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. âBuddyâ 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. OâBrien, 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 DâWayne 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 OâDonnell, 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 âamountsâ of pollution that travel across State lines and âcontribute significantlyâ to a downwind Stateâs ânonattainmentâ of federal air quality standards. That requirement is sometimes called the âgood neighborâ 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 Statesâ contributions to downwind Statesâ air quality problems. The Rule limits emissions from upwind Statesâ 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, EPAâs Transport Rule exceeds the agencyâs 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 Stateâs nonattainment. But under the Transport Rule, upwind States may be required to reduce emissions by more than their own significant contributions to a downwind Stateâs 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, EPAâs 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 Statesâ 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 Statesâ 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, EPAâs 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 Associationâs 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 Assâns 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 EPAâs preferred approach to the good neighbor issue. Unless and until Congress does so, we must apply and enforce the statute as itâs now written. Our decision today should not be interpreted as a comment on the wisdom or policy merits of EPAâs 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 petitionersâ challenge to EPAâs 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 dissentâs reading of the record on that point. The dissent also claims that petitionersâ challenge to EPAâs 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 dissentâs analysis on the FIPs issue conflates (i) EPAâs rejection of certain Statesâ SIPs and (ii) EPAâs decision in the Transport Rule to set Statesâ âgood neighborâ 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. § 7409(a)-(b). EPA must choose levels which, âallowing an adequate margin of safety, are requisite to protect the public health.â 42 U.S.C. § 7409(b)(1). After a lengthy process, the details of which are not relevant here, EPA designates ânonattainmentâ areas â that is, areas within each State where the level of the pollutant exceeds the NAAQS. See 42 U.S.C. § 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 Statesâ 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. § 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 âgood neighborâ 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 â (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 â (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. § 7410(a)(2)(D). The good neighbor provision recognizes that emissions âfrom âupwindâ regions may pollute âdownwindâ regions.â 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 Stateâs SIP as the vehicle for implementing the upwind Stateâs 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 Stateâs 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. § 7410(k)(5). After EPA quantifies a Stateâs 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 Stateâs 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. § 7410(c)(1). B The good neighbor provision â and EPAâs attempts to implement it â 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 EPAâs 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 âamounts which will . . . contribute significantly to nonattainmentâ 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 âhighly cost-effectiveâ 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 âclear congressional intent to preclude consideration of cost.â Id. at 677 (citation omitted). The Court thus held that EPA may âconsider differences in cutback costs, so that, after reduction of all that could be cost-effectively eliminated, any remaining âcontributionâ would not be considered âsignificant.ââ Id. at 677; see also id. at 677-79. In other words, EPA could use cost considerations to lower an upwind Stateâs 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 EPAâs 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 Statesâ 2 Judge Sentelle dissented. In his view, the statutory text unambiguously âset forth one criterion: the emission of an amount of pollutant sufficient to contribute significantly to downwind nonattainment.â Id. at 696 (Sentelle, J., dissenting); cf. Whitman v. American Trucking Assâns, 531 U.S. 457, 467 (2001) (âWe 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.â). 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 â both of which incorporated cost considerations â to quantify each Stateâs obligations for the pollutants covered by CAIR, SO2 and NOx. The North Carolina decision held that the formulas went beyond Michiganâs authorization to use cost and that the formulas therefore exceeded EPAâs statutory authority. EPA may use cost to ârequire termination of only a subset of each stateâs contribution,â the Court explained, but âEPA canât just pick a cost for a region, and deem âsignificantâ any emissions that sources can eliminate more cheaply.â 531 F.3d at 918 (citation, emphasis, and some internal quotation marks omitted). The Court also held that âsection 110(a)(2)(D)(i)(I) gives EPA no authority to force an upwind state to share the burden of reducing other upwind statesâ emissions. Each state must eliminate its own significant contribution to downwind pollution.â Id. at 921. The Court emphasized that EPA âmay not require some states to exceed the mark.â Id. North Carolina thus articulated an important caveat to Michiganâs approval of cost considerations. The statute permits EPA to use cost to lower an upwind Stateâs obligation under the good neighbor provision. See Michigan, 213 F.3d at 675, 677. But EPA may not use cost to increase an upwind Stateâs obligation under the good neighbor provision â that is, to force an upwind State to âexceed the mark.