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DC Circuit Vacates Affordable Clean Energy Rule, Revives Clean Power Plan

January 26, 2021

The US Court of Appeals for the DC Circuit held that EPA’s interpretation that emissions controls under Section 111 of the Clean Air Act must be limited to those that can be applied “at” and “to” a stationary source was inconsistent with the Clean Air Act.

In American Lung Association v. EPA, No. 19-1140 (D.C. Cir. 2021), the DC Circuit vacated EPA’s Affordable Clean Energy (ACE) rule governing emissions controls for power plants and its embedded repeal of the Obama-era Clean Power Plan. The US Environmental Protection Agency (EPA) had argued that it needed to repeal the Clean Power Plan and replace it with the ACE Rule because the language in Section 111 of the Clean Air Act unambiguously constrained EPA to include only improvements “at” and “to” existing sources when determining the Best System of Emission Reduction (BSER). The DC Circuit disagreed, finding that the provision defining BSER contained no such spatial limitation. The result of the decision is that, at least for now, the Clean Power Plan is back in effect. But regulation of power plants is likely to continue to evolve quickly—through additional litigation and/or new administrative actions by EPA.

Background

Section 111 of the Clean Air Act lays out the New Source Performance Standards (NSPS) program, which directs EPA to set emissions standards for particular categories of stationary sources. In 2015, EPA used that authority to enact the Clean Power Plan, which addressed emissions from existing fossil-fuel-fired power plants by setting standards based on the best system of emission reduction (BSER). EPA determined that BSER for power plants included heat-rate improvements, the substitution of generation of electricity from higher-emitting power plants with lower-emitting power plants, and the prioritization of the use of electricity generated from zero-emitting renewable-energy sources. Consistent with the Clean Air Act’s cooperative federalism scheme, states that administer air permitting programs could then authorize any compliance measures that are consistent with EPA’s emission standards.

In 2019, EPA promulgated the Affordable Clean Energy Rule (the ACE Rule), which included a repeal of the Clean Power Plan. EPA reasoned that it was statutorily compelled to repeal the Clean Power Plan because Section 111 unambiguously limits BSER to only those measures that can be put into operation at the stationary source itself. According to EPA, because BSER under the Clean Power Plan included reductions based on shifting generation electricity from a higher-emitting source to a lower-emitting source or sources, it needed to be replaced with a system confined only to physical changes to power plants themselves. The ACE Rule proposed such a system that relied solely on heat-rate improvement technologies applied “at” and “to” existing power plants, including seven heat-rate improvement measures that consisted primarily of upgrades to existing equipment. EPA precluded other methods of reducing emissions, such as trading schemes or biomass co-firing, because such methods occur outside of the “fenceline” of a regulated stationary source.

Petitioners sought review in the DC Circuit, challenging the ACE Rule’s determination that Section 111 only permits emission reduction measures that can be implemented at and applied to the source.

The Opinion

The DC Circuit held that EPA’s enactment of the ACE Rule and repeal of the Clean Power Plan relied on a fundamental misinterpretation of the Clean Air Act. The court was unpersuaded by EPA’s argument that it had to abandon the Clean Power Plan and replace it with the ACE Rule because the language in Section 111 required EPA to include only improvements at and to existing sources when determining BSER.

The court found that EPA’s interpretation of Section 111 failed for three reasons. First, the court found that the language defining BSER in subsection (a)(1) of Section 111 did not contain any explicit limitation that control methods must be performed at the source. Second, the court found that source-specific language contained in a different subsection—subsection (d)(1)—did not modify the definition of BSER in subsection (a)(1). And third, the court held that EPA’s proposed “at” or “to” interpretation would add terms not found in the statutory text. The court noted that even if subsection (a)(1) could be construed as cross-referencing subsection (d)(1), it would direct EPA to determine “the degree of emission limitation achievable through the application of the best system of emission reduction for any existing source”—not the application of BSER “at” and “to” such a source. The court reasoned that the word “for” lacks the physical onsite connotation required by EPA’s reading of the statutory text.

The court also found that nothing in the history or purpose of Section 111 supported EPA’s interpretation in the ACE Rule. And it noted that no prior EPA administrator had read the language of Section 111 to exclude everything but at-the-source emission controls from BSER.

Judge Justin Walker dissented in part. Judge Walker’s dissent explained his view that EPA lacked authority to enact the Clean Power Plan in the first place because Section 111 precludes regulation of any sources already regulated under Section 112 of the Clean Air Act and fossil-fuel-fired power plants are already regulated under that provision.

Implications

In vacating the ACE rule as inconsistent with Section 111 of the Clean Air Act, the DC Circuit also vacated EPA’s repeal of the Clean Power Plan, which was based on the same statutory interpretation. The result is that the Clean Power Plan is back in effect—at least for now. Implementation of the Clean Power Plan was stayed in 2016 by the US Supreme Court, but that stay automatically terminated when the litigation over the Clean Power Plan was subsequently dismissed as moot by the DC Circuit, following the issuance of the ACE Rule, which repealed the Clean Power Plan. Therefore, for now at least, there is no bar to the current administration’s implementation of the Clean Power Plan.

As a practical matter, however, the Clean Power Plan may not be in effect for long. To begin with, opponents of the Clean Power Plan may pursue another stay of implementation of the program. And Judge Walker’s dissent in American Lung Association foreshadows an attack that those opponents will likely continue to raise in litigation—that EPA is precluded from regulating power plants under Section 111 of the Clean Air Act because they are already regulated under Section 112. The majority in American Lung Association rejected that argument, setting the stage for a potential petition for rehearing with an en banc panel of the DC Circuit or a petition for certiorari to the US Supreme Court.

The Biden EPA may also choose to move forward with a revised or entirely new set of regulations governing emissions from power plants. President Joe Biden’s early executive orders, statements of regulatory priorities, and appointments all indicate that addressing climate change will be a major goal for EPA and other government agencies. To that end, the Biden administration may view Section 111 as a tool to achieve further reductions in greenhouse gas emissions. And the DC Circuit’s opinion gives that effort a jump start by obviating the need to repeal the ACE Rule’s minimally restrictive approach to emissions controls for power plants.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Los Angeles
Jim J. Dragna
Rick R. Rothman

Philadelphia
Jeffrey N. Hurwitz

Princeton
John McGahren
Christopher J. McAuliffe

San Francisco
Ella Foley Gannon

Washington, DC
Duke K. McCall, III
Bryan M. Killian
Douglas A. Hastings