In one of the most significant environmental opinions of our time, the Supreme Court held in West Virginia v. EPA that Section 111(d) of the Clean Air Act does not give the Environmental Protection Agency (EPA) authority to determine emissions caps for existing sources through “generation shifting” in a cap-and-trade program. The 6-3 opinion carries lasting implications for the EPA’s efforts to address climate change by curtailing the agency’s authority to issue rules limiting greenhouse gas emissions from existing power plants. But even more broadly, the decision may curb the power of all administrative agencies to implement regulations with wide-reaching social and economic effects.

In 2015, the Obama Administration adopted the Clean Power Plan (“the CPP”) to reduce carbon dioxide pollution by giving existing power plants the option of reducing production of electricity or subsidizing increased generation by natural gas, wind or solar sources through a cap-and-trade program. Section 111(d), under which the EPA must prescribe emissions standards for existing power plants, requires the EPA to determine and prescribe the “best system of emission reduction” (BSER) that “has been adequately demonstrated.”¹ The CPP was designed to spur a sectorwide shift by reducing the amount of coal-generated electricity from 38% of the nation’s energy to 27% by 2030.

But the CPP never went into effect. Several states challenged the CPP in the D.C. Circuit. That court declined to enter a stay of the CPP, but the Supreme Court entered a stay in February 2016—the first time it had ever stayed a rule under review in a lower court. Three years later, the Trump Administration repealed the CPP and replaced it with the Affordable Clean Energy rule (ACE rule). The EPA argued that the CPP exceeded the agency’s authority under Section 111 of the Clean Air Act by including measures that applied industrywide, as opposed to measures that applied to the physical premises of power plants, or “inside the fenceline.” By contrast, the ACE rule required relatively small emissions reductions from existing coal-fired steam plants. Despite the CPP’s repeal, the power industry achieved by 2019 the emission reductions that the CPP would have required in 2030, underscoring the industry trend away from carbon-intensive power sources even without regulation.

A different group of plaintiffs—West Virginia along with other states and certain industry groups—challenged the EPA’s decision to repeal the CPP and implement the ACE rule. In January 2021, the D.C. Circuit vacated the ACE rule and the repeal of the CPP, holding that the EPA was wrong that its authority was limited to inside-the-fenceline emissions control measures. After a change in presidential administrations, the Biden Administration announced it was developing a new Section 111(d) rule. States defending the repeal of the CPP filed petitions for certiorari, and the Supreme Court then granted review to determine whether the BSER required by Section 111 gives the EPA authority to require generation shifting away from coal-fired power plants.

The Court's Holding

The Court’s opinion, written by Chief Justice Roberts, makes two holdings. First, the Supreme Court concluded that the case remains justiciable because the states challenging the CPP experienced an injury traceable to the Court of Appeals’ decision, since it would have reinstated the CPP, which states would then have been required to implement. Second, the Court held that under the major questions doctrine, Congress did not grant the EPA authority to devise emissions caps for existing sources through generation shifting.

As to the jurisdictional question, the Supreme Court found that it had jurisdiction to decide the case. The inquiry focused on whether any party had experienced an injury fairly traceable to the judgment below. The D.C. Circuit’s judgment vacated the ACE rule and brought the CPP back into legal effect. Because states would be required to implement the CPP under the Clean Air Act’s cooperative federalism design, the Court held that they would be injured by its reinstatement. The Court rejected the government’s argument that the case is moot because of the EPA’s voluntary decision not to enforce the CPP prior to promulgating a new Section 111(d) rule. It reasoned that one party’s voluntary cessation of challenged conduct does not render a case moot when it could, in theory, resume that conduct. Because nothing precluded the EPA from reimposing emissions limits predicated on generation shifting, the Court found a live controversy.

On the merits, the Supreme Court began by explaining this case involves the major questions doctrine. That doctrine is implicated when an agency’s claim of authority pertains to an issue of vast economic and political significance where Congress has not clearly empowered the agency to take such extraordinary action. Here, the Supreme Court opined that the EPA’s alleged shift from regulating individual power sources to rebalancing the overall power system constituted an extraordinary rule.

The Supreme Court made several observations in determining that the major questions doctrine applied. First, the Court noted that all prior greenhouse gas emissions regulation was source-based to require cleaner technologies, rather than system-based to require shifts in the type of energy produced. There is no emissions control a coal plant operator can deploy at the plant to comply with the CPP. Second, the Supreme Court found it highly unlikely that Congress would confer the power to determine how much energy should be generated from coal in a “backwater” and “ancillary” provision of the Clean Air Act. Finally, the Supreme Court explained that Congress itself had rejected cap-and-trade programs for greenhouse gas emissions, so it does not follow that the EPA already had authority to implement a program Congress had repeatedly rejected.

