By Lawrence Hurley and Valerie Volcovici
WASHINGTON (Reuters) - In a win for the U.S. Environmental Protection Agency, the Supreme Court on Monday agreed to consider the legality of a controversial Obama administration effort to regulate air pollution that crosses state lines.
At the request of the administration, the American Lung Association and environmental groups, the justices will revisit an appeals court ruling that invalidated the Cross-State Air Pollution rule, which the EPA implemented to enforce a provision of the Clean Air Act.
Oral arguments and a decision are due in the court's next term, which starts in October and ends in June 2014.
The rule sets limits on nitrogen oxides and sulfur dioxide from coal-fired power plants in 28 upwind states in the eastern part of the country. Various power companies and 16 states successfully challenged the law in the U.S. Court of Appeals for the District of Columbia Circuit.
The appeals court ruled 2-1 in August that the EPA had exceeded its authority under the Clean Air Act by requiring states to curb air pollution to a greater extent than the statute requires.
Share prices for U.S. coal companies, which rose in August when the D.C. Circuit Court ruled, fell on Monday, in some cases reaching multi-year lows.
The appeals court also said the EPA acted prematurely by failing to tell states what emissions reductions they had to achieve to meet their obligations under the statute before going ahead with its own federal plan.
The appeals court ordered that a rule issued during President George W. Bush's administration, which the appeals court ruled in 2008 was insufficient, should remain in effect until the EPA comes up with a revised regulation.
Monday's decision was a boost for the EPA, whose rules tend to face automatic legal challenges in the D.C. Circuit Court.
The high court tends to avoid weighing in on highly technical cases involving the federal Clean Air Act, said John Walke, senior attorney and clean air director for Natural Resources Defense Council.
"The decision vaults the Cross-State Air Pollution Rule into the top five Clean Air Act cases heard by the Supreme Court," Walke said.
DEFERENCE TO AGENCY RULES
A central issue in the case will be the lower court's deference to agency rules and the agency's scientific expertise, legal experts said.
"The Supreme Court has said time and again that agencies and Congress that have chosen to implement such complex rules should be granted deference by courts," said Sean Donahue, a lawyer who represents environmental groups in the case.
Industry groups expect the high court to uphold or even extend the lower court's decision to vacate the rule.
"Under the guise of the Clean Air Act, the EPA has issued a string of regulations that have pushed the envelope of legal authority. National guidance could be helpful," said Scott Segal, director of the Electric Reliability Coordinating Council, a coalition of energy companies.
If the court sides with the EPA, however, it could aid in making other future complex agency rules, such as greenhouse gas regulations for power plants which the White House is expected to push forward in a speech by Obama on Tuesday.
"That Supreme Court decision will reinforce its message to the D.C. Circuit of the legal requirement that it respect and defer to EPA's scientific expertise in Clean Air Act standards-setting, which likewise comes into play with the carbon pollution standards," said Howard Learner, executive director of the Environmental Law & Policy Center.
On the New York Stock Exchange, Peabody Energy Corp, the largest U.S. coal producer by tonnage, closed down 7.2 percent and Arch Coal Inc, the No. 2 producer, ended the day down 6.6 percent.
The two consolidated cases the court agreed to hear are American Lung Association v. EME Homer City Generation, U.S. Supreme Court, No. 12-1183; and EPA v. EME Homer City Generation, U.S. Supreme Court, No. 1182.
(Editing by Ros Krasny, Howard Goller, Will Dunham and Mohammad Zargham)