The U.S. Supreme Court heard arguments Wednesday regarding a U.S. Environmental Protection Agency rule known as the good neighbor plan.

The good neighbor plan establishes an emission trading program for fossil fuel power plants and imposes emission requirements on some other industrial sources of pollution. 

The EPA’s authority to enact such requirements stems from a good neighbor provision in the Clean Air Act. This requires the EPA as well as states to address the air pollution that crosses state lines. Each state has what is known as a State Implementation Plan, or SIP. These plans must include ways to prohibit emission that will significantly contribute to neighboring states’ exceedance of National Ambient Air Quality Standards or interfere with the downwind states’ ability to maintain healthy air quality.

Should a state fail to submit a SIP or if the EPA disapproves that plan, the agency is required to step in and create what is known as a Federal Implementation Plan, or FIP.

In 2015, the EPA revised its ozone standard, setting that limit at 70 parts per million. Areas where ozone levels exceed 70 parts per million a certain amount of the time are considered to be out of compliance with the standards. Doña Ana County is an example of a place in New Mexico that is exceeding the federal ozone standards. That is in part due to the pollution from Texas and Mexico.

In 2023, the EPA completely rejected 19 states’ plans and partially rejected two more SIPs. In their place, the EPA issued the good neighbor plan, which three states —Ohio, Indiana and West Virginia—as well as industry groups challenged in courtThey say that implementing the plan will be expensive and will lead to minor improvements in air quality in downwind states while also potentially destabilizing the power grid.

Courts have since stayed the EPA’s reduction of a dozen SIPs from states. This means implementation of the good neighbor plan has been paused in those 12 states. While the courts stayed the EPA’s disallowance, no court has ruled on the merits of the agency’s decision.

When the U.S. Court of Appeals for the D.C. Circuit did not issue a stay in their cases, various litigants asked the Supreme Court to issue an emergency stay. The Supreme Court did not immediately act on that request when it was made in October. Instead, the justices chose to hear oral arguments.

That was an unusual decision for the Supreme Court since the case was on the shadow docket. The shadow docket includes rulings on emergency matters or stays on lower court decisions pending appeal. The Supreme Court typically issues decisions in such cases following limited briefing and usually without oral arguments. Those decisions are also less transparent and do not include a legal analysis or a breakdown of how the justices voted.

While the Supreme Court chose to hear oral arguments, it has a 6-3 conservative majority and recent cases have limited the EPA’s authority. Notably, in 2022, the Supreme Court ruled that the EPA cannot put state-level caps on carbon dioxide emissions. This limited the agency’s ability to tackle one of the leading contributors to climate change.

Justice Katanji Brown Jackson expressed some concerns about the Supreme Court taking action on the good neighbor plan before a lower court could issue a ruling.

“Don’t we have to have something so that we, the Supreme Court, is not supplanting the entirety of the lower federal court system when we’re looking at cases of this nature?” she asked.

The states that had their SIPs essentially rejected had proposed that they would take no action to revise their plans following the change in the federal ozone standards. 

The good neighbor plan that the EPA released in 2023 also included two other states that had not submitted any revisions to their plan. That brought the total number of states included in the original good neighbor plan to 23.

Starting this year, those 23 states are supposed to receive an emissions budget. From there, power plants will receive their allowances. The individual power plants can then buy, sell or bank their emission allowances. These transactions do not have to occur within state boundaries. Instead, the trades can occur with power plants or other pollution sources in any state included in the good neighbor plan.

One concern expressed during the Supreme Court hearing on Wednesday was that the reduction in the number of states may make it harder for this trading to occur.

While New Mexico was not initially included in the 23 states, it was added along with four other states in January. In New Mexico, the plan only applies to fossil-fuel power plants, which will be required to participate in what the notice in the Federal Register referred to as an “allowance-based ozone season nitrogen oxides emissions trading program.” That would begin in 2025. Fossil fuel power plants will face emission budgets under the good neighbor plan.

The EPA is hosting a virtual public hearing regarding those five states on March 4.