EME Homer City Generation, L.P v. EPA
Justia.com Opinion Summary: This appeal stemmed from a petition to review the EPA's August 2011 implementation of the statutory good neighbor requirement, the Transport Rule, also known as the Cross-State Air Pollution Rule, which defined emissions reduction responsibilities for 28 upwind States based on those States' contributions to downwind States' air quality problems. The court held that the Transport Rule exceeded the EPA's statutory authority (1) by using the good neighbor provision to impose massive emissions reduction requirements on upwind States without regard to the limits imposed by the statutory text and (2) by departing from its consistent prior approach to implementing the good neighbor provision and violating the Clean Air Act, 42 U.S.C. 7401 et seq., because it did not allow the States the initial opportunity to implement the required reductions with respect to sources within their borders.
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United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT Argued April 13, 2012 Decided August 21, 2012 No. 11-1302 EME HOMER CITY GENERATION, L.P., PETITIONER v. ENVIRONMENTAL PROTECTION AGENCY, ET AL., RESPONDENTS SAN MIGUEL ELECTRIC COOPERATIVE, ET AL., INTERVENORS Consolidated with 11-1315, 11-1323, 11-1329, 11-1338, 11-1340, 11-1350, 11-1357, 11-1358, 11-1359, 11-1360, 11-1361, 11-1362, 11-1363, 11-1364, 11-1365, 11-1366, 11-1367, 11-1368, 11-1369, 11-1371, 11-1372, 11-1373, 11-1374, 11-1375, 11-1376, 11-1377, 11-1378, 11-1379, 11-1380, 11-1381, 11-1382, 11-1383, 11-1384, 11-1385, 11-1386, 11-1387, 11-1388, 11-1389, 11-1390, 11-1391, 11-1392, 11-1393, 11-1394, 11-1395 On Petitions for Review of a Final Rule of the Environmental Protection Agency 2 Bill Davis, Assistant Solicitor General, Office of the Attorney General for the State of Texas, argued the cause for Governmental Petitioners. With him on the briefs were Greg Abbott, Attorney General, Jonathan F. Mitchell, Solicitor General, Jon Niermann, Chief, Environmental Protection Division, Luther J. Strange, III, Attorney General, Office of the Attorney General for the State of Alabama, Leslie Sue Ritts, Pamela Jo Bondi, Attorney General, Office of the Attorney General for the State of Florida, Jonathan A. Glogau, Chief, Complex Litigation, Samuel S. Olens, Attorney General, Office of the Attorney General for the State of Georgia, John E. Hennelly and Diane L. DeShazo, Senior Assistant Attorneys General, Thomas M. Fisher, Solicitor General, Office of the Attorney General for the State of Indiana, Valerie Marie Tachtiris, Deputy Assistant Attorney General, Jeffrey A. Chanay, Deputy Attorney General, Office of the Attorney General for the State of Kansas, Henry V. Nickel, George P. Sibley, III, James D. âÄúBuddyâÄĚ Caldwell, Attorney General, Office of the Attorney General for the State of Louisiana, Megan K. Terrell, Chief, Environmental Section, Herman Robinson, Jackie Marie Scott Marve, Deidra L. Johnson, Kathy M. Wright, Donald James Trahan, David Richard Taggart, Jeffrey Winston Price, John Joseph Bursch, Solicitor General, Office of the Attorney General for the State of Michigan, Neil David Gordon, Assistant Attorney General, Sean Peter Manning, Chief, Environmental, Natural Resources, and Agriculture Division, Harold Edward Pizzetta, III, Special Attorney, Office of the Attorney General for the State of Mississippi, Jon Cumberland Bruning, Attorney General, Office of the Attorney General for the State of Nebraska, Katherine J. Spohn, Special Counsel, Dale T. Vitale, Gregg H. Bachmann, and Chris Kim, Assistant Attorneys General, Office of the Attorney General for the State of Ohio, Thomas Bates, Chief, Public Protection Unit, Office of the Attorney General for the State of Oklahoma, 3 Patrick Wyrick, Solicitor General, P. Clayton Eubanks, Assistant Attorney General, Alan Wilson, Attorney General, Office of the Attorney General for the State of South Carolina, James Emory Smith, Jr., Assistant Deputy Attorney General, Kenneth T. Cuccinelli, II, Attorney General, Office of the Attorney General for the Commonwealth of Virginia, E. Duncan Getchell, Jr., Solicitor General, and Thomas James Dawson, Assistant Attorney General, Wisconsin Department of Justice. Peter D. Keisler argued the cause for Non-Governmental Petitioners. With him on the briefs were Roger R. Martella, Jr., C. Frederick Beckner III, Timothy K. Webster, F. William Brownell, Gregory G. Garre, Claudia M. OâÄôBrien, Lori Alvino McGill, Jessica E. Phillips, Katherine I. Twomey, Stacey VanBelleghem, Janet J. Henry, Steven G. McKinney, Terese T. Wyly, William M. Bumpers, Joshua B. Frank, Megan H. Berge, P. Stephen Gidiere, III, Richard Alonso, Jeffrey R. Holmstead, Gary C. Rikard, Robert J. Alessi, Chuck DâÄôWayne Barlow, Peter P. Garam, Kyra Marie Fleming, Richard G. Stoll, Brian H. Potts, Julia L. German, Robert A. Manning, Joseph A. Brown, Mohammad O. Jazil, Eric J. Murdock, Andrea Bear Field, Norman W. Fichthorn, E. Carter Chandler Clements, James S. Alves, Gary V. Perko, William L. Wehrum, Jr., David M. Flannery, Gale Lea Rubrecht, Maureen N. Harbourt, Tokesha M. Collins, Bart E. Cassidy, Katherine L. Vaccaro, Diana A. Silva, William F. Lane, Jordan Hemaidan, Todd Palmer, Douglas E. Cloud, David Meezan, Christopher Max Zygmont, Matthew J. Splitek, Gary M. Broadbent, Michael O. McKown, Terry Russell Yellig, Dennis Lane, Karl R. Moor, Margaret Claiborne Campbell, Byron W. Kirkpatrick, Hahnah Williams, Peter S. Glaser, Tameka M. Collier, Grant F. Crandall, Arthur Traynor, III, Eugene M. Trisko, Jeffrey L. 4 Landsman, Vincent M. Mele, Elizabeth P. Papez, John M. Holloway III, Elizabeth C. Williamson, and Ann M. Seha. Michael J. Nasi, Shannon L. Goessling, and Douglas A. Henderson were on the brief for intervenor San Miguel Electric Cooperative and amici Industrial Energy Consumers of America, et al., in support of petitioners. Robert M. Cohan entered an appearance. Norman L. Rave, Jr., David S. Gualtieri, and Jon M. Lipshultz, Attorneys, U.S. Department of Justice, argued the causes for respondent. With them on the briefs were Jessica OâÄôDonnell, Sonja Rodman, and Stephanie Hogan, Attorneys. Simon Heller, Assistant Solicitor General, Office of the Attorney General for the State of New York, argued the cause for State/City Respondent-Intervenors. With him on the brief were Eric T. Schneiderman, Attorney General, Barbara D. Underwood, Solicitor General, Andrew G. Frank and Michael J. Myers, Assistant Attorneys General, Benna R. Solomon, James B. Dougherty, Joseph R. Biden, III, Attorney General, Office of the Attorney General for the State of Delaware, Valerie M. Satterfield, Deputy Attorney General, Douglas F. Gansler, Attorney General, Office of the Attorney General for the State of Maryland, Mary E. Raivel, Assistant Attorney General, Peter F. Kilmartin, Attorney General, Office of the Attorney General for the State of Rhode Island, Gregory S. Schultz, Special Assistant Attorney General, Martha Coakley, Attorney General, Office of the Attorney General for the Commonwealth of Massachusetts, Frederick D. Augenstern, Assistant Attorney General, Scott J. Schwarz, William H. Sorrell, Attorney General, Office of the Attorney General for the State of Vermont, Thea J. Schwartz, Assistant Attorney General, Lisa Madigan, Attorney General, Office of the Attorney General for the State of Illinois, Gerald T. Karr, 5 Assistant Attorney General, Irvin B. Nathan, Attorney General, Office of the Attorney General for the District of Columbia, Amy E. McDonnell, Deputy General Counsel, George Jepsen, Attorney General, Office of the Attorney General