High Court Narrows EPA’s Authority to Regulate Greenhouse Gas Emissions Under Section 111(d) of the Clean Air Act

Legal Intelligencer

(By Gina N. Falaschi and Marley R. Kimelman)

On June 30, 2022, the United States Supreme Court issued its opinion in West Virginia v. EPA.  The Court held that the United States Environmental Protection Agency (EPA) exceeded its rulemaking authority under Section 111(d) of the Clean Air Act in promulgating the 2015 Clean Power Plan (CPP).  The majority found that the term “best system of emission reduction” does not include a regulatory scheme that requires shifting power generation from coal to natural gas and renewable or other zero-emitting sources.  While a narrow holding, this decision will impact the Biden administration’s coming regulations regarding power plants and many future rulemakings as well.

Background

Section 111 of the Clean Air Act directs EPA to list categories of stationary sources that it determines cause or contribute significantly to air pollution.  For each of these categories, the agency must promulgate standards of performance for new or modified sources under Section 111(b).  A standard of performance is defined as:

a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements) the [EPA] Administrator determines has been adequately demonstrated.

42 U.S.C. §7411(a)(1) (emphasis added).  Under Section 111(d) of the Clean Air Act, when EPA has set new source performance standards addressing emissions of a particular pollutant from a particular type of new or modified stationary source under Section 111(b), it must address emissions of the same pollutant by existing sources, but only if that pollutant is not already regulated under the National Ambient Air Quality Standards or Hazardous Air Pollutant Program.

After the Court found that greenhouse gases are air pollutants under the Clean Air Act in Massachusetts v. EPA, EPA made an endangerment finding that greenhouse gas pollution threatens Americans’ health and welfare by leading to long-lasting changes in climate that can have negative effects on human health and the environment.  74 Fed. Reg. 66,496 (Dec. 15, 2009).  Upon making this endangerment finding, EPA was required by the statute to set new source performance standards for major sources of greenhouse gases like power plants, and, because greenhouse gases are not otherwise regulated, for existing sources as well.  In October 2015, the Obama administration finalized two rules, one for new and modified sources and the other for existing sources, known as the CPP.  80 Fed. Reg. 64661 (Oct. 23, 2015).

In the CPP, EPA calculated rate-based (amount of carbon dioxide emitted per megawatt hour generated) and mass-based (total amount of carbon dioxide emitted per year) targets for each state through application of three “building blocks” that were deemed to constitute the “best system of emission reduction…adequately demonstrated” (BSER). These “building blocks” include: (1) improvements to heat rates (a measure of heat input to power output efficiency) achieved at individual power generation facilities; (2) shifting power generation to natural gas-fired or combined cycle (NGCC) facilities; and (3) increased power generation from renewable and zero-emitting sources.  The latter two “building blocks” constituted the CPP’s “generation shifting” scheme, such that the EPA determined that the BSER included restructuring the nation’s overall mix of electricity generation, to transition from 38 percent from coal-fired sources to 27 percent from coal-fired sources by 2030.

The CPP was immediately challenged in the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit).  The D.C. Circuit rejected a petition to stay the rule. Upon appeal to the Supreme Court, however, the Court stayed the rule.  Upon the change in presidential administration, the Trump EPA asked the D.C. Circuit to suspend litigation pending the new administration’s review of the CPP.  In 2019, the Trump administration simultaneously repealed the CPP and promulgated the Affordable Clean Energy (ACE) rule.  84 Fed. Reg. 32520 (July 8, 2019).  Public health organizations, environmental organization, cities, and states challenged the ACE rule in the D.C. Circuit.  Industry groups also filed petitions in the D.C. Circuit challenging EPA’s authority to regulate carbon dioxide emissions in the ACE rule, and 30 cities and states intervened.  These challenges were consolidated into a single docket.  American Lung Association v. EPA, Docket No. 19-01140 (D.C. Cir.).  After extensive briefing followed by over nine hours of oral argument, the D.C. Circuit struck down the ACE rule and remanded it to the agency.  American Lung Assn. v. EPA, 985 F. 3d 914 (D.C. Cir. 2021).

On February 12, 2021, the Biden EPA issued a memorandum explaining that it did not believe the D.C. Circuit’s decision striking down the ACE rule reinstated the CPP and thus states would not be required to submit the plans required under the rule.  Memorandum from Joseph Goffman, Acting Assistant Administrator for Air and Radiation, to Regional Administrators (Feb. 12, 2021).

A coalition of states and power and coal companies led by West Virginia’s Attorney General Patrick Morrisey petitioned the Supreme Court to review the decision to strike down the ACE Rule and reinstate the CPP.  Specifically, the petitioners asked the Supreme Court to revisit the D.C. Circuit’s holding that EPA’s ACE rule, and the simultaneous repeal of the CPP, was based on a “mistaken reading of the Clean Air Act.”  Petitioners contended that the “generation shifting” scheme employed by the CPP cannot be a “system of emission reduction” under Section 111 of the Clean Air Act.  Despite EPA’s decision not to seek states’ compliance with the CPP, the Supreme Court granted certiorari.

The Court’s Analysis

Chief Justice John Roberts authored the majority opinion for the Court.  The 6-3 majority reversed and remanded the D.C. Circuit’s ruling.

