The court in the District of Columbia threw out the Cross-State Air Pollution Rule in a 2-1 decision, The Washington Post reported. The Obama administration adopted the regulation to deal with emissions from power plants in the Midwest that contribute to smog and acid rain in eastern states.
The EPA ordered plants in 26 states to install new pollution controls. The regulation also allowed some trading of emissions.
The agency predicted that by 2014 nitrogen oxide levels would be cut by more than half and sulfur dioxide emissions by 73 percent. The rule, which was supposed to take effect last year, has not been enforced because of the legal challenge by several Texas companies, the state, the International Brotherhood of Electrical Workers and the National Mining Association.
The court said the EPA went well beyond the authority given it by the Clean Air Act. It also said the states should have been given an opportunity to create their own regulations to comply with federal law.
"EPA can't force states to do more than their fair share, and can't force 'one size fits all' federal programs without allowing states to craft their own solution," said Joseph Stanko, head of government relations at Hunton & Williams, a law firm representing utilities using coal-fired plants.
Environmentalists said the court decision does not solve the problem of air pollution carried on the wind.
"This rule would have prevented thousands of premature deaths and saved tens of billions of dollars a year in health costs, but two judges blocked that from happening and forced EPA to further delay long overdue health safeguards for Americans," John Walke, clean air director of the National Resources Defense Council, said in a statement. "The majority opinion is an outlier at odds with the court's own rulings as well as the Clean Air Act."