EPA Refines Interpretation of Its Authority as It Prepares to Defend Clean Power Rule

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By Andrew Childers

March 25 — The Environmental Protection Agency has refined its interpretation of a problematic amendment added to the Clean Air Act in 1990 as it prepares to defend the proposed Clean Power Plan from a coal company lawsuit seeking to block the rule before it is finalized.

In advance of oral arguments April 16, the EPA has expanded and revised its interpretation of its authority to regulate carbon dioxide emissions from power plants under Section 111(d) of the Clean Air Act since it first proposed the Clean Power Plan in 2014. 

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ECR story graphic 3/27/2015

The EPA in a recent court brief to the U.S. Court of Appeals for the District of Columbia Circuit argued a House amendment to the Clean Air Act that critics say bars the agency from proposing its Clean Power Plan is ambiguous and open to multiple interpretations, including those allowing regulation of carbon dioxide from power plants.

The court's decision to hear Murray Energy Corp.'s lawsuit before the rule is finalized presents the agency with a unique opportunity to gauge the court's response to how it interprets its authority, observers told Bloomberg BNA (In re Murray Energy Corp., No. 14-1112, D.C. Cir., merits panel assigned 3/18/15).

“There are many, many ways to interpret a statute. At the end of the day, what's going to really ultimately matter is whether a court is going to take an all-things-considered view of what the agency has done here,” Michael Livermore, an associate law professor at the University of Virginia School of Law, told Bloomberg BNA.

At argument, the EPA will face three Republican-appointed judges who may be inclined to limit the agency's authority to regulate carbon dioxide emissions from the power sector, provided jurisdictional issues with the case can be resolved, lawyers said.

Argument Could Inform Final Rule

The D.C. Circuit has taken the unusual step of allowing Murray Energy's lawsuit challenging the EPA's authority to issue the Clean Power Plan to proceed before the rule is finalized. The coal company is asking the court to use its authority under the All Writs Act to declare the EPA lacks the legal authority to require the carbon dioxide reductions. Lawyers said the judges' questions at argument could guide how the EPA justifies its legal authority to issue the Clean Power Plan when the rule is finalized this summer.

“I think you’re going to see EPA attempt to adopt that kind of reasoning in the final rule,” Jacob Hollinger, a partner at McDermott Will & Emery LLP, told Bloomberg BNA.

The EPA's proposed Clean Power Plan (RIN 2060-AR33) would establish unique carbon dioxide emissions rates for the power sector in each state. Those standards would be implemented by the states, which would choose for themselves the best options for compliance. The Clean Power Plan is the EPA’s most expansive reading of its authority under the rarely used Section 111(d) of the Clean Air Act, which has never been interpreted by the courts.

Legal Authority Must Be Defended

Before the EPA can finalize the rule, it must defend its legal ability to even propose the carbon dioxide standard.

In its lawsuit, Murray Energy is challenging the EPA's Clean Air Act authority to issue the Clean Power Plan, arguing the rule is barred by the plain meaning of Section 111(d) of the act. The company argues the law bars the EPA from regulating under Section 111(d) sources that already have been regulated under Section 112, such as power plants.

When the Clean Air Act was amended in 1990, the House and Senate approved conflicting amendments to Section 111(d). The Senate amendment would prevent the EPA from regulating pollutants under Section 111(d) if they already are subject to hazardous air pollutant standards under Section 112. The House amendment can be read as barring the agency from regulating industrial sources, including power plants, under Section 111(d) if they are subject to standards under Section 112.

Both provisions were included in the final bill.

Interpreting that language presents the largest legal impediment to the EPA's power plant proposal, attorneys said.

“There is almost nothing EPA can do about that other than argue what it has,” Thomas Lorenzen, a partner at Dorsey & Whitney LLP, told Bloomberg BNA.

Lorenzen, Livermore and Hollinger are not involved in the Murray Energy litigation.

Legal Interpretation Changing

In a legal memorandum issued with the proposed Clean Power Plan in 2014, the EPA argued the conflicting amendments created a statutory ambiguity to be interpreted by the agency.

In 2005, when the EPA issued the Clean Air Mercury Rule, the agency offered an interpretation of those two amendments that only barred the agency from regulating under Section 111(d) those pollutants regulated under Section 112.

“The EPA explained that this approach reasonably interprets the Section 112 exclusion to give some effect to both amendments,” the agency said in the 2014 legal memorandum.

The Clean Air Mercury Rule eventually was overturned by the D.C. Circuit, but the court never reached the agency's interpretation of Section 111(d) in that case.

Since Murray Energy has challenged the EPA's authority to propose the rule under Section 111(d), the EPA has refined its defense, arguing that not only do the conflicting amendments create statutory ambiguity, but that the House amendment alone is open to various interpretations and therefore ambiguous.

The EPA in a brief argues the House language prevents the EPA from using Section 111(d) to regulate pollutants that are listed as criteria pollutants or hazardous air pollutants or using that section to regulate sources that are regulated under Section 112.

Section 111(d) as amended by the House says the EPA can issue emissions guidelines for “any air pollutant for which air quality criteria have not been issued or which is not included on a list published under section 7408 [addressing criteria pollutants] of this title or emitted from a source category which is regulated under [Section 112] of this title.”

The EPA argues the “or” in that section is significant because it means carbon dioxide must meet only one of the three criteria to be subject to standards under Section 111(d).

While power plants as a source category already are subject to the mercury and air toxics standards issued under Section 112, carbon dioxide is neither a criteria pollutant nor a hazardous air pollutant.

“In other words, the literal language of [Section 111(d)] provides that the administrator may require states to establish standards for an air pollutant so long as either air quality criteria have not been established for that pollutant, or one of the remaining criteria is met. Air quality criteria have not been issued for CO2; thus, whether power plants have been regulated under [Section 112] is arguably irrelevant,” the EPA said in its brief.

Previous Challenge Dismissed

While the EPA may have refined its interpretation of its authority, David Doniger, director of the Natural Resources Defense Council's climate and clean air program, told Bloomberg BNA that Murray Energy still faces significant procedural and jurisdictional hurdles before the D.C. Circuit can reach the merits of the coal company's interpretation of Section 111(d). The Natural Resources Defense Council has intervened in the lawsuit on behalf of the EPA and wrote a plan for regulating the power sector that influenced the agency's Clean Power Plan.

The D.C. Circuit has been skeptical of past attempts to challenge EPA rules before they are finalized.

In 2012, the court quickly dismissed a lawsuit brought by power companies that sought to block proposed carbon dioxide performance standards for new power plants issued under Section 111(b) on the grounds that a proposed rule is not final agency action and therefore not subject to judicial review (Las Brisas Energy Center LLC v. EPA, D.C. Cir., No. 12-1248, 12/13/12).

Although the D.C. Circuit will hear arguments in Murray Energy's lawsuit, Doniger predicted the same “two sentence dismissal.”

“I’m really, really hard pressed to see how that doesn’t happen again,” he said.

The EPA certainly would have restated and refined its interpretation of its legal authority to issue the Clean Power Plan in the final rule, but Murray Energy's lawsuit forced the agency to take a fresh look at its authority, providing a new opportunity to frame its legal arguments, attorneys said.

“Certainly the fact that Murray has pressed the issue has forced the agency to think very carefully about the bases for its interpretation of the statute,” Lorenzen said. “They likely would have done that anyway.”

To contact the reporter on this story: Andrew Childers in Washington at achilders@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com