A federal appeals court in Washington has nixed a recent Environmental Protection Agency initiative to remedy flaws the judiciary had found in a 2005 rule designed to clean up downwind air pollution.

The EPA faces a formidable challenge in setting regulations among states, some of which have very loose pollution controls.As described in the New York Times, the agency was trying to address a problem that has vexed the air pollution control system for at least three decades: how to deal with states whose own air meets standards but whose power plants, refineries and other industrial plants emit sulfur dioxide and nitrogen oxide pollutants that - wind-aided - prevent neighboring states from attaining the level of cleanliness required under federal law.

Rather than apportion the reductions according to the amount of pollution that each upwind state was contributing, the E.P.A. was seeking to require cleanup according to the cost of the reductions, so that the work would get done in the places where the cost of capturing a ton of sulfur or nitrogen oxides was the lowest. The agency was seeking to create a trading system in which the states could buy and sell pollution credits, with the actual work being done in the places where it was easiest to do it."

In its 2-1 decision, the United States Court of Appeals for the District of Columbia determined that the new Cross-State Air Pollution Rule improperly requires states "to reduce their emissions by more than their own significant contribution to a downwind state's nonattainment."

At the Bipartisan Policy Center, a nonprofit institution that specializes in energy and pollution issues, Joe Kruger, the director for energy and environment, told The New York Times, "E.P.A.'s efforts to reduce the cost of cutting pollution by using market trading keep running up against the limitations of the statute.

"Without Congressional intervention, we will be left with more pollution in the near term as well as a higher cost of mitigation in the long run."