The 1977 Amendments require revision of the SIPs for all nonattainment areas to bring them into compliance with the NAAQS "as expeditiously as practicable," but in no case later than a new deadline of either 1982 or 1987.³ The revised SIPs must at a minimum impose "reasonably available control technology" (RACT)⁴ on existing facilities and such additional controls as are necessary to bring air pollution down to the levels prescribed in the NAAQS. They also must provide for "reasonable further progress" toward attainment each year⁵ until the standards are met.

The 1977 Amendments gave special attention to the regulation of new growth in nonattainment areas since, on the one hand, such growth could easily destroy any hope of attaining the standards, while, on the other, a ban on all growth would condemn the area to economic decline. The amendments did place a moratorium on construction of major sources in nonattainment areas until the state has an EPA-approved SIP revision for the area demonstrating attainment by the new deadline.⁶ In addition, they mandate a strict new source review program⁷ designed to make growth an engine for further cleanup of sources already in operation in the area. A major new source, one with the potential to emit more than 100 tons per year of a regulated pollutant, may not be built and an existing source may not be modified in a way that will significantly increase emissions⁸ in nonattainment areas without a permit. The permit may not be issued unless several conditions are met. The new or expanded source must satisfy the tightest emission limitation required by the Act (the "lowest achievable emission rate" or LAER). In addition, it must "offset" any increase in emissions by reducing emissions of the same pollutants at [12 ELR 10090] existing sources by a greater amount. On top of that, the owner of the new source must make certain that any other major sources it owns in the state are in compliance with all applicable Clean Air Act rules. Compliance with the construction moratorium and the new source review requirements were at issue in NRDC.

The second program addressed in NRDC is what EPA refers to as "netting" and the court termed the "bubble concept." It is one component of the emissions trading program, a collection of policies that use the same basic mechanism to schieve a variety of results. Emissions trading broadens the focus of air pollution regulations from the individual smokestack or other emission point to groups of emission points. It involves reducing emissions at an existing source below the level mandated by applicable state or federal Clean Air Act standards in order to allow another new or existing source to increase emissions without running afoul of the Act's restrictions. The emission reductions can be traded in three basic ways.

The first type of emissions trading is a "compliance" trade, relieving an existing source of the full burden of the emission limitations applicable to it. This type of trade, which EPA has allowed for existing sources under the "bubble policy,"⁹ is particularly useful when it can be made before a company has made a capital investment to comply with source-specific emission limits. This situation occurs when existing sources are faced with a new control requirement such as nonattainment area RACT. EPA has estimated thatt hundreds of millions of dollars will be saved by companies using the bubble policy to find cheaper ways of comploying with RACT. In theory, a compliance trade could be used in the same fashion to relieve a new source of the burden of complying with strict new source emission limitations like NSPS or LAER. An NSPS bubble was struck down by the courts in 1978¹⁰ and EPA has maintained the position that any such trades are barred by the Clean Air Act's mandate of thechnology-forcing standards for new sources. However, it reportedly is considering an application to allow an NSPS bubble for the rubber manufacturing industry.¹¹

The second application of emissions trading is its use, not to comply with a Clean Air Act requirement, but to escape its coverage entirely. The emission reduction at an existing source is combined with the emission increase from a new or modified facility so that the net increase is below the threshold increase that triggers the applicability of the program.¹² "Netting" can be used to escape both substantive and procedural new source requirements. For example, a modified source "netting" out of nonattainment area review would not have to obtain a permit, install LAER, or comply with the offset requirement. It would, however, have to comply with the NSPS if one were applicable.¹³ To date EPA has only authorized netting for source modifications, first in clean air areas,¹⁴ and more recently in nonattainment areas.¹⁵

Emissions trading can also be used as a direct compliance requirement (in addition to being an alternative to other requirements).This is the role of the offset policy in the nonattainment program.¹⁶

On April 7, 1982 EPA issued a proposed Emissions Trading Policy.¹⁷ The proposed policy "sets out general principals EPA will use to evaluate emissions trades under the Clean Air Act, and expands opportunities for states and industry to use these less costly control approaches."¹⁸ Among the ways in which the proposal expanded trading was to allow states to authorize sources to use bubbles in nonattainment areas that lack approved SIP demonstrations of timely attainment, upon a showing that such attainment will not be jeopardized by the individual trade.¹⁹ In addition, states were advised to allow sources to use the bubble to achieve compliance. This policy makes it easier for sources in nonattainment areas that have never complied withf older applicable SIP requirements as well as sources covered by new requirements (e.g., RACT) to utilize cheaper alternatives to come into compliance. EPA has used the proposed policy as authority for approving at least one nonattainment area bubble.²⁰

The nonattainment and emissions trading programs do not mesh easily. The need for flexibility and cost-cutting in implementing an act whose rules are rigid and whose annual price tag is in the billions of dollars is readily apparent. However, the congressional mandate to clean up areas with unhealthy air is clear and not readily amenable to compromise.

