07/01/2022 - Power Sector Rules - Supreme Court Decisions

Supreme Court Embraces the Major Questions Doctrine as Limiting but Leaving the Door Open for Power Sector GHG Regulations

by Carrie Jenks, Hannah Oakes Dobie, Sara Dewey

On June 30th, as one of the last opinions before its summer recess, the Supreme Court held in a 6-3 decision that EPA lacked the authority under Section 111 of the Clean Air Act (CAA) to set an emissions cap for greenhouse gases (GHGs) based on generation shifting. Applying the “major questions” doctrine, Chief Justice Roberts, writing for the majority, explains that Congress must provide EPA with clear authorization for it to cap carbon dioxide (CO2) emissions at a level that would “force a nationwide transition away from the use of coal to generate electricity”, as the Court concludes the Clean Power Plan (CPP) would have done.[1]

Prior to the decision, we considered a range of potential outcomes—from whether the Court would prohibit EPA’s authority to regulate GHGs from all sectors to whether the Court would decide that the case was not ready to be heard given that states and industry faced no effective requirements. The opinion does not go as far as some feared nor does it affirm the Trump administration’s interpretation that EPA can only consider measures that can be applied at an individual source under Section 111(d). However, as we discuss below, the opinion is concerning in that it confirms the approach of the majority to define the major questions doctrine in a way that is likely to apply to an increasing number of agency actions potentially beyond EPA.

In terms of what this means for the Biden administration’s climate agenda, there remain significant practical challenges and legal hurdles in regulating GHGs from power plants. Chief Justice Roberts rejects only one of EPA’s options for reducing power sector emissions generation shifting. But what options exist that will not trigger the major questions doctrine remains unclear. EPA has already started to consider these options, and the Court’s decision this week does not alter those questions. Rather, it confirms that implementing climate regulation is challenging, but not off the table.

In this analysis, we review West Virginia v. EPA’s surprising journey to the Supreme Court and then evaluate the key elements of the Court’s decision, including petitioners’ standing, the articulation of the major questions doctrine and its application to the CAA, and the path ahead for EPA as it works to reduce GHG emissions from the power sector in light of this decision.

A Winding Path to the Supreme Court

The day before President Biden’s inauguration, the D.C. Circuit Court of Appeals vacated the Trump administration’s Affordable Clean Energy (ACE) rule and EPA’s repeal of the CPP, holding that the “promulgation of the ACE Rule and its embedded repeal of the Clean Power Plan rested critically on a mistaken reading of the Clean Air Act.”[2] Several coal industry petitioners and states asked the Supreme Court to address the question of whether Section 111(d) of the CAA allows EPA to set pollution limits based for the power sector based on the industry’s ability to shift production from higher to lower emitting plants. Petitioners argued that the DC Circuit was incorrect to read 111(d) as allowing for anything other than pollution limits applied to individual power plants. The Court agreed to hear the case with oral arguments this past February.

The Supreme Court’s opinion focuses on one aspect of the CPP: the consideration of generation shifting of fossil fuel power plants to reduce the sector’s emissions of CO2. The Obama and Biden administrations, as well as many power companies and environmental NGOs, argued that this method resulted in cost-effective emission reductions consistent with EPA’s authority to determine the “best system of emission reduction” under Section 111(d). They explained to the Court that generation shifting is a long-established tool used by the sector to reduce emissions. The petitioners, however, characterized generation shifting as EPA “reordering the energy system”.[3]

States Have Standing Even with No Rule in Place

As a threshold matter, the Supreme Court held that it could hear this case even though EPA stated it had no intention to enforce the CPP given that the compliance dates had long passed, and the sector had achieved the targets over a decade in advance nationwide. Nonetheless, the Court states that EPA could “reimpose emissions limits predicated on generation shifting” and “it is apparent” that the state petitioners “are injured by the Court of Appeals’ judgment.”[4] The Court states that to the extent the CPP harms the states, the lower court’s judgment inflicts an injury and “there can be little question that the rule does injure the States, since they are the object of its requirement that they more stringently regulate power plant emissions within their borders.”[5]

In responding to the Biden administration’s arguments against issuing an opinion until it developed a new rule, the Court states that the doctrine of mootness, not standing, establishes whether “an intervening circumstance has deprived the plaintiff of a personal stake in the outcome of the lawsuit.”[6] The Court also raises a concern that EPA’s “voluntary cessation does not moot a case unless it is absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur.”[7] The Court reasons that the administration failed to make clear that it would not reimpose the emission limits based on generation shifting given that it defended the approach in the litigation.

