A three-judge panel of the US Court of Appeals for the DC Circuit ruled Friday that the Environmental Protection Agency does not have the authority to institute a "cap-and-trade" policy for controlling levels of soot and smog emissions. The Clean Air Interstate Rule was intended to permanently cap emissions of sulfur dioxide and nitrogen oxides across 28 eastern states and would have reduced the levels of those pollutants by 70 percent and 60 percent respectively. The emission caps were expected to result in $85 to $100 billion in direct health benefits and almost $2 billion in visibility benefits by 2015. The court's decision rejected the entire regulation, calling the EPA's approach to emissions control caps "fundamentally flawed," and saying that the legislation would not "survive remand in anything approaching recognizable form."

The action was brought by the state of North Carolina and a number of power companies for various reasons, including the differences between the CAIR and the broader Clean Air Act, the belief that the CAIR would not effectively reduce emissions, and the prescribed compliance deadline. Friday's ruling follows a February decision by the same court which held the EPA's Clean Air Mercury Rule to be invalid. That rule intended to use a similar "cap-and-trade" policy to reduce mercury emissions from power plants by 70 percent. The February decision was appealed by the Bush administration in March.