for the State of Connecticut, Kimberly P. Massicotte, Scott N. Koschwitz, and Matthew I. Levine, Assistant Attorneys General, William R. Phelan, Jr., Roy Cooper, Attorney General, Office of the Attorney General for the State of North Carolina, James C. Gulick, Senior Deputy Attorney General, Marc Bernstein and J. Allen Jernigan, Special Deputies Attorney General, and Christopher King. William J. Moore, III entered an appearance. Brendan K. Collins argued the cause for Industry Respondent-Intervenors. With him on the brief were Robert B. McKinstry, Jr. and James W. Rubin. Sean H. Donahue argued the cause for Public Health Respondent-Intervenors. With him on the brief were David T. Lifland, Vickie L. Patton, George Hays, Josh Stebbins, John Walke, and David Marshall. Ann Brewster Weeks entered an appearance. Before: ROGERS, GRIFFITH, and KAVANAUGH, Circuit Judges. Opinion for the Court filed by Circuit Judge KAVANAUGH, with whom Circuit Judge GRIFFITH joins. Dissenting opinion filed by Circuit Judge ROGERS. KAVANAUGH, Circuit Judge: Some emissions of air pollutants affect air quality in the States where the pollutants are emitted. Some emissions of air pollutants travel across State boundaries and affect air quality in downwind States. 6 To deal with that complex regulatory challenge, Congress did not authorize EPA to simply adopt limits on emissions as EPA deemed reasonable. Rather, Congress set up a federalism-based system of air pollution control. Under this cooperative federalism approach, both the Federal Government and the States play significant roles. The Federal Government sets air quality standards for pollutants. The States have the primary responsibility for determining how to meet those standards and regulating sources within their borders. In addition, and of primary relevance here, upwind States must prevent sources within their borders from emitting federally determined âÄúamountsâÄĚ of pollution that travel across State lines and âÄúcontribute significantlyâÄĚ to a downwind StateâÄôs âÄúnonattainmentâÄĚ of federal air quality standards. That requirement is sometimes called the âÄúgood neighborâÄĚ provision. In August 2011, to implement the statutory good neighbor requirement, EPA promulgated the rule at issue in this case, the Transport Rule, also known as the Cross-State Air Pollution Rule. The Transport Rule defines emissions reduction responsibilities for 28 upwind States based on those StatesâÄô contributions to downwind StatesâÄô air quality problems. The Rule limits emissions from upwind StatesâÄô coal- and natural gas-fired power plants, among other sources. Those power plants generate the majority of electricity used in the United States, but they also emit pollutants that affect air quality. The Transport Rule targets two of those pollutants, sulfur dioxide (SO2) and nitrogen oxides (NOx). Various States, local governments, industry groups, and labor organizations have petitioned for review of the Transport Rule. Although the facts here are complicated, the 7 legal principles that govern this case are straightforward: Absent a claim of constitutional authority (and there is none here), executive agencies may exercise only the authority conferred by statute, and agencies may not transgress statutory limits on that authority. Here, EPAâÄôs Transport Rule exceeds the agencyâÄôs statutory authority in two independent respects. First, the statutory text grants EPA authority to require upwind States to reduce only their own significant contributions to a downwind StateâÄôs nonattainment. But under the Transport Rule, upwind States may be required to reduce emissions by more than their own significant contributions to a downwind StateâÄôs nonattainment. EPA has used the good neighbor provision to impose massive emissions reduction requirements on upwind States without regard to the limits imposed by the statutory text. Whatever its merits as a policy matter, EPAâÄôs Transport Rule violates the statute. Second, the Clean Air Act affords States the initial opportunity to implement reductions required by EPA under the good neighbor provision. But here, when EPA quantified StatesâÄô good neighbor obligations, it did not allow the States the initial opportunity to implement the required reductions with respect to sources within their borders. Instead, EPA quantified StatesâÄô good neighbor obligations and simultaneously set forth EPA-designed Federal Implementation Plans, or FIPs, to implement those obligations at the State level. By doing so, EPA departed from its consistent prior approach to implementing the good neighbor provision and violated the Act. For each of those two independent reasons, EPAâÄôs Transport Rule violates federal law. Therefore, the Rule must be vacated. 8 In so ruling, we note that this Court has affirmed numerous EPA clean air decisions in recent years when those agency decisions met relevant statutory requirements and complied with statutory constraints. See, e.g., National Environmental Development AssociationâÄôs Clean Air Project v. EPA, No. 10-1252 (D.C. Cir. July 20, 2012); API v. EPA, No. 10-1079 (D.C. Cir. July 17, 2012); ATK Launch Systems, Inc. v. EPA, 669 F.3d 330 (D.C. Cir. 2012); NRDC v. EPA, 661 F.3d 662 (D.C. Cir. 2011); Medical Waste Institute & Energy Recovery Council v. EPA, 645 F.3d 420 (D.C. Cir. 2011); American Trucking AssâÄôns v. EPA, 600 F.3d 624 (D.C. Cir. 2010). In this case, however, we conclude that EPA has transgressed statutory boundaries. Congress could well decide to alter the statute to permit or require EPAâÄôs preferred approach to the good neighbor issue. Unless and until Congress does so, we must apply and enforce the statute as itâÄôs now written. Our decision today should not be interpreted as a comment on the wisdom or policy merits of EPAâÄôs Transport Rule. It is not our job to set environmental policy. Our limited but important role is to independently ensure that the agency stays within the boundaries Congress has set. EPA did not do so here. 1 1 The dissent argues that petitionersâÄô challenge to EPAâÄôs approach to the significant contribution issue is not properly before us because that issue was not sufficiently raised before the agency in the rulemaking proceeding. We fundamentally disagree with the dissentâÄôs reading of the record on that point. The dissent also claims that petitionersâÄô challenge to EPAâÄôs issuance of the FIPs is not properly before us because the affected States should have raised such a challenge earlier in the process. We again disagree. The dissentâÄôs analysis on the FIPs issue conflates (i) EPAâÄôs rejection of certain StatesâÄô SIPs and (ii) EPAâÄôs decision in the Transport Rule to set StatesâÄô âÄúgood neighborâÄĚ obligations and emissions budgets and simultaneously issue FIPs. 9 I A Under the Clean Air Act, the Federal Government sets air quality standards, but States retain the primary responsibility (if the States want it) for choosing how to attain those standards within their borders. See Train v. NRDC, 421 U.S. 60, 63-67 (1975); Virginia v. EPA, 108 F.3d 1397, 1406-10 (D.C. Cir. 1997). The Act thus leaves it to the individual States to determine, in the first instance, the particular restrictions that will be imposed on particular emitters within their borders. (If a State refuses to participate, the Federal Government regulates the sources directly.) To spell this out in more detail: The Clean Air Act charges EPA with setting National Ambient Air Quality Standards, or NAAQS, which prescribe the maximum permissible levels of common pollutants in the ambient air. See 42 U.S.C. Â§ 7409(a)-(b). EPA must choose levels which, âÄúallowing an adequate margin of safety, are requisite to protect the public health.