• AIM Team

Thoughts on (Monday’s) Supreme Court decision

Just as he had predicted, Peter Glaser from Spencer Troutman LLC in Washington D.C. gives us his thoughts as the U.S. Supreme Court begins to chip away at the EPA’s CO2 emission standards.

Thoughts on Yesterday’s Supreme Court Decision

1. We won.  We didn’t lose, contrary to how EPA and environmental NGOs are portraying the decision.  Industry opposed EPA’s Tailoring Rule with essentially two alternative arguments.  Industry’s maximum position was that EPA could not regulate GHGs at all under the PSD or Title V permit programs.  Industry’s alternative position was essentially that if a source is subject to PSD because of its non-GHG emissions (with some caveats), it could be required to do BACT for both its non-GHG and its GHG emissions.  The Court adopted a variant of industry’s alternative argument.  During briefing, EPA resisted both of industry’s positions.  So it’s a little much for EPA to be claiming victory.

We don’t need to relitigate whether industry should have presented alternative positions or whether industry should have presented the Court with an all-or-nothing position:  either uphold the Tailoring Rule, which we know you don’t want to do, or rule that GHGs cannot be regulated under PSD or Title V at all.  Certainly, a maximum victory would have been preferable to the victory we got, where large facilities triggering PSD for their non-GHG emissions must undertake GHG BACT—a result that is not too far off from at least steps one and two of the Tailoring Rule.  In the end, only two justices (Alito and Thomas) expressed a preference for industry’s maximum position even when presented with the alternative argument.  Whether the other three justices in the majority would have endorsed industry’s maximum position if there had been no alternative position—or whether not presenting an alternative would have resulted in losing the case—is something we will never know.

2. Restoring faith in the rule of law.  I, for one, could not believe that the Tailoring Rule could possibly be legal.  “Tailoring” numerical statutory thresholds?  Really?  Indeed, I have a hard time crediting that four Supreme Court justices would have upheld it.  Coming out of oral argument, I had thought six or seven justices might join the decision.

3. Big implications for future EPA GHG regulation, particularly Section 111(d).  Before the decision was issued, many felt that it would have no effect on EPA’s Section 111(d) rulemaking because a different CAA section was at issue.  Wrong.  Perhaps the most important part of the decision was its smack-down of EPA’s attempt to creatively interpret the statute to dramatically expand the agency’s regulatory reach.  The Court deemed the Tailoring Rule to be not just unlawful but a violation of basic Separation of Powers principles:  “it would be patently unreasonable—not to say outrageous—for EPA to insist on seizing expansive power” that the statute doesn’t give it.

Indeed, the Court deemed it acceptable to require GHG BACT for sources that are subject to PSD “anyway” precisely because the Court did not think doing so would be a major departure from how permitting has worked in the past.  The Court emphasized that the EPA should not view GHG BACT authority as amounting to “unbounded regulatory authority,” but instead as limited to imposing “control technology for the applicant’s proposed facility.” The Court also said that its decision does not give EPA “a free rein” to set GHG regulatory requirements and that the EPA should not engage in “an unreasonable and unanticipated degree of regulation.”  And to make sure that EPA gets the point, there is this:

EPA’s interpretation is also unreasonable because it would bring about an enormous and transformative expansion in EPA’s regulatory authority without clear congressional authorization.  When an agency claims to discover in a long extant statute an unheralded power to regulate ‘a significant portion of the American economy…we typically greet its announcement with a measure of skepticism.  We expect Congress to speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’

The relevance to EPA’s Section 111(d) rulemaking is unmistakable.  From the beginning of this Administration, EPA has been open about its desire to “transform” the electric grid in accordance with its own wishes.  The President has repeatedly proclaimed his intent to bypass Congress in his desire to be “transformative.”  Thus, given the failure of cap-and-trade legislation at the beginning of the Administration (even when the Democrats had a significant majority in the House and a filibuster-proof majority in the Senate), it should not be surprising that the Administration (post-reelection) is pushing as hard as it can to impose essentially the same agenda through EPA.

The problem is that Section 111(d)’s plain language, as interpreted over four decades, will not allow EPA to transform the grid.  Section 111(d) is very much more limited.  And so the agency has been forced to resort to an aggressively creative interpretation of the statute under which EPA may essentially reengineer the electric grid to conform to a “progressive” vision of how the grid should operate—meaning little coal and lots of renewables and government-mandated demand-side management programs, all with the pretence that electricity rates will not rise and grid reliability will not decline as a consequence.

