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D.C. Circuit Finds that the Flexible Ozone Offsets Program Not Authorized under the Clean Air Act

D.C. Circuit Finds that the Flexible Ozone Offsets Program Not Authorized under the Clean Air Act
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By Deborah Quick

Congress sought to diminish state discretion to regulate six specific air pollutants by its 1990 amendments to the Clean Air Act. Those amendments did not include sufficient flexibility to allow an emission offset trading program that allowed offsets of one ozone precursor to stand in for offsets of another. At the D.C. Circuit Court of Appeals, the court was tasked with and ruled, on January 29, 2021, as follows:

In these consolidated cases, we consider challenges to four provisions of the Environmental Protection Agency’s 2015 and 2018 rules implementing the National Ambient Air Quality Standards for ozone. For the reasons set forth below, we vacate two provisions—the interprecursor trading program and the interpretation of the Clean Air Act’s contingency measures requirements—because they contravene the statute’s unambiguous language. We vacate another provision—the implementation of the milestone compliance demonstration requirement—because it rests on an unreasonable interpretation of the statute. Lastly, we deny the petition for review with respect to the alternative baseline years provision. [Sierra Club v. U.S. Environmental Protection Agency, 985 F.3d 1055 (D.C. Cir. 2021).]


The federal Clean Air Act (CAA or Act) requires that the U.S. Environmental Protection Agency (EPA) set primary and secondary National Ambient Air Quality Standards (NAAQS) for each “criteria” air pollutant the agency has found “may reasonably be anticipated to endanger public health or welfare,” setting the NAAQS at a level that allows “an adequate margin of safety” while protecting public health (for primary NAAQS) or welfare (for secondary NAAQS). 42 U.S.C. §§ 7408(a)(1)(A), 7409(b)(1)-(2). Regions that do not meet the NAAQS for a particular pollutant are deemed to be in “nonattainment,” those that are NAAQS-compliant are designated as in “attainment,” while “unclassifiable” regions when “available information” does not allow NAAQS compliance to be determined. 42 U.S.C. § 7407(d)(1)(A). For the majority of the pollutants regulated under the Act, states are then responsible for reaching or maintaining attainment.

Congress, however, amended the Act in 1990 to more prescriptively regulate six pollutants, including ozone, in “Subpart 2.” Ozone, while “an essential presence in the atmosphere’s stratospheric layer,” is dangerous to human health at ground level. South Coast Air Quality Management District v. EPA (South Coast I), 472 F.3d 882, 887 (D.C. Cir. 2006). Pertinent to this case, ozone is not emitted as a direct result of human activity, but rather “forms when other atmospheric pollutants—ozone ‘precursors’—react in the presence of sunlight.” American Trucking Associations, Inc. v. EPA, 283 F.3d 355, 359 (D.C. Cir. 2002). Ozone precursors include volatile organic compounds (VOCs) and oxides of nitrogen (NOx)—themselves, pollutants subject to NAAQS.

Subpart 2 directs that each ozone nonattainment area shall be classified as “marginal,” “moderate,” “serious,” “severe,” or “extreme” based on how much the ozone level in that area exceeds the NAAQS. Id. §§ 7511(a)–(b). Nonattainment areas must achieve the primary NAAQS “as expeditiously as practicable,” id. § 7511(a)(1), although “[a]n area that exceeds the NAAQS by a greater margin is given more time to meet the standard but is subjected to progressively more stringent emissions controls for ozone precursors,” chiefly, VOCs and NOx. South Coast Air Quality Management District v. EPA (South Coast II), 882 F.3d 1138, 1143 (D.C. Cir. 2018) (internal quotation marks omitted).

In 2008, EPA set new ozone NAAQS, and in 2015 the agency promulgated regulations implementing the 2008 NAAQS. 73 Fed. Reg. 16,436 (Mar. 27, 2008); 80 Fed. Reg. 12,264 (Mar. 6, 2015). The 2015 regulations included an “interprecursor trading program” that was subject to challenge and voluntarily reconsidered by EPA. The agency once again included the program in 2018 implementing regulations following on ozone NAAQS adopted in 2015. 80 Fed. Reg. 65,292 (Oct. 26, 2015); 83 Fed. Reg. 62,998 (Dec. 6, 2018). Sierra Club and other environmental advocacy petitioners challenged the program.

