U.S. Supreme Court Constrains EPA’s Climate Authorities

On June 30, the Supreme Court issued a decision in the case West Virginia v. EPA. The case had been brought to challenge the Environmental Protection Agency’s (EPA) planned Clean Power Plan. At issue was the scope of EPA’s authority to regulate power plants. The decision carries implications for the broader federal approach to reducing greenhouse gas emissions.

Q1: What was at issue in West Virginia v. EPA?

A1: The Clean Power Plan was a rule issued by the Obama-era U.S. EPA pursuant to its authorities under a congressionally enacted statute, the Clean Air Act. The rule would have set greenhouse gas (GHG) emission limits for existing fossil fuel-fired power plants. The Trump-era EPA had rolled back the Clean Power Plan, claiming that the design of the rule exceeded EPA’s congressionally granted authority under the Clean Air Act. The Trump EPA replaced the Clean Power Plan with a toothless alternative. 

The relevant section of the Clean Air Act—Section 111—directs EPA to set emission limits for large sources of air pollutants. The section outlines a process in which EPA first determines the “best system of emission reduction” for the class of sources and then calculates numerical emission limits that would result from application of that system. 

Prior to the Clean Power Plan rule, EPA had typically determined the “best system of emission reduction” under Section 111 of the Clean Air Act by identifying pollution control measures that can be implemented at individual regulated sources. In the Clean Power Plan rule, EPA adopted a different approach. It said that the “best system” was a system in which high-emitting power plants would shift their generation to lower-emitting plants—a system effectuated primarily through a cap-and-trade program. In effect, it treated the power sector in each state as a single entity. To determine the corresponding state emission limits, EPA calculated what it found to be feasible and cost-effective decreases in coal-fired generation and gas-fired generation achievable through a trading program.

Accordingly, the narrow issue in the case was whether EPA’s generation-shifting system was a valid interpretation of its authority the Clean Air Act. However, the case also raised broader questions about the extent to which one can assume that Congress intended to confer powers to administrative agencies to address major issues. 

Q2: What did the court find?

A2: A 6-3 majority invalidated the Clean Power Plan. The majority decision—which was drafted by Chief Justice John Roberts and joined by the five other conservative justices—adopted a particularly skeptical mode of judicial review, called the “Major Questions Doctrine.” The majority decision called this an “extraordinary case” in which an agency had asserted an “unheralded power” under a long-existing statute that would have “vast economic and political significance”—providing “a reason to hesitate before concluding that Congress meant to grant such authority.” 

According to the majority decision, drafted by Chief Justice Roberts, the Major Questions Doctrine addresses “a particular and recurring problem: agencies asserting highly consequential power beyond what Congress could reasonably be understood to have granted.” An extended concurrence by Justices Neil Gorsuch and Samuel Alito details how the Major Questions Doctrine applies to issues of political significance, significant portions of the U.S. economy, and issues of federalism.

The majority found that Congress could not have intended that EPA use the generation-shifting approach as the “best system of emission reduction” because it allowed the agency to effectively “restructure” the power sector by determining the distribution of different types of generation or requiring the retirements of coal-fired power plants. The majority concluded that this type of far-reaching exercise of power could justified only on the basis of a “clear statement of Congressional authority,” which it found lacking.

Q3: How does this affect the U.S. (or Biden) approach to the power sector?

A3: The Supreme Court did not prohibit EPA from regulating GHG emissions under the Clean Air Act.  Indeed, it affirmed that the agency has an obligation under the statute to regulate power sector GHG emissions, which comprise approximately one-third of the U.S. inventory.

The Supreme Court’s decision also appears to leave open a lane for EPA to set Section 111 emission limits for power plants using its more conventional approach of identifying the reductions achievable through measures installed at individual plants. In the case of fossil fuel-fired power plants, such measures could range from modest efficiency improvements to more significant measures, such as carbon capture and sequestration or hydrogen-blending.

However, without the ability adopt to a market-based approach, these types of emission limits could be expensive and disruptive to the power sector. It is unclear from the West Virginia decision how a future court would assess a rule with limits based on, for example, carbon capture and sequestration. In particular, the decision is unclear about whether it was the “restructuring” form of the Clean Power Plan or its “restructuring” impact that made it invalid. The majority did not directly grapple with the possibility that conventional, non-market-based approaches to setting emission limits could have an equal or greater “restructuring” impact on the sector. Indeed, Chief Justice Roberts’ decision expressly says it concludes only that a generation-shifting approach is invalid; it keeps the powder dry on evaluating the statutory validity of other approaches.

Accordingly, the Biden administration will move forward to develop EPA GHG regulations affecting the power sector and other major emitters—but will do so under the shadow of a Supreme Court majority that is clearly skeptical of agency rules that have substantial economic significance. 

Q4: How does this affect the U.S. (or Biden) approach to climate change?

A4: President Biden has pledged to use an “all-of-government" approach to fighting climate change. Many of the actions that his administration has taken seem to fit within the boundaries set by the West Virginia decision. EPA’s rules establishing tailpipe standards for cars and light trucks and methane emissions from oil and gas production are key examples that rely on more established regulatory tools. These may have substantial economic impacts but are conventional in form. Other administrative actions, like federal procurement of clean power and low-emissions cement and steel are also probably safely within allowable agency deference. 

The West Virginia decision does raise questions about how far the court will allow agencies to go in developing an “all-of-government" approach to climate change. In the last few years, agencies with related authority have been investigating how to include climate in their regulations. The Federal Energy Regulatory Commission (FERC) has investigated establishing carbon pricing in regional power markets and proposed adding GHG emissions to infrastructure evaluations. Before the West Virginia decision was issued, the Security and Exchange Commission (SEC) was drafting rules for climate risk disclosure in financial markets. While not universally supported, such initiatives have garnered accolades from climate advocates and market actors, because they can offset the absence of congressional action. Both agencies have arguments that these climate-tinged policies, though new, fall within their broad congressional grants of authority. However, to the extent these rules have significant economic consequences, opponents will argue that they need—and lack—a clear and specific congressional statement of authority. Those opponents will now expect their legal challenges to meet a friendly court.

This Critical Questions does not necessarily reflect the views of Van Ness Feldman, LLP, or its clients.

Kyle Danish is a senior associate (non-resident) with the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C and a partner in the Washington, D.C., office of Van Ness Feldman, LLP. Joseph Majkut is director of the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Kyle Danish
Senior Associate (Non-resident), Energy Security and Climate Change Program
Joseph Majkut
Director, Energy Security and Climate Change Program