The lynchpin linking the two programs is the term "source." If "source" is defined as a single emission point, then trading may only be allowed as an exception to the emission limitation applicable to that point. There is no express authorization for such exemptions in the Clean Air Act, at least as far as the federal emission limits [12 ELR 10091] such as NSPS are concerned.However, if "source" is defined to mean a unit that contains two or more emission points (e.g., a production line or an entire plant), trading is automatically allowed. It is the aggregate emissions from the collection of emission points that must comply with the emission limitation and the emissions of the individual points may vary within that constraint. Thus, efforts to authorize emissions trading have always focused first on the definition of "source."

ASARCO, Alabama Power and the "Dual Definition"

The Clean Air Act is not a model of clarity and one of its murkier aspects is the definition of stationary "source." The stationary source is the basic regulated unit in many of the Act's programs, but it is only defined in § 111, which governs new source performance standards. While everyone seems to agree that this gives EPA some discretion in defining the term, NRDC marks the third time that the D.C. Circuit has overturned the definition of "source" the Agency has chosen for a specific program, choices principally intended to expand or limit emissions trading. And while this much judicial attention might be expected to produce a reasonable resolution of the statutory ambiguity, the case law preceding NRDC is perhaps more confusing than the statute itself.

In ASARCO, Inc. v. EPA²¹ a three-judge panel of the D.C. Circuit overturned EPA regulations defining "source" for the § 111 NSPS program.Sectionn 111(a)(3)²² defines "source" as a "building, structure, facility, or installation," but does not further explain these terms. The Agency had defined them to mean an entire plant where modifications to individual facilities within a plant were concerned. This allowed facilities to be modified without complying with NSPS if increases in emissions resulting were offset by equal emission reductions at other facilities in the plant. However, the broad definition did not apply to the construction of a new facility within a plant, each of which had to comply with any applicable NSPS. Throughout the opinion the court construed "facility" to mean a component of a plant, although the opinion did not explain precisely why it relied on this interpretation. The court found EPA's rule to contradict the plain language of the statute. As additional supplort for the result, it also noted that EPA's plaintwide definition would at best keep emissions the same when facilities were modified, while the stated purpose of § 111 was to enhance air quality. These conclusions also led the court to reject ASARCO's argument that the EPA rules were too narrow because the plantwide definition was not applied to new and reconstructed facilities as well as modified ones. In a footnote, the court addressed and rejected ASARCO's contention that in the real world the use of the NSPS bubble would actually reduce emissions.²³

The next year, in Alabama Power v. Costle,²⁴ the D.C. Circuit also considered the definition of "source" and the use of emissions trading to ease the pollution control burdens on modifications in the context of the prevention of significant deterioration (PSD) program, which regulates growth in areas cleaner than required by the NAAQS. In its PSD rules, EPA had defined "source" to mean any "building, structure, facility, installation, equipment or operation," adding the last two components to the four in the statute. The rules established a netting program, allowing modified sources to escape the substantive requirements of PSD new source review by reducing the net emission increase to below the level triggering that review. Such modifications would still be subject to new source review, however. The court ruled that the § 111 definition governed and that ASARCO remained valid even though the Act had been amended in the interim.

Then, applying the same law as in ASARCO, the court came to a very different conclusion. It held that by adding the two terms to the definition EPA had gone beyond "the scope of the Act," although it found that EPA nonetheless has discretion to define the other four terms "to reasonably carry out the intent of the Act." EPA could, the court concluded, define "facility" to mean an entire plant. In addressing what "source" should mean in the PSD program, it relied on a list²⁵ of the types of facilities PSD was to cover, most of which were labeled "plants," to conclude that the term means "plant."²⁶ The court concluded that

EPA has latitude to adopt definitions of the component terms of "source" that are different in scope from those that may be employed for NSPS or other clean air programs, due to differences in the purpose and structure of the two programs.²⁷

Turning from the meaning of "source" to the question of EPA's "qualified application of the bubble concept," the court ruled that EPA had unduly restricted its use in the PSD program. It distinguished ASARCO on several grounds. The fact that ASARCO stood for the proposition that EPA could not define "source" to mean a combination of "facilities" did not stand in the way of the PSD rules, presumably since the court has redefined "facility" to mean "plant" in the PSD program. More persuasive was the court's analysis of the distinct purposes of the two programs — the PSD program was intended to promothe economic growth, which the bubble would enhance, while the NSPS program was not.²⁸ The court interpreted the Act to require EPA to define "source" so as to allow modifications to avoid both the substantive and procedural requirements of PSD new source review.

