LawFlash

US Supreme Court Narrows Environmental Protection Agency’s Options for Climate Change Regulation

July 06, 2022

The US Supreme Court’s recent invalidation of the Obama-era Clean Power Plan under the “major questions” doctrine could make it more difficult for the Environmental Protection Agency to craft a similar regulation in the future.

In a 6-3 decision issued on June 30, 2022, the US Supreme Court held that the US Environmental Protection Agency’s (EPA’s) Clean Power Plan (CPP) exceeded the agency’s authority under Section 111(d) of the Clean Air Act (CAA). The majority’s opinion relied heavily on the major questions doctrine, a framework for statutory interpretation that requires a clear statement from Congress to authorize an agency action that has particularly significant regulatory or economic impacts.

Applying that framework, the Court concluded that Section 111(d) did not authorize the “generation shifting” approach to power plant regulation that was included in the CPP to incentivize fossil fuel power plant operators to switch to or purchase credits from gas or renewable power facilities. The Court’s decision likely takes such generation shifting off the table as a regulatory tool for future regulations targeting greenhouse gas (GHG) emissions, even if those regulations are issued under other parts of the CAA. However, the Court explicitly did not foreclose the possibility of more limited climate change regulations under Section 111 that focus on technological controls.

BACKGROUND

The CPP, which EPA promulgated in 2015, sought to regulate emissions from existing coal- and natural-gas-fired power plants under Section 111(d) of the CAA.[1] Section 111(d) allows EPA to establish an overall standard for emissions of a pollutant from a particular category of sources; states then implement that standard through their individual statewide regulatory programs. The standard EPA sets must reflect “the degree of emission limitation achievable through the application of the best system of emission reduction.”[2]

In the CPP, EPA determined that the best system of emission reduction (BSER) for existing coal and natural gas plants incorporated two “generation shifting” measures. The first required existing coal-fired plants to produce less power, which would be offset by increased production from natural-gas-fired plants. The second measure provided for a shift from coal and gas plants to renewable sources (e.g., wind and solar). Power plant operators could comply with the rule by (1) reducing production from a power source; (2) building or investing in new gas plants or renewable energy facilities; or (3) participating in a cap-and-trade program.

The rule never took effect because the Supreme Court stayed its implementation in 2016.[3] During the Trump administration, EPA repealed the CPP and replaced it with an alternative framework known as the Affordable Clean Energy (ACE) rule that called for equipment upgrades and improvements to coal-fired power plant heat rates. Various parties then filed petitions for review in the US Court of Appeals for the District of Columbia Circuit that challenged the repeal of the CPP and the implementation of the ACE rule.

The DC Circuit vacated the ACE Rule and its repeal of the CPP and remanded for further consideration. A group of opponents of the CPP, including West Virginia and other states, petitioned the Supreme Court for certiorari to review that decision. The Court granted certiorari to address the following question: “Whether the ‘best system mission reduction’ identified by EPA in the Clean Power Plan was within the authority granted to the Agency in Section 111(d) of the Clean Air Act.”

THE DECISION

Chief Justice Roberts delivered the opinion of the Court, joined by five justices. Justice Gorsuch authored a concurrence, joined by Justice Alito, while Justices Kagan, Breyer, and Sotomayor dissented. The majority held that the CPP’s generation-shifting approach was not within the authority granted to the agency in Section 111 of the CAA.

The majority opinion relied heavily on the “major questions” doctrine, a statutory interpretation framework that holds that agencies must have clear authorization from Congress if they take an action that has significant regulatory and economic consequences. While that principle is embodied in prior Supreme Court decisions, West Virginia v. EPA is the first time the Court explicitly referred to it as a unique doctrine. The majority explained that the CPP presented a “major” issue both because it had large economic impacts across an entire industry and because it represented a “transformative” change in existing CAA regulations.

EPA disputed that the program was particularly transformative, highlighting its 2015 Mercury Rule, a previous regulation under Section 111 that implemented a cap-and-trade program allowing generators to purchase credits based on emissions reductions at other facilities. However, the majority considered that regulatory program fundamentally different because it was based on emissions controls that could be installed at individual facilities, rather than premised on switching to alternative forms of energy entirely.

Turning to the language of the statute, the Court determined that the phrase “Best System of Emissions Reduction” was inherently vague and could not be considered a “clear authorization” by Congress for an expansive regulatory program like the CPP. It emphasized that the word “system” by itself provides no description or limits on what type of program EPA could create, and it was unpersuaded that references to “systems” in other parts of the CAA authorizing cap-and-trade programs inherently meant that a “system of emissions reduction” in Section 111 inherently encompassed any flavor of cap-and-trade program.

The majority explicitly declined, however, to hold that EPA could never regulate activities outside the fenceline of a facility under Section 111. It instead limited its holding to the context of the CPP, explaining that it was holding only that the CPP’s construction of BSER for power plants was so expansive that Congress could not have intended to authorize something like it through Section 111.

Justice Gorsuch’s concurrence expounded in greater detail on the specifics of the major questions doctrine. While the majority left the precise criteria for application of the doctrine largely open, Justice Gorsuch identified several factors he viewed as identifying a “major” question, including (1) great political significance; (2) regulation of a significant portion of the economy; and (3) regulation of an area that is traditionally the domain of state law.

IMPLICATIONS

The Supreme Court’s decision limits EPA’s options for regulating GHG emissions from power plants. EPA has recently reiterated its intent to pass new power-sector regulations targeting GHG emissions, and it will undoubtedly consider the holding in West Virginia carefully when it does so. In particular, the decision appears to take generation shifting off the table for EPA as a tool to address climate change. In addition to explicitly foreclosing a generation shifting approach under Section 111, the decision will probably prevent EPA from doing so under other provisions of the CAA. Other provisions of the CAA that EPA could conceivably use to tackle climate change also lack “clear statements” authorizing generation shifting, so EPA will likely need to use a different approach.

The Court did not, however, leave EPA without any path forward. EPA could still potentially use Section 111 in a more limited way—indeed, the Court recognized that 111(d) can serve as a “gap filler” provision allowing EPA to regulate emissions not controlled through other provisions of the CAA. Notably, Chief Justice Roberts’ opinion suggested that use of 111(d) to address carbon emissions is not foreclosed if some other pollutants are regulated at a particular facility, which runs counter to one line of attack previously raised by opponents of the CPP. A regulation promulgated pursuant to Section 111 that imposes technology-based controls on GHG emissions from fossil fuel plants might be permissible under West Virginia, even if it had some degree of outside-the-facility impacts.

The decision also shouldn’t hinder EPA’s ability to implement technology-based GHG standards under other provisions of the CAA such as the Prevention of Significant Deterioration (PSD) program or even the National Ambient Air Quality Standards (NAAQS).

West Virginia may also have broader implications for administrative decision-making outside of the climate change context. Because it is the first time the Supreme Court has explicitly described the major questions doctrine as a unique legal principle, West Virginia will likely raise the doctrine’s profile and salience. In particular, opponents of other agency rules are likely to raise the doctrine in future challenges. That, in turn, means that all federal agencies should be looking at the Court’s major questions analysis when crafting rules—both in terms of the strategies they choose to adopt and how they articulate the legal support for those policy decisions.

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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:

Dallas/Houston
Stephen Fitzgerald

Los Angeles
James 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

Summer associate Cliff Hailmann contributed to this LawFlash.



[1] 42 U.S.C. § 7411.

[2] Id. at §7411(a)(1).

[3] West Virginia v. EPA, 577 U. S. 1126 (2016)