A major component of the Obama Administration’s regulatory crackdown on fossil fuels was struck down Tuesday by a federal appeals court panel that ruled the Cross-State Air Pollution Rule “transgressed statutory boundaries.” The decision vacates a measure that otherwise jeopardized thousands of jobs and the reliability of the nation’s electricity supply.

The regulation at issue, also known as the Transport Rule, involves power plant emissions (sulfur dioxide and nitrogen oxides, in particular) that waft across state lines and contribute significantly to other states’ noncompliance with national air quality standards. Finalized by the Environmental Protection Agency (EPA) in August 2011, the rule was stayed shortly thereafter in response to dozens of legal challenges from states, utilities, trade associations, and the International Brotherhood of Electrical Workers.

Derived from the so-called “good neighbor” provisions in the Clean Air Act, the regulation mandated reductions of sulfur dioxide emissions by 73 percent (below 2005 levels) and nitrogen oxides by 54 percent (below 2005 levels) in just two years. Analysts warned that the requirements, which would necessitate retrofitting some 575 coal- and natural-gas-fired power plants, were unaffordable and unachievable in the allotted timeframe. The North American Electric Reliability Corporation estimated that companies would be compelled to retire 3 GW to 7 GW of electricity generation (the equivalent of powering 2.25 million to 5.25 million homes).

In other words, the rule—along with more than a dozen other costly regulations imposed in the past three years—went a long way toward realizing President Obama’s 2008 campaign declaration that electricity prices would “necessarily skyrocket” under his energy platform.

The Clean Air Act authorizes the EPA to calculate an upwind state’s contribution to a downwind state’s nonattainment of air quality standards (accounting for the downwind state’s own contribution and emissions from other upwind states). But the EPA ignored the plain language of the statute and instead required far more stringent cuts in emissions—irrespective of states’ actual contributions to nonattainment in downwind states. In so doing, the court concluded, “EPA’s reading of [the good neighbor provision] reaches far beyond what the text will bear.”

Indeed, much to the court’s chagrin, the EPA went to ridiculous lengths to justify its abuse of authority. As noted in the opinion, the “EPA would not rule out the possibility that…it could require a state to reduce more than the State’s total emissions that go out of State.” (Emphasis in original.)

The court also rejected the EPA’s “absurd” and “unreasonable” attempt to force implementation plans on the states before the states were given a reasonable opportunity to implement their own. For all its other flaws, the Clean Air Act does allow for a measure of federalism: The EPA is authorized to set air quality standards, but states are responsible for choosing which individual sources within their borders must reduce emissions and by how much. The EPA instead trampled on the statute by foisting federal implementation plans on the states before they were given an opportunity to devise their own.

Until the EPA comes up with a lawful rule, the court ordered the agency to revive a previous incarnation of the good neighbor regulation (a.k.a. the Clean Air Interstate Rule)—despite the fundamental flaws in that regulation previously identified by the court. But the court is also once again requiring the agency to formulate a new rule that will pass legal muster and warned the agency that it must act expeditiously.

Whether the agency will appeal Tuesday’s ruling remains to be seen. But there’s little reason to expect that the EPA will hew by the rules in the future, considering its longstanding disregard for the law. Meanwhile, a dozen other costly and unwarranted regulations still threaten the energy sector, diverting huge sums of money and time to challenging government’s chronic abuse of power. But the fight is worth waging.