Seen as a victory by environmentalists, yet creating uncertainty for industry, the U.S. Court of Appeals in Washington, D.C. rejected EPA's incinerator emissions standards as inadequate, and instructed EPA to rework the rules.

Industry petitioners challenged the rules as arbitrary and unfair because EPA failed to clearly explain its decision to subcategorize based on plant size. The court said that the agency must "develop a reasoned explanation for its decision to subcategorize on the basis of aggregate plant capacity."

The court also agreed with the Sierra Club's challenge of EPA's decision to set emission limits based on emission levels in state operating permits.

In an earlier decision, EPA said that it "believes" state permit limits reflect the actual performance of the best performing units. The court said that the agency must show evidence that these emissions limits reflect the performance of the best performing unit.

"This is a huge victory for the health of our communities," said Jim Pew, attorney for the Sierra Club and the New York Public Interest Research Group. "The decision should remind the agency that it is not above the law."

In the decision, the three-judge panel, rather than vacate, remanded the Clinton administration 2000 rule back to EPA for clarification. Consequently, small municipal waste combustors will still have to meet the 2005 deadline for complying with the rule.

Tim Henderson representing the industry said "[t]his creates a lot of uncertainty for small units, and creates the strong potential that small units will be held to more stringent standards than large units."

Judges David Sentelle, Karen Henderson, and Merrick Garland presided in the case, Waste Energy Partners Limited Partnership and Northeast Maryland Waste Disposal Authority, et al. v. EPA.