July 12, 2022 — On June 30, the U.S. Supreme Court issued a decision striking down an Obama era  rule regulating carbon dioxide (CO2) emissions from existing power plants. The decision in West Virginia v. EPA held the Obama administration’s Clean Power Plan Rule exceeded EPA’s  authority under the Clean Air Act.  The decision is important for what it did and what it didn’t do.

Three key takeaways from the court’s decision:

1. The Court did not rule that EPA lacks authority to regulate greenhouse gas emissions from power plants or other sources. Section 111 of the Clean Air Act authorizes EPA to address air pollution from both new and existing sources if the pollutant endangers public health or welfare. A 2007  Supreme Court decision (Massachusetts v. EPA)  held that CO2 and other greenhouse gasses meet the definition of an air pollutant under the Clean Air Act.  In 2009,  EPA made a finding that six greenhouse gasses endanger public health and welfare because of their contribution to climate change. The West Virginia v. EPA decision does not undermine either the Massachusetts v. EPA decision or EPA’s 2009 endangerment finding.
2. The West Virginia v. EPA decision held that the method EPA chose to set CO2 emission limits for existing power plants in the Clean Power Plan Rule exceeded EPA authority under Section 111(d) of the Clean Air Act.
3. In finding that EPA exceeded its authority, the Court relied on the “major questions doctrine”.  The Court indicated that clear Congressional authorization will be required when the breadth of  an agency action has such “economic and political significance” that it raises questions about Congressional intent to grant such broad power.  That part of the decision will affect future EPA actions beyond those addressing greenhouse gas emissions and  has implications for all federal agencies.

Background on the Clean Power Plan Rule and the basis for the Court’s decisions below.

The  Clean Power Plan Rule.  Under Section 111 of the Clean Air Act,  EPA has authority to regulate proposed new sources of a pollutant that “may reasonably be anticipated to endanger public health or welfare”. Section 111 requires EPA to set the emission limit for the pollutant based on  the “best system  of emissions reduction” after taking into consideration cost, other health and environmental impacts and energy needs. In 2015,  EPA  proposed CO2 emission limits for new power plants based on a combination of the use of high efficiency processes and carbon capture technology.

The  West Virginia v. EPA decision did not affect EPA’s CO2 emission limit for new power plants.  But when EPA has set a standard for new sources of a pollutant, Section 111(d)  allows EPA to direct states to set performance standards for existing sources in the same category.   Given the practical difficulty and potential cost of retrofitting existing sources, Section 111(d) allows flexibility in setting  those performance standards.  EPA’s practice  has been to develop guidelines for state performance standards under Section 111(d) based on the “best system of emissions reduction”,  but taking into consideration the cost and energy impacts specific to existing sources.

EPA’s  Clean Power Plan Rule  set out guidelines for state adoption of CO2 performance standards for existing power plants. EPA based the CO2 emission limit on a combination of three CO2 reduction measures: 1.Heat rate improvements that would cause coal-powered plants to burn coal more efficiently; 2. A shift in power generation from coal to natural gas-fired plants; and 3. Additional shifting of energy generation from coal or natural gas to renewable sources such as solar and wind energy. In taking that approach, EPA acknowledged that  heat rate improvements at individual coal-fired plants would have very limited benefit, making a shift in energy generation necessary to achieve significant reductions in CO2 emissions.

EPA concluded that electric utilities could reasonably reduce reliance on coal generation from 38% of total power generation to 27% by 2030 and calculated a CO2 emission limit for existing power plants based on that assumed level of generation shifting from coal to natural gas and renewable energy.

The “Major Question”.  The U.S. Supreme Court decision in West Virginia v. EPA focused on EPA’s use of generation shifting as a basis for setting CO2 emission limits for existing power plants. The Court noted EPA’s past practice of  setting emission limits based on pollution reduction technologies or operating conditions that could be implemented at an individual plant. The Court held that EPA’s novel approach to setting a CO2  emission limit and the potential economic impact on  the entire power generation system required specific Congressional authority:

Precedent teaches that there are “extraordinary cases” in which the “history and the breadth of the authority that [the agency] has asserted,” and the “economic and political significance” of that assertion, provide a “reason to hesitate before concluding that Congress” meant to confer such authority. [Citations omitted.] Under this body of law, known as the major questions doctrine… the agency must point to “clear congressional authorization” for the authority it claims.

Given the absence of express Congressional authority to use generation shifting to limit CO2 emissions, the Court held EPA had exceeded its authority in adopting the Clean Power Plan Rule.

The Court admits that the major questions doctrine overrides normal rules of statutory interpretation. In other words, the Court can use the doctrine to find no authority for an agency regulation even if the normal rules of statutory interpretation may support the agency action.  In West Virginia v. EPA, the Court leaned heavily on the novelty of using generation shifting to reduce pollution and projections that forcing a shift from coal to natural gas and renewable sources could raise energy costs. The Court didn’t exactly find that Congress failed to authorize generation shifting as a system of pollution reduction. Instead, the Court  talks about “doubting”  or being “skeptical” that Congress intended to authorize EPA to require generation shifting given the possible cost and impact on the power system.

The Dissent. The three dissenting justices, in an opinion written by Justice Kagan, noted that Section 111 directs EPA to select a system of pollution reduction rather than a pollution control technology. The dissenters noted that EPA has used cap and trade programs  — which allow an individual facility to purchase pollution reduction credits from another source  instead of implementing control technology — as part of a system for reducing emission of other pollutants.

The dissenting justices argued that Section 111(d) gave EPA  authority to include a shift in power generation as part of a system of reducing CO2 emissions from power plants. The dissent also questioned the majority’s leap to a new and broad application of the  “major questions” doctrine instead of applying the normal rules of statutory construction.

Questions about the Major Questions Doctrine.   The decision in West Virginia v. EPA  states (and uses) the  “major questions” doctrine more broadly than previous cases. The breadth could be problematic  given the lack of guidance in the decision on how to apply what appears to be a very subjective standard.  Based almost entirely on the fact that the generation-shifting in the Clean Power Plan Rule represented a new  approach to pollution reduction, the Court

[doubted]  that “Congress  . . . intended to delegate . . . decision[s] of such economic and political significance,” i.e., how much coal-based generation there should be over the coming decades, to any administrative agency.

The “economic and political significance” of an agency’s exercise of authority could be very much in the eye of the beholder. In 1964, Justice Potter Stewart attempted to explain how the Supreme Court distinguished Constitutionally protected free speech from unlawful obscenity by saying “I shall not today attempt further to define the kinds of material I understand to be embraced [by the terms pornography or obscenity]…[b]ut I know it when I see it…” The major questions doctrine may be similar.  The West Virginia v. EPA decision doesn’t indicate what criteria for economic and political significance the Court will use to decide whether the doctrine applies.  Apparently, the Court will know economic and political significance when it sees it.

Effect on State Greenhouse Gas Policies. The West Virginia v. EPA decision doesn’t have any effect on state authority to regulate greenhouse gas emissions. State environmental agencies operate under authority granted by state law rather than federal law. The Clean Power Plan Rule never went into effect as a result of  lawsuits challenging the rule and the Trump administration’s later effort to repeal it. So at present no federal rule compels the state to act, but  nothing prevents the state from acting on its own.

Update: The title of this post has changed.