U.S. Supreme Court limits EPA’s regulation of climate change pollution

The ruling will impact the current administration’s ability to roll out new emissions reduction goals and sets a precedent that threatens the ability of other federal agencies to interpret statutes and set regulations on major issues.

In this case, the Court considered the EPA’s statutory authority to implement regulations on carbon dioxide (CO2) emissions from power plants.

In particular, the Court examined how a set of rules promulgated in 2015 interpret the EPA’s authority under the Clean Air Act to set emission limits that could shift the landscape of the US power sector at the grid level.

The Court applied the “major questions” doctrine to the case, ruling that the EPA did not have power to pass regulations that effectively require power plants to transition away from fossil fuels.

The current EPA must confront the Court’s ruling as the agency seeks to implement US President Joe Biden’s ambitious climate policy.

Framework for Restrictions on Emissions

Previous US administrations have adopted differing interpretations of how the EPA may regulate air pollution sources under the Clean Air Act. Section 111(d) of the Clean Air Act authorizes the EPA to set an emissions limit for existing air pollutant sources, with which states must comply.

The agency determines a standard achievable through the “best system of emission reduction...that has been adequately demonstrated” (BSER) and then calculates a limit in accordance with that standard.

In 2015, the EPA unveiled the Clean Power Plan (CPP), which set CO2 emissions goals for coal and natural gas power plants. The states were required to develop plans to tighten regulations on power plants and meet these standards.

Under the 2015 rule, BSER would be achieved by plant operators building or investing in cleaner sources, purchasing emissions allowances or participating in cap-and-trade markets. CPP established “building blocks” for power plants to reduce CO2 emissions.

These “building blocks” included generation shifting measures, requiring power plants to shift from coal combustion to natural gas, and from coal and natural gas combustion to renewable sources of power, for example.

Several states challenged the EPA rule in the US Court of Appeals for the District of Columbia (DC Circuit) in West Virginia v. EPA. In 2016, the Court ordered the EPA to suspend the implementation of the CPP until litigation in the lower court resolved, and the CPP never came into effect.

In 2019, the EPA sought to repeal the CPP and adopt a replacement policy, the Affordable Clean Energy rule (ACE). The ACE took the view that the BSER could only involve measures applied to and at the level of an individual emissions source, such as equipment upgrades and new operating practices to increase efficiency.

This distinction was referred to as a “fenceline” limitation; that is, the EPA could only establish standards a plant operator could achieve within the fenceline of an individual emissions source.

In 2021, the DC Circuit ruled that both the repeal of the CPP and ACE be vacated, finding that generation shifting measures could be a legitimate “system of emissions reduction.”

June 30 Ruling

In its June 30 ruling, the Court overturned the 2021 DC Circuit decision. In a vote of 6-3, the Court determined that the CPP unlawfully conferred powers to the EPA that were outside the scope of the Clean Air Act.

The majority opinion, delivered by Chief Justice John Roberts, held that the 2021 DC Circuit ruling was justiciable, and that the petitioners have standing to appeal. The EPA had assured the Court that it would not implement the CPP and instead seek to revise the Section 111(d) rule, in the hope of avoiding review.

The Court allowed for the possibility, however, that the EPA might implement future policies that would rely on generation shifting, similar to the CPP.

In a result that may have far-reaching implications outside of carbon emissions or the EPA, the Court applied the “major questions” doctrine to the case. The Court determined that the EPA had taken the vague language of Section 111(d) to justify an “unprecedented” expansion of its regulatory remit.

The Court held that the EPA had not been granted power by Congress under Section 111(d) to limit emissions based on generation shifting. Generation shifting measures, according to the Court’s majority, “substantially restructure the American energy market,” and such power requires clear congressional authorization.

The Court found that the Section 111(d) language does not authorize the EPA to regulate emissions in the system-wide manner contemplated by the CPP.

The Court acknowledged, but ultimately did not decide, another key issue related to the EPA’s authority under the Clean Air Act.

The Court opted not to determine whether the “system of emission reduction” language in Section 111 refers exclusively to measures taken at the individual source level. The Court held that further interpretation of the statutory phrase was beyond the focus of the case.

While the Court’s position on generation shifting is clear, perhaps the EPA can take comfort in the possibility for future policies to implement measures like cap-and-trade programs.

Justice Elena Kagan authored the dissenting opinion. Justice Kagan accused the court of hamstringing the EPA at a time when climate change poses catastrophic risks. She referenced the Court’s decision to stay the CPP when the regulation was under review in the DC Circuit in 2019.

As the CPP has since been rendered obsolete (the plan’s targets have been met without ever being implemented), Justice Kagan reprimanded the Court for issuing an “advisory opinion” in anticipation of a future EPA proposal.

In defence of the CPP, she argued that Congress intentionally granted the EPA “regulatory flexibility and discretion” to determine the best system of emissions reduction under the Clean Air Act. Justice Kagan concluded that “the [CPP] falls within the EPA’s wheelhouse, and it fits perfectly.”

Moving Forward

Since 2015, the US power sector has independently met the CPP’s emissions targets, so the immediate impact of Thursday’s ruling on US power plant emissions is limited. The ruling will have a significant impact, however, on the EPA’s toolkit to fight emissions, because the agency is no longer able to implement a plan that tackles emissions as broadly as the CPP.

We can expect the current EPA to develop new rules within its narrowed scope of authority that will to include regulations at the facility level, like pollution control devices, requirements for coal plants to add natural gas to their fuel mix, and carbon capture and storage systems.

Furthermore, some states may take the ruling as a signal to double-down on their efforts to limit emissions.

Perhaps most significantly, the Court’s ruling will encourage review of other federal agency actions that may fall within the “major questions” framework. Beyond fossil fuel emissions and the EPA, West Virginia will serve as important foundation for future litigation that seeks to curb the power of federal agencies.

Thursday’s outcome may spur more challenges to administrative agency actions that litigants claim are outside the scope of an agency’s expertise or past activities.