EHS Administration, Sustainability

What Does the IRA Mean for Climate Change Regulations?

Although the Inflation Reduction Act (IRA) contains many incentives for companies to decarbonize, it also contains a hidden gem for the EPA by quietly bolstering the Clean Air Act (CAA).

“The IRA repeatedly defines greenhouse gas (GHG) as a form of air pollution,” reports The Atlantic. “It amends several sections of the [CAA] to define [GHGs]. … In another section, it grants money under the [CAA] for any project that ‘reduces or avoids [GHG] emissions and other forms of air pollution.’”

These definitions provide an answer for the “major questions” doctrine employed by the U.S. Supreme Court (SCOTUS) in its precedent-setting decision in West Virginia v. EPA, which ensured the Obama administration’s Clean Power Plan (CPP) will not be revived by current or future administrations.

Background

CPP

For the first time, the CPP set emissions guidelines for states to follow in limiting carbon dioxide (CO2) emissions from power plants. The plan determined that the best system of emissions reduction for existing power plants was through “generation shifting,” which meant shifting electricity production from coal-fired power plants to plants powered by natural gas, wind, and solar energy.

Major questions doctrine

Chief Justice John Roberts, in penning the majority opinion in the West Virginia case, wrote, “[O]ur precedent teaches that there are extraordinary cases … in which the history and the breadth of authority that the agency has asserted, and the economic and political significance of that assertion provide a reason to hesitate before concluding that Congress meant to confer such authority.”

This invokes the “major question doctrine,” which requires agencies to point to “clear congressional authority” for any authority they claim.

Roberts said it’s up to Congress to provide more specific legislation authority to the EPA.

Congress’s answer

“Throughout the landmark climate law, passed this month, is language written specifically to address the Supreme Court’s justification for reining in the [EPA],” says The New York Times.

The IRA clearly defines GHGs as pollutants subject to the provisions of the CAA. It also provides significant funding for the EPA across several air pollution programs and precisely defines six specific gases as GHGs:

  • CO2
  • Hydrofluorocarbons
  • Methane
  • Nitrous oxide
  • Perfluorocarbons
  • Sulfur hexafluoride

Under the IRA, Congress added seven specific new programs to provide funding for states to develop their own GHG emissions reduction plans and federal programs to reduce GHGs.

“Taken together, these provisions go a long way to address Roberts’ concern that Congress has not spoken plainly enough about EPA’s authority to tackle climate change,” says an article in The Conversation by Patrick Parenteau, law professor at the Vermont Law School. “But it falls short of granting EPA the authority to revive the generation shifting approach of the Clean Power Plan.

“To get the bill through the sharply divided Congress, the Senate’s Democratic majority used a process called budget reconciliation. That process allows for legislation to pass with only a simple majority of the vote. But legislation passed that way must be closely tied to spending, revenue and the federal debt limit – it cannot set broad national policy.”

Proposed regulations are required to demonstrate a positive cost-benefit analysis, meaning the benefits of implementing the regulation exceed the costs. For the EPA, this has been an easy analysis, as the massive amounts of health damages caused by air pollution are outweighed by the cost of complying with regulations to prevent air pollution.

With the IRA’s incentives for carbon capture and clean energy subsidies, this means it will cost less to implement future air pollution regulations.

“The law will also allow the EPA to pass much stricter rules than it could have previously,” continues The Atlantic. “That will happen in two ways. First, the IRA’s economy-wide tax credits and subsidies will reduce the costs that companies face in complying with broad EPA rules that encourage wind, solar, or electric-vehicle adoption. Second, the IRA contains new grants that will allow the EPA to subsidize the cost of compliance directly by writing checks or issuing loans to oil and gas firms and other regulated companies so that they can meet the terms of the rules. This works in the EPA’s favor because the cost-benefit analysis looks only at the effect of the regulation itself; it does not include any funding from Congress that makes achieving that regulation more feasible. Both of these moves will lower the costs of regulation, allowing the EPA to pass much more expansive rules.”

The IRA is a game-changer, not only in strengthening the CAA but also in the future, as it lessens the cost of clean energy, renewables, nuclear power, and new technology to better combat climate change.

Legal implications

“Challenges to EPA’s forthcoming rules replacing the [CPP], regulating methane emissions from oil and gas operations, tightening tailpipe emission and fuel economy standards, and so on can be expected,”  Parenteau writes. “But at least now there is clear legislative direction from Congress for the EPA to take bold action needed to meet the profound challenge of climate change and transition to a sustainable economy.”

With the IRA legally defining GHGs as pollution, some analysts predict it will make it tougher for new regulations to be challenged in court.

“Jody Freeman, a professor at Harvard Law School and an expert on the Clean Air Act, said the language cemented [the EPA’s] authority and would be ‘a powerful disincentive’ to new lawsuits,” says The Washington Post.

Once the EPA proposes its replacement policy for the CPP, the Agency will be able to lean heavily on the provisions within the IRA that provide clear congressional authority for it to regulate GHGs and act upon battling climate change.  Challengers will be limited to pointing “to the limited applicability of the new definition of GHGs as air pollutants,” advises WilmerHale in JD Supra.