â 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 â not other Statesâ shares. 14 C The North Carolina Court remanded CAIR without vacatur, leaving CAIR in place âuntil it is replaced by a rule consistent with our opinion.â North Carolina v. EPA, 550 F.3d 1176, 1178 (D.C. Cir. 2008) (on rehearing). The Transport Rule is EPAâs 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 Statesâ 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 Stateâs 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 âamountsâ of pollution that each State must prohibit under the good neighbor provision â that is, âamounts which will . . . contribute significantly to nonattainmentâ or âinterfere with maintenanceâ of the three NAAQS in other States. 42 U.S.C. § 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 Stateâs obligations under the good neighbor provision. In the first stage, EPA determined whether a State emits âamounts which will . . . contribute significantlyâ to a downwind Stateâs nonattainment of any of the three NAAQS. EPA identified the significantly contributing upwind States based on âlinkagesâ between each upwind State and specific downwind ânonattainmentâ or âmaintenanceâ areas â 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 Stateâs contribution to that downwind area exceeded a numerical âair quality thresholdâ â that is, a specific amount of air pollution sent from the upwind State into the downwind Stateâs 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 µg/m3 for annual PM2.5, and (iii) 0.35 µg/m3 for 24-hour PM2.5. Id. If modeling showed that an upwind State would send more than those amounts into a downwind Stateâs air, as measured at a receptor site in a downwind State, the upwind State was deemed a âsignificant contributorâ to the downwind Stateâs air pollution problem. rulemaking authority under Section 301(a)(1) of the Clean Air Act, 42 U.S.C. § 7601(a)(1), to construe Section 110(a)(2)(D)(i)(I) and to quantify the Statesâ 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. § 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 â that is, the thresholds determined which upwind Statesâ emissions âcontribute significantlyâ to downwind Statesâ air pollution problems. Upwind States âwhose contributions are below these thresholds,â EPA found, âdo not significantly contribute to nonattainment or interfere with maintenance of the relevant NAAQSâ in downwind States. Id. Because their emissions did not âcontribute significantly,â those States were not required to cut their emissions for purposes of the good neighbor provision. As one would expect, this âsignificant contributionâ 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 µg/m3, respectively â just barely meeting the 0.15 µg/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 µg/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 âsignificant 5 Texas also narrowly exceeded the 0.35 µg/m3 threshold for 24-hour PM2.5; its maximum downwind contribution was 0.37 µg/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.â 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 Ruleâs 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 Ruleâs 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 Statesâ inclusion in the Transport Rule for ozone-season NOx). At the second stage, however, EPA abandoned the air quality thresholds â that is, the stage one standard for whether an upwind Stateâs emissions âcontribute significantlyâ to a downwind Stateâs nonattainment of air quality standards. Instead, at stage two, EPA used a cost-based standard: EPA determined how much pollution each upwind Stateâs power plants could eliminate if the upwind Stateâs 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 Stateâs âsignificant contributionâ 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 Statesâ 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 plantâs 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 â SO2, annual NOx, and ozone-season NOx. EPA consulted both its cost-ofreduction modeling and its air quality modeling and identified what it termed âsignificant cost thresholdsâ â 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 âmulti-factor assessmentâ to choose the final cost-per-ton levels. Id. at 48,256. The âmulti-factor assessmentâ 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 â 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 âbudgetsâ 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 Stateâs 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. § 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 Stateâs 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 Stateâs emissions budget into âallowances,â 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 ârequired to hold one SO2 or one NOx allowance, respectively, for every ton of SO2 or NOx emittedâ 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 âreview such a SIP on a case-by-case basis.â Id. But, importantly, the States do not have a post-Rule opportunity to avoid FIPs by submitting a SIP or SIP revision: The FIPs âremain fully in place in each covered state until a stateâs SIP is submitted and approved by EPA to revise or replace a FIP.â 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 Statesâ 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 Courtâs holding in North Carolina that the deadlines must be âconsistent with the provisions in Title I mandating [NAAQS] compliance deadlines for downwind states.â 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 EPAâs 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 Courtâs order instructed EPA to âcontinue administering the Clean Air Interstate Rule pending the courtâs resolution of these petitions for review.