Alabama Power is complex in itself and its is even more confusing as a sequel to ASARCO. On the one hand, it clearly stated that the earlier decision had continued vitality. On the other, by reaching the opposite result through [12 ELR 10092] juggling the definition of "facility" and relying on general notions of the programs' purposes, Alabama Power suggested that if EPA had gone about it differently, it could have come up with an NSPS bubble which the D.C. Circuit could approve. Reconciling the two cases is a very difficult task,²⁹ a fact which provoked great interest in and uncertainty over how the court would rule in NRDC.

EPA's definition of "source" for nonattainment area programs grew directly out of its experience in Alabama Power. On August 7, 1980, EPA promulgated nonattainment regulations.³⁰ They defined "building," "structure," and "facility" to mean "plant," but defined "installation" to mean "an identifiable piece of process equipment." This "dual definition" was expressly intended to preclude netting so as to maximize the scope of nonattainment area new source review and to produce emission decreases in such areas. These purposes, the Agency stated, warranted the added complexity resulting from different definitions in the PSD and nonattainment programs. In a related provision, the regulations indicated that "reconstructed" facilities, those for which the new capital cost exceeds 50 percent of the capital cost of a comparable new facility, would be treated as new sources.³¹

The Plantwide Definition

The "dual definition" did not last long. It was challenged by industry in the D.C. Circuit.³² In carrying out the Reagan Administration's "regulatory relief" program, EPA reviewed the rule. The agency found it "excessively and unnecessarily burdensome" and, on March 12, 1981 proposed shifting to a plantwide definition (and deleting the reconstruction rule).³³ On October 14, 1981 EPA made the proposed actions final.³⁴ The basic reasons given for the change were to reduce complexity by having the same definition for both the PSD and nonattainment programs, and to allow the states "greater flexibility in developing their nonattainment" programs.³⁵ EPA noted that many commenters had supported the proposed rule because it would facilitate modernization of industrial plant and equipment.³⁶ It also argued that the redefinition would still require application of advanced emission controls on most modified sources, because those facilities covered by NSPS would have to use that thechnology and EPA was expanding its development of new source standards.³⁷ The rationale for erasing the reconstruction rule was that with a plantwide definition of source, the rule was not needed, since it would only apply in the rare instances when an entire plant was rebuilt.³⁸

Shortly after the new definition was promulgated, environmental groups filed their petition for review.³⁹ They argued that the redefinition would allow most modifications in nonattainment areas to avoid new source review.⁴⁰ This would allow emission increases up to the new source review threshold (25-100 tons per year depending on the pollutant) for each transaction, but the Act, with its requirement that nonattainment areas be cleaned up "as expenditously as practicable" and make "reasonable further progress" in the interim, demands emission decreases.⁴¹ In addition, the petitioners argued that the legislative history of the Act and the court's earlier decisions on the definition "source" supported their position. They sought an immediate stay of the rule and orders enjoining EPA from allowing states to revise their SIPs in accord with the new definition or approving netting transactions in nonattainment areas.⁴²

Industry intervenors and EPA responded. Both emphasized that EPA has discretion to define "source" and that courts should be deferential to the Agency's exercise of that discretion.⁴³ They argued that the plantwide definition would further the Act's purpose of giving the states flexibility in carrying out its mandates and could not jeopardize the Act's air quality goals because the states were still bound by the attainment deadlines and the need to show reasonable further progress each year.⁴⁴ Like their adversaries the respondent and intervenors relied on legislative history and the two related cases. They opposed the motion for a stay, arguing that with time running short for both states and industry to comply with the Part D SIP requirements, delay in implementing the plantwide definition would be costly and would not improve air quality.⁴⁵ Respondent won on this issue and the motion for a stay was denied.⁴⁶

[12 ELR 10093]

The Opinion

The three-judge panel of the D.C. Circuit, confronted by the statute's ambiguity and the inconsistency of the court's earlier decisions in ASARCO and Alabama Power, handled the problem of the definition of "Source" much the way Alexander the Great undid the Gordian Knot, slicing through it with a single dramatic stroke. The blade they used was a "bright line" test that they found in the two earlier opinions.If the purpose of a program is to improve air quality, netting is not allowed; if the purpose is to preserve adequate air quality, netting is mandatory. It appears likely that EPA will seek a rehearing. The argument there may focus not only on whether nonattainment area netting was clearly cut off, but equally on whether other strands of the Emissions Trading Policy were severed as well.

