Overview
On June 30, the United States Supreme Court issued its decision in West Virginia v. EPA, No. 20-1530, and curtailed the power of the EPA to regulate carbon emissions. In 2015, the Environmental Protection Agency ("EPA") or the ("Agency") relied on its authority under the Clean Air Act[1] to promulgate the Clean Power Plan ("EPA") —a program expressly designed to combat climate change by requiring a shift in energy sources from coal to natural gas and renewables by power plants.
In a 6-3 ruling authored by Chief Justice John Roberts, the Court concluded that the EPA does not have limitless authority to "force a nationwide transition away from the use of coal to generate electricity[.]"[2] If, Congress had intended for the EPA to decide an issue of such "vast economic and political significance," it must have done so explicitly.[3] The Court did not find any such directive in the Clean Air Act.
The majority's opinion sends a strong signal not only to the EPA, but any agency engaging in policymaking decisions absent a specific Congressional delegation of authority.
Insights and Implications on ESG
The decision deals a significant blow to the Agency's attempt to limit carbon emissions through enforceable nationwide standards. With climate legislation stalled in Congress, the decision leaves few pathways for the Administration to require a significant reduction in carbon emissions across industries. In the absence of federal government-mandated action, we expect there will be continued pressure from stakeholders on corporations, both public and private, to establish and meet their emissions targets.
We also anticipate more litigation probing the boundaries of the "major questions" doctrine as agencies finalize rules prior to the expiration of the Administration’s first term. One likely candidate for such litigation will be the Securities and Exchange Commission ("SEC")’s anticipated final rules requiring public companies to include certain climate-related disclosures in their annual reports and registration statements. Even prior to this case being decided, a debate existed as to whether the SEC’s March 2022 proposed rules would violate the "major questions" doctrine. Notably, SEC Commissioner Hester Peirce raised reservations relating to the doctrine in her dissent to the proposal[4] and twenty-four State Attorneys General, including the West Virginia Attorney General plaintiff in this case, wrote a comment letter objecting to the proposed SEC rules on three legal grounds, including the "major questions" doctrine.[5]
This case has the potential to impact the scope of the SEC's final rules, which will undoubtedly be drafted with this case in mind. The SEC's broad interpretation of its statutory authority to promulgate climate-related disclosure requirements will likely be considered against public statements by the SEC pertaining to its climate change expertise, prior SEC determinations in this context dating back to the 1980s, stalled Congressional efforts to require public companies to disclose climate-related information, and statutory authority granted by Congress to other agencies, such as the EPA, in this context. The SEC is expected to vote on final rules relating to climate change by the end of 2022.
The Clean Power Plan
The Supreme Court's review of the CPP trailed a complicated procedural history spanning three presidential administrations. The EPA cited Section 111 of the Clean Air Act as the basis for its authority to implement the challenged scheme for reducing carbon emissions. Section 111 gives the EPA authority to identify "categories of stationary sources" that "cause[], or contribute[] significantly to, air pollution,” and to set standards of performance that "reflect[] the degree of emission limitation achievable through the application of the best system of emission reduction . . . [that] has been adequately demonstrated."[6]
While the authority to set rules governing existing power plants rests with each state, Section 111(d) provides that those rules must nonetheless fall within a "permissible level of pollution," measured against and enforced according to the EPA's standards of performance (that is, against the limit that the Agency calculates according to its determination of the "best system of emission reduction").[7]
The EPA instructed states that they could achieve state-wide emission reductions across their power grids through three types of measures, or "building blocks":[8] First, implementing "heat rate improvements" at specific plants by, for example, burning coal more cleanly; second, shifting power plants from coal-fired to natural-gas-fired plants, which produce less carbon dioxide; and third, shifting both coal and gas plants to renewable energy sources, such as wind and solar.[9]
At issue in West Virginia v. EPA were building blocks two and three. Or, as the Court framed it, "whether restructuring the Nation's overall mix of electricity generation, to transition from 38% coal to 27% coal by 2030, can be the ‘best system of emission reduction’ within the meaning of Section 111."[10]
The Court found it had jurisdiction to answer this question even though the CPP was never implemented. The same day that the EPA promulgated the rule, twenty-seven states and several coal companies challenged it and petitioned for a stay of the CPP in the DC Circuit. However, before the DC Circuit could reach a decision on the merits, the Trump administration took office and the EPA repealed the rule, determining that it exceeded the Agency’s authority under the Clean Air Act.[11]
In its place, the EPA promulgated the Affordable Clean Energy ("ACE") rule.[12] Unlike the CPP—which set performance standards for emission reduction at the grid level—the ACE rule set standards that apply to an individual facility.[13] Another group of states and private parties petitioned the DC Circuit for review of the EPA’s repeal of the CPP and adoption of the ACE rule.[14] On January 19, 2021, the DC Circuit vacated the Trump administration’s repeal of the CPP and its enactment of the ACE rule and remanded to the EPA for further proceedings.[15]
Following remand, there was another change in presidential administrations. The EPA now asked the DC Circuit to hold off on vacating its repeal of the CPP and allow the agency to promulgate a new rule under the Clean Air Act. The DC Circuit granted a stay and the respondents petitioned the Supreme Court for certiorari, which was granted.