But this effort to “bring about an enormous and transformative expansion in EPA’s regulatory authority without clear congressional authorization” took a heavy blow from the Court’s decision.  And the effect is not just limited to EPA’s Section 111(d) power sector regulations.  The concern with GHG regulation from Mass. v. EPA onwards has always been that it exposes the entire economy to EPA regulation.  A large and diverse business coalition has formed to oppose EPA’s power sector rules because of concern that the precedent EPA is setting could apply much more broadly.  Thus, the Court’s decision will be a useful brake in constraining how far EPA goes with future GHG regulation in general.

4. Some industries are now mostly off limits to GHG regulation under the PSD and Title V programs.  Such as agriculture and coal mining, where non-GHG emissions do not typically meet PSD and Title V threshold levels.  Of course, EPA can still proceed under the Section 111 performance standards program, but EPA so far has indicated that it does not have the resources to go after every industry at once.  And the Court’s decision will restrict how far EPA can go if and when it does decide to invoke Section 111.

5. Remand proceedings.  Most press accounts, in reporting that the decision gave EPA all or most of what it wanted, failed to note that the Tailoring Rule has been declared to be legally invalid and that EPA will now have to adopt new regulations.  Industry will have to pay careful attention to these proceedings, because much is on the table.  EPA will have to define exactly what theory of statutory interpretation it will use to regulate “anyway” sources (see fn 6 of Court’s decision), with different interpretations potentially leading to differences in regulation.  EPA may also define a de minimis level for GHG emissions which could exclude certain projects from having to do GHG BACT.  In the meantime, although the Court did not vacate the Tailoring Rule, there may be considerable uncertainty as to the legal basis for ongoing state and EPA GHG permitting decisions.

6. GHG BACT restricted.  Another important aspect of the Court’s decision is the language restricting how far states and EPA can go in defining GHG BACT.  In seeking to dispel concerns that GHG BACT could indeed result in draconian requirements, the Court noted that it has long been held that BACT cannot be used “to order a fundamental redesign of the facility.”  The Court also stated that “EPA acknowledges that BACT may not be used to require ‘reductions in a facility’s demand for energy from the electric grid.’”  Although the Court’s decision is not dispositive on how far permitting agencies can go in defining BACT for GHGs, it does set a marker that an attempt to stretch BACT into something it isn’t will be viewed with disfavor.

7. GHG NAAQS looks dead.  The Court accepted industry’s argument that not every CAA program applies to GHGs, even though Mass. v. EPA defined the term “air pollutant” in the Act’s general definitional section to include GHGs.  According to the Court, it depends on context.  Where regulating GHGs would lead to an unexpected and unwarranted expansion of EPA authority, as by regulating tens of thousands and even millions of new sources in the PSD and Title V programs, the Court reads the term “air pollutant” as not including GHGs.  Under this theory, it does not appear there can be any way in which the NAAQS program could be applied to GHGs.

8. Concluding thought.  Many have grown discouraged with challenging EPA in the Courts given the UMACT, CSAPR and NAAQS decisions.  But those decisions involved well-trod sections of the CAA, with EPA being overly stringent in its regulatory approach but not plowing new ground legally.  Regulation of GHGs under the CAA is different.  Notwithstanding Mass. v. EPA, the fact remains the CAA was written for conventional air pollutants and cannot easily be adapted to globally-circulating GHGs.  That is why, in the Tailoring Rule, EPA was forced to rewrite the numerical permitting thresholds and why EPA has been forced into similarly creative statutory interpretations under Section 111(d).  And so, as we saw in yesterday’s decision, we have better prospects for challenging EPA’s GHG regulations than we do with other more traditional EPA regulation.

We cannot, however, overturn Mass. v. EPA; it is the law of the land unless and until there is a significant change in the composition of the Senate and the Presidency.  But the timing and stringency of GHG regulation still matter greatly and are still in play.  A President with different views on energy and economic policy could adopt greenhouse gas regulatory policies that are now quite so “transformative.”  In this light, it is a good sign that Justice Kennedy, the swing vote in Mass., has shown that he is willing to make sure that that decision is not used to open the floodgates for the current EPA to do as it will.

Peter Glaser

June 24, 2014


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