In Justice Kagan’s dissent, joined by Justices Breyer and Sotomayor, she points out that the CPP had, “as a practical matter” become “obsolete.”[8] Stating that the Court’s docket is discretionary, she explains “there was no reason to reach out to decide this case” when there is no CPP currently in place and where “[m]arket forces alone caused the power industry to meet the Plan’s nationwide emissions target—through exactly the kinds of generation shifting the Plan contemplated.”[9] The dissent admonishes the majority for issuing “what is really an advisory opinion on the proper scope of the new rule EPA is considering”[10]; a rule that will be subject to “pre-enforcement judicial review” but “this Court could not wait—even to see what the new rule says—to constrain EPA’s efforts to address climate change.”[11]

The Majority Embraces the Major Questions Doctrine

The Court employs the major questions doctrine to conclude that the EPA lacks authority to require a generation-shifting approach to reduce power sector emissions as envisioned in the CPP. In announcing its use of the doctrine, which has never been articulated by the majority, the Court explains that in “extraordinary cases,” such as this one, an agency must have clear authority from Congress.

In these cases, the Court continues, Congress does not use “oblique or elliptical language” to authorize an agency to make what it characterizes as a “radical or fundamental change” to a statutory scheme.[12] On the contrary, in these cases, “both separation of powers principles and a practical understanding of legislative intent make us reluctant to read into ambiguous statutory text the delegation claimed to be lurking there.”[13] The agency must show “clear congressional authorization for the power it claims.”[14]

The Court further explains that the major questions doctrine “took hold” over a series of decisions to address “agencies asserting highly consequential power beyond what Congress could reasonably be understood to have granted.”[15] First, in FDA v. Brown & Williamson, the Court rejected the Food and Drug Administration’s assertion of authority over tobacco products based on its ability to regulate “drugs” and “devices.”[16] In Utility Air Regulatory Group v. EPA, the Court struck down EPA’s authority to regulate GHGs under a particular provision of the CAA that the Court found would result in permitting authority “over millions of small sources, such as hotels and office buildings.”[17] In Gonzales v. Oregon, the Court rejected the attorney general’s authority to rescind physician licenses. In Alabama Assn. of Realtors v. Department of Health and Human Servs., the Court decided that the Centers for Disease Control and Prevention lacked authority to adopt an eviction moratorium during the COVID-19 pandemic. Finally, in National Federation of Independent Business v. Occupational Safety and Health Administration, the Court decided that OSHA did not have authority to mandate COVID-19 vaccination in workplaces.

By contrast, in the dissent, Justice Kagan distinguishes the case at hand noting that the Court in the prior cases found that the agency’s action “collided with other statutory provisions,” explaining that “if the former were allowed, the latter could not mean what they said or could not work as intended. FDA having to declare tobacco safe to avoid shutting down an industry; or EPA having literally to change hard numbers contained in the Clean Air Act.”[18] She concludes, “[t]here, according to the Court, the statutory framework was not designed to grant the authority claimed.”[19] Here though, the dissent states that the Court “faces no such singular assertion of agency power.”[20]

The dissent also criticizes the majority for its use of the major questions doctrine, explaining that it “announces the arrival” of a newly invented doctrine when ordinary statutory interpretation would suffice.[21] The dissent argues that if it applied its normal statutory interpretation, the majority could have reached the same result: first, the agency was operating outside its usual lane, and second the action would have conflicted with Congressional design. In employing the major questions doctrine to reach its conclusion instead, the dissent argues that the Court sets out a vague “two-step inquiry”: first, is it an “extraordinary case” and if yes, is there clear congressional authorization “someplace over and above the normal statutory basis we require”?[22]

This new articulation of the major questions doctrine is not surprising given the recent COVID-era decisions on evictions and employer vaccine mandates signaling this development. Nonetheless, it signals that the Court will make it harder for agencies to use their authority if the Court sees it as novel or significant. Traditionally, courts respect agencies’ discretion to interpret broadly written statutes under the Chevron doctrine. While the majority never mentions Chevron, the dissent argues Congress makes broad delegations so that agencies can adapt their rules and policies to changing circumstances. In dissent, Justice Kagan argues that that “Congress specifically entrust[ed] such complex balancing to EPA, because that expert agency has the needed scientific, economic, and technological resources to carry it out…So the balancing—including of the Nation’s energy requirements—that the majority says EPA has no comparative expertise in?”[23] Justice Kagan concludes, “We explained 11 short years ago, citing Congress, that it was smack in the middle of EPA’s wheelhouse.”[24]

The majority’s approach to the major questions doctrine leaves considerable room for judicial discretion based on a view of whether the rule asserts an authority that results in economic and political significance. And, although only Justice Alito joined the concurrence authored by Justice Gorsuch, the concurrence offers an even more expansive view of the doctrine, amplifying the separation of powers concerns that he says the doctrine is intended to address and detailing factors the Court should consider when applying it.

