EPA Cross-State Air Pollution Rule — NOx and SO2 Cap-and-Trade

The Cross-State Air Pollution Rule (CSAPR), codified at 40 CFR Part 97, is EPA's cap-and-trade program enforcing the Clean Air Act's "Good Neighbor" obligation — the requirement that upwind states not allow emissions that significantly contribute to air quality problems in downwind states. CSAPR sets state-level caps on nitrogen oxides (NOx) and sulfur dioxide (SO2) from large power plants, allocates tradeable allowances to individual plants, and requires each plant to hold allowances equal to its actual annual emissions. Plants that reduce emissions more than required can sell surplus allowances; plants with higher reduction costs can buy them — achieving the same total cap at lower overall cost. The result is an enforceable ceiling on the pollution that Ohio, Indiana, and other upwind industrial states can export to the Northeast and Mid-Atlantic.

Current Rule (2026)

What This Rule Does

Power plants don't stop at state borders — and neither does their pollution. When a coal plant in Ohio emits nitrogen oxides (NOx) and sulfur dioxide (SO2), those pollutants travel downwind and contribute to smog and acid rain in New York, Pennsylvania, and New England. The Clean Air Act's "Good Neighbor" provision (§ 110(a)(2)(D)) prohibits states from allowing emissions that significantly contribute to air quality problems in downwind states.

40 CFR Part 97 is EPA's regulatory vehicle for enforcing that obligation through cap-and-trade programs. Under the Cross-State Air Pollution Rule (CSAPR), EPA sets a cap on total NOx and SO2 emissions from large power plants in each participating state, allocates tradeable allowances to individual plants, and requires plants to hold allowances equal to their actual emissions each year. Plants that cut emissions more than required can sell their surplus allowances to plants that find cutting emissions costlier — achieving the same total emissions reduction at lower overall economic cost.

The result: an enforceable ceiling on the NOx and SO2 that upwind states can export to their neighbors, with market flexibility in how individual plants meet the cap.

How CSAPR Works

The allowance system. EPA calculates each state's total allowable emissions budget for NOx and SO2 — the amount that can be emitted without significantly contributing to downwind air quality violations. That budget is divided into allowances (one allowance = one ton of pollutant). EPA allocates allowances to individual power plants based on historical heat input. Plants that want to emit more tons than their allocation must buy allowances from plants with a surplus. Plants that emit fewer tons can bank or sell their surplus allowances.

Annual vs. ozone season programs. NOx causes two distinct air quality problems: year-round NOx contributes to fine particulate (PM2.5) pollution; NOx in summer also reacts in sunlight to form ground-level ozone. CSAPR runs annual NOx trading (covering all 12 months) and ozone season NOx trading (May–September) as separate programs with separate allowance pools, because ozone is a summer phenomenon.

SO2 trading. SO2 from coal plants causes acid rain and contributes to fine particle pollution. CSAPR's SO2 programs (Groups 1 and 2, covering different sets of states) cap SO2 emissions from power plants in participating states.

Assurance provisions. A key feature of CSAPR that distinguished it from the prior CAIR program: state-level assurance provisions prevent a state from "over-exporting" its pollution by capping how many out-of-state allowances its plants can use. Even if the market sets a uniform allowance price, each state must ensure its plants' combined emissions don't exceed the state budget by more than a specified percentage — usually 18%.

Who is covered. Large coal and natural gas-fired electric generating units (EGUs) that generate electricity for sale. Units below minimum size thresholds (generally, units below 25 MW or not serving a generator) are exempt. As the coal fleet has retired and gas has expanded, the number of covered units has declined substantially from CSAPR's original coverage.

Key Provisions in 40 CFR Part 97

• Subpart A — NOX Budget Trading Program (legacy program, largely replaced by CSAPR but still operative for some units)

40 CFR Part 96 — NOX Budget Trading Program and CAIR NOX and SO2 Trading Programs for State Implementation Plans (189 sections): the SIP-incorporated counterpart to Part 97's federal implementation programs. When EPA issued CAIR in 2005, states could address the Good Neighbor obligation by incorporating CAIR-compliant trading programs into their State Implementation Plans rather than accepting the federal Part 97 program. Part 96 codifies the model SIP trading rules — essentially identical mechanisms to Part 97 (designated representatives, allowance accounts, CEMS monitoring, compliance deadlines) but formatted for states to adopt by reference into their approved SIPs. The CAIR NOX Annual, CAIR NOX Ozone Season, and CAIR SO2 Group programs have subparts in both Part 96 (SIP basis) and Part 97 (FIP basis), depending on how each state implemented CAIR. After CSAPR replaced CAIR following the 2008 D.C. Circuit vacatur, Part 96's CAIR-era programs became residual legacy rules — still operative for compliance periods before CSAPR's effective dates and for any outstanding allowance obligations, but no longer the active trading programs.

