West Virginia v EPA – What Does It Mean?

On June 30, 2022, the Supreme Court of the United States released their decision on West Virginia v Environmental Protection Agency (EPA), a 6-3 ruling in favor of the petitioners. The majority opinion agreed with the petitioners who argued that U.S. EPA had overstepped their authority to regulate carbon dioxide (CO₂) emissions from power plants under section 111(d) of the Clean Air Act when they issued the Clean Power Plan.

Recent History

The Clean Power Plan was promulgated in 2015, and it provided states with emissions guidelines to limit the amount of CO₂ from existing electric generating units (EGUs). The rule required both heat rate improvements at coal-fired EGUs and generation shifting away from coal firing and toward either existing lower-emitting gas-fired power plants or new zero-emitting renewable energy sources. You can read more about the Clean Power Plan timeline in ALL4’s article, The Clean Power Plan – Where Does It Stand, Where Are Things Headed?, from 2017. The Clean Power Plan was later repealed and replaced by the Affordable Clean Energy (ACE) Rule. Like the Clean Power Plan, the ACE Rule targeted the overall reduction of CO₂ from the power sector; however, the ACE rule only included requirements for heat rate improvements at coal-fired EGUs. ALL4’s article, Evolution of U.S. Environmental Protection Agency’s Regulation of Greenhouse Gas Emissions from the Power Sector, provides more information on the evolution of air regulations affecting the power sector over the past few decades.

Accepting the case

When the court initially agreed to hear West Virginia v EPA, critics argued that the case should not be heard because the petitioners lacked standing to bring suit; the rules were not aimed at coal producers or states but rather at power plant operators. Justice John Roberts addressed this complaint by opining that states were indeed injured because the DC Circuit judgment at issue vacated both the ACE Rule and the repeal of the Clean Power Plan, and a reinstatement of the Clean Power Plan would require states to develop and implement rules to more stringently regulate power plants within their borders.

U.S. EPA objected that the case should not be heard because the issue was moot; the lower court had stayed the vacatur of the rule, and U.S. EPA had already declared that they would be writing a new rule and did not intend to enforce the Clean Power Plan. The court rejected U.S. EPA’s argument based on the potential that the new rule would likewise be based on the same principle of generation shifting as the Clean Power Plan. The case proceeded, and arguments were heard in October 2021.

The Majority Opinion

At the heart of the court’s decision is the ‘major questions doctrine,’ which essentially requires agencies to prove ‘clear congressional intent’ for any authority it claims when creating requirements that have the potential for significant economic or social consequences. The majority opinion was that the generation-shifting requirements included in the Clean Power Plan did not represent what U.S. EPA had historically applied as the Best System of Emission Reduction (BSER) because they went beyond the fenceline of the regulated source and had the potential to significantly affect the economy and reshape the power sector. It remains to be seen how often this doctrine will be used to declare other major rules illegal.

Net outcome and path forward

So, what does it all mean? Recall that Amendment X of the Constitution of the United States reads, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States specifically, or to the people.” In fact, several states have implemented or are planning to implement programs to reduce CO₂ emissions from facilities within their borders through cap and trade programs. However, a patchwork approach to regulating carbon emissions from industrial sources is not optimal.

U.S. EPA was already pursuing a different tack to regulating CO₂ emissions from existing coal-fired EGUs and has declared that they will use all regulatory mechanisms available to them to make it less economical to operate coal-fired EGUs. In the 2007 Massachusetts v EPA decision, the court found that CO₂ and other greenhouse gases are air pollutants that can be regulated by the U.S. EPA. In West Virginia v EPA the court did not remove the obligation of the U.S. EPA to regulate greenhouse gases (GHGs) specifically, but instead objected to application of the generation shifting approach. U.S. EPA is already working on a new rule (expected to be proposed in early 2023) that will likely impose GHG emission limits on EGUs at the facility level as has been done with other pollutants. In theory, they could require carbon capture and sequestration (CCS) technology at coal-fired power plants but the technology may not be considered to be adequately demonstrated. The 45Q tax credit (which we wrote about in a previous blog) offers significant tax incentives to implement CCS. A carbon tax could further drive the cost benefit.

In addition, the Inflation Reduction Act reiterates that GHGs are a form of air pollution and includes a methane tax on the oil and gas industry and billions of dollars for climate and clean energy investments (our blog on this topic is coming soon). In the end, market mechanisms, including the investment opportunity offered by renewables, changing consumer preferences, and supply chain issues have the potential to create a far more meaningful climate strategy than air emissions regulations alone.