â Id. In Part II of this opinion, we address whether the Rule exceeds EPAâs authority to order upwind States to reduce âamounts which will . . . contribute significantly to nonattainmentâ 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 petitionersâ argument that EPA exceeded its statutory authority under the âgood neighborâ provision. Under the statute, EPA is limited to ordering upwind States to reduce âamounts which will . . . contribute significantly to nonattainmentâ in downwind States. 42 U.S.C. § 7410(a)(2)(D)(i). 23 A The Transport Rule defines Statesâ obligations under Section 110(a)(2)(D)(i)(I) of the Clean Air Act, a provision sometimes described as the âgood neighborâ provision. See 42 U.S.C. § 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 â (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 â (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. § 7410(a)(2)(D). The good neighbor provision recognizes that not all air pollution is locally generated: Some ambient air pollution âis caused or augmented by emissions from other states. Emissions from âupwindâ regions may pollute âdownwindâ regions.â 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 statuteâs text and this Courtâs decisions in Michigan and North Carolina establish several red lines that cabin EPAâs 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 âamounts which will . . . contributeâ to a downwind Stateâs nonattainment are at most those amounts that travel beyond an upwind Stateâs borders 24 and end up in a downwind Stateâs 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 Stateâs actual contribution to downwind air quality. Moreover, the statutory text and this Courtâs decision in North Carolina v. EPA demonstrate that EPA may not force a State to eliminate more than its own âsignificantâ contribution to a downwind Stateâs nonattainment area â that is, to âexceed the mark,â 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 âinsignificantâ 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 Stateâs contribution to a downwind State that âcontribute[s] significantlyâ to that downwind Stateâs ânonattainmentâ necessarily depends on the relative contributions of that upwind State, of other upwind State contributors, and of the 12 At oral argument, EPAâs 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 âcontribute significantly to nonattainment.â 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 EPAâs authority to force the State to reduce its emissions. The other legal constraints described in this Part can further lower a Stateâs maximum obligation. 25 downwind State itself. Each upwind State may be required to eliminate only its own âamounts which will . . . contribute significantlyâ to a downwind Stateâs ânonattainment.â As explained in North Carolina, EPA may not require any upwind State to âshare the burden of reducing other upwind statesâ emissions.â Id. In other words, the statutory text â which refers to âamountsâ which will âcontribute significantlyâ to a downwind Stateâs ânonattainmentâ â contains not just an absolute component (meaning that an upwind Stateâs insignificant amounts are not covered) but also a relative component (meaning that each Stateâs relative contribution to the downwind Stateâs nonattainment must be considered). Moreover, the end goal of the statute is attainment in the downwind State. EPAâs 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 Statesâ contributions â that is, if the entire above-NAAQS amount is attributable to upwind Statesâ emissions â then the upwind Statesâ 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 âshare the burden of reducing other upwind statesâ emissions.â Id. Each upwind State must bear its own fair share. Therefore, the âsignificanceâ of each upwind Stateâs 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 Stateâs 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 Stateâs 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 Stateâs 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 Statesâ significant contribution would be, at most, 16 â 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 âprevent attainmentâ in a downwind State. 42 U.S.C. § 7410(a)(2)(E) (1988) (emphasis added); cf. Pub. L. No. 101-549, § 101(b), 104 Stat. 2399, 2404 (1990). Under the âprevent attainmentâ standard, none of the three upwind States in that hypothetical would by itself be a but-for cause of the downwind Stateâs nonattainment. By moving from âprevent attainmentâ to âcontribute significantly to nonattainment,â the 1990 Amendments dropped the requirement that an individual upwind Stateâs emissions on their own prevent downwind attainment or maintenance. See S. REP. NO. 101-228, at 21 (1989) (âSince it may be impossible to say that any single source or group of sources is the one which actually prevents attainment, the bill changes âprevent attainment or maintenanceâ to âcontribute significantly to nonattainment or interfere with maintenance by,â thus clarifying when a violation occurs.â). 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 Statesâ significant contributions would be at most 8 â, 16 â, 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 Stateâs 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 Stateâs 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 Statesâ 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 âshare the burden of reducing other upwind statesâ emissions,â 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 Stateâs 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 â 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 Statesâ 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 âover-controlâ in the downwind States â 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 âcontribute significantly to nonattainmentâ 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 Statesâ 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 Statesâ combined reduction obligations were, say, 10% lower, EPA would have to ratchet back the upwind Statesâ 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 Statesâ 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. âIt is axiomatic that an administrative agencyâs power to promulgate legislative regulations is limited to the authority delegated by Congress.