• Subpart AAAAA — CSAPR NOX Annual Trading Program: general provisions; designated representative requirements (each plant must have a CSAPR-authorized representative registered in EPA's tracking system); allowance allocation methodology; compliance obligation (surrender allowances equal to tons emitted); monitoring and reporting using 40 CFR Part 75 CEMS data
• Subpart BBBBB / EEEEE / GGGGG — CSAPR NOX Ozone Season Groups 1, 2, and 3 (added as the program was updated through court decisions and rulemaking cycles)
• Subpart CCCCC / DDDDD — CSAPR SO2 Group 1 and Group 2 Trading Programs
• Subpart FFFFF — Texas SO2 Trading Program (Texas-specific program, separate from the interstate CSAPR programs, developed after litigation over Texas's inclusion in CSAPR)
• Monitoring subparts (HH, HHH, HHHH) — Continuous Emissions Monitoring System (CEMS) requirements: plants must install stack monitors measuring actual hourly SO2 and NOx, with quality assurance testing and electronic reporting to EPA's Electronic Data Reporting system

Compliance and Enforcement

The compliance cycle: Each year, covered plants report their actual NOx and SO2 emissions (measured by CEMS) to EPA's Acid Rain/CSAPR tracking system. By March 1 of the following year, they must surrender allowances equal to their measured emissions. If a plant holds fewer allowances than its emissions, it faces a 4:1 penalty: it must surrender 4 allowances for each ton of excess emissions in the following year, plus potentially other penalties.

The Allowance Management System (ATCS/CAMPD): EPA maintains a database tracking all allowance holdings and transfers. Plants, brokers, and other market participants can hold and trade allowances. Trades must be recorded in the tracking system before they are valid for compliance.

Designated Representatives: Each covered unit must have an EPA-registered designated representative (DR) with authority to commit the unit to compliance obligations, submit allowance transfers, and certify emissions reports. This individual has legal liability for compliance.

History and Legal Battles

CSAPR's history is a study in Clean Air Act litigation. EPA first tried to address interstate air pollution with the Clean Air Interstate Rule (CAIR) in 2005 — the CAIR programs in Subparts AA, AAA, AAAA of Part 97 are the residual of that effort. In 2008, the D.C. Circuit vacated CAIR as unlawful. EPA replaced CAIR with CSAPR in 2011, which the D.C. Circuit also initially vacated in 2012. The Supreme Court reversed in EPA v. EME Homer City Generation (2014), upholding CSAPR's approach. CSAPR has been amended multiple times since — adding the ozone season Group 2 (2016) and Group 3 programs as states showed persistent ozone problems tied to upwind emissions.

How It Affects You

If you operate a covered power plant: Your unit is required to hold CSAPR allowances equal to your measured NOx and SO2 emissions. Your costs include: (1) capital investment in scrubbers (FGD for SO2), selective catalytic reduction (SCR) or SNCR (for NOx), or other controls; (2) allowance purchases if your controls don't reduce emissions enough to cover your allocation; or (3) operational changes (fuel switching, reduced output) to lower emissions below your allocation. Track allowance prices — they fluctuate with natural gas prices, weather, and regulatory changes.

If you are an electricity market analyst: CSAPR compliance costs are a material input to coal and gas power plant dispatch economics. When allowance prices rise (more stringent caps, tighter supply), coal plants face higher compliance costs that affect their position in the dispatch stack. The interaction between CSAPR NOx allowance prices and natural gas prices drives decisions about whether coal units run — a key variable for power market modeling.

