On June 30, the United States Supreme Court ruled in West Virginia v. EPA, a case involving hotly contested legal questions about the scope of EPA’s authority to control greenhouse gas emissions from existing power plants under Section 111(d) of the Clean Air Act. Siding with West Virginia, the Supreme Court held 6 to 3 that the “generation shifting” approach in the Clean Power Plan exceeded the powers granted to EPA by Congress, though the Court did not address the related issue of whether EPA may only adopt measures applied at the individual source. Of broader significance in administrative law generally, the Court also expressly adopted the Major Questions Doctrine. Chief Justice Roberts authored the majority opinion, which was joined by Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett. Justice Kagan filed a dissenting opinion, joined by Justices Breyer and Sotomayor.

Prior to the opinion being released, Baker Botts previously published a list of five key issues in this case to closely monitor. To help readers with a prompt understanding of these aspects of the Court’s decision, this client update briefly outlines the Court’s determinations on those five issues. A more comprehensive analysis will be published shortly.

Background

The Obama Administration’s Clean Power Plan (“CPP”) adopted a broad view of EPA’s Section 111(d) authority, requiring the electric power sector to shift generation away from fossil fuels to renewables; however, the CPP was stayed by the Supreme Court in 2016 and never went into effect. For its part, the Trump Administration’s Affordable Clean Energy (“ACE”) Rule adopted a narrow view of Section 111(d), seeking to curtail greenhouse gas emissions based only on pollution control measures applied at or to the source.

On January 19, 2021, the D.C. Circuit issued a judgment vacating and remanding the ACE Rule. See American Lung Ass’n, et al. v. EPA, 985 F.3d 914 (D.C. Cir. 2021). The D.C. Circuit found that Section 111(d) of the Clean Air Act does not require the best system of emission reduction (“BSER”) to be limited to only those measures that can be applied at and to an individual source. Because the Trump EPA expressly based its repeal of the CPP and its promulgation of the ACE Rule on the premise that Section 111(d) limits BSER to such “behind-the-fenceline” measures, the D.C. Circuit held that the CPP Repeal and ACE Rule must be vacated. Id. at 995.

On October 29, 2021, the Supreme Court granted review of the case, specifically agreeing to hear the parties’ arguments on whether EPA’s Section 111(d) authority allows the agency to regulate the power generation industry in a manner as broad as the CPP. Oral argument occurred on February 28, 2022, and the Supreme Court rendered its 6 to 3 decision on June 30, 2022.

At the outset of the opinion, Chief Justice Roberts framed the core issue before the Court as “whether [the CPP’s] broader conception of EPA’s authority is within the power granted to it by the Clean Air Act.” The majority’s answer was no.

Scoring the Big Questions in West Virginia v. EPA

1. Is there standing to hear the case?

In today’s ruling, the Court held that West Virginia’s challenge remains justiciable under Article III of the Constitution. The Biden Administration had hoped—not unreasonably so—that the Court would decide to forego further review on the basis that EPA is no longer seeking to implement the CPP or the ACE Rule. Yet the Court found that, because EPA’s regulation on the same basis is expected to recur, the case was not mooted by the Biden Administration’s decision to no longer pursue ACE or CPP. In short, the Court found that EPA had not carried the “heavy” burden of showing that the 111(d) challenge was moot, especially since EPA never disclaimed an intent to “reimpose emissions limits predicated on generation shifting” and “vigorously defend[ed]” the legal basis for CPP.

2. Does the Court think Section 111(d) is clear and unambiguous?

Section 111(d) of the Clean Air Act, in combination with definitions found in Section 111(a), authorizes EPA to set “standards of performance for any existing source” based on limits “achievable through the application of the best system of emission reduction” that has been “adequately demonstrated.” 42 U.S.C. 7411(d). Unlike the approach in the CPP, which relied on agency deference, the ACE Rule took a “plain meaning” approach, finding that Section 111(d) is capable of one “permissible reading.” The Court was asked to address whether the relevant language of Section 111(d) is “clear” and “unambiguous” (and thus, subject to just one interpretation) or ambiguous enough to support a variety of agency interpretations that may be entitled to deference.

In today’s ruling, the Court does not tackle this question head-on. Instead, the Court focused on the Major Questions Doctrine analysis, as discussed in point #3 below, and chose not to address whether “the statutory phrase ‘system of emission reduction’ refers exclusively to measures that improve the pollution performance of individual sources, such that all other actions are ineligible to qualify as the BSER.” Id. at 30.

