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The US Supreme Court wrestled with claims and counterclaims 28
February that the US government is overreaching in in its efforts
to regulate power sector, the second-largest source of GHGs in the
nation, despite the absence of a federal regulation on the
books.
During oral arguments that spanned more than two hours, Supreme
Court justices questioned claims made by a West Virginia-led
coalition of states and coal companies about the US Environmental
Protection Agency's (EPA) authority to regulate GHGs at power
plants, and more broadly at other stationary sources across
economic sectors.
Due to climate change, frequent and more intense storms,
wildfires, droughts, and heatwaves are being felt all across the US
and indeed the world. A UN report released the same day as the oral
arguments buttressed that reality.
Yet, the US government has not been able to regulate GHGs from
the power sector, owing to pushback from states like West Virginia,
where coal and natural gas production and generation drive their
economy. This is despite US President Joe Biden's pledge to
decarbonize the power sector by 2035.
Until the Supreme Court issues its ruling on the reach of
federal authority, EPA cannot rewrite the power sector GHG
regulation, and that means approximately 280 US coal power plants will
remain unregulated for GHGs in the foreseeable future.
Boosting coal, gas
West Virginia along with like-minded states and mining companies
contend EPA's authority to curb GHGs ends at the fencelines of
individual coal-fired units. This means EPA can only set GHG
standards within these coal-fired units that involve efficiency
improvements to air heaters, boilers, and other related equipment
that will give rise to fewer emissions and greater uptake of coal.
They oppose any regulatory approach that gives power plants
flexibility to go beyond these units and install carbon capture and
sequestration or shift from the costlier and dirtier coal-fired
plants to the relatively lower-emitting natural gas or
emissions-free renewables.
The power sector, however, is opposed to this stance, with
Consolidated Edison, Exelon, and National Grid USA leading a host
of utilities intervening in the case. The trade group Edison
Electric Institute also filed a friend of the court brief in
support of having more power plant flexibility.
Although the high court's ruling is not expected earlier than
April, an opinion favoring West Virginia and its cohorts, meaning
an adverse one for EPA, could have implications for Biden's goal to
decarbonize the power sector and the economy as a whole because it
could tie the federal government's hands on what GHG reduction
approaches it could mandate on sectors other than the power
sector.
Specifically, it would mean EPA would not be allowed to offer
carbon sequestration and storage, average GHG reductions across
high-emitting units within a plant, engage in carbon credit
trading, and above all, switch to natural gas generation or
renewables.
Conversely, a favorable ruling would give Biden the regulatory
tools to achieve the goal of halving the nation's GHG emissions
across all economic sectors.
Did Congress speak to this question?
Although Chief Justice John Roberts openly questioned whether
the US Congress intended federal agencies to have the power that it
didn't state explicitly, he alluded to the EPA regulation, noting
that "the US code is filled with delegations to different agencies.
And many of those are of a technical nature."
The conservative-leaning justices, however, did not let the
states or the coal companies off the hook though, peppering them
with tough questions.
The usually taciturn conservative-leaning Justice Clarence
Thomas said he could not understand why West Virginia would be
harmed by having a regulation outside the so-called fenceline of
individual coal-fired units.
"There's quite a bit of talk about outside the fence and inside
the fence. I don't know how you can draw such clean distinctions.
It would seem that some of the activity that you might think
is…source-based is also outside the fence," Thomas said.
Basis for challenge
The West Virginia-led coalition and coal companies objected to a
January 2021 decision from the US Court of Appeals for the
District of Columbia Circuit (DC Circuit), which the Supreme Court
agreed to
review in later October.
The DC Circuit, the states and coal companies said, gave EPA
"unfettered access" to promote GHG reduction approaches that would
encourage the power sector to switch away from coal-fired
generation, the mainstay in states like West Virginia and Wyoming,
where mines are located, to relatively cleaner-burning natural gas
or renewables to meet reduction targets.
In that ruling, the DC Circuit dismissed the 2019 Affordable
Clean Energy (ACE) rule that limited GHG reductions to efficiency
improvements, while repealing the 2015 Clean Power Plan (CPP) that
offered power plant flexibility. However, EPA acted quickly after
the DC Circuit decision and sought a partial stay from the court to
prevent CPP from being reinstated.
During the arguments, the states and the coal companies
repeatedly raised the specter that EPA would revive CPP, the
Obama-era GHG regulation for power plants which would have been
revived by the dismissal of the 2019 rule had the EPA not acted
quickly to stay it in court until it writes a new regulation to
replace it.
This prompted many a justice to ask US Solicitor General
Elizabeth Prelogar whether EPA's actions were harming the
states.
Prelogar, however, made it clear that there is "no federal
regulation on the books," so there is no harm coming to the states
that are charged with writing plans to comply.
"What they're focused on is the effects of what's going to
happen in the future," she said, announcing that the EPA plans to
issue a notice of proposed rulemaking for the power sector at the
end of 2022.
Market forces driving down coal-fired
power
In the runup to the 28 February arguments, lawyers tracking the
case pointed out that West Virginia is pursuing a case that has far
greater ramifications than just limiting the EPA's regulatory
authority over the power sector. It could have serious implications
for the industrial sector, which remains the third-largest source
of GHG emissions in the US, and, potentially, the Biden
administration's goal to decarbonize the power sector.
However, market forces are already at play and have driven down
coal-fired generation since 2009, replacing it with natural and
renewables.
Equally important to note is that no justice asked any of the
lawyers about EPA's authority to regulate GHG emissions from other
sectors of the economy.
Invoking 'major questions doctrine'
During the arguments, the nine justices also grappled with the
claims made by the attorneys for coal-generating states and coal
companies that the DC Circuit ruling gave EPA "transformative
power" to change the nation's power generation mix through
regulation.
West Virginia Solicitor General Lindsay See in particular argued
this authority invokes the "major questions doctrine"—a
decade-old legal doctrine that allows a federal agency to interpret
the law within reason when there is no clear language from Congress
and the underlying statute is ambiguous.
When Justice Samuel Alito questioned Prelogar, she said, "If it
were really a transformational type of regulation, it wouldn't be
adequately demonstrated, it wouldn't be what the industry is
already doing to control pollution, it wouldn't be cost effective,
and maybe it would transform the nature of our reliance on
particular forms of energy, and so threaten the reliability of the
grid."
Justice Thomas appeared skeptical when Jones Day attorney Jacob
Roth, arguing on behalf of Westmoreland Mining Holdings, a Colorado
coal company, said that EPA overreached its Clean Air Act Section
111 authority that was used to issue GHG regulations. Under this
provision of the law, Congress authorized EPA authority to curb
power plant pollution using the best system of emissions reduction
(BSER).
BSER is a term Congress coined in the Clean Air Act to refer to
reduction approaches, such as the energy efficiency improvements in
ACE, that EPA has identified for a particular pollutant in a
specific industry or source category after considering its
technical feasibility, cost, non-air quality health and
environmental impacts, and energy requirements.
Roth claimed EPA's authority was constrained to requiring BSERs
within individual power plants, not redesigning the energy
sector.
When Justice Stephen Breyer pressed him further to explain EPA's
overreach, he compared the performance standards that the agency
set for power plants with those for passenger cars.
"I can get 30 miles a gallon, I can get 35 miles a gallon. We
don't mean I can take the bus. We don't mean I could stay home," he
said.
EPA authority extends to source
categories
However, Beth Brinkman, of Washington-based law firm Covington
& Burling, who represented the power companies, reminded the
justices that BSER is meant for a category of pollution sources,
not just for an individual source.
Citing the example of emissions trading, which power companies
have been utilizing to reduce ozone-forming pollutants and CO2,
Brinkman said the Clean Air Act allows EPA to set BSERs for
categories only after they have been adequately demonstrated.
For her part, Justice Department's Prelogar acknowledged that
individual power plants are responsible for complying with rules,
but all power plants don't have to follow the same solution, such
as installing carbon capture and storage.
Notwithstanding the fact that EPA has repeatedly said it is not
reinstating the CPP, Roth argued the agency—due to the court's
now-stayed reinstatement of the 2015 regulation—is attempting
to "effectively dictate not only the technical details of how a
coal plant operates, but also the big-picture policy of how the
nation generates its electricity."
"That immense authority cannot be reconciled with the statutory
text and structure, let alone with the major questions doctrine,"
he added.
However, Thomas pointed out that "EPA could regulate the source
in a way that actually requires change, for example, in the mix of
energy generation" that could make the cost of running a facility
so high that a power plant would naturally change its generation
fuel from coal to natural gas, or a utility would switch to solar
generation.
Roth acknowledged that the incidental effects of regulation can
cause resource switching. But he added that the states are
objecting to EPA's inclusion of measures—such as the use of
renewables or switching to gas or co-firing with biomass (woody
waste)—as the BSER because they are designed to shutter
coal-fired power plants.
Still, Thomas persisted in his questioning: "But what's the
difference? If you can do it indirectly or directly? Isn't it the
same result?"
Limited to fencelines
Thomas was following up on lines of questioning opened up by
Breyer and Justices Elena Kagan, and Sonia Sotomayor, who attempted
to tease out the states' insistence that EPA's GHG authority is
limited inside the power plant fenceline.
"Inside the fence can be very small, or it can be catastrophic …
technological fixes that could drive the entire coal industry out
of business," Kagan said, questioning its relevance to the coal
industry.
Picking up on what Kagan said about generation shifting away
from coal, Sotomayor asked West Virginia's See to explain the
"major question" that Congress didn't address.
"It can't be that what Congress has chosen … leap in or out of
the fence activities that lead to generation shifting?" she
said.
Thomas said he wasn't clear on the distinction that Roth and See
were trying to make about EPA authority inside the fenceline.
Roth shifted away from the fenceline argument, saying that was
used as a "shorthand" to describe the measures that EPA could
require to reduce the emissions rate, while See also described it
as a shorthand for the limits Congress placed on EPA's
authority.
Brinkman, however, during her turn pointed out yet further
problems with West Virginia's inside-the-fenceline argument. She
reminded the justices that coal is prewashed offsite to remove
impurities before it is brought to a coal-fired power plant.
West Virginia wants to limit states'
authority
When Kagan asked See to clarify whether states are also
precluded under the Clean Air Act from setting standards that would
result in generation switching, she said: "We do agree that the
states are limited in setting a standard … in the same way that EPA
is limited when it sets the best system of emission reduction."
Kagan found See's response at odds with the flexibility states
have to set standards. The Clean Air Act allows EPA
standard-setting to act as the floor against which states can set
their own standards, Kagan said.
See said it is a false argument that more options for EPA means
more options for the state.
She pointed to the CPP as an example, saying the rule set an
aggressive schedule with options for states, "but really there
weren't, because states couldn't actually have other options other
than generation shifting."
Chief Justice Roberts asked the Department of Justice to clarify
whether West Virginia was being injured because it was deprived of
the ACE regulation, which it preferred.
"Nothing prevents them from regulating however they wish,"
Prelogar said, making it clear that the state is not injured by an
absence of federal regulation.
Posted 01 March 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.