A Holiday Gift for EPA:

This past week, the U.S. Court of Appeals for the D.C. Circuit gave the Environmental Protection Agency a little Christmas present. On rehearing in North Carolina v. EPA, the court agreed not to vacate the Bush Administration’s Clean Air Interstate Rule (CAIR), an ambitious effort to create a regional emission trading regime for several conventional air pollutants. In its initial decision, the court invalidated CAIR due to “more than several fatal flaws in the rule.” On rehearing, at the request of the EPA, environmentalist groups and several states, the court reaffirmed its substantive holding, but then remanded CAIR without vacatur so as to “temporarily preserve the environmental values” the rule was supposed to advance.

On remand, the EPA will have its work cut out for it. CAIR was always a bit of a gamble. While there is a strong policy case for a regional trading system, it was never clear such a system could be created under the existing Clean Air Act. Indeed, the Bush Administration’s original plan was to create the trading system as part of a legislative package to amend the Clean Air Act. It was only after legislative efforts failed that the Bush EPA sought to implement the policy administratively.

The court’s decision likely leaves the Obama EPA few options. I am skeptical that a regional trading system can be adopted without legislation. The court’s decision also highlights the difficulty the Obama EPA would have were it to try and create a greenhouse gas emission trading system administratively. The Clean Air Act is a heavily prescriptive statute, and it does not leave that much room for administrative innovation.

In the meantime, the Bush EPA can savor this little bit of legal relief. While CAIR may not be legal, it is one of the few Bush air pollution regulations that will still be on the books when they leave office.

UPDATE: Penn State-Dickinson's Jamie Colburn likewise thinks the CAIR experience discredits the idea that EPA should design a cap-and-trade system for greenhouse gases (and, like my post above, would prefer fees to tradable permits).