The court begins its opinion by emphasizing that it is bound by its earlier decisions in ASARCO and Alabama Power. It then reviews the evolution of the nonattainment area program, noting the importance in this case of the new source permit program of Part D and the construction moratorium of § 110(a)(2)(I). The court completes its history with EPA's regulations, noting the basic features and the stated purposes of the 1980 and 1981 rules.⁴⁷

Turning back to Alabama Power and ASARCO the court analyzes the law governing the definition of "source." Alabama Power, it notes, held that EPA had to use the definition of "source" in the NSPS program, but could define the components of that therm to carry out the purposes of the specific program at issue. Thus, EPA could define "source" differently for different programs to take account of each's purpose. It follows that it is the purpose of the program which determines how "source" should be defined.The NRDC court finds the basis for Alabama Power's holding thatt EPA could not define "source" to include an individual piece of equipment primarily in that court's conclusion thatt the plantwide definition was "precisely suited" to the air quality preservation goals of the PSD program.⁴⁸

Turning to ASARCO, the court finds its message to be equally plain. That decision held that applying the bubble to the NSPS program was both inconsistent with the plain language of the Act and "the basic purpose of the NSPS program, to improve air quality."⁴⁹

Having focused on these aspects of the two cases, it is then a virtually effortless task for the NRDC court to reconcile their holdings.

These decisions, particularly the Alabama Power panel's reconciliation of its holding with ASARCO, … establish as the law of this Circuit a bright line test for determining the propriety of EPA's resort to a bubble concept. The bubble concept, Alabama Power declares, is mandatory for Clean Air Act programs designed merely to maintain existing air quality; it is inappropriate, both ASARCO and Alabama Power plainly signal, in programs enacted to improve the quality of ambient air.⁵⁰

The court rejects EPA's argument that ASARCO is limited to rules, like the NSPS, which specify pollution control technology, as distinguished from those, like the nonattainment area and PSD new source review programs, which deal with air quality issues. It finds "technology-forcing" provisions in the nonattainment area program and notes that Alabama Power clearly focused on "whether the program at issue is designed to improve or simply maintain air quality."⁵¹

With this "bright line" test, which easily distinguishes Alabama Power and ASARCO, governing the case, there is little doubt how the court would rule.

Applying the Alabama Power-ASARCO test to the nonattainment provisions of the Act, we must conclude that the bubble concept may not be employed in that scheme. The nonattainment program's raison d'etre is to ameliorate the air's quality in nonattainment areas sufficiently to achieve expeditious compliance with the NAAQS …. This purpose comfortably places Part D on the "improving" side of the line … and thus rules out application of the bubble concept to the nonattainment program.⁵²

The court next goes to some length to dispatch the arguments of the parties that are contrary to its holding. It finds the legislative history "at best contradictory."⁵³ It declines to consider whether the purposes of individual components of the nonattainment area program, specifically the construction moratorium, are consistent with the plantwide definition, ruling that the focus must be on the "nonattainment scheme" as a whole.⁵⁴

The court also rejects EPA's argument that, in fact, the dual definition retards progress toward attainment by discouraging companies from building new, cleaner facilities. It notes that this constitutes a change of position by the Agency for which there is no support in the record. As a result, the about-face does not constitute reasoned rulemaking.⁵⁵

EPA's argument that the statute evinces a purpose of giving states the primary role implementing its programs was not persuasive to the court. It notes that "purpose" means "goal" and the goal of the nonattainment program is timely attainment of the NAAQS. The role of the states in achieving that goal is a means, not an end, of the statutory scheme. The court rejected the argument that the states are still bound by the reasonable further progress requirements and attainment deadlines, and thus can be given the flexibility of the plantwide definition of "source" without interfering with the Act's air quality goals. It finds that this interpretation would allow states to evade the construction moratorium and Part D permit [12 ELR 10094] program, both of which are mandatory federal requirements.

