West Virginia v. EPA: What Comes Next?

KEY TAKEAWAYS

• The Supreme Court held the Environmental Protection Agency (EPA) cannot establish a standard of performance for existing electric generating sources under Section 111(d) of the Clean Air Act (CAA) based on a system of generation shifting like that developed for the Clean Power Plan (CPP).
• As a result, EPA’s Affordable Clean Energy (ACE) Rule of 2019 could come back in effect…for now.
• The EPA is working to develop a new rule for regulating greenhouse gas emissions from the power sector consistent with West Virginia v. EPA. And the EPA’s tools for reducing power sector greenhouse emissions are not limited to Section 111 of the CAA.

How We Arrived at West Virginia v. EPA

The CPP, issued under the Obama Administration in October 2015, established performance rates for greenhouse gas emissions from existing coal- and gas-fired electric generating units pursuant to Section 111(d) of the CAA. Under that section, standards of performance are to be established based on the best system of emission reduction (BSER) that has been adequately demonstrated, subject to cost and other factors. In the CPP, the EPA established BSER based on three building blocks: (1) heat rate improvements at coal-fired power plants, (2) substituting increased generation from natural gas combined-cycle electric generating units for coal-fired units that emit more GHGs, and (3) substituting increased generation from renewable energy for generation from fossil fuel-fired power plants. The second and third building blocks came to be known as the “generation shifting” approach.

The CPP was the subject of state and industry challenges before implementation. In February 2016, the Supreme Court issued an order staying the CPP pending ongoing litigation challenging the rule by certain states and private parties. After the election of President Trump, the D.C. Circuit put the CPP litigation in abeyance pending reconsideration by the EPA, ultimately dismissing the original case as moot. In June 2019, the EPA repealed the CPP and replaced it with a different Section 111(d) regulation known as the ACE Rule. Under the ACE Rule, the EPA determined that BSER would be akin to building block one of the CPP: a combination of equipment upgrades and operating practices that would improve heat rates. Environmental groups and other states petitioned to review the CPP repeal and ACE replacement. On January 19, 2021, the D.C. Circuit vacated the EPA’s repeal of the CPP, as well as the implementation of the ACE Rule, referring the matter back to the EPA for additional consideration.

After another change in administration, the Biden Administration EPA petitioned the D.C. Circuit for a partial stay of its mandate regarding the CPP. The EPA sought to prevent the CPP from going back into effect while the EPA reconsidered whether to promulgate a new Section 111(d) rule for the electric power industry. The D.C. Circuit, therefore, stayed its vacatur of the EPA’s repeal of the CPP. Several states and private parties, which had previously intervened in defense of the EPA’s repeal and replacement of the CPP, nevertheless petitioned for certiorari to the Supreme Court.

West Virginia v. EPA Summary

In what may become a landmark decision issued on June 30, 2022, the Supreme Court held that Congress did not grant the EPA authority under Section 111(d) of the Clean Air Act to set standards of performance based on the generation shifting system the EPA relied upon in the CPP.^[1] As previously reported, after finding that the EPA’s voluntary decision not to enforce the CPP while it considers a new rule was insufficient to moot the case, the majority reached its decision to invalidate the CPP by applying the “major questions doctrine.”

The “major questions doctrine” provides that an agency must point to a “clear statement” of congressional intent before a court will determine that Congress delegated to an executive agency the authority to regulate an issue of major political or economic significance. The Court determined that in Section 111(d), Congress did not make a “clear statement” of intent to authorize the EPA to use generation shifting as BSER. Because the EPA’s regulation under the CPP did not pass the initial test under the major questions doctrine, the Court did not engage in further statutory analysis of Section 111(d) and address the contextual and structural arguments of the parties. The Supreme Court reversed and remanded the case to the D.C. Circuit for further proceedings.

What Comes Next?

After the Supreme Court issues its mandate, the ACE Rule could technically go back into effect pending further judicial proceedings and actions by the EPA. In 2020, the D.C. Circuit heard argument on other challenges to the ACE Rule. These included whether the BSER that the EPA selected in ACE is arbitrary and capricious. In further proceedings, the D.C. Circuit could either affirm the ACE Rule or remand (with or without vacatur) back to the EPA for additional consideration. Given the EPA’s stated intent to reconsider both ACE and the CPP, however, if the EPA and the Department of Justice follow standard practice, the EPA will request that the D.C. Circuit hold the case in abeyance pending the agency’s reconsideration of ACE.

Looking ahead to how the EPA might now establish standards of performance for coal- and gas-fired power plants under Section 111(d), the Supreme Court’s decision in West Virginia v. EPA ultimately provides little more guidance about the EPA’s authority under Section 111(d) than was known in 2015. After applying the major questions doctrine, the majority did not engage in a detailed statutory analysis of Section 111(d). Chief Justice Roberts wrote, “We have no occasion to decide 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.” Justice Kagan’s dissent contained relatively more textual analysis. However, even the dissent did not address many of the textual and contextual arguments the EPA relied upon when concluding the CPP was unlawful and repealing that rule. Thus, the question of when the EPA can rely upon systems implemented beyond the fence line under Section 111 remains. Moreover, the EPA is now likely to reassess carbon capture and storage as the BSER for coal and gas plants.

Aside from Section 111, the EPA is looking to other authorities under the CAA that may facilitate reductions in greenhouse gas emissions from coal- and gas-fired electric generating units. For example, the EPA plans to regulate ozone emissions more aggressively pursuant to Section 110 of the CAA. In April 2022, the EPA issued a Proposed Federal Implementation Plan Addressing Region Ozone Transport for the 2015 Ozone National Ambient Air Quality Standard (NAAQS), also known as the “Good Neighbor Plan.” In the proposal, the EPA seeks to require “upwind” states to achieve additional nitrogen oxide (NOx) emissions reductions to help “downwind” receptors meet the 2015 Ozone NAAQS. The proposal includes a plan to require electric generating units at fossil fuel-fired power plants in twenty-five upwind states to participate in an allowance-based emissions trading program during ozone season. If finalized as proposed, it is expected that many coal-fired power plants affected will become uneconomical and forced into retirement—perhaps achieving as a practical matter the “generation shifting” the EPA envisioned through its Section 111(d) CPP regulation.

For a more detailed analysis of the major questions doctrine and implications beyond environmental regulations, see the July 1, 2022 briefing.

For more insights, click here.

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^{[1] Justice Roberts delivered the majority opinion, with Justices Alito, Gorsuch, Kavanaugh, and Barrett joining. Justice Gorsuch delivered a concurring opinion, with Justice Alito joining. Justice Kagan delivered the dissent, with Justices Breyer and Sotomayor joining.}