U.S. Supreme Court limits Environmental Protection Agency’s authority to regulate greenhouse gas emissions

On June 30, 2022, the U.S. Supreme Court (“the Court”) released its decision in West Virginia v. Environmental Protection Agency.  In a 6-3 ruling, the Court held that the EPA exceeded its statutory authority in promulgating the Clean Power Plan under Section 111(d) of the Clean Air Act. The Clean Power Plan established carbon dioxide emission caps on coal- and gas-fired power plants and emphasized the transition of energy generation from coal-fired power plants to natural gas or renewable energy sources (a practice described as “generation shifting”) as part of its “best system of emission reduction.”

The Court, citing the economic and political significance of the “generation shifting” regulatory scheme, found that the EPA’s promulgation of the Clean Power Plan violated the Major Questions Doctrine, which requires that questions with substantial political and economic significance be decided by Congress. This decision reverses a 2021 ruling by D.C. Circuit Court of Appeals (“the D.C. Circuit”), and the case has been remanded to the lower court for further proceedings consistent with the Court’s opinion.

Procedural Background 

During the Obama administration, the EPA adopted and enforced the Clean Power Plan, which established carbon dioxide emission guidelines on power plants, under Section 111(d) of the Clean Air Act. The Trump administration repealed the Clean Power Plan, stating that the EPA exceeded its authority under the Clean Air Act, and replaced it with the less stringent Affordable Clean Energy (“the ACE”) rule.  In January 2021, the D.C. Circuit vacated the repeal of the Clean Power Plan, struck down the ACE rule, and remanded the case to the EPA under the Biden administration to “consider the question afresh.”  

The West Virginia State Attorney General and other state attorneys general from states aligned with the fossil fuel industry subsequently challenged the D.C. Circuit’s ruling and requested that the Court review the decision. The Supreme Court agreed to review the case, despite the Biden administration’s objection that the Obama-era Clean Power Plan is no longer in effect.

Key Takeaways

There are three key takeaways from the Court’s opinion:

(1)  The Court held that the EPA cannot reduce greenhouse gases through transformative regulatory mechanisms without explicit Congressional authorization. 

Section 111 of the Clean Air Act directs the EPA to regulate stationary sources of any substance that “causes, or contributes significantly to, air pollution” and that “may reasonably be anticipated to endanger public health or welfare.” §7411(b)(1)(A).

The Court determined that while Section 111(d) of the Clean Air Act authorizes the EPA to establish emission guidelines for existing major air pollutants, the EPA could not transform the power industry through a generation-shifting scheme without clear statutory authorization from Congress.  In the dissent, Justices Kagan, Breyer, and Sotomayor argue that “Congress charged EPA with addressing [] potentially catastrophic harms, including through regulation of fossil fuel-fired power plants.” However, the Court’s majority found it “highly unlikely” that Congress would leave the decision of how much coal-based generation there should be over the next few decades to “agency discretion” and noted that the EPA would not ordinarily be tasked with such a policy judgment that requires “comparative expertise.” The Court noted that in past instances of delegated regulatory authority, “extraordinary grants of regulatory authority” were seldom granted through ”modest” or ”vague terms.” Whitman v. American Trucking Assns., Inc., 531 U. S. 457, 468 (2001). The majority also noted that Congress does not typically use vague language to “empower an agency to make ‘radical or fundamental change’ to a statutory scheme.” MCI Telecommunications Corp. v. American Telephone & Telegraph Co., 512 U. S. 218, 229 (1994).

(2)  This victory for States could potentially encourage other State actions, including with respect to federal agency rulemaking

The Court’s decision, arguably one of the most significant environmental decisions reached by the Court, is a huge victory to the State plaintiffs here. The Court’s ruling may invite other challenges from states or other parties to sweeping regulations imposed by other federal agencies. Indeed, the West Virginia Attorney General explained in an interview about the Court’s ruling that he hopes the Court’s emphasis of the Major Questions Doctrine would be used to attack perceived federal agency overreach by other federal agencies, including the U.S. Securities and Exchange Commission’s (the “SEC”) climate proposals.  The West Virginia Attorney General and 23 other state attorneys general submitted a comment letter opposing the SEC’s recently proposed climate disclosure rule (see here).

Additionally, the Court’s decision may prompt states with more ambitious climate agendas to undertake their own actions on greenhouse gas emissions, potentially resulting in a patchwork of regulations across the U.S. and a slew of court challenges with subsequent regulatory and legal uncertainty regarding policies applicable to greenhouse gas emissions, especially for high-emitting sectors. 

(3)  This decision focused on power plants and did not explicitly place further limitations on the EPA. 

While the EPA cannot take a generation-shifting approach without clear statutory authorization from Congress, the Court reiterated that Section 111(d) of the Clean Air Act still authorizes the EPA to establish emission guidelines for existing major air pollutions.

However, litigants may seek to capitalize on the Court’s invocation of the Major Questions Doctrine to challenge future greenhouse gas regulatory initiatives. In response to the ruling, the White House issued a statement stating that it would “continue using lawful executive authority, including the EPA’s legally-upheld authorities” to take action. Moreover, the EPA issued a press release stating it would “move forward with lawfully setting and implementing environmental standards,” consistent with the Biden Administration’s climate and ESG agenda. Companies should continue to monitor further regulations and related litigation, including from both federal and state actors, to remain apprised of potential effects to the economy and high-emitting sectors.