âÄĚ 42 U.S.C. Â§ 7409(b)(1). After a lengthy process, the details of which are not relevant here, EPA designates âÄúnonattainmentâÄĚ areas âÄď that is, areas within each State where the level of the pollutant exceeds the NAAQS. See 42 U.S.C. Â§ 7407(d). The States here are challenging only the latter issue, and they have done so in a timely fashion. Indeed, they could not have done so until EPA, in the Transport Rule, simultaneously set the StatesâÄô individual emissions budgets and issued FIPs. We will explain both points more below. Suffice it here to say that, much as we might like to do so, we respectfully do not believe we can avoid the merits of this complex case, as the dissent urges. 10 Once EPA sets a NAAQS and designates nonattainment areas within the States, the lead role shifts to the States. The States implement the NAAQS within their borders through State Implementation Plans, or SIPs. (As the experienced reader knows, there is no shortage of acronyms in EPA-land.) In their SIPs, States choose which individual sources within the State must reduce emissions, and by how much. For example, a State may decide to impose different emissions limits on individual coal-burning power plants, natural gasburning power plants, and other sources of air pollution, such as factories, refineries, incinerators, and agricultural activities. States must submit SIPs to EPA within three years of each new or revised NAAQS. See 42 U.S.C. Â§ 7410(a)(1). Section 110(a)(2) of the Act lists the required elements of a SIP submission. Section 110(a)(2)(D)(i)(I), the âÄúgood neighborâÄĚ provision at issue in this case, is one of the required elements of a SIP. The good neighbor provision requires that SIPs: (D) contain adequate provisions âÄď (i) prohibiting, consistent with the provisions of this subchapter, any source or other type of emissions activity within the State from emitting any air pollutant in amounts which will âÄď (I) contribute significantly to nonattainment in, or interfere with maintenance by, any other State with respect to any such national primary or secondary ambient air quality standard . . . . 42 U.S.C. Â§ 7410(a)(2)(D). The good neighbor provision recognizes that emissions âÄúfrom âÄėupwindâÄô regions may pollute âÄėdownwindâÄô regions.âÄĚ Appalachian Power Co. v. EPA, 249 F.3d 1032, 1037 (D.C. 11 Cir. 2001). To put it colloquially, the good neighbor provision requires upwind States to bear responsibility for their fair share of the mess in downwind States. By placing the good neighbor requirement in Section 110(a)(2), Congress established the upwind StateâÄôs SIP as the vehicle for implementing the upwind StateâÄôs good neighbor obligation. Of course, an upwind State will not know what it needs to do to meet its good neighbor obligation until it learns the level of air pollution in downwind States, and further learns how much it is contributing to the problems in the downwind States. EPA plays the critical role in gathering information about air quality in the downwind States, calculating each upwind StateâÄôs good neighbor obligation, and transmitting that information to the upwind State. With that information, the upwind State can then determine how to meet its good neighbor obligation in a new SIP or SIP revision. See 42 U.S.C. Â§ 7410(k)(5). After EPA quantifies a StateâÄôs good neighbor obligation, if a State does not timely submit an adequate SIP (or an adequate SIP revision) to take account of the good neighbor obligation as defined by EPA, responsibility shifts back to the Federal Government. Within two years of disapproving a StateâÄôs SIP submission or SIP revision, or determining that a State has failed to submit a SIP, EPA must promulgate a Federal Implementation Plan to implement the NAAQS within that State. See 42 U.S.C. Â§ 7410(c)(1). B The good neighbor provision âÄď and EPAâÄôs attempts to implement it âÄď are familiar to this Court from past cases. In Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000), we considered a challenge to EPAâÄôs 1998 NOx Rule, commonly referred to as the NOx SIP Call, which quantified the good 12 neighbor obligations of 22 States with respect to the 1997 ozone NAAQS. See 63 Fed. Reg. 57,356, 57,358 (Oct. 27, 1998). The 1998 NOx Rule did not define âÄúamounts which will . . . contribute significantly to nonattainmentâÄĚ solely on the basis of downwind air quality impact, as one might have expected given the statutory text. Rather, EPA also considered how much NOx could be eliminated by sources in each State if those sources installed âÄúhighly cost-effectiveâÄĚ emissions controls. See Michigan, 213 F.3d at 675. On review, some States argued that the statutory text required EPA to order reductions based on air quality impact alone, not cost of reduction. But the Michigan Court found no âÄúclear congressional intent to preclude consideration of cost.âÄĚ Id. at 677 (citation omitted). The Court thus held that EPA may âÄúconsider differences in cutback costs, so that, after reduction of all that could be cost-effectively eliminated, any remaining âÄėcontributionâÄô would not be considered âÄėsignificant.âÄôâÄĚ Id. at 677; see also id. at 677-79. In other words, EPA could use cost considerations to lower an upwind StateâÄôs obligations under the good neighbor provision. 2 In North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008), we considered a challenge to EPAâÄôs 2005 Clean Air Interstate Rule, or CAIR. See 70 Fed. Reg. 25,162 (May 12, 2005). CAIR built on the 1998 NOx Rule and defined 28 StatesâÄô 2 Judge Sentelle dissented. In his view, the statutory text unambiguously âÄúset forth one criterion: the emission of an amount of pollutant sufficient to contribute significantly to downwind nonattainment.âÄĚ Id. at 696 (Sentelle, J., dissenting); cf. Whitman v. American Trucking AssâÄôns, 531 U.S. 457, 467 (2001) (âÄúWe have therefore refused to find implicit in ambiguous sections of the CAA an authorization to consider costs that has elsewhere, and so often, been expressly granted.âÄĚ). 13 good neighbor obligations with respect to the 1997 ozone NAAQS and the 1997 NAAQS for annual levels of fine particulate matter, or annual PM2.5. See id. CAIR employed two different formulas âÄď both of which incorporated cost considerations âÄď to quantify each StateâÄôs obligations for the pollutants covered by CAIR, SO2 and NOx. The North Carolina decision held that the formulas went beyond MichiganâÄôs authorization to use cost and that the formulas therefore exceeded EPAâÄôs statutory authority. EPA may use cost to âÄúrequire termination of only a subset of each stateâÄôs contribution,âÄĚ the Court explained, but âÄúEPA canâÄôt just pick a cost for a region, and deem âÄėsignificantâÄô any emissions that sources can eliminate more cheaply.âÄĚ 531 F.3d at 918 (citation, emphasis, and some internal quotation marks omitted). The Court also held that âÄúsection 110(a)(2)(D)(i)(I) gives EPA no authority to force an upwind state to share the burden of reducing other upwind statesâÄô emissions. Each state must eliminate its own significant contribution to downwind pollution.âÄĚ Id. at 921. The Court emphasized that EPA âÄúmay not require some states to exceed the mark.âÄĚ Id. North Carolina thus articulated an important caveat to MichiganâÄôs approval of cost considerations. The statute permits EPA to use cost to lower an upwind StateâÄôs obligation under the good neighbor provision. See Michigan, 213 F.3d at 675, 677. But EPA may not use cost to increase an upwind StateâÄôs obligation under the good neighbor provision âÄď that is, to force an upwind State to âÄúexceed the mark.