Washington (Platts)--23Dec2008

A federal court on Tuesday said that the controversial Clean Air
Interstate Rule that created an emissions trading program for coal-fired power
plants can stay in place until the US Environmental Protection Agency fixes it
in accordance with an earlier order that threw out the rule.

"Here, we are convinced that, notwithstanding the relative flaws of CAIR,
allowing CAIR to remain in effect until it is replaced by a rule consistent
with our opinion would at least temporarily preserve the environmental values
covered by CAIR," the US Court of Appeals for the District of Columbia Circuit
said in its order for a rehearing.

The court on July 11 had vacated CAIR in its entirety and remanded it to
EPA declaring that the 2005 rule had "had more than several fatal flaws." The
agency in September petitioned the court for a rehearing or as an alternative,
a remand of CAIR without the court's order vacating the rule.

In October, the court asked parties to a suit against CAIR to respond to
EPA's petition and whether it should stay the rule until EPA revises CAIR. The
court, in its order Tuesday, said it considered the parties' positions in its
order to remand CAIR without vacating it.

The court, however, refrained from giving EPA a deadline for revising
CAIR as requested by some petitioners.

"Though we do not impose a particular schedule by which EPA must alter
CAIR, we remind EPA that we do not intend to grant an indefinite stay," the
court said. "Our opinion revealed CAIR's fundamental flaws, which EPA must
still remedy."

EPA issued CAIR in 2005 to create an emissions cap-and-trading system for
28 eastern states and the District of Columbia in an effort to reduce the
region's nitrogen oxide and sulfur dioxide emissions by 61% and 73%,
respectively, compared with 2003 levels by 2015.

NOx reductions were due to start in 2009 and SO2 reductions in 2010; with
a second phase of reductions of both types of emissions set to begin in 2015.

The rule was challenged by Duke Energy for its treatment of S02
allowances and by Entergy for treatment of its NOx allowances under CAIR's
emissions trading program. North Carolina challenged the rule over whether it
would allow emissions from outside its borders to interfere with its meeting
clean air standards.
--Cathy Cash, cathy_cash@platts.com