In striking the redefinition of "source," the court also overturns EPA's deletion of the reconstruction rule. As the Agency had based that action solely on its redefinition of "source," the stroke that felled the plantwide definition took the reconstruction rule with it as well. The court declined to consider alternative reasons for ending the reconstruction rule cited by intervenors, but not by EPA.⁵⁶

Analysis

The NRDC court's rationale was simple. It reduced the issue to whether the purpose of the overall program of which the contested definition of "source" is a part is to improve or maintain air quality. To get to this point it first found that the statute itself could support either definition of "source" and that the legislative history is "at best contradictory."⁵⁷ It next reasoned that, while this ambiguity gives EPA flexibility in defining the term, EPA's discretion is limited because the definition must be consistent with the basic purpose of the program involved.In determining which definition of "source" is consistent with what statutory purpose, the court had to look to ASARCO and Alabama Power for guidance. Avoiding the puzzling inconsistencies one finds on a close reading of the cases, it fastened onto a clear distinction between their holdings that fits both the need to make the definition consistent with the purpose of the program in which it is used and the general thrust of the basic components of the Act — the improve/preserve distinction. The court further simplified the analysis by defining the program of concern as the entire nonattainment program, whose purpose is unquestionably air quality improvement. Because the stated purpose of the shift to the plantwide definition was only to reduce complexity of EPA regulations and give the states greater flexibility, and because EPA and the industry intervenors demonstrated only that the change would result in increases in emissions that at best would result in no decline in air quality, the test was easy to apply.

The decision in NRDC came as a surprise to those who thought that Alabama Power had made the Clean Air Act more hospitable to emissions trading for new sources than it had been under ASARCO. Alabama Power certainly suggested that there was substantial leeway for EPA to exercise discretion in defining "source." Given EPA's expertise in implementing the Act, Congress' failure to provide adequate guidance, and the complexity of the issues, it was not illogical to expect a reviewing court to defer to EPA's judgment, a course of action that both the Agency and the intervenors strongly urged in their briefs. But the court not only showed no deference, it did not even mention the issue. There is a whisper of a suggestion in this, and in the court's reliance on State Farm⁵⁸ on one point, that its watchdog instincts were aroused by EPA's desire to relax a major regulation.

It is difficult, however, to cast the redefinition as a major relaxation. As EPA and the industry intervenors pointed out emphatically, the requirement that Part D SIPs demonstrate timely attainment and reasonable further progress in the interim should prevent states from allowing nonattainment area netting that would interfere with progress toward attainment. Perhaps the court accepted NRDC's argument that the new source review provisions of Part D reflect Congress' conclusion thatt the SIP process could not be trusted to produce attainment on its own. Alternatively, the court may have concluded that Congress intended the scope of the new source review program to be determined by the size of the new facility or modification and not by the availability of offsetting emission reductions in the same plant. Questions such as these are likely to be raised on rehearing or appeal because the decision could be a grave reversal for EPA's emissions trading program.

The immediate impact of the decision is uncertain. The court vacated the October 14, 1981 rules, thus resurrecting the dual definition and prohibiting netting in nonattainment areas. However, the opinion did not specify when these changes are effective, which will be a trouble-some issue. States and companies that relied on the redefinition (which was proposed 17 months and finalized 10 months before the decision) in preparing SIP revisions or planning for modifications may find it difficult to adjust quickly to the return to the dual definition.A state that went to a plantwide definition of "source" in its nonattainment SIP should not have problems with its attainment demonstration because the dual definition is more stringent.⁵⁹ However, revising the SIP again may be an administrative burden. And companies that have committed to or carried out plans for modifications based on the plantwide definition may have more serious difficulties. Complying with all the requirements of new source review may be quite costly at this stage. In fact, where the construction moratorium is in effect, a completed modification that was "minor" under the plantwide definition, because of emission reductions at other emission points in the plant, arguably would become "major" and illegal. Thus, full retroactive application of the decision may not make sense. The fact that the court denied NRDC's initial motion for a stay suggests that it is sensitive to the potential disruption that an abrupt return to the dual definition could cause. However, grandfathering all modifications made under the October 14 rules may carry an unnecessarily high price in emission increases. It may be possible to fashion a remedy that falls between these two extremes.For example, a company that made a major modification under the revised rule might be required to (1) upgrade controls on the modification in order to come as close as is reasonable to LAER and (2) find additional reductions from existing sources in the facility to the extent necessary to comply with the offset requirement.

