The energy industry celebrates while environmental advocates weep on the heels of a June 30, 2022, U.S. Supreme Court (SCOTUS) decision severely limiting the EPA’s authority to set greenhouse gas (GHG) emissions standards for existing power plants.
The decision is a heavy blow to the Biden administration in its quest to transition the United States to clean energy and a net-zero carbon future.
The question in the case West Virginia v. EPA was whether Congress constitutionally authorized the EPA under Section 111(d) of the Clean Air Act (CAA) to “issue significant rules including those capable of reshaping the nation’s electric 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, nonair impacts and energy requirements?”
The 6–3 decision ruled that it is Congress, not the EPA, that has the authority to create cap-and-trade regulations systems to limit GHG emissions from existing sources and transition away from fossil fuel energy to clean energy.
Case background
Authority to set power plant GHG emissions limits was initially provided by the Obama administration’s Clean Power Plan (CPP) to establish “flexible and achievable standards to reduce carbon dioxide emissions” that included “carbon pollution reduction goals for power plants and [enabled] states to develop tailored implementation plans to meet those goals. …”
“Soon after, 18 of the 50 [U.S. states] joined a legal challenge against the emissions limits,” says Power Technology. “Led by West Virginia politicians, the legal case said that the Plan gave the EPA massive power to reshape the U.S. economy. Opposers often say that state governments should decide emissions limits, not federal agencies.”
SCOTUS enacted a stay on the CPP in 2016.
“Former President Trump’s Administration put the CPP under review, removed its funding and passed legislation to undermine it,” Power Technology adds. “Then, his administration issued the Affordable Clean Energy (ACE) rule, which prioritized low-cost power generation, and called for less emissions regulation.”
However, in January 2021, a divided D.C. Circuit Court of Appeals sent the Trump administration rule back to the EPA’s drawing board, stating the rule was devised through a “tortured series of misreadings” of the CAA. This left it up to the Biden administration to create a new rule.
It surprised analysts that the current SCOTUS justices decided to hear this case because precedent would have been for the high court to give the current administration time to issue a new rule.
Legal analysis
This SCOTUS decision ruled that the 2015 CPP overstepped the EPA’s authority.
“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,’” states the decision. “But it is not plausible that Congress gave EPA the authority to adopt on its own such a regulatory scheme.”
The issue the Court considered was whether restructuring the nation’s overall mix of electricity generation from 38% to 27% coal by 2030 is the “best system of emission reduction (BSER)” within Section 111.
The majority opinion was written by Chief Justice John Roberts, who was joined by Justices Clarence Thomas, Samuel Alito, Neil Gorsuch, Brett Kavanaugh, and Amy Coney Barrett. Gorsuch filed a concurring opinion that was joined by Alito. Justice Elena Kagan filed a dissenting opinion that was joined by Justices Stephen Breyer and Sonia Sotomayor.
The first legal question the Court considered was the EPA’s contention that the petitioners did not have Article III legal standing. That claim was rejected.
To determine the EPA’s authority under Section 111, it based its decision upon the “major question doctrine,” which requires agencies to point to “clear congressional authority” for any authority they claim. In short, the majority held that only Congress has the power to regulate emissions. “A decision of such magnitude and consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body,” states Roberts’ opinion.
In her dissent, Kagan wrote, “Today, the Court strips the [EPA] of the power Congress gave it to respond to ‘the most pressing environmental challenge of our time.’ Whatever else this court may know about, it does not have a clue about how to address climate change. … The stakes here are high. Yet the Court today prevents congressionally authorized agency action to curb power plants’ carbon dioxide emissions. The Court appoints itself — instead of Congress or the expert agency — the decisionmaker on climate policy. I cannot think of many things more frightening.”
SCOTUS could have gone further. The justices did not strike down long-standing precedents, such as the 2007 Massachusetts v. EPA decision, which held that the EPA has the authority to regulate GHGs under the CAA.
The Court also left in place the Chevron doctrine, by which courts grant deference to federal agencies in their interpretation of the statutes they regulate.
“The dissent stressed that the ‘major question doctrine’ is typically used when significant agency action runs counter to express direction from Congress, which the [CPP] did not, so deference to the EPA would have been appropriate,” Forbes says.
