W. VA. v. EPA: Supreme Court Overturns EPA’s Inconsequential Clean Power Plan

On June 30, 2022, the United States Supreme Court issued its long-awaited decision in West Virginia et al. v. Environmental Protection Agency et al., which invalidated the Clean Power Plan (“CPP”), an Obama-era regulation aimed at reducing fossil fuel use by mandating a nationwide conversion to less polluting electricity generation sources.  The CPP was never implemented because the Supreme Court and other courts issued orders preventing its implementation during the course of judicial review, most recently at the Biden Administration’s request.^[1]  As a result, the invalidation of the CPP has almost no effect on current energy markets or generation sources.  The decision, however, may incentivize the federal Environmental Protection Agency (“EPA”) to find other ways to utilize its authority under the Clean Air Act to regulate and reduce greenhouse gas (“GHG”) emissions.  The decision could possibly trigger new and stronger demands for state or federal legislation to address GHG emissions. 

Background

In 2015, under the Obama administration, EPA promulgated regulations implementing the CPP.^[2] Under the CPP, EPA directed states to implement plans to achieve specific percentage reductions of GHG emissions from existing sources using one or more “building blocks.”  The first building block was the achievement of greater efficiency in fossil fuel combustion to produce electricity.  The second building block encouraged states to adopt policies that would cause a transition from coal-fired generation to lower-emitting natural gas-fired generation.  The third building block was the adoption of policies that would encourage increases in utilization of renewable energy sources and reductions in the use of fossil fuel-based generation.  States were required to craft their own EPA-approved plans using these building blocks within specified time periods.  EPA also promulgated a federal plan for implementing the CPP should states fail to issue and obtain EPA approval for state plans within certain deadlines. 

The CPP, however, was never implemented.  The original CPP was challenged in the U.S. Court of Appeals for the District of Columbia on the day it became effective.  When the D.C. Circuit declined to stay the effectiveness of the CPP rule during that proceeding, the Supreme Court, in a highly unusual (if not unprecedented) action, stayed implementation of the final CPP rule during pending legal challenges.  The Trump Administration’s EPA eventually repealed the CPP in 2019, a decision that was also challenged in the D.C. Circuit.^[3]  On January 19, 2021, the D.C. Circuit upheld the CPP, but subsequently stayed the effectiveness of that decision to allow the Biden Administration to promulgate a new and updated rule.  The Supreme Court’s decision in West Virginia et al. v. Environmental Protection Agency et al. reversed the D.C. Circuit Court’s decision, thereby invalidating the CPP before it was ever implemented.

Summary of Decision

A six Justice majority of the Supreme Court decided that EPA’s approach to regulating existing sources under the CPP exceeded EPA’s statutory authority and could not be implemented without additional Congressional legislation.  The Court held that Congress never contemplated having EPA use its power to regulate source emissions to directly require reductions in the use of coal and other fossil fuel-fired sources in favor of less polluting sources (mainly renewable sources).  EPA argued the power to require the use of “best systems of emission reduction” under Section 111(d) permitted it to impose this shift in generation sources from coal to renewables.  The Court rejected that argument, holding that the policy change being proposed by EPA was a “major question” that could only be implemented with the clear blessing of Congress.  Under this “major questions doctrine,” it was not sufficient, in the eyes of the Court, that the old statutory language was broad and ambiguous.  In the view of the Court, if Congress wanted to permit such a major policy shift, Congress needed to adopt the policy explicitly.  “Clear congressional authorization” was required. 

The Court distinguished the CCP’s regulation among sources from direct regulation of source-specific emissions (e.g., mandating reductions in emissions from individual generating sources). The decision appears to allow source-specific regulation under Section 111(d) even if the regulations would have the indirect effect of encouraging reductions in the use of fossil fuels and increasing the use of renewable or other technologies. The Court noted that prior EPA assertions of authority under Section 111 (and under other sections of the Clean Air Act in differing contexts) did not use regulatory systems that require coordinated adjustments among multiple sources, but were instead based on the technological capability of controlling emissions from individual sources.^[4]  Section 111(d), the Court observed, does not apply to pollutants regulated under other sections of the Clean Air Act, and is therefore something of a “gap-filler” provision that cannot support a regulatory program of the magnitude of the CPP. 