âÄĚ North Carolina, 531 F.3d at 921. Put simply, the statute requires every upwind State to clean up at most its own share of the air pollution in a downwind State âÄď not other StatesâÄô shares. 14 C The North Carolina Court remanded CAIR without vacatur, leaving CAIR in place âÄúuntil it is replaced by a rule consistent with our opinion.âÄĚ North Carolina v. EPA, 550 F.3d 1176, 1178 (D.C. Cir. 2008) (on rehearing). The Transport Rule is EPAâÄôs attempt to develop a rule that is consistent with our opinion in North Carolina. EPA proposed the Transport Rule in August 2010 and finalized it in August 2011. See 75 Fed. Reg. 45,210 (Aug. 2, 2010) (proposed); 76 Fed. Reg. 48,208 (Aug. 8, 2011) (final). The Transport Rule addresses StatesâÄô good neighbor obligations with respect to three NAAQS: the 1997 annual PM2.5 NAAQS, the 1997 ozone NAAQS, and the 2006 24-hour PM2.5 NAAQS. See id. at 48,209. 3 The Transport Rule contains two basic components. First, the Rule defines each StateâÄôs emissions reduction obligations under the good neighbor provision. Second, the Rule prescribes Federal Implementation Plans to implement those obligations at the State level. We describe each component here in some detail. EPA began by quantifying the âÄúamountsâÄĚ of pollution that each State must prohibit under the good neighbor provision âÄď that is, âÄúamounts which will . . . contribute significantly to nonattainmentâÄĚ or âÄúinterfere with maintenanceâÄĚ of the three NAAQS in other States. 42 U.S.C. Â§ 7410(a)(2)(D)(i). 4 3 The 2006 24-hour PM2.5 NAAQS post-dated and therefore was not covered by CAIR. 4 EPA bases different aspects of the Transport Rule on distinct sources of statutory authority. EPA relied on its general 15 EPA used a two-stage approach to quantify each StateâÄôs obligations under the good neighbor provision. In the first stage, EPA determined whether a State emits âÄúamounts which will . . . contribute significantlyâÄĚ to a downwind StateâÄôs nonattainment of any of the three NAAQS. EPA identified the significantly contributing upwind States based on âÄúlinkagesâÄĚ between each upwind State and specific downwind âÄúnonattainmentâÄĚ or âÄúmaintenanceâÄĚ areas âÄď that is, downwind areas that EPA modeling predicted would not attain, or absent regulation would not maintain, the NAAQS. Transport Rule, 76 Fed. Reg. at 48,236. An upwind State was linked to a downwind nonattainment or maintenance area for a given NAAQS if EPA modeling showed that the upwind StateâÄôs contribution to that downwind area exceeded a numerical âÄúair quality thresholdâÄĚ âÄď that is, a specific amount of air pollution sent from the upwind State into the downwind StateâÄôs air. Id. EPA set the air quality threshold for each pollutant at an amount equal to 1% of the relevant NAAQS. The resulting thresholds were (i) 0.8 ppb for ozone, (ii) 0.15 Âµg/m3 for annual PM2.5, and (iii) 0.35 Âµg/m3 for 24-hour PM2.5. Id. If modeling showed that an upwind State would send more than those amounts into a downwind StateâÄôs air, as measured at a receptor site in a downwind State, the upwind State was deemed a âÄúsignificant contributorâÄĚ to the downwind StateâÄôs air pollution problem. rulemaking authority under Section 301(a)(1) of the Clean Air Act, 42 U.S.C. Â§ 7601(a)(1), to construe Section 110(a)(2)(D)(i)(I) and to quantify the StatesâÄô obligations to reduce emissions. See Transport Rule, 76 Fed. Reg. at 48,217; see also Michigan, 213 F.3d at 687. EPA relied on its authority under Section 110(c)(1), 42 U.S.C. Â§ 7410(c)(1), to issue the Transport Rule FIPs. See Transport Rule, 76 Fed. Reg. at 48,217. 16 Those numerical air quality thresholds determined which upwind States had to reduce their SO2 and NOx emissions and which upwind States did not âÄď that is, the thresholds determined which upwind StatesâÄô emissions âÄúcontribute significantlyâÄĚ to downwind StatesâÄô air pollution problems. Upwind States âÄúwhose contributions are below these thresholds,âÄĚ EPA found, âÄúdo not significantly contribute to nonattainment or interfere with maintenance of the relevant NAAQSâÄĚ in downwind States. Id. Because their emissions did not âÄúcontribute significantly,âÄĚ those States were not required to cut their emissions for purposes of the good neighbor provision. As one would expect, this âÄúsignificant contributionâÄĚ threshold produced some close cases at the margins. For example, Maryland and Texas were covered for annual PM2.5 based on downwind contributions of 0.15 and 0.18 Âµg/m3, respectively âÄď just barely meeting the 0.15 Âµg/m3 threshold. See id. at 48,240. And Texas exceeded the annual PM2.5 threshold at just a single downwind receptor, in Madison, Illinois. See id. at 48,241. 5 By contrast, Minnesota and Virginia, with maximum downwind contributions of 0.14 and 0.12 Âµg/m3, respectively, just missed being covered for annual PM2.5. See id. at 48,240. For annual PM2.5, a total of 18 States 6 exceeded the threshold and were therefore deemed âÄúsignificant 5 Texas also narrowly exceeded the 0.35 Âµg/m3 threshold for 24-hour PM2.5; its maximum downwind contribution was 0.37 Âµg/m3. See Transport Rule, 76 Fed. Reg. at 48,242. 6 Those States were: Alabama, Georgia, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Missouri, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, West Virginia, and Wisconsin. See Transport Rule, 76 Fed. Reg. at 48,240. 17 contributors.âÄĚ For 24-hour PM2.5, a total of 22 States 7 exceeded the threshold. See id. at 48,241-42. Those States were thus included in the RuleâÄôs reduction programs for SO2 and annual NOx, pollutants that contribute to PM2.5 formation. See id. at 48,210. For ozone, a total of 26 States 8 exceeded the threshold. See id. at 48,245. Those States were thus included in the RuleâÄôs reduction program for ozone-season NOx, which contributes to ozone formation. See id. at 48,210; see also 76 Fed. Reg. 80,760 (Dec. 27, 2011) (finalizing six StatesâÄô inclusion in the Transport Rule for ozone-season NOx). At the second stage, however, EPA abandoned the air quality thresholds âÄď that is, the stage one standard for whether an upwind StateâÄôs emissions âÄúcontribute significantlyâÄĚ to a downwind StateâÄôs nonattainment of air quality standards. Instead, at stage two, EPA used a cost-based standard: EPA determined how much pollution each upwind StateâÄôs power plants could eliminate if the upwind StateâÄôs plants applied all controls available at or below a given cost per ton of pollution reduced. The cost-per-ton levels applied without regard to the size of each StateâÄôs âÄúsignificant contributionâÄĚ at stage one. In other words, how much pollution each upwind State was 7 Those States were: Alabama, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, West Virginia, and Wisconsin. See Transport Rule, 76 Fed. Reg. at 48,242. 8 Those States were: Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin. See Transport Rule, 76 Fed. Reg. at 48,245. 18 required to eliminate was not tied to how much the upwind State contributed to downwind StatesâÄô air pollution problems. EPA predicted how far emissions would fall if power plants throughout the State were required to install controls available at or below various cost levels. The cost levels, or thresholds, were expressed in terms of cost per ton of pollutant reduced, with the idea being that plants would install all controls that cost less than the designated threshold. 