Note: This story has been updated to reflect statements and new information Thursday from the South Coast Air Quality Management District and the Western States Petroleum Association.

A controversial program to give local refineries and major manufacturers more flexibility in reducing air pollution has been ruled illegal by the U.S. Environmental Protection Agency, officials disclosed late Wednesday. The federal agency said the program fails to meet national clean air standards.

The failure involves South Coast Air Quality Management District’s cap-and-trade pollution credits program, known as Reclaim, that targets local refineries, power plants, cement plants and other major industrial facilities. The program sets an overall cap for smog-forming pollutants, such as nitrogen oxide, and gives the facilities the option to install pollution control equipment or buy pollution reduction credits on the open market.

The EPA ruling, signed Tuesday but not released until late Wednesday, said that information had recently come to light that the Reclaim program was failing to ensure refineries and other industrial plants installed the latest pollution control technologies. The ruling said that an excess supply of pollution reduction credits had depressed prices for those credits, making it far cheaper for companies to buy credits on the open market rather than install the pollution control devices. As a result, the region was failing to meet federal standards for reducing emissions of nitrogen oxide.

The EPA ruling said that in order for pollution controls to be installed and emission reduced enough to meet federal Clean Air Act standards, the emissions cap must be lowered more rapidly, causing prices for pollution reduction credits to rise. It ordered both the state Air Resources Board and the AQMD to submit new regulations within the next year that ensure compliance with the Clean Air Act.

But just how far the new regulations should go is in dispute. AQMD staff last fall recommended far more rapid reductions in nitrogen oxide than the current program. But the district board in December voted instead on a plan favored by industry that called for a slower pace of reductions in nitrogen oxide.

At the time, Western States Petroleum Association President Catherine Reheis-Boyd, said in a statement, “We are pleased the South Coast Air Quality Management District (SCAQMD) Board listened carefully to the concerns of many of the participants in the RECLAIM program … Today’s decision prioritizes strong environmental protections without jeopardizing thousands of jobs and our region’s economic vitality.”

But the district board vote was met with immediate criticism from environmental groups, which became louder after a new Republican majority of elected officials on the AQMD’s board voted earlier this month to oust longtime executive officer Barry Wallerstein. Last week, the Sierra Club, the Natural Resources Defense Council and other environmental groups sued the agency over the December board vote on the Reclaim program.

The environmental groups and other critics of the board’s vote say Tuesday’s EPA ruling vindicates their position that the district must reverse course and adopt the stricter staff plan.

But the AQMD issued a statement Thursday saying it plans to submit the plan approved in December to both state and federal environmental agencies and that it expects the plan to win full approval. The statement also clarified the impact of the EPA’s Tuesday ruling:

“The EPA’s decision is not a criticism of the Governing Board’s adoption of the Reclaim amendments in December. It has nothing to do with whether the Board adopted a 12-ton per day or 14-ton per day ‘shave’” off of current emission caps.

The Western States Petroleum Association also issued a statement Thursday:

“WSPA supports AQMD’s decision not to reconsider its bipartisan December 2015 amendments to the Reclaim regulations. The vote did not weaken air quality regulations … The AQMD Board adopted an aggressive 12-ton per day reduction which will require new emission controls at refineries and other manufacturing facilities, costing billions of dollars.”