Just prior to the 2020 election, the D.C. Circuit heard oral arguments addressing EPA’s authority under Section 111(d) of the Clean Air Act (CAA) to impose greenhouse gas emission standards on existing fossil fuel fired power plants, and whether those standards can impose limits based on measures applied beyond the fenceline of the facility. As readers may recall, in the Clean Power Plan (CPP), the Obama Administration adopted an expansive interpretation of its powers under Section 111(d) in order to press for more aggressive greenhouse gas emission reductions from the electric power sector. The CPP, however, was stayed by the U.S. Supreme Court and never went into effect.

In 2019, the Trump Administration repealed the CPP and, in its place, adopted the Affordable Clean Energy (ACE) Rule. See 84 Fed. Reg. 32,520 (July 8, 2019). Unlike the CPP Rule’s “beyond the fenceline” approach, the ACE Rule adopted an interpretation of CAA Section 111 that limited the best system of emission reduction to measures that can be applied at and to a particular source. This included heat rate improvements at the source, but not other approaches like shifting generation away from coal to lower-emitting sources. The ACE Rule was challenged from a variety of perspectives by a diverse set of states, environmental groups, and some companies and industry groups, while a large number of states, associations, and other entities defending the rule alongside EPA. In October 2020, a three-judge panel of the D.C. Circuit heard over nine hours of oral argument on the merits of the CPP repeal and ACE Rule. Most observers found the D.C. Circuit panel skeptical of the Trump Administration’s approach, and on the eve of President Biden’s Inauguration, the panel delivered on that skepticism with a lengthy opinion disagreeing with EPA’s narrow reading of Section 111, vacating the ACE Rule, and remanding it to EPA to “consider the question [of EPA’s power under Section 111] afresh…” American Lung Ass’n et al. v. EPA, No. 19-1140 (D.C. Cir. Jan. 19, 2021). Judge Walker, one of the newest members of the D.C. Circuit, dissented on the basis that federal regulation of carbon emissions from power plants presented a “major question” for which a regulatory solution must be grounded in clear legislative authorization. Judge Walker also found that Section 112 of the CAA foreclosed EPA from issuing either the CPP Rule or ACE Rule under Section 111.

On February 12, 2021, EPA filed a motion asking the D.C. Circuit for a partial stay of the issuance of the mandate, explaining that EPA understood the panel’s decision to vacate the ACE Rule while also not reinstating the CPP. On February 22, 2021, the D.C. Circuit granted EPA’s request (which was unopposed). On March 5, 2021, the court issued the partial mandate. Many observers now expect some of the parties in the ACE litigation (including states like West Virginia and North Dakota) to seek U.S. Supreme Court review.

It is worth noting that, in terms of a remedy, the environmental petitioners in the D.C. Circuit litigation did not ask the court to reinstate the CPP as the dates and standards in the CPP are now seen by most as obsolete. The Biden EPA has also disavowed any interest in a hasty return of the CPP. The ultimate outcome of this litigation and resulting EPA action will have significant implications for the future of EPA regulations of existing and new sources of greenhouse gas emissions throughout the energy sector.

With regard to the EPA methane NSPS rules found at Subpart OOOO/OOOOa (commonly referred to as the “Quad-O and Quad-Oa” standards), EPA issued final rules in 2020 providing that these standards are inapplicable to the transmission and storage segment of the oil and natural gas source category while also rescinding the methane-specific requirements of these standards for the remaining segments of oil and natural gas production and processing. As importantly, the rules also adopted an interpretation of Section 111 of the Clean Air Act under which EPA must, as a predicate to promulgating new standards for certain air pollutants, determine that the pollutant at issue from the source category causes or contributes significantly to dangerous air pollution which may reasonably be anticipated to endanger public health or welfare. EPA found that the previous determination by EPA for methane in the 2016 NSPS OOOOa rule was invalid and did not meet the statutory standard.

Initially, the D.C. Circuit stayed the Quad-O and Quad-Oa rules, but just a week before the election, the court dissolved the administrative stay, finding that the environmental petitioners did not satisfy the “stringent requirements for a stay pending court review.” Interestingly, the D.C. Circuit also set an expedited briefing schedule in the Quad-O and Quad-Oa litigation. Environmental petitioners filed their brief on December 7, 2020 and the Justice Department filed a brief on January 15, 2021 strongly defending EPA’s methane rule, just a few days before the arrival of the Biden Administration. On its first day in office, the Biden Administration identified these rules as a top priority for reconsideration.

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