The EPA Exercised "Unprecedented Power Over American Industry"
Writing for the majority, Chief Justice Roberts began by confirming the Court's authority to decide the case. The EPA argued that the case was moot because it had no intention of enforcing the CPP prior to promulgating a new rule under the Clean Air Act. The Court held that petitioners nevertheless, had standing to sue because the EPA continued to defend the legality of its interpretation of Section 111(d) granting it the ability to impose emissions limits predicated on shifting electricity production from higher-emitting to lower-emitting methods.[16]
On the merits, the Court emphatically rejected the EPA's interpretation of the authority delegated to it by Congress in Section 111(d). Invoking the "major-questions" doctrine—a body of law prohibiting agencies from making "decisions of vast economic and political significance" without an explicit Congressional directive—the Court reasoned that Section 111(d) did not contain such an "[e]xtraordinary grant[] of regulatory authority."[17]
Section 111, according to the majority, "was designed to function as a gap filler."[18] Prior to the CPP, the EPA had interpreted its authority under the statute as "limited to ensuring the efficient pollution performance of each individual regulated source."[19] The Court contrasted that understanding with the EPA's current interpretation of Section 111(d) that "Congress implicitly tasked it, and it alone, with balancing the many vital considerations of national policy implicated in deciding how Americans will get their energy."[20] In rejecting the EPA's interpretation, the Court noted the EPA's admission to Congress of its lack of policy expertise in system-wide electricity transmission trends,[21] the lack of any similar delegation of authority to the EPA in the Clean Air Act,[22] and that Congress has consistently declined to enact a cap-and-trade scheme for carbon or enact similar measures such as a carbon tax.[23] Having established that it is appropriate to apply skepticism to the EPA's interpretation of its authority under Section 111, the Court then determined that the EPA failed to meet its burden to overcome that skepticism by pointing to "clear congressional authorization to regulate in that manner."[24]
The Court concluded
[c]apping carbon dioxide emissions at a level that will force a nationwide transition away from the use of coal to generate electricity may be a sensible "solution to the crisis of the day." But it is not plausible that Congress gave EPA the authority to adopt on its own such a regulatory scheme in Section 111(d). A decision of such magnitude and consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body.[25]
Justice Kagan, writing for the dissent, argued that Congress makes broad delegations of power to agencies so that "an agency can respond, appropriately and commensurately, to new and big problems," and Section 111, naturally read, authorizes the EPA to develop the CPP. [26] The dissent laments: "[t]he Court appoints itself-instead of Congress or the expert agency-the decision-maker on climate policy. I cannot think of many things more frightening."[27]
[1] 42 U.S.C. § 7411(d).
[2] Id. at 31.
[3] Id. at 11 (citing 84 Fed. Reg. 32523, 3524 (2019) (quoting Utility Air Regulatory Group v. EPA, 573 U.S. 302, 324 (2014))).
[4] SEC Commissioner Hester M. Peirce, We are Not the Securities and Environment Commission – At Least Not Yet (Mar. 21, 2022), https://www.sec.gov/news/statement/peirce-climate-disclosure-20220321 (“We do not have a clear directive from Congress, and we ought not wade blithely into decisions of such vast economic and political significance as those touched on by today’s proposal.”).
[5] Letter from Attorneys General of the States of West Virginia, Arizona, Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Utah, Virginia, and Wyoming, (Jun. 15, 2022), https://www.sec.gov/comments/s7-10-22/s71022-20131409-301574.pdf.
[6] 42 U.S.C. §§ 7411(a), (b)(1) (emphasis added).
[7] West Virginia v. EPA, No. 20-1530, slip op. at 6 (citing 40 C.F.R. §§ 60.23, 60.24; 42 U.S.C. § 7411(d)(1)).
[8] 80 Fed. Reg. 64512, 64667.
[9] West Virginia v. EPA, No. 20-1530, slip op. at 8.
[10] Id. at 16.
[11] 84 Fed. Reg. 32523, 32524-29 (2019).
[12] Id. at 32532.
[13] Id. at 32532.
[14] Am. Lung Ass’n v. EPA, 985 F.3d 914 (D.C. Cir. 2021).
[15] Id. at 995.
[16] West Virginia v. EPA, No. 20-1530, slip op. at 16 (internal quotation marks omitted).
[17] Id. at 18 (“[B]oth separation of powers principles and a practical understanding of legislative intent make us ‘reluctant to read into ambiguous statutory text’ the delegation claimed to be lurking there.” (quoting Utility Air Regulatory Group v. EPA, 573 U. S. 302, 324 (2014)).
[18] Id. at 20.
[19] Id. at 24.
[20] Id. at 25.
[21] Id. at 25.
[22] Id. at 26.
[23] Id. at 26-27.
[24] Id. at 28 (citing Utility Air, 573 U.S. at 324)(internal quotations omitted). The Court distinguished
[25] Id. at 31 (internal citation omitted).
[26] Id. at 5.
[27] Id. at 33.
