07/02/2024 - Power Sector Rules - Supreme Court Decisions

The Supreme Court Pauses the Good Neighbor Plan

by Carrie Jenks, Luca Greco, Sara Dewey

On June 27, 2024, the Supreme Court granted states and industry applicants’ request to stay EPA’s “Good Neighbor Plan” (Rule) in Ohio v. EPA while the case proceeds in the D.C. Circuit.[1] The Rule requires upwind states to reduce emission of the ozone precursor nitrogen oxide (NOx) from electric generating units (EGUs) and certain stationary industrial sources to ensure states can achieve the 2015 ozone National Ambient Air Quality Standards (NAAQS) under the Clean Air Act.[2]

In this piece, we review the decision, which continues an alarming trend of the Court issuing decisions under its emergency docket about important public health rules without the benefit of full briefing and engagement with the technical record, including evaluations of the health and economic impacts.

The decision temporarily halts the implementation of the Rule for the “applicants…pending the disposition of the applicants’ petitions for review in the United States Court of Appeals for the D.C. Circuit.”[3]

In deciding to stay a rule, the Court asks “(1) whether the applicant is likely to succeed on the merits, (2) whether it will suffer irreparable injury without a stay, (3) whether the stay will substantially injure the other parties inter­ested in the proceedings, and (4) where the public interest lies,” as articulated in Nken v. Holder. However, the majority does not carefully consider each element of this four-factor test. Instead, the Court cites a recent concurrence by Justice Kavanagh in Labrador v. Poe stating that in cases dealing with federal regulation, “the harms and equities [will be] very weighty on both sides.” The Court does not evaluate the significant public health consequences of the stay or the timing of any costs.[4] For example, the opinion does not consider that in the early years of the program, power plants are largely only required to operate pollution control equipment already installed and industrial sources have until 2026 or later to comply. The Court notes:

On one side of the ledger, the federal government points to the air-quality benefits its FIP offers downwind States…On the other side, the States observe that a FIP issued unlawfully (as they contend this one was) necessarily impairs their sovereign interests in regulating their own industries and citizens—interests the Act expressly recognizes…The States observe, too, that having to comply with the FIP during the pen­dency of this litigation risks placing them at a “competitive disadvantage” to their exempt peers…The States and the private applicants also stress that complying with the FIP during the pendency of this litiga­tion would require them to incur “hundreds of millions[,] if not billions of dollars.”

Rather than engage with these complex considerations, including public health impacts, the Court dismisses these questions and concludes without having a fully briefed record before it that,“[b]ecause each side has strong arguments about the harms they face and equities involved, our resolution of these stay requests ultimately turns on the merits and the question who is likely to prevail at the end of this litigation.”

The Court focuses on the question of whether the costs to install emission controls were reasonable regardless of the number of states subject to the Rule. The Court finds that some comments on the Rule raised with “reasonable specificity” the concern that EPA failed to consider how its cost-effectiveness methodology might yield different results if some of the states were to leave the program. The Court concludes that EPA’s failure to address these concerns in the Rule means that it was not “reasonably explained.” The Court states:

An agency action qualifies as “arbitrary” or “capricious” if it is not “reasonable and reasonably explained.” FCC v. Prometheus Radio Project, 592 U. S. 414, 423 (2021). In reviewing an agency’s action under that standard, a court may not “‘substitute its judgment for that of the agency.’” FCC v. Fox Television Stations, Inc., 556 U. S. 502, 513 (2009). But it must ensure, among other things, that the agency has offered “a satisfactory explanation for its action[,] including a rational connection between the facts found and the choice made.” Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U. S. 29, 43 (1983)[…]. Accordingly, an agency cannot simply ignore “an important aspect of the problem.” Ibid.

The Court finds a likelihood of success based on EPA’s alleged failure to reasonably respond to comments.

The dissent, written by Justice Barrett and joined by Justices Sotomayor, Kagan, and Jackson, strongly criticizes the majority’s decision to issue the stay without “fully engaging with both the relevant law and the voluminous record.”[5] First, the dissent explains that no one raised the procedural argument that EPA failed to sufficiently explain its response to the agency. Second, Justice Barrett dives into the administrative record to argue that the majority “dresses up” commenters’ arguments to conclude that at least one comment raised the concern that the exclusion of some states from federal program would “undermine EPA’s cost-effectiveness analyses and resulting emissions controls.” Justice Barrett makes clear that “those words are the Court’s, not the commenter’s.” She notes this criticism was developed during oral argument, giving EPA no opportunity to respond. Finally, setting aside the procedural arguments, the dissent looks to the merits and concludes that the record supports EPA:

[T]he rule and its supporting documents arguably make clear that EPA’s methodology for calculating cost-effectiveness thresholds and imposing emissions controls did not depend on the number of covered States. The rule applied EPA’s longstanding “4-step interstate transport framework” to create emissions limits that will prevent NOx sources in upwind States from significantly contributing to ozone pollution in downwind States.

The dissent also considers the practical implications of granting a stay, including the public health harms: “Given the number of companies included and the timelines for review, the Court’s injunction leaves large swaths of upwind States free to keep contributing significantly to their downwind neighbors’ ozone problems for the next several years.” Justice Barrett highlights that this public health harm will occur when the only error identified by the majority is failing to respond to a comment that the dissent argues the Court itself—not commenters—first articulated. She notes that the majority “does not conclude that EPA’s actions were substantively unreasonable.”

Ohio v. EPA decision confirms a troubling inclination for the Supreme Court to stay public health regulations under its emergency docket without full briefing on the facts underlying the regulatory record. It will be important to assess EPA’s response to this decision and the ongoing merits litigation for the Rule as well as EPA’s denial of the SIPs, but the near-term practical implication is that downwind states will face increased challenges to meet the public health air quality standards if upwind sources are not required to operate and install pollution control equipment.

Justice Barrett also warns against the dangers of using the emergency docket in this way, suggesting in the dissent that the Court “should proceed all the more cautiously in cases like this one with voluminous, technical records and thorny legal questions.” As a result of this case, parties may seek to appeal additional D.C. Circuit stay decisions. For example, the D.C. Circuit recently denied a motion to stay EPA’s chloroprene emissions rule.[6] Additionally, parties have requested that the D.C. Circuit stay EPA’s methane rule for the oil and gas sector as well as EPA’s greenhouse gas rule for power plants. While each rule has a distinct record and involves different public health harms and cost considerations, the Supreme Court’s willingness to stay the Good Neighbor Rule is likely to encourage parties to seek a review of any D.C. Circuit denial.

We will continue to track the related merits litigation for this Rule as well as stay motions for other EPA rules. Follow EELP’s Regulatory Tracker to stay updated.

[1] Ohio v. EPA, 603 U. S. ____ (2024).

[2] See EELP, 2023 Good Neighbor Plan (Mar. 2023), https://eelp.law.harvard.edu/2023/03/2023-good-neighbor-plan/.

[3] Utah v. EPA et al., Docket No. 23-01102 (D.C. Cir. Apr 13, 2023).

[4] Sean Donahue and Megan Herzog, “Bonfire of the Equities: Judicial Stays of Federal Environmental Regulations,” Harvard Journal on Legislation Vol. 62 (2024), https://journals.law.harvard.edu/jol/wp-content/uploads/sites/86/2024/06/FINALDonahueHerzog.pdf.

[5] Ohio v. EPA, 603 U. S. ____ (2024) (Barrett, J., dissenting).

[6] Denka Performance Elastomer LLC v. EPA, No. 24-1135 (D.C. Cir. Jun. 26, 2024).