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Article: December 2016: Energy Litigation Update

December 01, 2016
Business Litigation Reports

Update on Clean Power Plan. In August 2015, the Environmental Protection Agency (“EPA”) finalized a new set of standards, now known as the Clean Power Plan (the “Plan”), aimed at reducing carbon emissions from fossil-fuel fired power plants by limiting greenhouse gas emissions from those plants. EPA’s authority to regulate carbon dioxide and other greenhouse gases traces to the Supreme Court’s decision in Massachusetts v. EPA, 549 U.S. 497 (2005), which held that carbon dioxide was a pollutant under the Clean Air Act. Soon thereafter, EPA found that greenhouse gases were such a threat to public health and welfare as to require regulation under the Clean Air Act. Following further regulatory proceedings, EPA promulgated the Plan pursuant to Section 111 of the Clean Air Act.

The Plan seeks to reduce carbon dioxide emission by slightly more than one-third by 2030, compared to 2005 levels. The Plan sets carbon dioxide emission performance rates for fossil-fuel fired power plants, which States must implement through state-tailored plans. If a State declines to implement its own plan, EPA has the authority under the Plan to implement a federal plan to reduce emissions. States must begin trying to meet the emission goals, through their plans, by 2022, with an ultimate compliance date of 2030.

In West Virginia v. EPA, over two dozen States, led by West Virginia, and other affected parties, including several electric utilities, filed petitions for review in the Court of Appeals for the D.C. Circuit challenging EPA’s promulgation of the Plan. Eighteen States, including California and New York, and several cities intervened in support of EPA. In January 2016, the D.C. Circuit denied petitioners’ motion to stay the Plan pending resolution of the challenges. A few weeks later, however, the Supreme Court, by a 5-4 vote, granted a stay, which immediately halted implementation of the Plan. The Court’s order—which did not address the merits of the challenges—was unusual, not only because it overruled the D.C. Circuit, but also, more generally, because it is uncommon for the Supreme Court to block federal regulations pending review. The late Justice Antonin Scalia was in the majority, meaning that his replacement on the Court may hold the deciding vote on the merits.

The D.C. Circuit thereafter ordered, sua sponte, that the challenges to the Plan be argued initially to the full court, bypassing the normal three-judge merits panel. The argument, before ten judges, was held on September 27, 2016. It lasted seven hours and focused on a range of statutory, constitutional, and procedural issues.

The petitioners principally argue that the Plan is invalid because it conflicts with Section 112 of the Clean Air Act, is procedurally defective, and unconstitutionally commandeers and coerces States and their officials into carrying out federal energy policy. More specifically, the Plan’s challengers have contended that: (1) EPA is acting outside its authority under the Clean Air Act by relying on a little-used provision, Section 111(d), to effectuate massive changes in the industry, forcing fossil-fuel fired power plants to shift from coal to less carbon-intensive sources like solar and wind, termed “generation-shifting;” (2) power plants are subject to regulation under Section 112 of the Clean Air Act, and EPA cannot use Section 111(d) to regulate pollutants “emitted from a source category” already regulated by Section 112; and (3) the Plan violates the Constitution because it does not provide States with a meaningful opportunity to decline implementation, as required for cooperative federalism programs, and thus impermissibly forces the States and their officials to alter their electrical generation and delivery systems.

EPA counters that the Plan is “proper and sensible” and well within EPA’s regulatory authority under the Clean Air Act. As to the petitioners’ specific contentions, EPA has argued that: (1) it determined the best system for emission reduction based upon strategies, technologies and approaches that fossil-fuel fired power plants are already using to reduce carbon dioxide emissions, and that these strategies have been previously incorporated into various Clean Air Act regulatory programs in the industry; (2) Section 111(d) is ambiguous, and EPA has reasonably resolved those ambiguities through its conclusion that Congress did not intend to bar regulation of different pollutants under different programs; and (3) the Plan does not unconstitutionally coerce States into action, but rather is similar to other court-approved regulatory programs by permitting States to do nothing, in which circumstances a federal plan to reduce emissions would be implemented.

Whether the Plan is determined to regulate carbon emissions in a permissible manner will have far reaching consequences in the field and across the country more generally, and will bear on potential litigation risks to other regulated entities if the Plan is allowed to go forward. But these questions and others will likely remain unresolved for quite some time, as the D.C. Circuit is unlikely to issue a decision for several months, and the losing side will almost certainly ask the Supreme Court to review that decision during its October 2017 Term.