What’s ahead

The bill’s sponsors estimate its provisions will reduce GHG emissions by approximately 40% below 2005 levels by 2030. The Biden administration’s commitment to the Paris Climate Accord agreement is a reduction of 50% by 2030. The IRA has the goal within reach. Further reductions are expected to be achieved by future regulatory actions, private industry initiatives, efforts by state and local governments, and executive actions.

“With the IRA in law, the next place to look for the big-ticket items, so to speak, like the next set of high-impact opportunities, is going to be the executive branch,” said John Larsen, a partner with the research firm Rhodium Group, in The Washington Post.

On September 2, 2022, the White House announced changes to its Climate Team.  Veteran policymaker John D. Podesta will serve as senior advisor to the president for clean energy innovation and implementation, and Ali Zaidi will be promoted to assistant to the president and national climate advisor. Zaidi replaces Gina McCarthy, who announced her resignation effective September 16, 2022. Podesta will oversee implementation of the IRA’s clean energy and climate provisions and chair the president’s National Climate Task Force.

A September 2022 report published by the Revolving Door Project explores available executive branch policies that can be utilized by the Biden administration without declaring a climate emergency.

The EPA

The report calls upon the EPA to use the CAA to close loopholes allowing the underreporting of emissions by energy companies and lowering the required reporting threshold. Additional action could include the EPA’s setting a science-based nationwide cap on GHG emissions.

Department of Interior (DOI)

“In order to make good on his dual promises of a green energy transition and an economy that serves all people — rich and poor, rural and urban — Biden must direct the DOI to block future leasing of coastal waters and pristine natural landscapes to fossil fuel and mining interests,” states the report.

Additionally, the DOI should:

  1. Plug abandoned wells, which are a source of leaking methane gas.
  2. Reform mining laws to protect the environment.
  3. Create a unified wildland firefighting task force to meet the “need for fighting increasingly out-of-control wildfires.”

Department of Agriculture (USDA)

The USDA manages more than 150 national forests and grasslands, provides infrastructure to rural communities, and bears the responsibility of oversight of U.S. food production and safety.

“Climate change is also being fueled, and subsequently profiteered off of, by the agricultural industry,” the report states. “Specifically, large-scale industrial agriculture corporations have destabilized entire ecosystems and environments over the course of decades through practices that poison local drinking water sources, destroy topsoil, dissolve and displace ecosystems, and otherwise prompt ecological collapse. … The USDA is the primary regulatory oversight body for these notoriously consolidated giants. … Biden has a responsibility, and an incredible opportunity, to connect with rural voters through addressing — and finally rejecting — Big Ag’s buying power in favor of the real everyday people who the USDA was founded to serve.”

In addition to pursuing antitrust actions against Big Ag, the report suggests the USDA condition the use of the grants, loans, subsidies, and other forms of financial assistance it oversees to require agricultural practices that reduce emissions, maintain water and land consumption standards, and mandate clear waste management and disposal strategies.

Department of Energy

The Revolving Door Project’s report encourages the Energy Department to use the power of its Loan Programs Office to discourage the assistance of fossil fuel projects and encourage clean energy projects.

The IRA authorizes $40 billion in loan guarantees for innovative energy projects and $3.6 billion in funding to cover the associated risks in these lending opportunities.

“Top priorities for the DOE must include intensifying green energy research, setting stronger efficiency standards, and backstopping low-interest loans to clean energy companies,” states the report.

Department of Justice (DOJ)

The report urges the Biden administration to use the power of the DOJ to hold more polluters accountable, defend the Securities and Exchange Commission (SEC) in enforcing mandatory climate disclosures, and coordinate environmental justice initiatives.

“The point of environmental enforcement is supposed to be deterrence,” said Max Moran, a research director at the Revolving Door Project, in The Washington Post.

“But keep in mind that many courts are backlogged,” said Colin Murphy, deputy director of the Policy Institute for Energy, Environment, and the Economy at the University of California at Davis, in The Washington Post. “What you need is more resources going to create more courts and more judges and more lawyers in those spaces. That’s not a quick thing.”

Executive action could help start that process, Murphy added.

Conclusion

The IRA provided the Biden administration with the win it needed to make progress toward its emissions reduction goals. The federal government, with all its bureaucracy and rules, is like a huge freight train: It takes a great deal of time to get all the parts moving together at speed, but once it is moving, it’s hard to slow down.

The introduction to the Revolving Door Project’s report urges readers to envision the executive branch in “a more holistic and creative way” so the administration can begin to make “necessary” changes.

“Any agency whose goals are threatened by climate change — which is all of them — has a legal obligation to address threats to its goals intelligently,” the report adds. “That means acting on climate, consistent with each agency’s powers and mandates. Climate change affects literally every aspect of human society, and so every arm of the United States government should prioritize action against it however possible. Failure is not a survivable option, and cowardice is the surest path to failure.”