Baker Botts Secures Major Victory In Fifth Circuit, Vacating EPA’s Disapproval Of Texas’s Clean Air Act Good Neighbor Plan

The Firm represented a coalition of Texas industry petitioners—including the Association of Electric Companies of Texas, BCCA Appeal Group, Texas Chemical Council, and Texas Oil & Gas Association—in a landmark challenge to the Environmental Protection Agency’s disapproval of Texas’s state implementation plan (“SIP”) under the Clean Air Act’s Good Neighbor Provision. On March 13, 2026, the United States Court of Appeals for the Fifth Circuit issued an opinion granting our clients’ petitions for review, vacating EPA’s disapproval of Texas’s SIP, and remanding the matter to EPA.

Background

The Clean Air Act’s Good Neighbor Provision requires states to submit state implementation plans ensuring that emissions from sources within their borders do not significantly contribute to air quality problems in downwind states. In 2015, EPA revised the national ambient air quality standard (“NAAQS”) for ozone from 75 parts per billion to 70 parts per billion, triggering an obligation for states to submit new SIPs.

In a February 2023 final rule, EPA disapproved the SIPs of twenty-one states, including Texas. EPA’s disapprovals precipitated over twenty lawsuits in at least seven federal circuits. Our clients—the Texas Industry Petitioners—together with the individual utilities, the State of Texas and Texas state agencies, filed petitions for review in the Fifth Circuit. Our clients sought an emergency stay of the SIP disapproval and sought to confirm venue in the Fifth Circuit as opposed to the D.C. Circuit. In May 2023, the Fifth Circuit granted the stay and confirmed that venue was proper in the Fifth Circuit.

Critically, EPA’s disapproval of state SIPs was a precondition to EPA’s promulgation of a Federal Implementation Plan (“FIP”), known as the “Good Neighbor Plan,” which would have imposed federal emissions controls on states whose SIPs were disapproved. Baker Botts successfully obtained a stay of the FIP at the Fifth Circuit on behalf of our clients, blocking EPA’s federal plan from taking effect in Texas, Louisiana, and Mississippi. That stay was among the orders that ultimately contributed to the Supreme Court’s landmark decision in Ohio v. EPA, 603 U.S. 279 (2024), in which the Court stayed EPA’s Good Neighbor Plan FIP on a nationwide basis. The Supreme Court’s stay halted the FIP’s implementation across the country, delivering a significant reprieve for the energy industry while the underlying challenges to both the SIP disapprovals and the FIP proceeded. The Court’s venue analysis was also adopted by the Supreme Court in Oklahoma v. EPA, 605 U.S. 609 (2025), a case in which Baker Botts served as co-counsel, which confirmed that EPA actions on SIPs should proceed in regional circuits.

The Fifth Circuit’s Decision

The Fifth Circuit’s March 13, 2026 opinion represents a decisive win for our clients on the SIP disapproval front. After the panel issued its original opinion in March 2025, our clients filed petitions for rehearing en banc, raising significant arguments about EPA’s reliance on data and modeling that was published after Texas submitted its SIP and about the proper interpretation of the Good Neighbor Provision in light of the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).

While those petitions were pending, EPA itself issued a January 30, 2026 notice of proposed rulemaking and reconsideration of its final rule, which revealed that EPA had placed substantial reliance on data and modeling that was unavailable to Texas when it submitted its SIP, as petitioners originally argued. In light of that notice and the petition for rehearing, the Fifth Circuit withdrew its prior opinion and issued a substitute opinion that vacated EPA’s disapproval of Texas’s SIP and remanded the matter to EPA.

The court held that it could “no longer conclude with confidence that EPA’s disapproval was based on its technical review of the data and reasoning Texas offered in support of” its SIP. The court further noted that it remains unclear whether EPA will apply a more permissive standard—such as a 1 ppb threshold or even a 5% threshold—when it re-evaluates Texas’s SIP on remand, and that under such an alternative standard, EPA may well approve Texas’s SIP.

What This Means

This decision is a major outcome for our clients and for the broader energy industry. The vacatur of EPA’s Texas SIP disapproval removes the regulatory predicate that EPA relied upon to impose federal controls on Texas sources through the Good Neighbor Plan FIP. Combined with the Supreme Court’s nationwide stay of the FIP, our clients are now in a strong position as EPA is required to reconsider its approach to evaluating state plans under the Good Neighbor Provision. EPA’s own January 2026 proposed rule signals that the agency is reconsidering key elements of its framework, including the screening thresholds it uses and the data it relies upon, which may result in more favorable treatment for states that submitted good-faith SIPs.

Baker Botts will continue to monitor developments as EPA undertakes its reconsideration and stands ready to protect our clients’ interests throughout the remand proceedings.

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