Thus, several key aspects regarding the nature and scope of EPA’s authority under Section 111(d) are left unaddressed, though the broad power to require generation shifting is clearly prohibited. The Court simply found that the BSER approach adopted by EPA in the CPP was not based on authority granted by Congress under Section 111(d). Presumably, EPA would be left to decide, at least initially, how much authority remains for it to exercise in the aftermath of today’s opinion.

3. Does the Supreme Court rely upon the “Major Questions Doctrine”?

Perhaps most significantly for the future of administrative law (even beyond the Clean Air Act), the Supreme Court expressly adopted the “Major Questions Doctrine” (MQD) and found that this case squarely fell within the MQD framework. West Virginia had argued that the ACE Rule’s plain reading approach is reinforced by the MQD, which requires an agency to have a clear statutory authorization from Congress in order to decide an issue of major national significance. In today’s ruling, the Court placed the challenge to the CPP in the context of several other cases involving “extraordinary circumstances” where agencies have asserted “highly consequential power beyond what Congress could reasonably be understood to have granted.” 

For the Court, EPA’s attempt to employ Section 111(d) for purposes of “restructuring the Nation’s overall mix of electricity generation” required review under the MQD framework. The Court explained that it would employ the MQD framework for reviewing the legality of statutes where the “history and the breadth of the authority that [the agency] has asserted, and the economic and political significance of that assertion, provide a reason to hesitate before concluding that Congress meant to confer such authority.” Slip op. at 16-17 (internal quotes omitted).

In the Court’s words, “[e]xtraordinary grants of regulatory authority are rarely accomplished through ‘modest words,’ ‘vague terms,’ or ‘subtle device[s]’.” Id. at 18. Where an agency asserts authority in this manner, the Court will require the agency to “point to clear congressional authorization for the power it claims.” Id. at 19 (internal quotations omitted). “The last place one would expect to find [such significant regulatory power over the nation’s electricity system] is in the previously little-used backwater of Section 111(d).” Id. at 26. This conclusion was, according to the Court, reinforced by the reality that Congress never adopted - and even expressly rejected - legislative proposals to create programs similar to the CPP. Id. at 27.

For as long as West Virginia v. EPA is on the books, it will be cited for this powerful principle of administrative law. Moreover, the Court distinguished between so-called “ambiguity canons” of interpretation, which “merely instruct courts on how to choose between equally plausible interpretations of ambiguous text,” and the kinds of interpretative questions raised in the MQD context. Id. at 8 n. 3.  The Court found that this case was proper for application of MQD principles, not the traditional ambiguity principles like those found in Chevron (where agencies receive deference for reasonable interpretations of ambiguous statutes).

4. Is EPA’s Section 111(d) authority limited to measures applied at or to individual power plants?

In the ACE Rule, EPA adopted an interpretation that Section 111(d) was limited to those measures “that can be put into operation at” a particular facility, such as heat rate improvements at a coal-fired power plant, i.e. “within the fenceline” measures. As noted above, in today’s ruling, the Court states that it is not deciding whether “the statutory phrase ‘system of emission reduction’ refers exclusively to measures that improve the pollution performance of individual sources, such that all other actions are ineligible to qualify as the BSER.”

5. Does the Court leave the door open for EPA to adopt system-wide measures like averaging and emissions trading?

Related to the “fenceline” question discussed above, the Court was also expected to address whether Section 111(d) allows EPA to require performance standards based on emissions averaging and trading programs. The state challengers argued that Congress explicitly added language to the statute allowing cap-and-trade under other Clean Air Act programs, but it did not do so in Section 111. The United States and the power company respondents, however, argued that trading programs are “adequately demonstrated” in the power sector. As discussed above, the Court did not specifically address whether emissions averaging or trading programs that do not rely on generation shifting are within EPA’s authority under Section 111(d), presumably leaving this question for EPA to grapple with in later rulemaking stages.

Dissent

Writing in dissent, Justice Kagan, with whom Justices Breyer and Sotomayor joined, contends that the Court is issuing an advisory opinion “on the proper scope of the new rule EPA is considering.”  Justice Kagan explains that cap-and-trade programs are clearly “systems” that should be within EPA’s authority under Section 111(d).  She also speaks to the majority’s claim “that Congress would not have wanted EPA to ‘dictat[e],’ through generation shifting, the ‘mix of energy sources nationwide,’” arguing that “[e]very regulation of power plants ‘dictat[es]’ the national energy mix to one degree or another.”  In addition, Justice Kagan disputes the majority’s view that Section 111(d) is an “ancillary provision” or “statutory backwater,” instead calling it a “backstop” that provides a critical function – ensuring the regulation of pollutants like carbon dioxide that are not covered under other Clean Air Act programs.

Justice Gorsuch, joined by Justice Alito, filed a concurring opinion to offer some additional observations on the Major Questions Doctrine.

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