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US Supreme Court curtails federal authority to limit power plant GHGs through fuel switching

30 June 2022 Amena Saiyid

The US Supreme Court rejected the US Environmental Protection Agency (EPA)'s authority to curb power plant GHG emissions by switching fuels to renewable sources of power or lower-emitting natural gas.

In a 6-3 vote and win for coal companies and a West Virginia-led coalition of states, Chief Justice John Roberts joined five conservative leaning justices in the nation's highest court in finding that EPA violated its congressional mandate under Section 111(d) of the Clean Air Act, which sets emissions standards from existing stationary sources such as coal-fired power plants using a best system of emissions reductions.

Roberts joined Justices Clarence Thomas, Samuel Alito, Brett Kavanaugh, Neil Gorsuch, and Amy Comey Barrett in agreeing with West Virginia that EPA overreached its legal authority.

The justices in the majority took issue with EPA for asking coal-fired utilities to lower GHG emissions by identifying fuel switching as the best system of emissions reductions under the provision of the law.

"Capping carbon dioxide emissions at a level that will force a nationwide transition away from the use of coal to generate electricity may be a sensible 'solution to the crisis of the day,'" Roberts wrote for the majority.

"But," Roberts added, "it is not plausible that Congress gave EPA the authority to adopt on its own such a regulatory scheme in Section 111(d). A decision of such magnitude and consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body."

Justices remand ACE overturn

The ruling reverses and remands to a federal appeals court a January 2021 opinion that vacated the 2019 Affordable Clean Energy Rule (ACE), which under President Donald Trump's administration sought GHG reductions through improving and replacing inefficient boilers and related combustion equipment inside coal-fired power units.

The West Virginia-led coalition of states and coal companies questioned EPA's authority under the provision of the law to regulate GHGs at coal-fired power plants, and more broadly at other stationary sources across economic sectors.

However, the court chose not to rule broadly on other stationary sources and instead focused its ruling on whether EPA could require fuel switching as a best system of emissions reductions from coal-fired plants under Section 111(d).

In doing so, the Supreme Court's majority clarified the reach of federal authority, thereby paving the way for EPA to rewrite the power sector GHG regulation for approximately 280 US coal power plants because currently there is no regulation on the books.

New rule in the works

EPA has indicated that it plans to issue a new GHG regulation for power plants by March 2023 though it remains to be seen whether that deadline will be met in light of the Supreme Court's ruling.

Whether the DC Circuit chooses to rehear the case or remand it back to the agency with instructions provided by the Supreme Court remains to be seen, Thomas Lorenzen, a Crowell & Moring attorney specializing in Clean Air Act issues, told Net-Zero Business Daily by S&P Global Commodity Insights.

"EPA has already said it will propose something new. What it can't do is require generation shifting. Everything else is on the table," said Lorenzen, a former Justice Department attorney.

EPA told Net-Zero Business Daily it is mulling the decision. "We are reviewing the Supreme Court's decision. EPA is committed to using the full scope of its existing authorities to protect public health and significantly reduce environmental pollution, which is in alignment with the growing clean energy economy," the agency said in a 30 June statement.

West Virginia Attorney General Patrick Morrisey, who supported the ACE rule, said the court made the correct decision to rein in the EPA, which he called "unelected bureaucracy."

"We are pleased this case returned the power to decide one of the major environmental issues of the day to the right place to decide it: the US Congress, comprised of those elected by the people to serve the people," Morrisey said in a 30 June statement following the ruling.

Court agrees with Trump EPA reading

The case was brought to the high court last October by a West Virginia-led coalition of states and coal companies that argued the US Court of Appeals for the District of Columbia Circuit (DC Circuit) gave EPA "unfettered access" to regulate GHGs at power stations and other industrial plants across the country, as long as it considered cost, non-air impacts, and energy requirements.

At issue in the case was the legality of the ACE rule, which the DC Circuit struck down because it constrained EPA's ability to regulate GHGs. The ACE rule replaced the 2015 Clean Power Plan (CPP), which was stayed upon taking effect. The CPP, however, was the first time EPA set GHG standards for the power sector. Aside from disallowing fuel switching, ACE also disallowed approaches such as trading carbon credits, and averaging reductions across coal-fired units that CPP allowed on grounds that EPA's authority does not extend beyond the fenceline of individual coal-fired units.

The Supreme Court's majority agreed with the Trump administration's reading that EPA's authority did not extent to fuel switching and was limited inside the plant, though the concept of the "fenceline" was not mentioned in the ruling. The ruling mostly focused on what EPA did in the non-existent CPP, rather than what it required in the ACE rule.

Dissent questions basis of majority's ruling

However, the dissenting justices—Elena Kagan, Sonia Sotomayor and Stephen Breyer—questioned why the majority even chose to issue what at best could be described as "an advisory opinion" as no power plant GHG rule is on the books and the power plant sector remains unregulated.

Kagan wrote the majority's reasoning "flies in the face of the statute."

"The majority says it is simply 'not plausible' that Congress enabled EPA to regulate power plants' emissions through generation shifting," Kagan wrote.

"But," she noted, "that is just what Congress did when it broadly authorized EPA in Section 111 to select the 'best system of emission reduction' for power plants. The 'best system' full stop—no ifs, ands, or buts of any kind relevant here."

