Yesterday, the U.S. Supreme Court issued its much-anticipated opinion in the case of West Virginia v. EPA regarding the agency’s authority to regulate carbon dioxide (CO2) from new and existing coal- and gas-fired power plants. In a 6-3 ruling, Chief Justice Roberts writing for the majority found EPA overstepped its authority under Section 111 of the Clean Air Act in promulgating the 2015 Clean Power Plan (the “CPP”). This alert focuses on what the CPP tried to accomplish, what the decision says, and perhaps as important, what the decision does not say, as well as several key takeaways.
Background: The case focused solely on one provision of the Clean Air Act—Section 111. That section first directs EPA to create a list of stationary sources that significantly cause or contribute to air pollution that may reasonably be anticipated to endanger public health or welfare. Once sources (like power plants) are listed, EPA must then promulgate federal “standards of performance” for new and modified stationary sources. A “standard of performance” is the amount of pollution EPA deems acceptable if the stationary source employs the “best system of emission reduction” (“BSER”). Critically, EPA’s regulation of new or modified power plants or the issue of whether greenhouse gas (“GHG”) emissions endanger public health or welfare were not at issue in the case. Rather, the opinion centers on Section 111(d) of the Clean Air Act and the scope of EPA’s authority to regulate CO2 from existing power plants.
Once EPA issues pollutant-specific standards of performance for new and modified sources, Section 111(d) demands EPA address emissions for that same pollutant for existing sources (provided they are not already regulated under Section 110 or 112). Unlike Section 111(b) (which regulates new and modified sources), Section 111(d) requires a significant state role in developing and implementing existing source New Source Performance Standards (“NSPS”). While EPA is tasked with determining BSER for existing sources, states are responsible for devising plans to meet the BSER standards.
In issuing the Clean Power Plan in 2015, EPA set BSER under Section 111(b) for new and modified coal- and natural gas-fired power plants, which focused on heat rate improvements and the use of carbon capture. This was relatively noncontroversial.
Simultaneously, EPA issued Section 111(d) guidelines for existing plants made up of three “Building Blocks”:
- Building Block No. 1: increase efficiency of existing coal- and gas-fired power plants through heat rate improvements (very few reductions compared with No. 2 and No. 3).
- Building Block No. 2: shift electricity production from existing coal-fired power plants to gas-fired power plants, which EPA estimated would generate about 50% less CO2
- Building Block No. 3: shift electricity production from gas-fired power plants to low-or zero-carbon generating capacity. To achieve Building Block No. 3, generators could replace existing facilities with new wind and solar projects, invest in existing wind or solar projects, or purchase emissions allowances if operating in a state with a cap-and-trade regime.
These “Building Blocks,” and particularly Building Blocks No. 2 and No. 3, formed the heart of the controversy. That is, the question became whether Section 111(d) and the concept of BSER authorized the agency to use the Building Blocks to force “generation shifting” at existing plants to meet EPA’s established emissions limitations and GHG reductions goals. As the Supreme Court characterized EPA’s efforts, “[t]he point, after all, was to compel the transfer of power generating capacity from existing sources to wind and solar.”
Key Aspects of the Court’s Decision: Relying on the “major questions doctrine,” the Supreme Court struck down EPA’s use of Section 111(d) to create the CPP. The major questions doctrine cases, which the Supreme Court observes have “arisen from all corners of the administrative state,” including several recent pandemic-related agency actions, counsel caution and a more exacting judicial review in “extraordinary cases” where an agency is asserting “extravagant statutory power over the national economy.” As the Supreme Court framed it, the doctrine “refers to an identifiable body of law that has developed over a series of significant cases all addressing a particular and recurring problem: agencies asserting highly consequential power beyond what Congress could reasonably be understood to have granted.” And in such cases, the doctrine requires not just plausible textual arguments but clear evidence of congressional intent to delegate the authority upon which the agency relies. Pointing to the related separation of powers doctrine, the Supreme Court emphasized “Congress intends to make major policy decisions itself, not leave those decisions to agencies.” In this case, the Supreme Court found EPA’s exercise of its Section 111(d) authority (i.e., finding BSER authorized forced generation shifting) violated the major questions doctrine for numerous reasons, among them:
- EPA’s use of the word “system” in BSER to justify the CPP was “not close to the sort of clear authorization required,” as “almost anything could constitute such a ‘system’; shorn of all context, the word is an empty vessel.”
- Section 111(d) is an ancillary, gap-filler provision of the statute, rarely used in preceding decades, and this context demanded closer scrutiny of EPA’s novel interpretation.
- In the limited instances EPA had used Section 111(d) prior to 2015, it had done so only to force individual sources to operate more cleanly, and never to impose an emissions cap by looking to a “system” that would reduce pollution by shifting polluting activity more broadly.
- Contrary to the EPA’s view, Congress did not “implicitly task it, and it alone, with balancing the many vital considerations of national policy implicated in the basic regulation of how Americans get their energy”.
- Neither did Congress “‘leave’ to ‘agency discretion’ the decision of how much coal-based generation there should be over the coming decades,” and there are no other provisions of the Clean Air Act that convey such authority.
- Congress has considered, and rejected many times, a cap-and-trade scheme for carbon, which in the Supreme Court’s view is presumptive evidence EPA was relying on “newly uncovered” authority in a long extant statute.
Ultimately, the Supreme Court concluded that even if capping carbon dioxide emissions is a reasonable solution, “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.”
Practical Effect of the Ruling: The opinion, concurrence and dissent are dedicated as much to core constitutional issues such as the separation of powers, congressional delegation of authority, and the overall role of the administrative state as they are to Section 111(d) of the Clean Air Act. Based on the concerns expressed and the analysis in this opinion, we see three important near-term implications:
- Importantly, the Supreme Court did not reverse its 2006 ruling in Massachusetts v. EPA, nor did it consider or strike down EPA’s Endangerment Finding, both of which still authorize EPA to regulate GHG emissions from both power plants and other greenhouse gas emitting sources. Instead, it limited how far EPA can go under 111(d) to address GHG emissions from existing power plants. And, it is worth noting that even though the CPP never took effect, its emissions reduction goals were met in 2019—11 years ahead of schedule—due to the relatively lower cost of natural gas.
- Although today’s decision is confined to the power sector, there will be implications from the ruling for other industry sectors and agency rules, including oil and natural gas and EPA’s ongoing development of Section 111(d) rules for that sector. For example, if provisions of the Section 111(d) rules for the oil and gas sector seek to compel action or emission reductions beyond the individual source (i.e., electrification through zero-emitting pneumatic controller mandates), EPA may be more limited in whether or how it acts. Similarly, if the collective effect of new NSPS rules impose outsized costs or usher in transformative changes in the country’s energy use, those actions may be more closely scrutinized. The decision also raises considerations about the Security and Exchange Commission’s authority to promulgate its recently proposed climate disclosure rule.
- Finally, in a non-Clean Air Act-related point, we would be remiss not to mention the building momentum on the current Supreme Court to reign in the power of the administrative state. Both the majority opinion and the concurrence detail the indisputable growth in the size and activity of the executive branch over the decades. The case seems like a bellwether reflecting the current Supreme Court’s eagerness to scrutinize agency action carefully. This case suggests that the Supreme Court will not hesitate to apply the major questions doctrine moving forward, and in appropriate cases, the Supreme Court may well be willing to apply the dormant nondelegation doctrine and even to reconsider other principles of agency deference under Chevron and Auer.