â 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) (âEPA is a federal agency â a creature of statute,â and may exercise âonly those authorities conferred upon it by Congress.â). An agency may not exceed a statuteâs authorization or violate a statuteâs limits. If a statute is ambiguous, an agency that administers the statute may choose a reasonable interpretation of that ambiguity â but the agencyâs interpretation must still stay would ensure that upwind States were only forced to prohibit those emissions that âcontribute significantly to nonattainment.â 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 âamounts which will . . . contribute significantlyâ to downwind attainment problems. The first stage identified those upwind States that were âsignificant contributorsâ to downwind attainment problems. EPA determined that a Stateâs contribution to a downwind nonattainment or maintenance area was significant if it exceeded a numerical âair quality thresholdâ of 0.8 ppb for ozone, 0.15 µg/m3 for annual PM2.5, and 0.35 µg/m3 for 24-hour PM2.5. Transport Rule, 76 Fed. Reg. 48,208, 48,236 (Aug. 8, 2011). States âwhose contributions are below these thresholds,â EPA found, âdo not significantly contribute to nonattainment or interfere with maintenance of the relevant NAAQS.â Id. Those upwind States were off the hook altogether. But an upwind State that exceeded the significance threshold at even one downwind Stateâs receptor was drawn wholesale into the Ruleâs second stage â cost-based emissions reductions. At that second stage, EPA abandoned the previous measure of significance â 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 Stateâs power plants to cut all of the emissions 17 We set aside EPAâs action here if âarbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,â or if âin excess of statutory jurisdiction, authority, or limitations, or short of statutory right.â The standard we apply âis the sameâ under the judicial review provision of the Clean Air Act, 42 U.S.C. § 7607(d)(9), as under the Administrative Procedure Act, 5 U.S.C. § 706(2). Motor Vehicle Manufacturers Assân 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 â regardless of the âamountsâ of the Stateâs emissions EPA deemed to âcontribute significantlyâ 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 EPAâs 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 âamountsâ from upwind States that âcontribute significantly to nonattainmentâ in downwind States, as required by the statute and our decision in North Carolina. Petitioners claim that the initial stage of EPAâs analysis â the numerical air quality thresholds, which used a bright-line test for whether a Stateâs downwind emissions âcontribute significantlyâ â created a ââfloorâ below which any contribution is, by definition, viewed as insignificant.â Industry & Labor Br. 20. Petitioners argue that EPA has no statutory authority to compel States to reduce amounts of pollution that are âinsignificant.â Therefore, petitioners contend that EPA could not ignore that floor at the later stage, when it calculated each Stateâs âsignificant contributionâ 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. § 7607(d)(7)(B). For several reasons, we are convinced EPA had more than âadequate notification of the general substanceâ of petitionersâ 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 EPAâs 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 Courtâs decision in North Carolina, on which petitionersâ argument relies. See Transport Rule, 76 Fed. Reg. at 48,211 (âEPA 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 Circuitâ). In North Carolina v. EPA, this Court explained the applicable statutory limitations and instructed EPA on remand to craft a new rule âconsistent with our opinion.â 550 F.3d 1176, 1177 (D.C. Cir. 2008) (on rehearing). Instructing EPA to proceed in a manner âconsistent withâ North Carolina presupposes that EPA is aware of the Courtâs opinion. And the opinion made clear that once EPA defines each upwind Stateâs âsignificant contribution,â it may not ârequire some states to exceed the mark.â 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 Courtâs holding on which petitioners rely here. Second, EPA considered â and rejected â precisely the same argument in CAIR. EPA first acknowledged the comment: âSome 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.â CAIR, 70 Fed. Reg. 25,162, 25,17677 (May 12, 2005). It then dismissed that argument: âMost 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 Stateâs contribution to below the initial threshold.â Id. at 25,177. EPAâs rejection of the same argument in a prior rulemaking â indeed, in a prior rulemaking that is the direct progenitor of the current one â 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) (âThe 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.â). EPAâs prior rejection of the same argument in CAIR, together with this Courtâs opinion in North Carolina, show that EPA âhad notice of this issue and could, or should have, taken it into account.â NRDC, 824 F.2d at 1151. Third, EPAâs statements at the proposal stage indicated EPA was not open to reconsidering CAIRâs earlier rejection of petitionersâ argument. See Proposed Transport Rule, 75 Fed. Reg. 45,210, 45,299 (Aug. 2, 2010) (âEPA 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.â). 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 âhas been successfully implemented before, with excellent environmental resultsâ); 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 âreasonableâ under the circumstances. 42 U.S.C. § 7607(d)(7)(B); see, e.g., Wisconsin Cmt., J.A. 1293 (âEPA needs to primarily depend on air quality results instead of control costs in definingâ significant contributions); Tennessee Cmt., J.A. 556 (âA 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 Stateâs 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