In legal briefs and during oral arguments in late February, West Virginia Solicitor General Lindsay See questioned the basis for EPA's authority by raising a major questions doctrine, a US Supreme Court interpretation of the US Constitution in a 1999 ruling over sales tobacco products. In FDA vs. Brown & Williamson Tobacco Corp., the Supreme Court held that a federal agency, such as the Food and Drug Administration, could not make sweeping regulatory changes unless the US Congress explicitly authorized such an action. West Virginia and like-minded states argue EPA's CPP, which they say the DC Circuit revived by vacating the ACE rule, will have a sweeping impact on the fossil fuel industry. The Appalachian state is reliant on the mining and power generation industries for employment and revenue, as the second-largest coal producing state in the US in 2020 and the fifth-largest natural gas producer.

Did Congress address this question?

The Supreme Court's majority ignored deference to EPA and instead ruled on the matter as a "major questions case."

The majority said EPA found some "newfound power" in the vague language of an "ancillary provision" of the law—alluding to Section 111(d)--that "allowed it to adopt a regulatory program that Congress had conspicuously and repeatedly declined to enact itself."

The justices in the majority noted that prior to 2015 "EPA had always set emissions limits under Section 111(d) based on the application of measures that would reduce pollution by causing the regulated source to operate more cleanly. It had never devised a cap by looking to a "system" that would reduce pollution simply by "shifting" polluting activity "from dirtier to cleaner sources."

"On EPA's view of Section 111(d), Congress implicitly tasked it, and it alone, with balancing the many vital considerations of national policy implicated in deciding how Americans will get their energy," wrote Roberts who penned the majority's opinion.

But, Roberts continued, there "is little reason to think Congress assigned such decisions to the EPA."

Gorsuch and Alito in a concurring opinion acknowledged that Congress has been slow to solve problems. "But," they emphasized, "the constitution does not authorize agencies to use pen-and-phone regulations as substitutes for laws passed by the people's representatives."

Disappointment and relief over ruling

According to Crowell's Lorenzen, West Virginia and the coal companies did not get the ruling they sought, which was to cut off EPA's authority to regulate GHGs.

"Given the Supreme Court and the decision they have handed, I think this is a win for EPA because EPA will has the authority to regulate GHGs under Section 111 d. It just can't require generation shifting, but it can require all the inside the fencelline measures," Lorenzen said.

Environmental advocates and renewable energy groups disappointed with the ruling sought to see the silver lining in the court's ruling. New York University School of Law Professor and Dean Emeritus Richard Revesz expressed relief that the court allowed EPA to retain its authority to regulate GHG emissions although the decision is a "significant setback" for environmental protection and public health safeguards.

"No party in this case challenged that authority, which is granted by the Clean Air Act. This case challenged only the form of the regulation. The EPA still has avenues to address power sector greenhouse gas emissions, which it must do to meet its statutory obligations to regulate air pollutants that adversely affect public health and welfare," he added in a statement issued by the NYU School of Law's Institute for Policy Integrity. Revesz filed a friend-of-the court brief in support of EPA's stance in the case.

Likewise, Jason Rylander, an attorney with the Center for Biological Diversity's Climate Law Institute, also urged the Biden administration to use what tools it has available to pursue its climate agenda.

For example, Lorenzen said, Clean Air Act provisions that establish national air quality standards, international air pollution reduction programs can still be used.

The court's majority was silent about the use of banking, averaging reductions across coal-fired power plants. They did allude to the cap and trade program for ozone-forming nitrogen oxides and sulfur dioxies, but said Congress explicitly rejected those programs for GHGs. Besides, they noted that Congress had set up caps for the nitrogen oxides in the Clean Air Act, whereas EPA was trying to exercise that authority.

Coal industry welcomes check on federal reach

Lawyers who have represented the power and coal industry were pleased with the decision, calling it a "stinging rebuke" to the more expansive approach for regulating GHG emissions that the Obama administration laid out under CPP.

"This rejection will limit what the Biden administration can do to regulate greenhouse gas emissions not just from existing power plants but also from existing sources in other industries as well," said McGuireWood partner Allison Wood in a statement.

Wood has previously represented the power industry in seminal climate change cases before the Supreme Court.

The National Mining Association, which represents some of the coal companies that challenged the EPA authority in court, said the ruling confirms "there are limits to the authority that administrative agencies have to unilaterally issue transformative rules, particularly those that impose deep and uneven economic impacts on every state and industry across the country."

"Climate change is real and must be addressed, but not by running roughshod over the boundaries established around delegated powers," the association said in a statement.

Coal-fired power continues to dwindle

S&P Global Commodity Insights analysts weighed in on the court's ruling, saying it will have more of an impact on federal GHG regulatory authority than on the coal-fired power sector, which continues to dwindle.

The analysts found that the US is on track to retire 128 GW of coal-fired capacity by the end of the decade. Operating capacity totaled about 209.7 GW in 2021.

The trajectory of coal plant retirements won't be "materially affected" by the case ruling, Doug Giuffre, senior director for S&P Global Commodity Insights' North American Power & Renewables team, told Net-Zero Business Daily.

Giuffre added that the US power sector continues to add 35-40 GW of wind, solar, and natural gas capacity each year, "and this will further squeeze coal out of the generation mix in the US."

Meanwhile, state, corporate, and utility decarbonization ambitions remain in place despite any limitations put on EPA's ability to regulate emissions.

If anything, S&P Global Commodity Insights North American Power & Renewables team concluded that the Supreme Court ruling at the very least "may reduce the immediate legal uncertainty concerning the scope of EPA's authority, allowing the agency to move forward with new regulations-although with a reduced scope."

Posted 30 June 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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