U.S. appeals court upholds EPA air quality rule

* US appeals court says EPA not arbitrary or capricious

* 2010 rule limited emissions of nitrogen dioxide

* Oil and gas industry group opposed rule, reviews decision

By Jonathan Stempel

July 17 (Reuters) - A federal appeals court upheld a new Environmental Protection Agency rule to limit nitrogen dioxide emissions near major roadways, in a defeat for the oil industry, which said the rule went beyond what was necessary to protect public health.

Tuesday's decision by the U.S. Court of Appeals in Washington, D.C., is a victory for the Obama administration and environmental groups that supported the 2010 rule, which limits exhaust that could remain in the air for a one-hour period.

The 100 parts-per-billion limit was intended to reduce smog from such sources as car exhaust pipes and factories; it was more stringent than a standard dating from 1971.

Nitrogen oxides have been linked to respiratory problems, especially in children and people with asthma, according to the EPA.

"We cannot conclude the agency was arbitrary and capricious," Judge Douglas Ginsburg wrote for a unanimous three-judge panel. "The record adequately supports the EPA's conclusion that material negative health effects result from ambient air concentrations as low as the 100 parts-per-billion level."

The American Petroleum Institute, which represents more than 500 oil and gas companies such as Exxon Mobil Corp and Chevron Corp, led opposition to the rule and had sued to overturn it.

"By cherry-picking data and relying on questionable science, EPA set the new regulations at a level more stringent than necessary to protect public health and is putting our economy and jobs unnecessarily at risk," Howard Feldman, API's director of regulatory and scientific policy, said in a statement. "We are reviewing the ruling and will determine possible further action."

The EPA had contended that a significant body of scientific studies has established that the old standard did not sufficiently protect the public health from the harmful effects of nitrogen dioxide exposure, with an adequate margin of safety.

The case is American Petroleum Institute et al v. EPA, D.C. Circuit Court of Appeals, No. 10-1079.