Beyond the question of whether to apply the decision retroactively lies the broader question of its impact on other elements of the EPA Emissions Trading Policy. The court did not rule on trading programs other than nonattainment area "netting." While it used the more general term "bubble policy," the regulation before the [12 ELR 10095] court concerned only the use of emission trading to "net" major modifications out of new source review. The court itself makes this clear:

This case involves a dispute … concerning EPA's application of a "bubble concept" to a discrete Clean Air Act … scheme, the new source review requirements for areas in which air quality does not meet federal standards ("nonattainment areas").⁶⁰

However, NRDC will be difficult to limit to its holding. The rationale of the court is quite broad:

This purpose comfortably places Part D on the "improving" side of the line drawn by Alabama Power and ASARCO and thus rules out application of the bubble concept to the nonattainment program.⁶¹

Because of the breadth of its rationale, NRDC could have serious repercussions in program areas outside those covered by its holding. It severely undercuts the arguments in favor of NSPS bubbles, such as that recently proposed by the Rubber Manufacturers' Association and under consideration by EPA.⁶² The NRDC court's reading of ASARCO gives that opinion's negative verdict on NSPS bubbles breadth and vitality some thought it lacked in the aftermath of Alabama Power. At a minimum, such proposals are now far less likely to win EPA approval because the Agency will be slow to accept them unless the NRDC opinion is substantially modified on rehearing or reversed on appeal. On the other hand, the offset policy should not be affected by the decision in NRDC. It does notrely on the definition of "source," is clearly legitimated by the Act, and serves to improve air quality.

Perhaps the greatest uncertainty about the scope of NRDC concerns its effect on bubbles for existing sources in nonattainment areas. The court's reasoning does not apply as persuasively to the question of emissions trading for existing sources in nonattainment areas as it does to nonattainment area netting. On the one hand, it is true that the purpose of the Part D SIPs is to improve air quality in nonattainment areas. Because this key element in the NRDC court's reasoning is present, a prohibition on trading might be extended to existing sources. However, the arguments thatt the court dispatched rather easily in the context of new source review would be much weightier where the state is operating pursuant to an approved Part D SIP that includes the required new source review program. EPA's argument that a basic purpose of the Clean Air Act was to give the states the lead in carrying it out is weak in general⁶³ but compelling with regard to the SIP. This is precisely the situation in which the courts have recognized Congress' intention to let states decide how to allocate the burden of reducing emissions among source categories.⁶⁴ Thus, other courts might reasonably distinguish SIP programs from federal requirements in applying the NRDC holding.

However, this distinction might break down where an approved Part D SIP is not in place. This is significant because EPA's proposed Emission Trading Policy specifically authorizes trading in areas without approved Part D SIP revisions and EPA has proposed approval of such trades.⁶⁵ The policy requires that the state start from a promulgated or negotiated RACT in determining what emission reductions are available for trading in such cases, thus protecting against bubbles that avoid subsequent RACT requirements. Environmental groups have challenged certain nonattainment area bubbles and argued that the bubble is a privilege that should be reserved for states and sources that have complied with the basic federal requirements of the Act.⁶⁶ This principle would stand in the way of such nonattainment area bubbles. However, NRDC did not adopt that principle. The court there said only that it was inappropriate to use the bubble to avoid mandatory federal programs for nonattainment areas, not that the absence of those programs for other reasons precludes use of the concept. However, in light of the clear concern of the NRDC court to put the economic efficiency of emission trading second to the air quality enhancement mandate of the nonattainment program, it seems at a minimum to require the court to look closely at any nonattainment area bubble, and particularly at one that was not governed by an approved SIP.

One solution to the lingering uncertainty over the scope of NRDC could be congressional action. Courts and commentators alike have noted that the ambiguity in the statute and the legislative history have made it extremely difficult to determine the proper place for emissions trading in a number of Clean Air Act programs. Whether or not Congress responds to these criticisms remains to be seen. The committees drafting amendments have not devoted a great deal of attention to the subject. However, the bill that recently passed the Senate Environment and Public Works Committee included a provision requiring the use of the dual definition in nonattainment area programs.⁶⁷ A clear statement of where and how emissions trading may be used in this and other basic programs of the Act would make it possible to go on to the job of making trading work where it is allowed.

Conclusion

The court's ruling in NRDC came as something of a shock to EPA and the industry intervenors. The ease with which the court cut through the tangle of vague statutory provisions and conflicting precedent was, to some, as unexpected as the result. This approach enabled the court to give an unambiguous answer to the question of the legality of netting in nonattainment areas, but produced a rationale [12 ELR 10096] with much broader implications for the EPA Emission Trading Policy. Whether the decision stands as a lasting solution to the puzzle posed by the definition of "source" or merely provokes another solution from Congress or a higher court, it can be said that, for better or worse, it raises the focus of the debate from the legal detail to the basic policy issues at stake.