Applying Major Questions Doctrine to Clean Air Act Section 111(d)

In applying the major questions doctrine, the Court states that CPP would “substantially restructure the American energy market, [and] EPA claimed to discover in a long-extant statute an unheralded power representing a transformative expansion in its regulatory authority.”[25] The Court argues that by relying on Section 111(d), the agency inappropriately drew its authority from an “ancillary provision” in the CAA, a “gap filler” and “little-used backwater” that has been “rarely been used in the preceding decades.”[26] The Court also notes that in the past, the agency used 111(d) to regulate the operation of sources rather than the generation-shifting approach envisioned in the CPP.

In addition to skepticism about the scope of 111(d), the Court explains that the agency adopted a “regulatory program that Congress had conspicuously and repeatedly declined to enact itself”: a cap-and-trade system for carbon.[27] The Court concludes “there is every reason to hesitate before concluding that Congress meant to confer on EPA the authority it claims under Section 111(d).”[28]

The dissent sharply disagrees with the majority’s interpretation of 111(d) as well as its application of the major questions doctrine for the CPP. The dissent argues that “taken as a whole, the section [111(d)] provides regulatory flexibility and discretion” based both on the statutory language and the definition of “system.”[29] The dissent concludes that EPA was correct in asserting that the “plain meaning of the term system in Section 111 refers to a set of measures that work together to reduce emissions” and that generation shifting “fits comfortably within the conventional meaning of a system of emission reduction.”[30] In addition, the dissent notes that Congress did not restrict Section 111 to technology-based controls as it did in other sections of the CAA, providing further evidence that the statute supports a generation-shifting scheme. The dissent finds the plain language clear, and thus rejects the use of the major questions doctrine, arguing that the CPP does not represent an overreach of agency power.

Responding to arguments that EPA has used similar approaches in prior rules under Section 111, the Court distinguishes the CPP from the Clean Air Mercury Rule (CAMR) on the basis that EPA set the national cap in CAMR at a level achievable by technologies (wet scrubbers). In contrast, the Court asserts that under the CPP, “by design, there is no control a coal plant operator can deploy to attain the emissions limits.”[31]

As evidence of EPA’s overreach, the majority leans on the major questions doctrine to conclude that it is “highly unlikely” that Congress would leave the future of coal-based generation to agency discretion.[32] The Court finds that “the regulatory writ EPA newly uncovered conveniently enabled it to enact a program that” Congress has considered and consistently rejected multiple times.[33] It holds, under Gonzales, that the “importance of the issue” combined with the fact that the regulatory scheme “has been the subject of an earnest and profound debate across the country…makes the oblique form of the claimed delegation all the more suspect.”[34]

Justice Kagan’s dissent finds that the majority’s claim about the CPP’s novelty is “exaggerated.”[35] She notes that when EPA promulgated the CPP, it relied on the CAMR’s cap-and-trade program and that the CAMR was rooted in precedent based on Section 111(d) cap-and-trade regulations for municipal waste combustors. Justice Kagan also points out that for the CPP, EPA could have set “emissions limits based on carbon-capture technology, with the expectation that many plants would avail themselves of an approved cap-and-trade program instead.” Under the CPP, those “plants unable to cost-effectively install scrubbers could instead meet the limits through generation shifting.”[36] In addition, she cites prior Supreme Court cases to demonstrate the Court’s historic caution of basing an interpretation of the CAA on failed legislation from subsequent congresses. She concedes that “the majority is right” that scrubbers and other controls are “more traditional air pollution control measures,” but concludes: “the idea that the Plan’s reliance on generation shifting effected some kind of revolution in power-plant pollution control? No.”[37]

The Path Ahead for EPA

As EPA assesses its path forward for regulating GHGs from the power sector, it is important to consider the openings the Court has left for the agency to regulate the power sector as well as GHG emissions from other sectors.

