Emissions, Policy & Regulation, Policy & Regulations

Will Supreme Court Rulings Bolster EPA Authority?

Issue 8 and Volume 118.

Mitchell Krasnopoler   By Mitchell Krasnopoler, Manager of Air Quality, Kiewit Power Engineers

Two recent U.S. Supreme Court rulings have empowered the EPA to continue pursuing stricter limits on coal-fired power plants. The rulings are the Cross State Air Pollution Rule (CSAPR) case (US EPA v. EME Homer City Generation, April 29, 2014) and the greenhouse gas permit case (Utility Air Regulatory Group v. EPA, June 23, 2014). Both gave the EPA all or most of the authority that it wanted. These rulings have broad direct impacts on coal-fired power plants. However, the indirect impact of an emboldened EPA on power plants may turn out to be more important. There is, however, uncertainty on how the courts will assess new rules from an emboldened EPA.

In the CSAPR ruling, the Court upheld the EPA’s authority to regulate air pollution from power plants that crosses state lines and causes downwind air pollution problems. In CSAPR, the EPA had developed a complex calculation to determine each upwind state’s emission reduction obligation, referred to as the annual emissions budget. This calculation included an assessment that an upwind state “contribute significantly” to downwind States’ nonattainment of the NAAQS. The controversial part of the calculation was that each state’s emissions reductions were a function of the cost effectiveness of controls, and not proportional to each State’s contribution to downwind air pollution problems. The Court sided with the EPA in calling EPA’s rule making “an agency’s reasonable interpretation of ambiguous statutory language.” It agreed that the EPA is allowed to make choices because the Clean Air Act language was not specific.

Although part of the Court ruling in Utility Air Regulatory Group (UARG) v. EPA went against the EPA, the overall result was in favor of the EPA’s ability to regulate greenhouse gases. The Court’s ruling overturned the EPA’s greenhouse gas tailoring rule that allowed the EPA to require a permit for millions of small sources based solely on the greenhouse gas emissions of a small source. The EPA proposed “tailoring” the emissions threshold from 100 or 250 tons per year to 75,000 to 100,000 tons per year for greenhouse gases. The court ruled that, “EPA’s rewriting of the statutory threshold was impermissible.” However, the Court did not reopen its decision that the EPA is able to regulate greenhouse gases as pollutants. The Court upheld EPA’s rule requiring stationary sources already required to obtain a PSD permit because of other emissions to meet BACT requirements for greenhouse gases. It is interesting to note that in this case federal agencies may not “revise clear statutory terms that turn out not to work in practice,” while in the CSAPR ruling, the EPA is allowed to interpret ambiguous statutory language. Although the Court limited the EPA by overturning the Tailoring Rule, at the same time it upheld the central principle that the EPA can regulate greenhouse gases.

The upshot of these two decisions may be how the power industry, Congress, and ultimately the courts treat the EPA’s recently proposed carbon pollution standards, called the “Clean Power Plan.” This Plan was proposed on June 2, 2014 and, when implemented, will reduce carbon dioxide emissions from existing power plants. The Clean Power Plan undertakes the reduction of carbon pollution by establishing state-specific limits for the states to implement and guidelines to help them meet these limits. This plan envisions significant flexibility in how each state will meet its limit. This flexibility includes non-traditional methods of reducing emissions that the Plan refers to as “building blocks.” The four building blocks are, “improved operations at EGUs, dispatching lower-emitting EGUs and zero-emitting energy sources, and end-use energy efficiency.

Congress never anticipated these methods when it passed the Clean Air Act. The applicable law is Clean Air Act Section 111(d) that requires the EPA administrator to establish a procedure so that each state develops a plan to establish “standards of performance for any existing source.”

A key question is how the courts will view the Clean Power Plan’s building blocks. Based on the CSAPR ruling, the courts may agree with EPA’s interpretation of Section 111(d) because EPA did propose a flexible procedure. Alternatively, the courts could also determine that the building blocks except for improving operations are not directly applicable to an existing source. In other words, the building blocks could be viewed as a revision of the statutory term, “existing source.”

The Clean Power Plan is probably the EPA’s most important initiative for the remainder of President Obama’s term. While we cannot predict how challenges to the Plan will turn out, we can expect an emboldened EPA to fight hard for these rules.

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