9 EPA then added up the emissions from all of the covered States to yield total regionwide emissions figures for each pollutant, at each cost threshold. See Transport Rule, 76 Fed. Reg. at 48,250-53. The higher the cost level selected, the greater the reduction of emissions, but also the greater the costs and burdens imposed on sources within the States. Next, EPA used computer modeling to estimate the downwind air quality effects of imposing different cost-perton levels on the upwind States. Id. at 48,253. EPA modeled the air quality effects of applying a $500/ton cost level for NOx and ascending cost-per-ton levels for SO2. See id. at 9 For example, a technology that cost $1,000 to install and eliminated 2 tons of NOx from a power plantâÄôs emissions would cost $500/ton. In effect, EPA predicted how far emissions would fall if plants installed all of the controls from $1/ton to $500/ton. EPA used a computer model to predict the reductions that would occur in each State at various cost thresholds. See EPA, Documentation for EPA Base Case v.4.10, at 2-1 (Aug. 2010), J.A. 2339. For example, for annual NOx, EPA modeled cost levels of $500, $1,000, and $2,500/ton. See Transport Rule, 76 Fed. Reg. at 48,249-50. EPA went as high as $5,000/ton for ozone-season NOx. See id. at 48,250. For SO2, EPA modeled emissions at cost levels of $500, $1,600, $2,300, $2,800, $3,300, and $10,000 per ton. See id. at 48,251. At a later stage in the process, EPA used those predictions to decide how much each State would have to cut. 19 48,255; EPA, Analysis to Quantify Significant Contribution Technical Support Document 15 & n.9 (July 2010), J.A. 2177. Armed with those two sets of modeling data, EPA proceeded to choose which regionwide cost-per-ton threshold to apply for each of the three pollutants âÄď SO2, annual NOx, and ozone-season NOx. EPA consulted both its cost-ofreduction modeling and its air quality modeling and identified what it termed âÄúsignificant cost thresholdsâÄĚ âÄď that is, cost-perton levels at which steep drops in upwind emissions or jumps in downwind air quality would occur. Transport Rule, 76 Fed. Reg. at 48,255; see also id. at 48,255-56. EPA then weighed both air quality and cost concerns in a âÄúmulti-factor assessmentâÄĚ to choose the final cost-per-ton levels. Id. at 48,256. The âÄúmulti-factor assessmentâÄĚ did not employ any hard formula to weigh those factors. In the end, EPA settled on a single $500/ton threshold for ozone-season and annual NOx. See id. at 48,256-57. For SO2, instead of using a single cost threshold for all of the SO2 States, EPA divided the upwind States into two groups for the 2014 program year (that is, the emissions cuts required in 2014). EPA modeling showed that applying a $500/ton cost threshold resolved the attainment problems in the downwind areas to which seven upwind States were linked. See id. at 48,257. Those seven upwind States became the Group 2 States, which were subject to a $500/ton threshold for SO2. See id. But $500/ton did not resolve attainment problems in the downwind areas to which 16 other upwind States were linked. Those 16 upwind States became the Group 1 States, which were subject to a stricter $2,300/ton cost threshold for SO2. See id. at 48,259. EPA determined the amount of SO2, annual NOx, or ozone-season NOx that each covered State could eliminate if 20 its power plants installed all cost-effective emissions controls âÄď that is, those controls available at or below the applicable cost-per-ton thresholds. See id. at 48,260. EPA then used those figures to generate 2012, 2013, and 2014 emissions âÄúbudgetsâÄĚ for each upwind State, for each pollutant for which that State was covered. See id. at 48,259-63. The budget is the maximum amount of each pollutant that a StateâÄôs power plants may collectively emit in a given year, beginning in 2012. 10 EPA did not stop there and leave it to the States to implement the required reductions through new or revised State Implementation Plans, or SIPs. Cf. 42 U.S.C. Â§ 7410(k)(5). Instead, EPA simultaneously promulgated Federal Implementation Plans, or FIPs. The FIPs require power plants in covered upwind States to make the SO2 and NOx reductions needed to comply with each upwind StateâÄôs emissions budget, as defined by EPA. The FIPs also create an interstate trading program to allow covered sources to comply as cost-effectively as possible. See Transport Rule, 76 Fed. Reg. at 48,271. The FIPs convert each StateâÄôs emissions budget into âÄúallowances,âÄĚ which are allocated among power plants in the State. Under the FIPs, it is EPA, and not the States, that decides how to distribute the allowances among the power plants in each State. See id. at 48,284-88. 11 10 States may augment their budgets somewhat by buying outof-state allowances. See Transport Rule, 76 Fed. Reg. at 48,263-68. 11 Each power plant is âÄúrequired to hold one SO2 or one NOx allowance, respectively, for every ton of SO2 or NOx emittedâÄĚ during the relevant year. Transport Rule, 76 Fed. Reg. at 48,271; see also id. at 48,296-97 (describing penalties for noncompliance). 21 The Rule retains a limited, secondary role for SIPs. States have the option of submitting SIPs that modify some elements of the FIPs. See id. at 48,327-28. The first program year for which States can submit such SIPs is 2014. See id. States may also seek to replace the FIPs wholesale, as long as the SIP prohibits the amounts of NOx and SO2 emissions that EPA specified. See id. at 48,328. EPA says it would âÄúreview such a SIP on a case-by-case basis.âÄĚ Id. But, importantly, the States do not have a post-Rule opportunity to avoid FIPs by submitting a SIP or SIP revision: The FIPs âÄúremain fully in place in each covered state until a stateâÄôs SIP is submitted and approved by EPA to revise or replace a FIP.âÄĚ Id. Since it issued the final rule in August 2011, EPA has taken several subsequent regulatory actions related to the Transport Rule. See 76 Fed. Reg. 80,760 (Dec. 27, 2011) (finalizing six StatesâÄô inclusion in the Rule for ozone-season NOx); 77 Fed. Reg. 10,324 (Feb. 21, 2012) (making technical Sources were required by the Rule to begin complying with the annual SO2 and NOx requirements by January 1, 2012 for the 201213 budgets and by January 1, 2014 for the post-2014 budgets. See id. at 48,277. (This Court stayed the Rule before it took effect.) The ozone-season NOx requirements would kick in on May 1 of those years. See id. EPA chose those compliance deadlines in light of this CourtâÄôs holding in North Carolina that the deadlines must be âÄúconsistent with the provisions in Title I mandating [NAAQS] compliance deadlines for downwind states.âÄĚ 531 F.3d at 912; see also Transport Rule, 76 Fed. Reg. at 48,277-78. The FIPs use allowance trading to enable covered plants within the States to comply as cost-effectively as possible. The program creates four allowance trading markets: one for annual NOx, one for ozone-season NOx, one for the Group 1 SO2 States, and one for the Group 2 SO2 States. See Transport Rule, 76 Fed. Reg. at 48,271. Power plants in Group 1 SO2 States may not purchase Group 2 SO2 allowances, and vice versa. See id. at 48,271-72. Otherwise, interstate trading is generally permitted. 22 adjustments to modeling and delaying assurance penalty provisions until 2014); 77 Fed. Reg. 34,830 (June 12, 2012) (revising budgets for 13 States). D An array of power companies, coal companies, labor unions, trade associations, States, and local governments petitioned for review of EPAâÄôs Transport Rule. On December 30, 2011, this Court stayed the Rule pending a decision on the merits. See Order, No. 11-1302, slip op. at 2 (D.C. Cir. Dec. 30, 2011). The CourtâÄôs order instructed EPA to âÄúcontinue administering the Clean Air Interstate Rule pending the courtâÄôs resolution of these petitions for review.