By Jeryl L. Olson, Patrick D. Joyce, Rebecca A. Davis, Jose AlmanzarIlana R. Morady, Brent I. Clark, and Craig B. Simonsen

Seyfarth Synopsis: The environment was yet another topic addressed by the United States Supreme Court in a ruling where it dealt a heavy blow to the EPA’s efforts to cut greenhouse gas emissions. In West Virginia v. Environmental Protection Agency, America’s highest court ruled 6-3 that the United States Environmental Protection Agency (USEPA) overstepped its authority when enacting the Obama-era 2015 Clean Power Plan, and limited the Agency’s ability to address “major questions,” such as curbing greenhouse gas emissions “beyond the fence line,” without explicit authority from Congress.

In one of its final opinions this term, the Supreme Court reversed the D.C. Circuit Court of Appeals’ decision invalidating the Trump-era 2019 Affordable Clean Energy (ACE) rule, which implicitly reinstated the Obama-era 2015 Clean Power Plan (CPP). The Supreme Court ruled that USEPA overstepped its Congressionally-granted authority when it enacted the CPP and attempted to regulate not only the amount of emissions emanating from individual coal and natural gas power plants using Section 111(d) of the Clean Air Act, but also whether coal and natural gas power plants should continue to operate at all at a grid level. The Court found USEPA’s admitted attempt to shift the type of fuel used to generate power from coal and natural gas to “renewables” (called “generation shifting” by the Court) to be a “major question” of economic policy and public health that only Congress has the authority to regulate or to explicitly delegate. The Court’s finding that the Clean Air Act (CAA) and its various amendments do not contain an explicit delegation or regulatory power to USEPA, has finally put the Agency’s CPP to rest. However, the ruling may open floodgates to new claims against federal agencies based on arguments that they are without power to regulate all manner of “major questions,” from drug safety to banking.

Although the impact on other federal agencies is not yet known, a crystal ball is not needed to see the immediate impact on the powers of USEPA. Since the passage of the Clean Air Act 50 years ago, USEPA has exercised its authority by “setting performance standards based on measures that would reduce pollution by causing plants to operate more cleanly” at the individual plant level. In 2015, however, USEPA issued the CPP, concluding that the “best system of emission reduction” (BSER) under Section 111(d) of the CAA for existing coal-fired power plants included a requirement that such facilities reduce their own production of electricity, or subsidize increased generation by natural gas, wind, or solar sources using three “building blocks.”

The first building block required using “best available control technology” to improve a power plant’s “heat rate” to improve the facility’s efficiency, which would have the effect of reducing the amount of pollution per unit of fuel utilized. The second and third building blocks utilized the novel concept of “generation shifting,” so USEPA could choose an emission standard so stringent that heat rate improvement at the individual plant level would not suffice for facilities to achieve compliance, and a power company would have to shift power generation, first to natural gas and then to renewables, to achieve emissions targets “at the grid level.” This had never been attempted before, and the question before the Supreme Court was whether this broader concept of USEPA’s authority was “within the power granted to it by the Clean Air Act.”

The majority of the Supreme Court emphatically said “no.”

Sections 111(b) and 111(d) of the CAA direct USEPA to (1) “establish…standards of performance” for “new sources” and “existing sources,” taking into account various factors, such as the “best system of emission reduction which . . . has been adequately demonstrated,” (2) ascertain the “degree of emission limitation achievable through the application” of that system, and (3) impose an emissions limit on existing stationary sources that “reflects” that amount.

In its 2015 CPP, having decided that the “best system of emission reduction” was one that would reduce carbon pollution mostly by shifting power generation to “cleaner” sources, USEPA then set about determining “the degree of emission limitation achievable through the application” of that system.

According to the Supreme Court, the “emissions limit the Clean Power Plan established for existing power plants was actually stricter than the cap imposed by the simultaneously published standards for new plants.” USEPA’s own modeling concluded that the “rule would entail billions of dollars in compliance costs (to be paid in the form of higher energy prices), require the retirement of dozens of coal-fired plants, and eliminate tens of thousands of jobs across various sectors.”

In 2019, the Trump administration determined that the Obama-era USEPA had overstepped its authority in implementing the CPP, repealed the CPP, and, in its place, enacted the ACE rule. The ACE rule only implemented “building block” one of the CPP: improved “heat rates.” A number of States and private parties filed petitions for review in the D.C. Circuit, challenging EPA’s repeal of the Clean Power Plan and its enactment of the replacement ACE Rule. The D.C. Circuit eventually overturned the ACE rule and remanded the CPP to USEPA for further consideration. West Virginia and several other states and private parties filed suit, challenging the D.C. Circuit’s reversal and remand. Though USEPA argued petitioners did not have standing to challenge the D.C. Circuit’s ruling because it never officially revived the CPP, and indicated it would not enforce the CPP while engaging in new rulemaking under Section 111(d) of the CAA. The Supreme Court nevertheless found that the harm to the State petitioners was real because USEPA did not officially repeal the CPP and standing was established.

Chief Justice John Roberts, delivering the opinion of the conservative majority, wrote:

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.” But it is not plausible that Congress gave EPA the authority to adopt on its own such a regulatory scheme in Section 111(d). A decision of such magnitude and consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body.

Slip opinion at 31. (Internal citations omitted).

As noted above, the precedent established by the Supreme Court is not limited to the powers of the USEPA, and the decision likely has implications beyond the Clean Power Plan and ACE rule. As was shown in the Supreme Court’s decision to reinstate the injunction against the Occupational Safety and Health Administration’s Vaccinate or Test Emergency Temporary Standard, an Agency’s authority to regulate questions that are traditionally reserved for Congress (i.e., “major questions”) is limited and may not exist at all, though it appears the courts are addressing the issue on a case-by-case basis. This holding could extend beyond USEPA and OSHA and into the realm of agencies such as the Equal Employment Opportunity Commission (EEOC), Department of Homeland Security, and others.

The immediate impact of the decision is that companies are likely to get relief from certain Clean Air Act monitoring and recordkeeping obligations, and impediments to permitting that limit modifications. It is unclear how EPA will respond, but certainly expansive and transformative regulatory approaches will be subject to challenge. As always, please reach out to your Seyfarth Workplace Safety and Environmental attorney to discuss questions or to see how this may impact your company.