For EPA’s authority under Section 111, the opinion is clear that EPA retains the “primary regulatory role in Section 111(d)” and “decides the amount of pollution reduction that must ultimately be achieved.”[38] In interpreting the word “system” as part of a “best system of emissions reduction,” the Court does not foreclose the possibility of beyond-the-fenceline regulation under 111(d). On this point, the majority explicitly limits the application of its decision: “[w]e have no occasion to decide whether the statutory phrase system of emission reduction refers exclusively to measures that improve the pollution performance of individual sources, such that all other actions are ineligible to qualify as the BSER.”[39]

Beyond-the-fenceline options could include, for example, setting a standard based on the operation of a technology but allowing sources to trade with other sources to demonstrate compliance. The opinion also states that a rule could be acceptable even if it “may end up causing an incidental loss of coal’s market share” as it distinguishes that scenario from “simply announcing what the market share of coal, natural gas, wind, and solar must be, and then requiring plants to reduce operations or subsidize their competitors to get there.”

However, designing a “system” that the Court would find acceptable will be difficult under the newly outlined major questions doctrine. As the dissent recognizes, “[m]ore important here, both the nature and the statutory basis of that limit are left a mystery. If the majority is not distinguishing between technological controls and all others, what is it doing—and how far does its opinion constrain EPA? The majority makes no effort to say.”[40]

The challenge now for EPA, and other federal agencies, is to design rules that are grounded in traditional application of their authority. Agencies must also ensure the regulatory record demonstrates that the rule does not cross the Court’s emerging economic and political significance threshold.

[1] West Virginia v. EPA, 597 U.S. ____ (2022) (slip op.). Chief Justice Roberts authored the majority opinion and was joined by Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett. Justice Gorsuch filed a concurring opinion that Justice Alito joined. Justice Kagan, joined by Justices Breyer and Sotomayor, filed a dissent.

[2] American Lung Assn. v. EPA, 985 F.32 914, 995 (D.C. Cir. 2021).

[3] Brief for Petitioners at 25, West Virginia v. EPA (No. 20-1530).

[4] West Virginia v. EPA, 597 U.S. ____ (2022) (slip op., at 14, 16).

[5] Id. at ____ (slip op., at 14) (internal alterations and quotation marks omitted).

[6] Id. at ____ (slip op., at 15) (internal alterations and quotation marks omitted).

[7] Id. at ____ (slip op., at 15-16) (internal alterations and quotation marks omitted).

[8] Id. at ____ (Kagan, J., dissenting) (slip op., at 4).

[9] Id.

[10] Under the Constitution, the Court address “cases” or “controversies” and does not “give advisory opinions; rather its function is limited only to deciding specific cases.” The Supreme Court of the United States, The Court and Constitutional Interpretation, https://www.supremecourt.gov/about/constitutional.aspx.

[11] West Virginia v. EPA, 597 U.S. ____ (2022) (Kagan, J., dissenting) (slip op., at 4).

[12] Id. at ____ (slip op., at 18).

[13] Id. at ____ (slip op., at 19) (internal citations omitted).

[14] Id. (internal citations omitted).

[15] Id. at ____ (slip op., at 20).

[16] Id. at ____ (slip op., at 17).

[17] Id. at ____ (slip op., at 17-18).

[18] Id. at ____ (Kagan, J., dissenting) (slip op., at 19) (internal quotation marks omitted).

[19] Id. (internal quotation marks omitted).

[20] Id.

[21] Id. at ____ (Kagan, J., dissenting) (slip op., at 14-15).

[22] Id. at ____ (Kagan, J., dissenting) (slip op., at 15).

[23] Id. at ____ (Kagan, J., dissenting) (slip op., at 20) (internal quotation marks omitted).

[24] Id.

[25] Id. at ____ (slip op., at 20) (internal alterations and quotation marks omitted).

[26] Id.

[27] Id.

[28] Id. (internal quotation marks omitted).

[29] Id. at ____ (Kagan, J., dissenting) (slip op., at 7).

[30] Id. at ____ (Kagan, J., dissenting) (slip op., at 8) (internal alterations and quotation marks omitted).

[31] Id. at ____ (slip op., at 21-22).

[32] Id. at ____ (slip op., at 25).

[33] Id. at ____ (slip op., at 27).

[34] Id. at ____ (slip op., at 28).

[35] Id. at ____ (Kagan, J., dissenting) (slip op., at 25).

[36] Id.

[37] Id. at ____ (Kagan, J., dissenting) (slip op., at 26).

[38] Id. at ____ (slip op., at 6).

[39] Id. at ____ (slip op., at 30) (emphasis in original) (internal quotation marks omitted).

[40] Id. at ____ (Kagan, J., dissenting) (slip op., at 12).