âÄĚ Id. In Part II of this opinion, we address whether the Rule exceeds EPAâÄôs authority to order upwind States to reduce âÄúamounts which will . . . contribute significantly to nonattainmentâÄĚ in downwind States. In Part III, we address whether the statute permits EPA to issue FIPs without giving the States an initial opportunity to implement the required reductions through SIPs or SIP revisions. In Part IV, we consider the remedy. II In this Part, we analyze petitionersâÄô argument that EPA exceeded its statutory authority under the âÄúgood neighborâÄĚ provision. Under the statute, EPA is limited to ordering upwind States to reduce âÄúamounts which will . . . contribute significantly to nonattainmentâÄĚ in downwind States. 42 U.S.C. Â§ 7410(a)(2)(D)(i). 23 A The Transport Rule defines StatesâÄô obligations under Section 110(a)(2)(D)(i)(I) of the Clean Air Act, a provision sometimes described as the âÄúgood neighborâÄĚ provision. See 42 U.S.C. Â§ 7410(a)(2)(D)(i)(I); Michigan v. EPA, 213 F.3d 663, 671 (D.C. Cir. 2000). The good neighbor provision requires that a State Implementation Plan, or SIP: (D) contain adequate provisions âÄď (i) prohibiting, consistent with the provisions of this subchapter, any source or other type of emissions activity within the State from emitting any air pollutant in amounts which will âÄď (I) contribute significantly to nonattainment in, or interfere with maintenance by, any other State with respect to any such national primary or secondary ambient air quality standard . . . . 42 U.S.C. Â§ 7410(a)(2)(D). The good neighbor provision recognizes that not all air pollution is locally generated: Some ambient air pollution âÄúis caused or augmented by emissions from other states. Emissions from âÄėupwindâÄô regions may pollute âÄėdownwindâÄô regions.âÄĚ Appalachian Power Co. v. EPA, 249 F.3d 1032, 1037 (D.C. Cir. 2001). Although the statute grants EPA significant discretion to implement the good neighbor provision, the statuteâÄôs text and this CourtâÄôs decisions in Michigan and North Carolina establish several red lines that cabin EPAâÄôs authority. Those red lines are central to our resolution of this case. First, and most obviously, the text of Section 110(a)(2)(D)(i)(I) tells us that the âÄúamounts which will . . . contributeâÄĚ to a downwind StateâÄôs nonattainment are at most those amounts that travel beyond an upwind StateâÄôs borders 24 and end up in a downwind StateâÄôs nonattainment area. 12 The statute is not a blank check for EPA to address interstate pollution on a regional basis without regard to an individual upwind StateâÄôs actual contribution to downwind air quality. Moreover, the statutory text and this CourtâÄôs decision in North Carolina v. EPA demonstrate that EPA may not force a State to eliminate more than its own âÄúsignificantâÄĚ contribution to a downwind StateâÄôs nonattainment area âÄď that is, to âÄúexceed the mark,âÄĚ as we put it in North Carolina. 531 F.3d 896, 921 (D.C. Cir. 2008). Thus, once EPA reasonably designates some level of contribution as âÄúinsignificantâÄĚ under the statute, it may not force any upwind State to reduce more than its own contribution to that downwind State minus the insignificant amount. 13 Second, under the terms of the statute and as we explained in North Carolina, the portion of an upwind StateâÄôs contribution to a downwind State that âÄúcontribute[s] significantlyâÄĚ to that downwind StateâÄôs âÄúnonattainmentâÄĚ necessarily depends on the relative contributions of that upwind State, of other upwind State contributors, and of the 12 At oral argument, EPAâÄôs counsel refused to concede this point. 13 For example, suppose that EPA determined that any upwind State whose contribution to a downwind State was less than 3 units did not âÄúcontribute significantly to nonattainment.âÄĚ That would mean EPA had established 3 units as the significance floor. Other upwind contributors to that downwind State could not be required to reduce their downwind contributions below that floor. So an upwind State whose contribution to that downwind State is 30 units could be required to reduce its contribution by at most 27 units. Of course, that is not the only constraint on EPAâÄôs authority to force the State to reduce its emissions. The other legal constraints described in this Part can further lower a StateâÄôs maximum obligation. 25 downwind State itself. Each upwind State may be required to eliminate only its own âÄúamounts which will . . . contribute significantlyâÄĚ to a downwind StateâÄôs âÄúnonattainment.âÄĚ As explained in North Carolina, EPA may not require any upwind State to âÄúshare the burden of reducing other upwind statesâÄô emissions.âÄĚ Id. In other words, the statutory text âÄď which refers to âÄúamountsâÄĚ which will âÄúcontribute significantlyâÄĚ to a downwind StateâÄôs âÄúnonattainmentâÄĚ âÄď contains not just an absolute component (meaning that an upwind StateâÄôs insignificant amounts are not covered) but also a relative component (meaning that each StateâÄôs relative contribution to the downwind StateâÄôs nonattainment must be considered). Moreover, the end goal of the statute is attainment in the downwind State. EPAâÄôs authority to force reductions on upwind States ends at the point where the affected downwind State achieves attainment. Therefore, if the downwind State would attain the NAAQS but for upwind StatesâÄô contributions âÄď that is, if the entire above-NAAQS amount is attributable to upwind StatesâÄô emissions âÄď then the upwind StatesâÄô combined share is the entire amount by which the downwind State exceeded the NAAQS. And as we said in North Carolina, when EPA allocates that burden among the upwind States, EPA may not force any upwind State to âÄúshare the burden of reducing other upwind statesâÄô emissions.âÄĚ Id. Each upwind State must bear its own fair share. Therefore, the âÄúsignificanceâÄĚ of each upwind StateâÄôs contribution cannot be measured in a vacuum, divorced from the impact of the other upwind States. Rather, the collective burden must be allocated among the upwind States in proportion to the size of their contributions to the 26 downwind StateâÄôs nonattainment. Otherwise, EPA would violate the statute and our decision in North Carolina. 14 A specific example helps illustrate that point. Suppose the NAAQS is 100 units, but the downwind StateâÄôs nonattainment area contains 150 units. Suppose further that the downwind State contributes 90 units, and three upwind States contribute 20 units each. Because the upwind States are responsible for the downwind StateâÄôs exceeding the NAAQS by 50 units, the downwind State is entitled to at most 50 units of relief from the upwind States so that the downwind State can achieve attainment of the NAAQS. Distributing those obligations in a manner proportional to their contributions, each of the three upwind StatesâÄô significant contribution would be, at most, 16 âÖĒ units. Or suppose instead that the three upwind States contribute 10, 20, 14 Before Congress adopted the current text in the Clean Air Act Amendments of 1990, the statutory text targeted amounts from an upwind State that would âÄúprevent attainmentâÄĚ in a downwind State. 