The Court’s analysis clearly indicated that the Court believes that a decision to regulate the mix of generating sources must originate with Congress, and found that Congress had repeatedly rejected prior proposals to establish similar programs addressing GHGs under the Clean Air Act.

Practical Impact

The Supreme Court’s decision in West Virginia et al. v. Environmental Protection Agency et al. has no immediate impact on existing regulatory programs or incentives because it was never implemented.  In fact, according to EPA, the GHG emission reduction goals of the CPP in the power sector were achieved^[5] through a variety of other market forces and incentives, including federal tax incentives and state-level renewable power standards.  Even if the CPP were to have become effective as originally promulgated, it would have no effect on energy markets or GHG emissions.

It is theoretically possible, but unlikely, that the decision will encourage increased generation of fossil fuel-fired electricity generation by removing a perceived threat to operating such units.  Such effects could include restarting shuttered fossil fuel-fired plants closed over the past five to ten years where technically feasible or investing in new fossil plants.  Whether these effects would materialize depends upon whether plants were closed and investment decisions were affected by the threat of the CPP rather than its implementation.  While those effects would need to be assessed on a case-by-case basis, major investment decisions are not usually grounded upon possible regulatory changes as much as upon binding regulatory requirements.

Given the number of regulatory programs that adversely affect the economics of fossil fuel-fired generating plants, and the current public support for reducing GHG emissions from such plants, a significant trend of new investment in fossil plants, or restarting shuttered fossil plants, would not be expected. Invalidation of the CPP is not likely to substantially change recent trends that are shifting generation sources to renewable power or other non-fossil sources. 

Legal Effect

The most immediate legal effect of the Supreme Court’s decision is to confirm that EPA lacks the authority under Section 111(d) of the Clean Air Act to directly manipulate the mix of existing generation sources in the United States.  Section 111 of the Clean Air Act authorizes EPA to adopt “new source performance standards” (“NSPS”) for stationary sources.  If a NSPS is adopted for a category of new sources, Section 111(d) allows EPA to require states to reduce emissions from existing sources.  The Court disagreed with EPA’s assertion that Section 111(d) authorizes EPA to require states to shut down certain sources and increase the use of other sources. The decision does not adversely affect EPA’s ability to adopt conventional NSPS that focus on emissions from individual sources, or to require states to implement plans to reduce emissions from existing plants on the basis of such NSPS. 

The opinion can be expected to have much broader, far-reaching effects.  As noted, in reaching its conclusion, the Court emphasized a previously little-used legal concept it labeled the “major questions doctrine.”  In 2015, in King v. Burwell, the Chief Justice Roberts invoked the national importance of a statutory issue in refusing to engage in typical Chevron deference (where if a statute is ambiguous and an agency’s reading is plausible, its reading would be upheld) when construing the terms of the Affordable Care Act.  Instead, the Chief Justice proceeded to interpret the terms of the statute, with no deference, upholding the agency’s reading.  Here, in contrast, the Court seems to have gone much further.  Based on the “major questions” posed by EPA’s reading of the statute, the Court short circuits the analysis.  It holds that the major policy cannot be adopted absent a clear grant of authority by Congress.  Unlike King v. Burwell, the Court did not just approach the case here as posing a question of statutory construction, unencumbered by deference.  Rather, the Court mandated a clear statement from Congress because the agency action effects a major economic or policy change. 

The Major Questions Doctrine now furnishes courts with the power to turn back Executive action based on new exercises of seldom-used powers or new policies that require interpretation of old statutory language.  Parties can be expected to raise the Major Questions Doctrine whenever a regulatory agency acts in a manner that can be portrayed as having far-reaching economic and societal impacts.  Such parties will argue that regulations must be struck down unless Congress clearly contemplated granting to the agency the specific authority asserted in the regulation or unless Congress could have expected that statutory authorization to be used in in the manner claimed by the agency. 