The overwhelming legal question about precisely which methods the EPA is supposed to utilize to regulate GHG emissions remains unanswered.
Pro-climate change responses
In response to the SCOTUS decision, the Center for Biological Diversity (CBD) and more than 1,200 groups in the People vs. Fossil Fuels coalition called upon President Joe Biden to declare a climate emergency and use the broad powers available to that office under such an emergency declaration.
“Hard on the heels of snatching away fundamental liberties, the right-wing activist court just curtailed vital climate action,” said Jason Rylander, an attorney at the CBD’s Climate Law Institute, in a press release. “It’s a bad decision and an unnecessary one, but the EPA can still limit greenhouse gases at the source under Section 111 and more broadly through other [CAA] provisions. In the wake of this ruling, EPA must use its remaining authority to the fullest.”
In the wake of the ruling, Biden said he would be relentless in his quest to use the authority of his office to protect the public from climate change.
“My Administration will continue using lawful executive authority, including the EPA’s legally upheld authorities, to keep our air clean, protect public health, and tackle the climate crisis,” he said in a statement. “We will work with states and cities to pass and uphold laws that protect their citizens. And we will keep pushing for additional Congressional action, so that Americans can fully seize the economic opportunities, cost-saving benefits, and security of a clean energy future. Together, we will tackle environmental injustice, create good-paying jobs, and lower costs for families building the clean energy economy. Our fight against climate change must carry forward, and it will.”
What does the decision mean for climate regulation?
The ruling will limit the EPA to regulating emissions at individual plants rather than having the ability to mandate shifts toward cleaner power.
It creates regulatory uncertainty at this time. The Biden administration is currently working on a new plan, as the CPP was repealed and Trump’s ACE plan was struck down. Proposed regulations are expected to be issued this year.
Future regulations will depend on the reaction of Congress and the current administration to this SCOTUS decision.
Biden has made progress toward meeting his goal of cutting total GHGs in half by 2030, with regulations directed at the transportation sector, which currently contributes the most GHGs.
Electricity generation contributes 25% of the total U.S. GHG emissions, of which 60% comes from fossil fuel power plants.
Shifting to electric vehicles will mean there is a more urgent need to switch to clean energy production.
“As a result of today’s Supreme Court ruling, future EPA regulation of power plant emissions will be more costly and less effective,” adds Forbes. “Other tools (such as expensive new requirements for carbon capture and sequestration or indirect regulation of water or other air emissions) may be needed, unless Congress acts to allow the EPA to implement other, less intrusive and more effective solutions in conjunction with state environmental regulators.”
Energy industry trends
Even though the 2015 CPP was never truly implemented, most states followed the mandates it sought to enforce, meaning GHG emissions were reduced.
In the past, natural gas prices were significantly cheaper than fossil fuels, and policies rewarding decarbonization were put in place, along with tax credit incentives for clean energy. These factors aided in a transition from coal-generated power plants.
“Utilities have retired over 546 power plants (comprising over 100 GW of utility-scale coal-fired electric-generating capacity), mostly ageing power plants built in the 1970s and 1980s, over the past decade,” continues Forbes. “At least 1 in 4 of the remaining coal-fired power plants (out of a total remaining fleet with about 200 GW of generating capacity and about 23% of total power generation) is slated to retire by 2035, according to the U.S. Energy Information Administration, even in the absence of new federal limits on [GHG] emissions.”
Replacement plants are fueled by natural gas or renewable energy sources. Now, with rising natural gas prices, the shift to renewable sources such as solar, wind, and water-driven energy is the most profitable route for the energy industry.
However, the solar industry faces its own challenges, such as supply chain disruptions, trade tariffs with China (the leading low-cost source), and inflation.
Another threat to this industry is recent enforcement actions.
“U.S. Customs and Border Protection … reportedly started detaining PV modules that cannot show supply chain documentation for the quartzite used to make polysilicon under the new Uyghur Forced Labor Prevention Act, which passed Congress nearly unanimously in January and took effect on June 21, 2022,” says Forbes.
Other impacts from the decision are likely to include clean energy investments. Forecasting valuations becomes more difficult in the wake of judicial decisions such as this one because of the uncertainty in how the EPA will respond.
Forbes says, “Changes in law, uncertainty about new regulations or agency powers, and fear of judicial pivots: these political risks can chill investment across sectors.”