42 U.S.C. Â§ 7410(a)(2)(E) (1988) (emphasis added); cf. Pub. L. No. 101-549, Â§ 101(b), 104 Stat. 2399, 2404 (1990). Under the âÄúprevent attainmentâÄĚ standard, none of the three upwind States in that hypothetical would by itself be a but-for cause of the downwind StateâÄôs nonattainment. By moving from âÄúprevent attainmentâÄĚ to âÄúcontribute significantly to nonattainment,âÄĚ the 1990 Amendments dropped the requirement that an individual upwind StateâÄôs emissions on their own prevent downwind attainment or maintenance. See S. REP. NO. 101-228, at 21 (1989) (âÄúSince it may be impossible to say that any single source or group of sources is the one which actually prevents attainment, the bill changes âÄėprevent attainment or maintenanceâÄô to âÄėcontribute significantly to nonattainment or interfere with maintenance by,âÄô thus clarifying when a violation occurs.âÄĚ). Instead, it now suffices if EPA identifies upwind emissions that, together with emissions from other upwind contributors, push a given downwind maintenance area above the NAAQS. 27 and 30 units respectively. Distributing those obligations in a manner proportional to their contributions, those three StatesâÄô significant contributions would be at most 8 âÖď, 16 âÖĒ, and 25 units, respectively, leading to the combined reduction of 50 units needed for the downwind State to reach attainment. 15 In addition, our decisions in Michigan and North Carolina establish that EPA may consider cost, but only to further lower an individual StateâÄôs obligations. See Michigan, 213 F.3d at 675; North Carolina, 531 F.3d at 918. Under Michigan, moreover, EPA may do so in a way that benefits some upwind States more than others. See 213 F.3d at 679. In other words, in order to prevent exorbitant costs from being imposed on certain upwind States, EPA may lower the obligations imposed on those States. 15 If the downwind StateâÄôs contribution alone would push it above the NAAQS, then the entire above-NAAQS amount cannot be attributed only to upwind States. The downwind State is responsible for its own share of the above-NAAQS amount. In that scenario, upwind States that contribute to the downwind State are collectively on the hook for that share of the above-NAAQS amount that is attributable to upwind StatesâÄô contributions. And, again, that collective burden must be allocated among the upwind States in proportion to the size of their contributions to the downwind State. Otherwise, one upwind State would be forced to âÄúshare the burden of reducing other upwind statesâÄô emissions,âÄĚ in violation of the statute. North Carolina, 531 F.3d at 921. An example helps illustrate that point. Suppose the NAAQS is 100 units, and the downwind StateâÄôs air contains 180 units. The downwind State contributes 120 units, and three upwind States contribute 20 units each. The downwind State is 80 units over the NAAQS âÄď but 20 units of that is its own responsibility. The upwind States must therefore provide at most 60 units of relief. Distributing those obligations proportionally, each of the three upwind StatesâÄô significant contribution would be, at most, 20 units. 28 Third, to conform to the text of the statute, EPA must also ensure that the combined obligations of the various upwind States, as aggregated, do not produce more than necessary âÄúover-controlâÄĚ in the downwind States âÄď that is, that the obligations do not go beyond what is necessary for the downwind States to achieve the NAAQS. Even when EPA carefully conforms to the above limits on its authority, the possibility of over-control in downwind States still arises because multiple upwind States may affect a single downwind State and, conversely, a single upwind State may affect multiple downwind States. The requirement to prevent such over-control comes directly from the text of the statute: The good neighbor provision of the statute targets those emissions from upwind States that âÄúcontribute significantly to nonattainmentâÄĚ of the NAAQS. EPA may require only those reductions that are necessary for downwind States to attain the NAAQS. The good neighbor provision is not a free-standing tool for EPA to seek to achieve air quality levels in downwind States that are well below the NAAQS. Therefore, if modeling shows that a given slate of upwind reductions would yield more downwind air quality benefits than necessary for downwind areas to attain the NAAQS, EPA must attempt to ratchet back the upwind StatesâÄô obligations to the level of reductions necessary and sufficient to produce attainment in the downwind States. 16 16 For example, suppose that under the proportional approach explained above, State A would have to cut 5,000 tons of NOx to achieve its largest downwind obligation, while State B would have to cut 2,000 tons to achieve its largest downwind obligation. If EPA modeling showed that all downwind nonattainment would be resolved if those two upwind StatesâÄô combined reduction obligations were, say, 10% lower, EPA would have to ratchet back the upwind StatesâÄô reduction obligations by a total of 10%. That 29 To be sure, as even petitioners acknowledge, there may be some truly unavoidable over-control in some downwind States that occurs as a byproduct of the necessity of reducing upwind StatesâÄô emissions enough to meet the NAAQS in other downwind States. See Industry & Labor Reply Br. 11 n.2. For those reasons, EPA must have some discretion about how to reasonably avoid such over-control. Moreover, because multiple upwind States may affect a single downwind State, and because a single upwind State may affect multiple downwind States, it may not be possible to accomplish the ratcheting back in an entirely proportional manner among the upwind States. Our cases recognize as much. See Michigan, 213 F.3d at 679; North Carolina, 531 F.3d at 908. But the point remains: EPA must avoid using the good neighbor provision in a manner that would result in unnecessary overcontrol in the downwind States. Otherwise, EPA would be exceeding its statutory authority, which is expressly tied to achieving attainment in the downwind States. B We now apply those principles to the EPA Transport Rule. âÄúIt is axiomatic that an administrative agencyâÄôs power to promulgate legislative regulations is limited to the authority delegated by Congress.âÄĚ Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988); see also Michigan v. EPA, 268 F.3d 1075, 1081 (D.C. Cir. 2001) (âÄúEPA is a federal agency âÄď a creature of statute,âÄĚ and may exercise âÄúonly those authorities conferred upon it by Congress.âÄĚ). An agency may not exceed a statuteâÄôs authorization or violate a statuteâÄôs limits. If a statute is ambiguous, an agency that administers the statute may choose a reasonable interpretation of that ambiguity âÄď but the agencyâÄôs interpretation must still stay would ensure that upwind States were only forced to prohibit those emissions that âÄúcontribute significantly to nonattainment.âÄĚ 30 within the boundaries of the statutory text. See Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837, 842-44 (1984). 17 In the Transport Rule, EPA used a two-stage approach to define âÄúamounts which will . . . contribute significantlyâÄĚ to downwind attainment problems. The first stage identified those upwind States that were âÄúsignificant contributorsâÄĚ to downwind attainment problems. EPA determined that a StateâÄôs contribution to a downwind nonattainment or maintenance area was significant if it exceeded a numerical âÄúair quality thresholdâÄĚ of 0.8 ppb for ozone, 0.15 Âµg/m3 for annual PM2.5, and 0.35 Âµg/m3 for 24-hour PM2.5. Transport Rule, 76 Fed. Reg. 48,208, 48,236 (Aug. 8, 2011). States âÄúwhose contributions are below these thresholds,âÄĚ EPA found, âÄúdo not significantly contribute to nonattainment or interfere with maintenance of the relevant NAAQS.