The Supreme Court decided West Virginia v. EPA on Thursday, June 30, 2022, curbing the power of the Environmental Protection Agency (EPA) to regulate greenhouse gas emissions from power plants across the country.  The decision focuses on EPA’s authority under a specific section of the Clean Air Act.  But a closer read suggests more sweeping, longer-term implications for incentivizing the development of clean energy projects nationwide.

What is the case about? 

The case resolves a years-long dispute over EPA’s authority to issue the Clean Power Plan, which set limits on greenhouse gas emissions for power plants in all fifty states.  In setting those limits, EPA had to consider the “best system of emission reduction” that “has been adequately demonstrated.”  EPA determined that the “best system” was “generation shifting,” that is, shifting power generators off coal to natural gas or renewables such as wind and solar.

What did the Court decide?

The Court ruled that EPA lacked the authority under the Clean Air Act to issue the Clean Power Plan.  The Court found that EPA’s use of “generation shifting” was a sweeping new authority EPA had assumed over the nation’s electricity generation sector, an authority that was not clearly delegated to the agency by Congress.

The Court relied on a legal principle known as the major questions doctrine.  The doctrine’s precise meaning is hard to pin down in the Court’s opinion, but the gist is that some policy questions are just too big for federal agencies to address in the first instance, absent clear and explicit congressional authority.  The Court determined that regulating the country’s power grid and phasing out coal presented a major question.  It also determined that the Clean Air Act did not clearly give EPA the authority to address that question through generation shifting under the Clean Power Plan.

What does this mean for clean energy projects?

Make no mistake:  the Court’s opinion will have major implications for how the federal government addresses climate change nationally.  The Court’s ruling means that federal agencies, such as EPA, are strictly limited in how they can use existing laws, like the Clean Air Act, to implement new climate policies.  The responsibility for enacting those policies will fall to Congress.  Yet Congress has been deadlocked on climate for years.

The imminent impacts on clean energy projects are uncertain.  Likely, there won’t be a significant, immediate effect.  The Clean Power Plan’s emissions limits were never operative.  Yet as the government noted in oral argument, that did not deter industry from achieving the Plan’s “emission limits a decade ahead of schedule in the absence of any federal regulation.”  In other words, market forces, not federal regulators, were responsible for shutting down coal plants in favor of cleaner sources of electricity.

The decision also does nothing to deter states from setting their own aggressive emissions limits.  Instead, it seems to affirm state leadership in the realm of public utilities regulation.  It is telling that on the same day the Court decided West Virginia v. EPA, the Massachusetts Secretary of Energy and Environmental Affairs, acting pursuant to the state’s 2021 Climate Roadmap Act, announced new commitments to reducing greenhouse gas emissions, including by “electrifying non-electric energy uses” and by “decarboniz[ing] the electric grid.”

Yet the longer-term impacts may prove more problematic.  One benefit of the Clean Power Plan was its national effect.  All fifty states would have had to engage in some amount of generation shifting to meet the Plan’s requirements.  Now it is largely up to individual states whether to incentivize clean energy projects, but many states may opt to protect traditional fossil fuel generation instead.  There is only so much that New England, New York, California, and other likeminded states can accomplish on their own.  Project proponents would certainly benefit from a unified national policy that promoted clean energy projects everywhere.

We’ll be taking a closer look at decision and how it might affect the market in the coming weeks. Stay tuned for updates.

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