In a highly unusual action, the United States Supreme Court yesterday issued a stay prohibiting the implementation of the "Clean Power Plan," a final regulation issued by the U.S. Environmental Protection Agency ("EPA") on October 23, 2015, aimed at reducing the use of existing coal-fired electricity generation facilities and increasing renewable generation in order to reduce greenhouse gas emissions.  The Supreme Court's decision, issued without explanation or analysis, imposed a stay in connection with a challenge to the Clean Power Plan that is pending before the U.S. Court of Appeals for the District of Columbia.  The Court of Appeals rejected an application for a stay on January 21, 2016, and will hear oral argument on the main challenge to the Clean Power Plan on June 2, 2016. 

The Supreme Court's action is unprecedented.  As the Solicitor General pointed out, and the State applicants conceded, the parties could "identify no case in which this Court has granted a stay of a generally-applicable regulation pending initial judicial review in the court of appeals."  And, because the Supreme Court requires parties to demonstrate a "fair prospect" of success on the merits to obtain a stay, it likely reflects the view of a majority of Justices that the Clean Power Plan is unlikely to survive the Court's review. 

The Clean Power Plan is a comprehensive federal environmental regulation intended to reduce greenhouse gas emissions from the U.S. electricity generation sector.  The final regulations require each state to implement a state plan for reducing greenhouse gas emissions by a nationwide average of 32% by 2030 compared to 2005.  EPA's regulations suggest that states utilize energy efficiency, fuel switching, renewable energy incentives and a variety of other measures to accomplish the emission reduction goal.  The primary target of the Clean Power Plan appears to be coal-fired electricity generation from existing facilities.  (New federally-regulated facilities are already subject to greenhouse gas regulations.)  States are required to submit plans to EPA for approval in September 2016, but may be entitled to a two-year extension of that deadline upon demonstrating progress to EPA and otherwise meeting extension criteria.

Opponents of the Clean Power Plan cite a lack of legislative authority for the regulations.  The Clean Power Plan is grounded in Section 111(d) of the Clean Air Act, which authorizes EPA to regulate certain non-criteria pollutants using the "best system of emissions reduction."  EPA has previously used this provision to regulate specific industry in narrow categories (e.g., cement manufacturing and landfill gas control), but never before for a broad industry program covering multiple technologies and types of facilities.  In addition, regulatory programs are usually authorized by detailed provisions under the Clean Air Act.  Critics argue that the Clean Power Plan is a comprehensive plan with broad impacts, and that the short, non-specific provisions of Section 111(d) provide an uncertain basis upon which to support a program that would substantially change the electricity generation industry.  In fact, many states have asserted that they would need to enact new legislation to issue state plans that follow the proposed suggestions for reducing greenhouse gas emissions set forth in the Clean Power Plan.

The Solicitor General has responded to these critics, asserting that the Clean Power Plan "addresses the Nation's most important and urgent environmental challenge – climate change – by securing critical reductions in carbon dioxide (CO2) emissions from fossil-fuel-fired power plants."  On the merits, the Government has responded to critics by arguing that Section 111(d) broadly authorizes EPA to prescribe regulations for air pollutants that are not criteria pollutants, like carbon dioxide, pointing to Section 111(d)'s "gap-filling" purpose in the Clean Air Act.

Critics also cite a lack of specificity in the program.  Under most Clean Air Act regulations, the requirements imposed upon industry are highly specific, identifying pollution control equipment and specific emissions reduction targets based on technically feasible and demonstrated equipment and operating modes.  In contrast, the Clean Power Plan imposes a general goal upon the states of reducing greenhouse gas emissions, but does not mandate specific technologies or otherwise limit states' policy options.  Instead, opponents argue, states are required to achieve the emissions reduction goals however they can, using any of many generally described options, with the threat of federal control being imposed if the states fail to submit an approvable implementation plan.  The details of the implementation are left to the states, while a conceptual backup plan has been proposed by EPA to substitute for state plans if needed. 

The Clean Power Plan complements other actions that are already underway and are likely to reduce greenhouse gas emissions.  EPA already regulates new sources of greenhouse gas emissions under the Clean Air Act's new source permitting program.  In addition, federal tax credits and many state's energy regulatory agencies are encouraging explosive growth in the renewable energy industry.  EPA is also using existing authority under the Clean Air Act to regulate conventional (non-greenhouse gas) pollutants originating from coal-fired power plants in a manner that is predicted to trigger extensive retirements of coal-fired facilities.  There is an economically driven expansion occurring in natural gas-fired generation.  Some have observed that these trends may continue to change the electricity generation industry, even if implementation of the Clean Power Plan is delayed (or even prohibited) by the courts. 

The primary consequence of the Clean Power Plan is a degree of regulatory uncertainty that is rare in the U.S. energy industry.  Even before a regulation becomes fully effective, utilities and independent power producers must make long-range capital plans.  The mere expectation that the Clean Power Plan could become effective requires electricity generators to position themselves for potential changes in requirements.  In this case, state plans may not be effective for up to three years (or longer, if court challenges delay implementation), and the requirements will not be binding until 2022.  As a result, due to the scope of the potential changes, all plans in the electricity sector will be subject to uncertainty for at least three to six years.  Pending litigation further increases the uncertainty as to when and whether the requirements will become effective as to specific companies or projects.

Indeed, this uncertainty probably played a significant role in the majority's decision to grant the stay.  The five Justices in support of the stay likely credited industry arguments that if the rule is not stayed, industries may make investment decisions now in anticipation of the eventual requirements.  Such decisions could result in the retirement of significant assets, or investment in natural gas and renewable energy sources, at a likely cost in the billions of dollars, much of which might eventually be borne by ratepayers.  These decisions may not be reversible should the Court eventually strike down the rule, which makes the availability of judicial review less meaningful.  The Court's action removes some of the pressure and urgency for utility and energy development planners, who can expect some extensions of deadlines as a result of the stay.  The Supreme Court's unusual action also suggests that a majority of the Supreme Court Justices have recognized the significance of the Clean Power Plan to the U.S. economy, and believe that the challenge has at least a "fair prospect" of success. 

Final resolution of the judicial challenges may require as much as another six to twelve months at the Court of Appeals level, and potentially another year of review before the Supreme Court.  At the end of that process, any remand would consume at least another year, meaning that EPA may not have a final, implementable plan until 2019 or later, if indeed the courts agree that Section 111(d) is a sufficient basis for the Clean Power Plan.