âÄĚ Id. Those upwind States were off the hook altogether. But an upwind State that exceeded the significance threshold at even one downwind StateâÄôs receptor was drawn wholesale into the RuleâÄôs second stage âÄď cost-based emissions reductions. At that second stage, EPA abandoned the previous measure of significance âÄď the numerical air quality thresholds, which were based on the quantity of pollution an upwind State sent to a downwind area. Instead, EPA switched over to relying on cost of reduction alone. EPA required each StateâÄôs power plants to cut all of the emissions 17 We set aside EPAâÄôs action here if âÄúarbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,âÄĚ or if âÄúin excess of statutory jurisdiction, authority, or limitations, or short of statutory right.âÄĚ The standard we apply âÄúis the sameâÄĚ under the judicial review provision of the Clean Air Act, 42 U.S.C. Â§ 7607(d)(9), as under the Administrative Procedure Act, 5 U.S.C. Â§ 706(2). Motor Vehicle Manufacturers AssâÄôn v. EPA, 768 F.2d 385, 389 n.6 (D.C. Cir. 1985). 31 they could eliminate at a given cost per ton of pollution reduced âÄď regardless of the âÄúamountsâÄĚ of the StateâÄôs emissions EPA deemed to âÄúcontribute significantlyâÄĚ at stage one and regardless of the relative contributions of the other upwind States and the downwind State. We perceive at least three independent but intertwined legal flaws in EPAâÄôs approach to the good neighbor provision. Those flaws correspond to the three requirements we outlined above that come from the statutory text. First, and most fundamentally, the Transport Rule is flawed because the requirement that EPA imposed on upwind States was not based on the âÄúamountsâÄĚ from upwind States that âÄúcontribute significantly to nonattainmentâÄĚ in downwind States, as required by the statute and our decision in North Carolina. Petitioners claim that the initial stage of EPAâÄôs analysis âÄď the numerical air quality thresholds, which used a bright-line test for whether a StateâÄôs downwind emissions âÄúcontribute significantlyâÄĚ âÄď created a âÄúâÄėfloorâÄô below which any contribution is, by definition, viewed as insignificant.âÄĚ Industry & Labor Br. 20. Petitioners argue that EPA has no statutory authority to compel States to reduce amounts of pollution that are âÄúinsignificant.âÄĚ Therefore, petitioners contend that EPA could not ignore that floor at the later stage, when it calculated each StateâÄôs âÄúsignificant contributionâÄĚ based on cost. 18 18 The dissent contends that this point was not preserved for judicial review and that the agency was not aware of this issue during the agency proceedings. See 42 U.S.C. Â§ 7607(d)(7)(B). For several reasons, we are convinced EPA had more than âÄúadequate notification of the general substanceâÄĚ of petitionersâÄô 32 argument. NRDC v. EPA, 571 F.3d 1245, 1259 (D.C. Cir. 2009) (quoting South Coast Air Quality Mgmt. Dist. v. EPA, 472 F.3d 882, 891 (D.C. Cir. 2006)). Indeed, one of the central questions in the long history of EPAâÄôs efforts to implement the good neighbor provision has been whether EPA has complied with the basic statutory limits on its authority. So it is here. First, the Transport Rule proceeding arose out of this CourtâÄôs decision in North Carolina, on which petitionersâÄô argument relies. See Transport Rule, 76 Fed. Reg. at 48,211 (âÄúEPA is promulgating the Transport Rule in response to the remand of the Clean Air Interstate Rule (CAIR) by the U.S. Court of Appeals for the District of Columbia CircuitâÄĚ). In North Carolina v. EPA, this Court explained the applicable statutory limitations and instructed EPA on remand to craft a new rule âÄúconsistent with our opinion.âÄĚ 550 F.3d 1176, 1177 (D.C. Cir. 2008) (on rehearing). Instructing EPA to proceed in a manner âÄúconsistent withâÄĚ North Carolina presupposes that EPA is aware of the CourtâÄôs opinion. And the opinion made clear that once EPA defines each upwind StateâÄôs âÄúsignificant contribution,âÄĚ it may not âÄúrequire some states to exceed the mark.âÄĚ 531 F.3d at 921. In sum, EPA knew from the beginning that it was required to comply with North Carolina, including that part of the CourtâÄôs holding on which petitioners rely here. Second, EPA considered âÄď and rejected âÄď precisely the same argument in CAIR. EPA first acknowledged the comment: âÄúSome commenters stated, more broadly, that the threshold contribution level selected by EPA should be considered a floor, so that upwind States should be obliged to reduce their emissions only to the level at which their contribution to downwind nonattainment does not exceed that threshold level.âÄĚ CAIR, 70 Fed. Reg. 25,162, 25,17677 (May 12, 2005). It then dismissed that argument: âÄúMost important for present purposes, as long as the controls yield downwind benefits needed to reduce the extent of nonattainment, the controls should not be lessened simply because they may have the effect of reducing the upwind StateâÄôs contribution to below the initial threshold.âÄĚ Id. at 25,177. EPAâÄôs rejection of the same argument in a prior rulemaking âÄď indeed, in a prior rulemaking that is the direct progenitor of the current one âÄď is highly relevant to 33 whether the argument is preserved here. See, e.g., American Petroleum Institute v. EPA, 52 F.3d 1113, 1120 n.1 (D.C. Cir. 1995); NRDC v. EPA, 824 F.2d 1146, 1151 (D.C. Cir. 1987) (en banc); see also Appalachian Power Co. v. EPA, 135 F.3d 791, 818 (D.C. Cir. 1998) (âÄúThe purpose of the exhaustion requirement is to ensure that the agency is given the first opportunity to bring its expertise to bear on the resolution of a challenge to a rule.âÄĚ). EPAâÄôs prior rejection of the same argument in CAIR, together with this CourtâÄôs opinion in North Carolina, show that EPA âÄúhad notice of this issue and could, or should have, taken it into account.âÄĚ NRDC, 824 F.2d at 1151. Third, EPAâÄôs statements at the proposal stage indicated EPA was not open to reconsidering CAIRâÄôs earlier rejection of petitionersâÄô argument. See Proposed Transport Rule, 75 Fed. Reg. 45,210, 45,299 (Aug. 2, 2010) (âÄúEPA evaluated a number of alternative approaches to defining significant contribution and interference with maintenance in addition to the approach proposed in this rule. Stakeholders suggested a variety of ideas. EPA considered all suggested approaches. . . . EPA is not proposing any of the alternative approaches listed here.âÄĚ). By that point, EPA had already dismissed the two air quality-only approaches it considered and had indicated its firm commitment to the cost-based approach. See EPA, Alternative Significant Contribution Approaches Evaluated Technical Support Document 7 (July 2010) (EPA, Significant Contribution TSD), J.A. 2312 (uniform cost-per-ton approach âÄúhas been successfully implemented before, with excellent environmental resultsâÄĚ); see also id. at 3-7, J.A. 2308-12. In light of the indications that EPA was aware of their objection but had no intention to revisit its approach (and indeed had already rejected the objection), the specificity of commenters such as Wisconsin and Tennessee was âÄúreasonableâÄĚ under the circumstances. 42 U.S.C. Â§ 7607(d)(7)(B); see, e.g., Wisconsin Cmt., J.A. 1293 (âÄúEPA needs to primarily depend on air quality results instead of control costs in definingâÄĚ significant contributions); Tennessee Cmt., J.A. 556 (âÄúA lower cost threshold should be considered for any State that can reduce their contribution below 1% significance using cost thresholds below the 34 We agree with petitioners. The Transport Rule includes or excludes an upwind State based on the amount of that upwind StateâÄôs significant contribution to a nonattainment area in a downwind State. That much is fine. But under the Rule, a State then may be required to reduce its emissions by an amount greater than the â