Further Thoughts on the Supreme Court’s Clean Power Plan Case

I heartily recommend the reply briefs by petitioners West Virginia and Westmoreland Mining Holdings, LLC in the Supreme Court’s Clean Power Plan case, West Virginia et al. v. Environmental Protection Agency (EPA) et al. I commented on the case shortly after the February 28 oral argument. Inspired by those briefs, I offer some further thoughts here.

Background

The Clean Power Plan (CPP) was President Obama’s marquee climate policy and the centerpiece of his emission-reduction pledge under the Paris Agreement. The Trump administration’s Affordable Clean Energy (ACE) Rule repealed and replaced the CPP. In January 2021, the D.C. Circuit Court of Appeals vacated the ACE Rule in American Lung Association v. EPA.

The Supreme Court is reviewing the CPP’s legal theory as affirmed by the D.C. Circuit in American Lung Association. As summarized by the Supreme Court, the Circuit Court ruled that Section 111(d) of the Clean Air Act (CAA) “constitutionally authorized the Environmental Protection Agency to issue significant rules—including those capable of reshaping the nation’s electricity grids and unilaterally decarbonizing virtually any sector of the economy—without any limits on what the agency can require so long as it considers cost, non-air impacts and energy requirements.”

Depending on how the case is decided, West Virginia could either jumpstart or unplug President Biden’s stalled agenda to force fossil fuels out of the electricity marketplace.

Statutory Backwater

CAA Section 111(d), the CPP’s putative statutory authority, is an ancillary provision—a gap filler. Its function is to address air pollutants not amenable to regulation under either the National Ambient Air Quality Standards (NAAQS) or the National Emission Standards for Hazardous Air Pollutants (NESHAP) programs (40 FR 53340).

As a standalone authority, CAA 111(d) was used five times from 1975 to 1996 to regulate four pollutants (fluoride emissions, sulfuric acid mist emissions, total reduced sulfur emissions, methane and organic compound emissions) from five source categories (phosphate fertilizer plants, sulfuric acid production plants, Kraft pulping mills, solid waste landfills, and primary aluminum plants).

When the 1990 CAA amendments specifically listed 189 hazardous air pollutants (CAA Section 112(b)(1)) and directed the EPA to prescribe maximum achievable control technology (MACT) standards for major sources, Section 111(d) became an anachronism—the relic of a bygone era when many types of sources were still uncontrolled.

System and Source

In all previous Section 111 rules, whether for new sources under 111(b) or existing sources under 111(d), the EPA determined what is the “adequately demonstrated” best system of emission reduction (BSER), taking cost and other factors into account. Based on that determination, the agency set emission performance standards.

The CPP reversed that process. It started with President Obama’s “ambitious” agenda to decarbonize the U.S. economy, and then devised a system and associated set of standards to advance that agenda.

“System” is the key statutory term in dispute in West Virginia. Since emission reduction systems are designed for and apply to sources, the permissible meaning of “system” depends on that of “source.” Section 111 defines a stationary source as a building, structure, facility, or installation that emits or has the potential to emit air pollutants. Therefore, all lawful Section 111 performance standards must be based on emission reduction systems that can be applied to and at the source—the physical entity that emits air pollutants.

That is exactly how previous new source performance standards—about 70 in total—and all five extent 111(d) rules work.  

But the Obama EPA could not accept that limitation because there are no affordable technologies for capturing or filtering out carbon dioxide (CO₂) emissions from existing power plants. So, the agency redefined “stationary source” to include the owners and operators of such sources in their capacity as economic actors in the electricity marketplace. More fundamentally, the EPA reimagined the entire U.S. electric power sector to be a source, describing it as a gigantic machine in which the individual power plants were mere cogs (80 FR 64692, 64725-64726, 64739-64740, 64768-64769).

The EPA then defined BSER as generation shifting—reallocating output and market share from coal to gas power plants and from fossil-fuel generation to renewables. The key component of generation shifting was utilization reduction—reducing coal power plants’ hours of operation and, ultimately, turning them off. This made the CPP unprecedented in several respects.

Unprecedented

First, the CPP’s so-called performance standards were de-facto non-performance mandates. Running a coal plant less does nothing to improve its environmental performance—the quantity of CO₂ emitted per unit of electricity generated. Turning off the plant stops it from performing entirely.

Second, the CPP not only regulated emissions; it also regulated industrial production. In other words, the CPP regulated an entire sector, which is not a source but a market process. The power sector, for example, includes generators (hydro, nuclear, wind, and solar) that do not emit air pollutants and ratepayers who do not produce power.

Third, the CPP invaded a policy space—electricity resource planning—reserved by Congress to the states. Not even the federal electricity regulator, the Federal Energy Regulatory Commission (FERC), is allowed to do that. By impermissibly treating a sector as a source, the Obama EPA bootstrapped itself into the position of national electricity czar.

Fourth, the CPP imposed emission performance standards that no existing regulated source could meet. The standard for coal power plants—even those several decades old—was 1,305 lbs. CO₂/MWh. The EPA freely acknowledged that the emission rate of even new units is 1,700 lbs. CO₂/MWh. The standard for natural gas combined cycle power plants was 771 lbs. CO₂/MWh. The actual emission rate of most new units is about 1,000 lbs. CO₂/MWh.

The Plan

So, how would existing fossil-fuel plants comply? They could buy power from lower- or zero-emission power plants, invest in renewables, buy emission credits, or simply cede market share to renewables.

The CPP left it up to the states to decide how their power sectors would achieve statewide emission rates reflecting the unattainable coal and gas power plant emission standards. How would states do that? The CPP answered that quite clearly: establish or join statewide or regional greenhouse cap-and-trade programs.

The CPP is thus best described as a plan to herd states into the same type of market-restructuring greenhouse gas cap-and-trade programs that Congress repeatedly considered and declined to enact in the 2000s.

As the petitioners point out, if the CPP’s legal theory, as affirmed by the D.C. Circuit, is allowed to stand, the EPA will able to restrict industrial production in every industry and sector that has buildings with greenhouse gas emissions. The EPA will be the nation’s de-facto industrial policy czar.

Major Questions

Here’s the good news. A victory for petitioners should not only re-limit the EPA, it should also help rein in the administrative state more broadly. In addition to challenging the EPA’s interpretation of the statute, petitioners are asking the Court to review Section 111(d) in the context of the “major questions” doctrine.

As outlined by Justice Antonin Scalia in Utility Air Regulatory Group v. EPA (2014), the major rules doctrine holds that Courts expect Congress to “speak clearly” if it wishes to assign to an agency “decisions of vast economic and political significance.” Consequently, courts should be skeptical—not deferential—when an agency “claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy.”

Discovering an unheralded power to regulate a significant portion of the American economy is exactly what the Obama EPA did when it turned 111(d) into a power to reshape the nation’s electricity grid and unilaterally decarbonize virtually any sector of the economy.

Nobody, not even the Biden administration EPA claims Section 111(d) contains a “clear statement” that unambiguously authorizes the agency to take over electricity resource planning in the states or to reallocate production in entire industries that include CO₂-emitting facilities.

The economic and political significance of West Virginia v. EPA is vast. It is not only the EPA that today seeks to expand its power beyond any clear statement in its governing statute. Everybody wants to get into the act, as the great vaudevillian Jimmy Durante said. The Securities and Exchange Commission, the Federal Reserve, and Federal Energy Regulatory Commission all now want to be climate regulators even though Congress never spoke directly to climate change in their respective statutes. The pressure to power grab is immense now given Biden’s whole-of-government approach to the “climate crisis.” A victory for petitioners in West Virginia could not be more timely.