Clean Power Plan Scrutinized Through Lens of Supreme Court

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By Andrew Childers

Sept. 27 — Federal appellate judges grappled with how to evaluate the Obama administration’s carbon dioxide emissions limits for the power sector in light of recent U.S. Supreme Court decisions that endorsed the Environmental Protection Agency’s ability to regulate utilities while cautioning against reading the agency’s authority too broadly ( West Virginia v. EPA, D.C. Cir. en banc, No. 15-1363, 9/27/16 ).

A 10-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit debated during more than seven hours of arguments Sept. 27 whether forcing utilities to shift from coal-fired generation to cleaner energy sources under the EPA’s Clean Power Plan falls within the agency’s Clean Air Act authority to determine the “best system of emission reduction” when setting emissions limits under Section 111(d) of the Clean Air Act or whether the agency has the authority to regulate power plant emissions at all.

The Clean Power Plan (RIN:2060-AR33), which sets carbon dioxide emissions limits on the power sector in each state to be implemented by state regulators, was issued under Section 111(d) of the Clean Air Act, a little-used provision that has never been employed as broadly as the EPA has here. That expansive approach left opponents of the rule and some judges questioning whether Congress intended to delegate such broad authority to the agency in that manner.

“This is the kind of power that’s so different from what Section 111(d) is about,” Elbert Lin, solicitor general for West Virginia, argued. “This is a power even [the Federal Energy Regulatory Commission] doesn’t have.”

Is Generation Shifting the ‘Best System’?

Section 111(d) requires the EPA to determine the “best system of emission reduction” that states can employ to meet the emissions standards. Though past rules under that provision have focused on emissions controls that can be employed at individual facilities, in the Clean Power Plan the EPA viewed the entire electric grid as a single system and determined that shifting generation from coal-fired utilities to cleaner alternatives would be the most efficient and cost-effective method of bringing down emissions.

Though states have used generation shifting to meet emissions limits under past EPA rules, such as the acid rain program and the Cross-State Air Pollution Rule, opponents of the Clean Power Plan argued the EPA cannot set emissions limits that intrude on states’ authority to regulate how their power sectors operate.

“This rule is clearly designed to make use of a different generation mix,” Lin said.

The EPA has argued that “system” in best system of emission reduction is broad enough to encompass many different emissions control strategies, including fostering new renewable energy. In order to overturn the Clean Power Plan, Judge David Tatel said opponents must show the Clean Air Act explicitly forbids that approach.

Limits of EPA Authority Explored

The D.C. Circuit questioned how far the EPA can interpret its Clean Air Act authority against the backdrop of a recent Supreme Court decision that limited the scope of the EPA’s greenhouse gas permitting program ( Util. Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2014 BL 172973, 78 ERC 1585 (2014) ).

“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,” the late Justice Antonin Scalia wrote in language cited at the D.C. Circuit.

However, the Justice Department argued the agency is merely employing the same emissions controls it has used in past rules.

“Fundamentally, this rule is about substituting cleaner technologies for dirty technologies. That’s a familiar principle,” Eric Hostetler, the Justice Department attorney representing the agency, said.

‘Bait and Switch.’

Judge Patricia Millett accused the utility industry of a “bait and switch” by supporting the EPA’s ability to regulate carbon dioxide emissions from power plants under Section 111(d) of the Clean Air Act when faced with the prospect of common law nuisance cases brought by states seeking to curb those emissions, only for utilities to oppose that regulatory approach under the Clean Power Plan.

“Now we’re told it’s not in EPA’s wheelhouse to regulate,” she said.

The Supreme Court ultimately held the EPA’s authority to regulate greenhouse gases—specifically citing its authority under Section 111(d)—displaced the states’ common law claims ( Am. Elec. Power Co. v. Connecticut, 564 U.S. 410 131 S. Ct. 2527, 2011 BL 161239, 72 ERC 1609 (2011)).

That decision “could hardly be more on point,” Hostetler said.

However, Peter Keisler, a partner at Sidley Austin LLP arguing for the petitioners, said the Clean Power Plan challenges are not a matter of whether the EPA can regulate carbon dioxide emissions but rather how that authority is being applied in this instance.

“There are different values being balanced here,” he said. “There are lots of technology-forcing rules. None of them achieve emissions reductions by shutting down existing sources.”

The Supreme Court has stayed the Clean Power Plan while litigation plays out.

Conflicted Amendments Weighed

Opponents of the Clean Power Plan also have argued the EPA lacks the fundamental statutory authority to regulate carbon dioxide emissions from power plants at all because those units already are subject to hazardous air pollutant limits under Section 112.

When the Clean Air Act was last amended in 1990, conflicting amendments to Section 111(d) were both signed into law. The Senate language bars the EPA from regulating the same pollutants under Section 111(d) that already are subject to regulation under Section 112. The House amendment, which is featured in the U.S. Code, can be read to prevent the EPA from regulating any industrial source such as power plants under Section 111(d) if they already are subject to toxic pollutant limits under Section 112.

Opponents of the rule argued Congress very clearly meant to prevent the EPA from regulating power plants under both sections.

“If you start with [Clean Air Act Section] 111, you can move to 112,” Allison Wood, a partner at Hunton & Williams LLP representing the power industry, said. “112 is the most draconian, most stringent you get under the Clean Air Act.”

Additionally, the Supreme Court, in a footnote to the AEP decision seemed to endorse the notion the EPA cannot regulate industrial facilities under both Sections 111(d) and 112 of the Clean Air Act simultaneously. Though the footnote was not germane to that decision and the matter wasn’t briefed at the time, Kavanaugh said its inclusion does lend weight to petitioners’ arguments against the Clean Power Plan.

“That footnote, taken literally, totally supports your position, he said.

Delisting Called an Option

Instead, if the EPA insisted on regulating both greenhouse gases and toxic pollutants from power plants, it should delist them from regulation under Section 112 and set standards for all the pollutants under Section 111(d). That would substitute a national program for hazardous air pollutants under Section 112 for one that would be implemented by state regulators under Section 111(d). The EPA in 2005 had attempted to remove power plants from regulation under Section 112 as part of the Clean Air Mercury Rule, which was subsequently struck down by the court for procedural flaws.

“Delisting is extremely difficult, and I’m not sure the statutory requirements could be met,” Millett said.

Despite arguments that the House language is clear and unambiguous, judges said the language of the House amendment may be open to different interpretations, including some that would support the Clean Power Plan, as they struggled to resolve the contradiction.

“I’m with you on the idea the House amendment applies. I’m struggling with what it means,” Kavanaugh said.

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

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