First, the Court found that the petitioners had proper Article III standing.  The Court then found that the CPP, which the D.C. Circuit’s ruling purports to put back into effect by vacating the ACE Rule and its embedded repeal of the CPP, harmed the states.  West Virginia v. Environmental Protection Agency, No. 20-1530, slip op. at 14 (2022).  Further, the Biden administration’s commitment not to enforce the CPP would not moot the case unless it is “absolutely clear wrongful behavior could not reasonably be expected to recur.”  Id. at 15-16.  Because EPA could reimpose the generation shifting emissions limits in another form, the Court did not dismiss the case as moot.  Id. at 16.

On the merits, the majority found that EPA had exceeded its authority under the federal Clean Air Act.  The majority explained that Congress had not been sufficiently specific in granting EPA the authority to implement a generation shifting regulatory scheme to constitute BSER under Section 111(d), and regulating greenhouse gas emissions from power plants in such a way constitutes a “major question.”  Id. at 4. The “major question doctrine” holds that if Congress intended agencies to make sweeping, economy-wide changes with their regulations, the relevant legislation must say so “specifically and clearly.”  Id. at 28.

Here, the majority found it “highly unlikely that Congress would leave” to “agency discretion” the decision of how much coal-based generation there should be over the coming decades since the agency has no “comparative expertise” in making such policy judgments.  Id. at 25.  The majority rejected EPA’s argument, holding that Section 111(d)’s use of “best system of emission reduction” did not provide the agency the clear authority needed to employ the generation shifting approach because “the word [system] is an empty vessel” and “[s]uch a vague statutory grant is not close to the sort of clear authorization required by our precedents.”  Id. at 28.  Further, the majority described Section 111(d) as a “gap filler” that “had rarely been used.” Id. at 6.

In examining Congress’ delegation, the majority explained that the term “system” was used in the past to apply measures under the Clean Air Act that would force individual sources to “operate more cleanly,” never to reduce pollution by “shifting pollution activity from dirtier to cleaner sources.”  Id. at 20-21.  The proposed scheme “effected a fundamental revision of the statute” in the majority’s view.  Id. at 24.

Justice Neil Gorsuch filed a concurring opinion, joined by Justice Samuel Alito, in which he provided several examples of cases that would fall into the “major questions” doctrine: the FDA attempting to ban tobacco, the Attorney General prosecuting doctors who prescribe drugs used for assisted suicide, CDC’s Covid-19 Eviction Moratorium, and OSHA’s COVID-19 vaccine mandate.  West Virginia v. Environmental Protection Agency, No. 20-1530, slip op. at 8 (2022) (Gorsuch, J., concurring).  These examples could provide a roadmap for future challenges to impactful administrative actions.

In her dissenting opinion, Justice Elena Kagan, joined by Justice Sonya Sotomayor and Justice Stephen Breyer, argued that Congress had, in fact, delegated sufficient authority to EPA to regulate through a generation shifting scheme, and pointed to other sections of the statute pursuant to which EPA utilizes cap-and-trade regulatory schemes based on similar language.  West Virginia v. Environmental Protection Agency, No. 20-1530, slip op. at 4 & 9 (2022) (Kagan, J., dissenting).  She also expressed concern that the “major question doctrine” would make it harder for agencies to promulgate rules that serve the public interest. Id. at 13.

Key Takeaways

The Court’s decision to grant certiorari came as a surprise to many, as the Biden administration had said it would not enforce the CPP and would propose its own regulation, meaning that the Supreme Court was reviewing a regulation that had never, and would likely never, take effect.  As noted in Justice Kagan’s dissenting opinion, because the Court’s docket is discretionary and because no one is subject to the CPP, the Court’s ruling may be viewed as an “advisory opinion on the proper scope of the new rule EPA is considering.”  Id. at 4.

The ruling is expected to affect most, if not all, of EPA’s Section 111 rulemakings for greenhouse gases as well as other pollutants.  EPA is expected to propose a new power plant regulation in the coming months, which will need to be tailored to fit within the Court’s holding. During a Senate Environment and Public Works Committee hearing on April 6, 2022, EPA Administrator Michael Regan acknowledged as much, saying, “we want to be sure that the rule that we design will fall within where the Supreme Court will land” and that the agency will be “ready to go as soon as the Supreme Court rules.”  The U.S. Environmental Protection Agency’s Proposed 2023 Budget: Hearing Before the Senate Committee on Environment and Public Works, 117th Cong. (2022) (statement of Michael Regan, EPA Administrator).

Finally, this opinion raises questions regarding the limit of EPA’s regulatory power under Section 111.  While the decision clearly held that generation-shifting is outside of the scope of delegated authority under the Clean Air Act and that inside-the-fenceline systems of emissions reduction are within the scope, the Court did not find that any and all outside-the-fenceline system of emission reduction would be impermissible.  This is a potential topic for Clean Air Act litigation in the near future.

Gina Falaschi and Marley Kimelman are associates in Babst, Calland, Clements and Zomnir’s environmental group.  Their practice is focused, in part, on compliance matters arising under the Clean Air Act and implementing regulations. Contact them at gfalaschi@babstcalland.com or mkimelman@babstcalland.com.

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Reprinted with permission from the July 21, 2022 edition of The Legal Intelligencer© 2022 ALM Media Properties, LLC. All rights reserved.

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