1. No. 81-2208, 12 ELR 20942 (D.C. Cir. Aug. 17, 1982) (hereinafter referred to as NRDC).

2. Clean Air Act Amendments of 1970, Pub. L. No. 91-604, 84 Stat. 1676 (1970).

3. Clean Air Act § 172(a), 42 U.S.C. § 7502(a), ELR STAT. & REG. 42238.

4. Clean Air Act § 172(b)(3), 42 U.S.C. § 7502(b)(3), ELR STAT. & REG. 42238.

5. Id.

6. Clean Air Act § 110(a)(2)(I), 42 U.S.C. § 7410(a)(2)(I), ELR STAT. & REG. 42210.

7. Clean Air Act § 1731, 42 U.S.C. § 7503, ELR STAT. & REG. 42238. To a substantial degree, the new source review program enacts EPA's offset interpretive ruling of 1976. 41 Fed. Reg. 55524 (Dec. 21, 1976).

8. 12 ELR at 20944 n.19. The significance levels for major modifications range from 0.6 tons per year of lead to 100 tons per year of carbon monoxide.Id.

9. The "bubble policy" was first announced in late 1979. 44 Fed. Reg. 71779 (Dec. 11, 1979). The term is widely used in a more general sense to mean the basic emissions trading concept, because that concept is often explained using the image of placing a bubble over a plant to physically combine the emissions from all the individual sources in the plant into a single emission point. The policy allows deviation from the applicable emission limitations for individual sources under the bubble, so long as the aggregate emissions do not change.This gives industry the flexibility to make the largest emission reductions at the sources that are the least costly to control.

10. ASARCO, Inc. v. EPA, 578 F.2d 319, 8 ELR 20164 (D.C. Cir. 1978).

11. Legal Times, Apr. 5, 1982, at 1.

12. See supra note 8 and accompanying text.

13. This is the ruling of ASARCO, 578 F.2d 319, 8 ELR 20164 (D.C. Cir. 1978).

14. 45 Fed. Reg. 52676 (Aug. 7, 1980).

15. 46 Fed. Reg. 50766 (Oct. 14, 1981).

16. Moreover, any emissions trading program can be designed to improve air quality, simply by requiring that the emission reductions are larger or otherwise more beneficial to air quality than the emission increases against which they are traded.

17. 47 Fed. Reg. 15076, 12 ELR 30006 (Apr. 7, 1982). For a discussion of the evolution of the Emissions Trading Policy and the extent to which its components have been put to use, see Comment, EPA Approves New Jersey Generic Bubble Rule, Develops Consolidated Guidance for Controlled Trading Program, 11 ELR 10119 (1981).

18. 47 Fed. Reg. at 15076, 12 ELR at 30006.

19. 47 Fed. Reg. at 15078, 15081, 12 ELR at 30008, 30011.

20. 47 Fed. Reg. 27071 (June 23, 1982). The bubble involved is at facilities of Monsanto Chemical Intermediates Company in Texas. The facilities are located in a "rural" nonattainment area, which means that EPA has determined that the cause of the attainment problem is sources outside the area.

21. 578 F.2d 319, 8 ELR 20164 (D.C. Cir. 1978).

22. 42 U.S.C. § 7411(a)(3), ELR STAT. & REG. 42213.

23. 578 F.2d at 328 n.40, 8 ELR at 20170 n.40.

24. 636 F.2d 323, 10 ELR 20001 (D.C. Cir. 1979). This three-part opinion, written by the members of the panel, followed an earlier per curiam opinion, 606 F.2d 1068, 9 ELR 20400 (D.C. Cir. 1979), and reflected comments filed by the parties in the interim at the invitation of the court. In effect, the court injected itself directly into the rulemaking process to hasten the resolution of the complex issues that went to the heart of both the PSD and nonattainment programs.

25. Clean Air Act § 169(1), 42 U.S.C. § 7479(1), ELR STAT. & REG. 42236.

26. 636 F.2d at 396, 10 ELR at 20033.

27. 636 F.2d at 397, 10 ELR at 20034.

28. 636 F.2d at 402, 10 ELR at 20037.

29. After a thorough review of the two cases and their impact on new source bubbles, one commentator recently concluded that it is not possible to reconcile them completely. See Rhinelander, The Bubble Concept: A Pragmatic Approach to Regulation Under the Clean Air Act, 1 VA. J. NAT. RESOURCES L. 177 at 215 (1981).

