Next Steps for Federal Energy Policy After Supreme Court's EPA Ruling

Parker Poe Adams & Bernstein LLP

On the last day of its 2022 term, the Supreme Court curtailed the Environmental Protection Agency’s ability to cut carbon emissions from the nation’s power plants. The court held that the “generation shifting” provisions and associated emissions caps in the contemplated Clean Power Plan exceeded EPA’s authority under Section 111(d) of the Clean Air Act. However, the ramifications of the ruling for federal energy policy are unclear, and the U.S. Senate is considering legislation to accelerate the shift to carbon-free energy.

The Ruling

In a 6-to-3 ruling, the Supreme Court found in West Virginia v. EPA that the EPA overstepped its authority when it devised emissions caps that could not be achieved with the existing power system as a means to mandate that electric utilities close down coal-fired power plants and shift to wind, solar, and other renewable forms of generation.

Writing for the majority, Chief Justice John Roberts highlighted the “major questions” doctrine, which says Congress must “speak clearly” when authorizing agency action on significant issues. The majority argued Congress simply hasn’t given the EPA the authority to issue such sweeping carbon regulations on the power sector.

The country’s main federal air pollution law, the Clean Air Act, was enacted in 1972, long before climate change was widely recognized to be the crisis that many believe it is today.

“There is little reason to think Congress assigned such decisions to the Agency,” Roberts wrote. “A decision of such magnitude and consequence rests with Congress itself.”

The court’s three liberal justices, however, argued that the Clean Air Act, despite its age, does in fact provide the EPA the power to combat climate change.

Highlighting the portion of the statute allowing for regulation of pollutants that “may reasonably be anticipated to endanger public health or welfare,” Justice Elena Kagan wrote in her dissenting opinion: “Carbon dioxide and other greenhouse gases fit that description.”

What made the case unique was that the rule the court invalidated had not been codified. Initially proposed by President Obama, the Clean Power Plan would have required coal-fired power plants to install more efficient technology to limit carbon dioxide emissions and also be transitioned to cleaner burning fuel sources such as natural gas and renewables. During Obama’s last year in office, the Supreme Court blocked the plan from taking effect. The Trump administration replaced the plan with a regulation known as the Affordable Clean Energy rule, which eliminated the generation shifting provisions and focused instead on requiring equipment upgrades and operational changes to improve the heat rates of existing electrical generating units. However, the Trump-era rules were also blocked by an appellate court on President Trump’s last day in office.

Normally, judges wait for regulators to act. But the Supreme Court elected to hear the case before the Biden administration could offer up its own proposal.

Next Steps for Federal Energy Policy

Biden administration indicated that it is reviewing the decision, but the EPA is moving forward with identifying other ways to address the issue of controlling carbon emissions. The EPA is working on new rules to reduce cross-border smog emissions and limit the leaching of coal ash contaminants into drinking water. In combination, the new regulations could incentivize the transition to cleaner-burning fuels.

The ramifications of the ruling for federal energy policy are unclear. On the one hand, it seemingly makes President Biden’s goal of reducing carbon emissions by 50% by 2030 much harder to achieve, and some observers have already trumpeted the majority opinion as grounds for challenging proposed climate rules from the U.S. Department of Transportation and the Securities and Exchange Commission. On the other hand, the Supreme Court declined to invalidate its landmark 2007 ruling called Massachusetts v. EPA, in which it said the EPA could use its Clean Air Act authority to cut greenhouse gas emissions. This time, the majority allowed the EPA to still regulate power plants at the individual facility level. However, it cannot do so by forcing the utility sector at a system-wide level to shift from coal to renewables.

Perhaps in partial response to the ruling, U.S. Senators Chuck Schumer and Joe Manchin announced on July 27 a compromise climate change proposal, providing a potential path forward on a bill addressing energy and climate spending as well as health care and tax changes. The proposed compromise legislation, the Inflation Reduction Act of 2022, was announced weeks after lengthy negotiations going back to 2021 had stalled out. The measure would spend roughly $369 billion on climate and energy programs, including:

  • Tax incentives for renewables, hydrogen, and nuclear.
  • Tax credits for electric vehicles.
  • Support for clean energy manufacturing and the creation of a new federal green bank.
  • Investments in environmental justice programs.
  • A fee on methane leakage.

If enacted, the bill will be the largest investment the federal government has ever made in transitioning and modernizing the domestic energy economy, and it is forecast to achieve a 40% reduction of carbon emissions by 2030. But given the 50-50 split in the Senate along with the unpredictable nature of today’s national politics, whether and in what final form the bill passes is likely to remain in suspense until the very end.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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