For example, we can expect that the SEC’s recent GHG-related regulations to face a Major Questions Doctrine challenge.  The SEC has proposed a sweeping regulatory program that seeks to regulate SEC reporting companies’ claims about GHG emissions.^[6]  The proposed rule would require companies to adopt an accounting system that tracks GHG emissions per unit of output or per dollar of revenue.  SEC justifies the scope of this rule on the basis of its authority to regulate disclosure by reporting companies and to ensure that there is a consistent basis for reporting. The proposal would, however, restructure the U.S. economy around a system that measures and regulates companies on the basis of a new environmental concept that is well beyond the SEC’s typical regulatory focus.  It would not be surprising if that new assertion of SEC power is ultimately struck down under the approach taken in West Virginia v EPA. 

Future Regulation of GHGs

The Court’s decision raises the question of whether and what powers EPA retains to regulate GHGs.  There are several authorities in the Clean Air Act that would allow EPA to regulate GHGs in a manner that could indirectly force shifts in the mix of generation sources.  Most directly, the Court’s opinion allows for a new NSPS that would have this effect.  If EPA were to promulgate a source-specific NSPA that limits GHG emissions in a manner that makes fossil fuel-fired generation more expensive, such a standard could be used to reduce fossil fuel-fired generation and not be subject to a review under the Major Questions Doctrine.  There may be other limitations that apply under the Clean Air Act (such as feasibility and cost), but at least some regulation of GHGs under Section 111(d) remains feasible.

The Clean Air Act includes other sections that may be utilized to limit GHG emissions.  Section 115 authorizes EPA to adopt regulations to implement GHG reductions pursuant to agreements between the United States and other nations if those nations agree to similar reductions.  There are arguments that such commitments exist in the United Nations Framework Convention on Climate Change or the related International Convention on Climate Change or Paris Agreement.^[7] These could serve as the basis for EPA’s regulation of GHGs under Section 115. However, such use of Section 115 would require implementation of GHG reductions in other countries that match those in the United States, and challenges under the Major Questions Doctrine are foreseeable.

In addition, the Clean Air Act requires permits for the construction of new or modified major stationary sources, and can also be used to require modifications to existing power plants.  EPA may invoke these authorities with respect to demonstrated pollution control techniques and systems.  The day is not far away when carbon capture and sequestration or other GHG emission reduction techniques are commercially available and demonstrated to a degree that allows EPA to regulate GHG emissions from fossil fuel-fired facilities in the same way that is regulates conventional pollutants. There are problems with this approach, but if the pollution control is “achievable” using available technology, there is a possibility that such control can be mandated under EPA’s existing permit programs.

All this presumes that the Supreme Court does not revisit its decision in Massachusetts v EPA, in which the Court concluded that GHGs are an “air pollutant” that can be regulated by EPA under the Clean Air Act. That decision was issued by a Court with a liberal majority and includes expansive interpretations of the Clean Air Act to which the current Court might apply the Major Questions Doctrine.  Like the CPP, the decision in Massachusetts v. EPA could have far-reaching economic and social impacts, and is not focused on the direct health effects of pollution or individual sources in the way the Clean Air Act has been traditionally applied.  The fact that GHGs are a regulated air pollutant depends instead on the indirect effects of GHGs on human health (e.g., climate change), without a direct health effect. 

The majority opinion in West Virginia et al. v. Environmental Protection Agency et al., strongly suggests that new legislation will be required to address GHG emissions and related climate change impacts.  On the authority under Section 111, the Court notes: 

Capping carbon dioxide emissions at a level that will force a nationwide transition away from the use of coal to generate electricity may be a sensible “solution to the crisis of the day.”  *** A decision of such magnitude and consequence rests with Congress itself . …^[8]

Given the Court’s other comments about Congress’ rejection of prior GHG-related amendments to the Clean Air Act, it is not difficult to imagine the Court rejecting other attempts to regulate GHGs under the Clean Air Act.  The decision in West Virginia et al. v. Environmental Protection Agency et al. may increase the pressure on Congress to act on climate change.  And if Congress does not act in the short term, states can be expected to explore the option of expanding their regulation of GHGs.