30. 45 Fed. Reg. 52676 (Aug. 7, 1980).

31. Id. at 52697.

32. Chem. Mfrs. Ass'n v. EPA, Nos. 80-1973 et al. (filed Aug. 15, 1980), consolidated with Nos. 79-1112 et al. (Dec. 15, 1980) (settlement agreement filed Feb. 22, 1982).

33. 46 Fed. Reg. 16281 (Mar. 12, 1981).

34. 46 Fed. Reg. 50766 (Oct. 14, 1981).

35. Id. at 50767.

36. Id. at 50768.

37. Id.

38. Id. at 50769.

39. ELR PEND. LIT. 65732.

40. The argument was based on data from two areas of the country in which the overwhelming majority of the facilities that had undergone nonattainment area new source review were modifications. NRDC argued that if these facilities could find the greater than one-to-one offsets required by Part D, they could also find the smaller reductions needed to net out of new source review. See Brief for Petitioners at 23, National Resources Defense Council, Inc. v. Gorsuch, 12 ELR 20942 (D.C. Cir. Aug. 17, 1982).

41. Id. at 38.

42. Memorandum in Support of Petitioners' Motion for a Stay and for Other Relief Pending Review at 65, Natural Resources Defense Council, Inc. v. Gorsuch, 12 ELR 20942 (D.C. Cir. Aug. 17, 1982).

43. Brief for Respondent at 16, Brief for Industry Intervenor-Respondents at 29, Natural Resources Defense Council, Inc. v. Gorsuch, 12 ELR 20942 (D.C. Cir. Aug. 17, 1982).

44. Brief for Respondent at 33-29, Brief for Industry Intervenor-Respondents at 17.

45. Respondent's Memorandum in Opposition to Petitioners' Motion for a Stay and for Other Relief Pending Review at 33-38, Natural Resources Defense Council, Inc. v. Gorsuch, 12 ELR 20942 (D.C. Cir. Aug. 17, 1982).

46. Natural Resources Defense Council, Inc. v. Gorsuch, 12 ELR 20942 (D.C. Cir. Aug. 17, 1982), stay denied, No. 81-2208 (D.C. Cir. Feb. 16, 1982).

47. See supra notes 30 and 35 and accompanying text.

48. Alabama Power had relied also on Congress' extensive use of "plant" in the definition of the "facilities" to be covered by the PSD program. See supra note 25 and accompanying text.

49. 12 ELR at 20947, quoting from ASARCO (emphasis in original).

50. Id.

51. Id. at n.38

52. 12 ELR at 20947.

53. Id. at n.39.

54. 12 ELR at 20947 n.40.

55. 12 ELR at 20947, 20948 n.41. The court quotes State Farm Mut. Auto. Ins. Co. v. Department of Transportation, 680 F.2d 206, 231 (D.C. Cir. 1982), for the proposition that EPA "has some burden … to show that a regulation once considered to [effectuate policy] efficiently can no longer be expected to do so."

56. 12 ELR at 20948 n.43.

57. 12 ELR at 20947 n.39.

58. See supra note 55.

59. The SIP should call for controls on other sources that are more stringent than necessary to demonstrate attainment in conjunction with the dual definition of "source" for nonattainment area modifications.

60. 12 ELR at 20943 (citation omitted).

61. 12 ELR at 20947.

62. See supra note 11 and accompanying text.

63. It is well established that the 1970 Clean Air Act Amendments were enacted in large part to better state discretion and harness state energies in the interests of the national goal of clean air. See, e.g., Jorling, The Federal Law of Air Pollution Control in FEDERAL ENVIRONMENTAL LAW 1058 (1974).

64. Train v. NRDC, 421 U.S. 60, 5 ELR 20264 (U.S. 1975); Union Elec. Co. v. EPA, 427 U.S. 246, 6 ELR 20570 (U.S. 1976).

65. See supra note 17.

66. See NRDC, Comments on the Environmental Protection Agency's Emissions Trading Policy (July 6, 1982); NRDC, Petition for Reconsideration of Proposed Revisions to the Texas State Implementation Plan for the Alternative Emission Reduction Plans of Monsanto Chemical Intermediates Company (July 13, 1982) (copies on file in the office of the ENVIRONMENTAL LAW REPORTER).

67. New § 171(5), committee print as passed by the Senate Committee on Environment and Public Works, Aug. 19, 1982.