To overcome the major questions doctrine’s skepticism of extraordinary rules, the Supreme Court explained that the government must show clear congressional authorization for the agency action. The Supreme Court conceded that generation shifting could be described as a “system”—a “best system of emission reduction”—but it concluded that almost anything could constitute a system, so this vague statutory grant was insufficient. Additionally, while other programs administered by the EPA utilize cap-and-trade schemes, these programs do not provide the EPA with authority to set the caps. Those programs’ use of cap and trade is insufficient to demonstrate that here Congress authorized the EPA to set caps for greenhouse gas emissions pursuant to Section 111. In sum, the decision concludes there is too little evidence of clear congressional authorization for the CPP.

Justice Gorsuch, joined by Justice Alito, filed a concurring opinion that “offer[ed] some additional observations about” the major questions doctrine. He compared the doctrine to “clear-statement rules” that exist in other areas of law, such as retroactive legislation and abrogation of sovereign immunity. He wrote that the Court’s existing cases “supply a good deal of guidance” for when the major questions doctrine applies, such as when an agency “claims the power to resolve a matter of great political significance,” when an agency “seeks to regulate a significant portion of the American economy” and when an agency “seeks to intrude into an area that is the particular domain of state law.” He also outlined a series of factors identifying when a congressional statement provides sufficient authority for agency action.

Justice Kagan, joined by Justices Breyer and Sotomayor, filed a dissenting opinion. She wrote that Section 111(d) “broadly authorized” the EPA to determine the best system of emission reduction for existing power plants, emphasizing that a “key reason Congress makes broad delegations like Section 111 is so an agency can respond, appropriately and commensurately, to new and big problems.” Rejecting the majority’s reading of “system” as vague, she wrote that Congress chose “an obviously broad word” to give the EPA “comprehensive, extensive, wide-ranging” authority. Comparing the language of Section 111(d) to the language in other sections of the Clean Air Act, she rejected the idea that the EPA’s authority is limited to prescribing “technological” means of reducing emissions from a single plant.

The Decision’s Significance

The implications for the EPA and the Biden Administration’s climate agenda are far-reaching. In promulgating new rules for carbon dioxide emissions, which are expected later this year, the EPA may not rely on generation shifting akin to the CPP’s program.

However, the decision claims to narrow itself to address only the BSER contained in the CPP. The opinion does not address “whether the statutory phrase ‘system of emission reduction’ refers exclusively to measures that improve the pollution performance of individual sources, such that all other actions are ineligible to qualify as the BSER.”

These brief paragraphs may provide latitude for the EPA to promulgate rules beyond measures that improve pollution performance of individual sources. Yet it remains to be seen what those rules would look like. For example, the majority expressed doubt that the EPA could require coal plants to retool into natural gas plants, because the Clean Air Act likely does not permit the EPA to direct existing sources to effectively cease to exist. But it is likely permissible for the EPA to require sources to take less-drastic actions that reduce their emissions. Accordingly, the decision implicates the Biden Administration’s climate goals to drastically reduce carbon dioxide emissions across the grid and manifest major shifts toward sustainable energy sources such as wind and solar.

The decision marks the second time this term the high Court has taken up environmental matters with wide-reaching implications based on the major questions doctrine. Last month, the Supreme Court permitted the Biden Administration to utilize the social cost of carbon, vacating a lower court’s injunction, as explained in a prior WilmerHale alert. Although the Court in that case implicitly rejected the major questions doctrine’s applicability, West Virginia is likely to further encourage lower courts to apply the doctrine in regulatory challenges.

Even without regulation like the CPP, emissions from the power sector are likely to continue to fall as market forces continue to drive a transition to cleaner energy sources. Nevertheless, regulated industries can expect to see changes both in the environmental realm and elsewhere stemming from the Supreme Court’s opinion. The Court’s willingness to limit the EPA’s authority pursuant to Section 111 of the Clean Air Act is consistent with and may foreshadow future limitations on the administrative state. Reduced administrative authority has the potential to impact many facets of government programs, from housing and health care to trade and foreign policy.

Footnotes -

1. Section 111(b) provides standards of performance for new stationary sources, and Section 111(d) provides standards of performance for existing stationary sources when the regulated pollutants are not already subject to regulation pursuant to other provisions of the Clean Air Act. 42 U.S.C. § 7411.