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The U.S. Court of Appeals for the District of Columbia ruled that regulations adopted last year by the EPA were too strict, siding with Texas and other upwind states that sought to block them. The EPA pursued the measures to cut down on pollution spreading into neighboring states.
Last week, another appeals court struck down the EPA's rejection of Texas' method for approving air permits.
Local and national environmental groups condemned the court's decision. Luke Metzger, director of Environment Texas, said the ruling "threatens the lives of thousands of Americans who have lived in the deadly shadow of power plant pollution for far too long."
The rule had been scheduled to take effect in January.
Sulfur dioxide and nitrogen oxide pollution from power plants can be carried long distances, and the pollutants react with other substances to form smog and soot, which have been linked to illnesses. The cross-border pollution has prevented many cities from complying with health-based standards set by law.