CAIR is a cap-and-trade program promulgated by the EPA in 2005, covering 28 eastern U.S. States and the District of Columbia [29]. It was designed to reduce sulfur dioxide (SO₂) and nitrogen oxide (NO_x) emissions in order to help States meet their National Ambient Air Quality Standards (NAAQS) for ozone and particulate matter (PM_2.5) and to further emissions reductions already achieved through the Acid Rain Program and the NO_x State Implementation Plan call program. The rule was set to commence in 2009 for seasonal and annual NO_x emissions and in 2010 for SO₂ emissions. 

On July 11, 2008, the U.S. District Court of Appeals court unanimously overturned CAIR, ruling that it could not be implemented under the CAA [30]. Electric utilities were caught off guard by the court’s decision to vacate CAIR. Because the rule was less than 2 years away from implementation, many power plant owners already had spent billions of dollars on pollution control equipment [31]. In addition, many States were relying on reductions from CAIR to meet their NAAQS for PM_2.5 and ozone, and without the rule they might not be able to meet those requirements. The price of seasonal NO_x and SO₂ emissions allowances dropped significantly after the decision. The value of SO₂ allowances has fallen by 75 percent in 2008, and because there is no market for annual NO_x emissions allowances without CAIR, their price has dropped to zero. 

Several actions are pending. On September 24, 2008, the U.S. Department of Justice (DOJ) and the EPA, along with several industry representatives and environmental groups, filed petitions in the Court of Appeals asking for the case to be reheard [32]. In the petition, the DOJ claimed that the statement in the court’s decisions that CAIR was “fundamentally flawed” was incorrect. It also claimed that vacating CAIR could potentially “result in serious harms.” The court is considering their petition. On October 21, 2008, the court asked for briefs from the main plaintiffs in the case, specifically asking whether they thought CAIR should be reinstated on an interim basis until updated regulations are issued [33]. This development raises the possibility that such a reinstatement could occur. 

On December 23, 2008, the Court of Appeals issued a new ruling that remanded but did not vacate CAIR, noting that: “Allowing CAIR to remain in effect until it is replaced by a rule consistent with our opinion would at least temporarily preserve the environmental values” [34]. The change allows the EPA to modify CAIR to address the objections raised by the Court in its earlier decisions while leaving the rule in place. Because the ruling came well after the cutoff date for changes in Federal and State laws and regulation to be included in AEO2009, it is not reflected in the projections. Nonetheless, States still are required to meet their NAAQS, which will require emissions reductions. Therefore, it is assumed that all emissions limits in effect under CAIR remain in effect in the AEO2009 reference case, but without the CAIR allowance trading provisions. 

Notes and Sources

Contact: Michael Leff/Robert Smith
Phone: 202-586-1297/202-586-9413
E-mail: michael.leff@eia.doe.gov/robert.smith@eia.doe.gov