The D.C. Circuit’s Decision

The Clean Air Act requires a permit be obtained via a state’s New Source Review program prior to modification or construction of a “major stationary source” of criteria pollutants “‘to assure’ tha the relevant NAAQS ‘are achieved.’” 42 U.S.C. § 7410(a)(2)(C). A permit may issue if the applicant has obtained “sufficient offsets, or emissions reductions,” from another source in the relevant nonattainment area, such that total allowable emissions from existing sources in the region, from new or modified sources which are not major emitting facilities, and from the proposed source will be sufficiently less than total emissions from existing sources.” 42 U.S.C. § 7503(a)(1)(A). Overall reductions result from the purchase of offsets via a series of ratios, so that a new source that will emit 1.0 of VOCs will have to obtain offsets at a ratio of “1.1 to 1 for marginal areas, 1.15 to 1 for moderate areas, 1.2 to 1 for serious areas, 1.3 to 1 for severe areas, and 1.5 to 1 for extreme areas.” (Internal citations omitted.)

The 2018 interprecursor trading program interpreted Subpart 2’s extension of the offset concept to ozone to allow a requirement for ozone-related offsets to be satisfied by obtaining offsets of ozone’s precursors, VOCs and NOx. Further, the program allows offsets for one precursor “to sand in for the other,” subject to further ratios to ensure that the offset “provide[s] an equivalent or greater ozone air quality benefit in the applicable ozone nonattainment area.”

Petitioners argued the interprecursor trading program violated the plain terms of the Act. Applying Chevron deference, the D.C. Circuit agreed. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-843(1984).

Recall that Subpart 2’s offset provisions related to ozone and its precursors specify that “the ratio of total emission reductions of volatile organic compounds to total increased emissions of such air pollutant shall be” the various ratios previously laid out. 42 U.S.C. §§ 7511a(a)(4), (b)(5), (c)(10), (d)(2), (e)(1) (emphasis added). The statute generally extends these offset ratios to NOX. See 42 U.S.C. § 7511a(f)(1).

The D.C. Circuit interpreted “such” in the quoted language of the Act as referring “back to VOCs,” and noted the identically phrased Subpart 2 language regarding NOx. “By contrast, the word ‘ozone,’ which EPA interprets ‘such air pollutant’ to mean, last appears five subsections above the first precursor offset provision and 334 words before the phrase ‘such air pollutant.’” 42 U.S.C. § 7511a(1)(C).

The court found that had Congress intended to allow interprecursor trading for offsets, it would have used the phrase “ozone precursors” instead of “such air pollutant,” as it does elsewhere in the contemporaneously enacted provisions of Subpart 2. See, e.g., 42 U.S.C. §§ 7511d(e), 7511f. The plain language of the statute thus requires that increased VOC emissions be offset with reductions in VOC emissions, and the same is true for NOX emissions under most circumstances.

Ultimately, the D.C. Circuit rejected the agency’s reliance on the “general” language permitting offsets in Subpart 1, 42 U.S.C. § 7503(c)(1), as running afoul of the:

. . .‘basic principle of statutory construction that a specific statute. . .controls over a general provision. . .particularly when the two are interrelated and closely position.’ Adirondack Medical Center v. Sebelius, 740 F.3d 692, 698 (D.C. Cir. 2014), quoting HCSC–Laundry v. United States, 450 U.S. 1, 6 (1981).

Conclusion and Implications

As new appointees rapidly jettison many of the previous administration’s regulatory proposals that had not yet been finalized, the court continue to work through challenges to those regulations promulgated over the past eight years. Here, the flexibility to reduce one ozone precursor as a stand-in for reductions of another contravened the strict approach to compliance that Congress expressly commanded when it amended the Clean Air Act by enacting Subpart 2. The court’s January 29, 2021 opinion is available online at: