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How The Supreme Court Upended EPA’s Power Grab And Curbed The Administrative State

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Image CreditUSEPA/Wikimedia

Obama’s Clean Power Plan was an unprecedented move to make the EPA into the nation’s industrial policy czar. SCOTUS upended that plan.

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The Supreme Court’s 6-3 decision in West Virginia v. Environmental Protection Agency upends the EPA’s assertion of authority, under the Obama and Biden administrations, to squeeze fossil-fuel generation out of the nation’s electricity fuel mix.

The decision directly vacates the Obama administration’s “Clean Power Plan,” which aimed to reduce power-sector carbon dioxide (CO2) emissions to 32 percent below 2005 levels by 2030 (80 FR 64665). By clear implication, the decision blocks any effort by the Biden EPA to mandate far more draconian power-sector emission reductions over the next eight years.

More importantly, by grounding its decision in the “major questions doctrine,” the Court puts the entire administrative state on notice that it will be skeptical of all major rulemakings that would give regulators vast new powers absent a clear authorization from Congress.

Obama-Era Climate Agenda

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 The Trump administration’s Affordable Clean Energy (ACE) Rule repealed and replaced the Clean Power Plan.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

Petitioners West Virginia et al. asked the Court to determine that Section 111(d) of the Clean Air Act (CAA) does not “constitutionally authorize the EPA 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.”

Respondents, EPA et al., asked the Court to determine that the ACE Rule erred in concluding that CAA Section 111(d) “unambiguously limits” the policies EPA may consider in determining the best system of emission reduction (BSER) for existing stationary sources “to measures that can be applied to and at the individual regulated sources.”

Chief Justice Roberts’s opinion determines that Section 111(d) does not grant the EPA “authority to devise emissions caps based on the generation shifting approach the agency took in the Clean Power Plan.” In other words, the Roberts opinion renders legal judgment on the Clean Power Plan, which “injures” petitioners, not on the ACE Rule, which petitioners do not challenge.

In so doing, the Court effectively bars any regulatory jumpstart of President Biden’s stalled climate agenda to force fossil fuels out of the electricity marketplace.

System and Source

“System” was 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, West Virginia and the ACE Rule argued, all lawful Section 111 performance standards must be based on emission reduction systems that can be applied affordably to and at the individual regulated source.

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

The Obama EPA could not accept that limitation because there are no affordable technologies for capturing or filtering out CO2 emissions from existing power plants. So, the agency redefined “stationary source” to include power plant owners and operators 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 single source — a gigantic “machine.”

Based on that conception of power plants as cogs in a machine, the EPA 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 output reduction—limiting coal power plants’ hours of operation and, ultimately, turning them off. This made the Clean Power Plan unprecedented in several respects.

National Electricity Czar

First, the Clean Power Plan’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 heat-energy consumed or electricity generated. Turning off the plant stops it from performing entirely.

Second, the Clean Power Plan not only regulated emissions, it also, and by design, regulated industrial output. Thus, as noted above, the Clean Power Plan regulated an entire sector, which is not a Section 111 “source” but a market process comprising many non-sources such as wind and solar generators that do not emit air pollutants and ratepayers who do not produce power.

Third, the Clean Power Plan 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), may determine a state’s electricity fuel mix. By impermissibly treating a sector as a source, the Obama EPA bootstrapped itself into the position of national electricity czar.

Fourth, the Clean Power Plan imposed emission performance standards no existing source could meet. The standard for coal power plants, even those several decades old, was 1,305 lbs. CO2/MWh. The emission rate of new units is roughly 1,700 lbs. CO2/MWh.

To comply with unattainable standards, the Clean Power Plan gave owners the option to buy power from lower- or zero-emission power plants, invest in renewables, cede market share to renewables, or, as the EPA emphasized, buy emission credits in a greenhouse gas cap-and-trade program.

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

As West Virginia pointed out, if the Clean Power Plan’s legal theory, as affirmed by the D.C. Circuit, were allowed to stand, the EPA would be able to restrict industrial output and reallocate capital in every industry and sector that has buildings with greenhouse gas emissions. The EPA would be the nation’s de-facto industrial policy czar.

Major Questions Doctrine

West Virginia not only vacates the Clean Power Plan, it also reins in the administrative state more broadly by basing the Court’s decision chiefly on the “major questions doctrine.”

The late Justice Antonin Scalia summarized that doctrine as follows. Courts expect Congress to “speak clearly” if it wishes to assign to an agency “decisions of vast economic and political significance.” Accordingly, 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 grids 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 EPA to massively reshape State retail electricity markets, or reallocate production in entire industries that include CO2-emitting facilities.

Renewing the Separation of Powers

West Virginia clearly imperils the Biden administration’s “whole of government approach” to the “climate crisis.” The Securities and Exchange Commission, the Federal Reserve, the Federal Energy Regulatory Commission, and the Commodity Futures Trading Commission all aspire to regulate markets and capital investment for climate policy purposes. Yet those agencies, which do not regulate emissions, have even less claim of authority than the EPA to plan market outcomes for climate change purposes.

Indeed, the terms “climate,” “global,” “warming,” “greenhouse,” “carbon,” “environment,” “pollutant,” and their cognates do not occur in the Securities and Exchange Act, Federal Reserve Act, Natural Gas Act, and Commodity Futures Act.

With the administration’s climate agenda stalled on Capitol Hill, the political pressure on agencies to grab power beyond their statutory authority is immense. Although far from a complete cure for regulatory overreach, West Virginia should help preserve a future for both affordable electricity and accountable government under the separation of powers.