The US Supreme Court’s decision in West Virginia v. EPA was a setback for the Environmental Protection Agency, but it leaves plenty of room for the Biden administration to prepare a new proposal this year to reduce power plant emissions.
In a 6-3 decision, the high court said that the EPA’s Clean Power Plan, promulgated to reduce carbon emissions from power plants, exceeded the agency’s authority under the Clean Air Act. The case was on appeal from a 2021 D.C. Circuit decision that vacated Trump-era actions repealing the CPP and replacing it with the Affordable Clean Energy rule.
The immediate implications of the decision for the power sector may be minimal.
Although the CPP never went into effect, the power sector has already reduced its emissions by more than the EPA’s original goal under the plan, due primarily to low natural gas prices, the reduced cost of renewable energy, and the high cost imposed on coal-fired generation by other environmental regulations.
EPA Still Has Options
The West Virginia decision did not go as far as some worried. The court did not question the EPA’s authority to regulate greenhouse gas emissions under the CAA and confirmed the EPA’s authority to regulate carbon emissions from new and existing power plants. The court also stopped short of finding that the EPA is strictly limited under the CAA to requiring measures that reduce emissions at individual sources.
The Biden administration will wrestle with how far to go in a new regulation that conforms to the West Virginia decision but is more aggressive than ACE.
On the one hand, the court held that the EPA may not set standards based on grid-level targets for the nation’s electricity generation mix that are unachievable at individual coal-fired plants. On the other hand, the court recognized—as it must—that the regulatory tools that the EPA has at its disposal will make coal-fired generation more expensive, thus indirectly “shifting generation.”
The court distinguished the EPA’s mercury rule cap-and-trade mechanism from the CPP because that standard was based on achievable technology. The court left open whether and to what extent the EPA may incorporate a trading or averaging mechanism in its forthcoming rule.
In its forthcoming proposal, the EPA will likely consider several technologies for reducing GHG emissions at power plants. Based on a white paper the EPA issued in April addressing natural gas-fired power plants, it may consider technologies like integrating renewable sources at fossil fuel-fired power plants, co-firing of gas or biomass with coal, carbon capture, and using hydrogen as a fuel source.
The EPA will consider the cost of these technologies, whether they are adequately demonstrated, whether to include an emissions trading component, and the risks of renewed challenges based on West Virginia.
Further, the EPA surely will be viewing Section 111(d) of the CAA as one piece of a coordinated, multi-media strategy under other sections of the act and environmental statutes.
The EPA will have to grapple with whether it can rely on “co-benefits” of carbon reductions to justify imposing other regulatory requirements. Part of this calculus may depend on whether the EPA can justify imposing such stringent requirements without relying on co-benefits and whether the statutory authority in question requires consideration of costs and benefits.
Courts Will Grapple With ‘Major Questions’ Doctrine
The court rested its analysis on the “major questions” doctrine, finding that the CPP represented an “extravagant” and “transformative” expansion of the EPA’s regulatory authority requiring “clear congressional authorization.” The court identified as key indicia of a major question that “a long-extant and unheralded power” represents transformative regulatory authority. It also said that Section 111(d) was a gap-filling ancillary provision, and the EPA adopted a program that Congress considered and declined to enact.
How these criteria will apply in other circumstances is far from clear, but we anticipate that parties will use the major questions doctrine to challenge federal agencies in many contexts. The breadth and significance of climate change and the policies needed to address it make it likely that the contours of the major questions doctrine as applied to climate change will be debated for years.
Many participants will contribute to this debate. Agencies will take West Virginia into account in explaining their claim to authority, as will stakeholders pursuing statutory solutions. And the lower courts will consider an onslaught of challenges to agency actions, subject to the limited capacity of the Supreme Court to revisit the issue.
Under the CAA, where nationally applicable rules are subject to the D.C. Circuit’s exclusive jurisdiction, that court will play an outsized role. Such arguments are already lodged against the EPA’s GHG rules for automobiles.
The EPA’s forthcoming carbon rules for power plants, FERC’s climate change policies in review of natural gas projects, and the SEC’s climate disclosure rule—all being finalized in the next year or so—may provide more tests.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Ethan G. Shenkman is a partner at Arnold & Porter and former deputy general counsel at the EPA.
Jonathan S. Martel is a partner at Arnold & Porter and formerly served in the Office of General Counsel at the EPA.
Erin Grubbs is an associate at Arnold & Porter.