If you are an air quality regulator in a downwind state: CSAPR is your primary federal backstop when upwind states' emissions contribute to your nonattainment area's air quality problem. If CSAPR emissions reductions are insufficient to bring your area into attainment, you can petition EPA to tighten the Good Neighbor obligations — or demonstrate in your State Implementation Plan that additional measures are needed locally.

If you are an environmental advocate or researcher: CSAPR's allowance data (reported via EPA's Clean Air Markets Division and accessible through the CAMPD tool at campd.epa.gov) provides the most granular available data on power plant NOx and SO2 emissions — unit-level, hourly, going back to the 1990s acid rain program. This dataset is extensively used for air quality research, health impact studies, and electricity market analysis.

Statutory Authority

This rule implements:

• 42 U.S.C. § 7410(a)(2)(D) — The Clean Air Act "Good Neighbor" provision: requires State Implementation Plans to prohibit emissions activity that will significantly contribute to nonattainment or interfere with maintenance of NAAQS in any other state; EPA may impose a Federal Implementation Plan if a state fails to do so
• 42 U.S.C. § 7651 et seq. — Title IV (Acid Rain Program): provides the allowance-trading framework that CSAPR adapts; defines allowance as a limited authorization to emit one ton of SO2; the original Acid Rain cap-and-trade that CSAPR extends to NOx

Recent Rulemakings

• Good Neighbor Plan (2023) — 88 FR 36654 (June 5, 2023): EPA's most recent overhaul of the Good Neighbor framework for the 2015 ozone NAAQS. The rule added more states to the CSAPR NOx Ozone Season Group 3 program and tightened state budgets for the 2023-2026 compliance period. Significant portions of the 2023 Good Neighbor Plan were stayed by the Supreme Court in Ohio v. EPA (2024) pending litigation, creating uncertainty about applicable budgets for covered units in affected states.
• CSAPR Update (2016) — 81 FR 74621: Added the Ozone Season Group 2 program to address EPA's finding that 22 states still significantly contributed to downwind ozone problems under the 2008 ozone NAAQS.
• CAIR replacement — 76 FR 48208 (2011): The original CSAPR rulemaking establishing the annual and ozone season programs, following the D.C. Circuit's 2008 CAIR vacatur.

Recent Developments

• Supreme Court stay of Good Neighbor Plan (2024): In Ohio v. EPA (2024), the Supreme Court stayed significant portions of EPA's 2023 Good Neighbor Plan while litigation proceeded in the lower courts. The stay blocked implementation of tightened NOx ozone season budgets for multiple states, creating uncertainty about which budget levels applied to covered sources. Power plants and industrial sources in affected states faced compliance planning challenges — whether to prepare for the tighter Group 3 budgets or plan around the older Group 2 levels pending court resolution.
• Trump EPA rollback signals (2025): The Trump EPA announced its intent to revisit the Good Neighbor Plan and potentially rescind or weaken the 2023 rule. This continues a historical pattern where CSAPR implementation has proceeded through Republican rollback/Democratic reinstatement cycles. The original CAIR (CSAPR's predecessor) was vacated by the D.C. Circuit in 2008; CSAPR itself was vacated and then reinstated; the Obama Clean Power Plan was blocked; the Biden Good Neighbor Plan was partially stayed. Each cycle extends compliance uncertainty for covered sources.
• Allowance market price volatility: CSAPR allowance prices in the NOx ozone season market fluctuated significantly following the Supreme Court's Good Neighbor stay, as market participants attempted to price in litigation uncertainty. Lower allowance prices following the stay reduced the economic incentive for early emissions reductions — a structural consequence of litigation-induced compliance uncertainty in allowance markets.
• Coal plant retirements reducing CSAPR relevance: The rapid retirement of coal-fired power plants across the U.S. (driven by natural gas economics, renewable energy competition, and IRA incentives) has reduced the volume of SO2 and NOx emissions subject to CSAPR in the annual programs. As the coal fleet continues to shrink, CSAPR's primary focus shifts toward NOx ozone season trading (which affects a broader set of sources including natural gas combustion turbines and industrial facilities) rather than SO2 trading (predominantly a coal issue).

Pending Action

The 2023 Good Neighbor Plan litigation (Ohio v. EPA) remained active as of 2026, with significant portions of the updated ozone season budgets stayed pending court review. The outcome will determine whether tightened Group 3 budgets take effect or revert to prior Group 2 levels for affected states.