Only a few days after the EPA’s announcement, 28 states and numerous private as well as public organizations filed legal challenges to the CPP. Shortly after filing their challenges to the CPP, the rule’s opponents were able to convince the Supreme Court to order a stay of the regulation in early February 2016, delaying its implementation until all legal challenges are resolved. In the meantime, the cases challenging the CPP were consolidated. After a lengthy briefing schedule, oral arguments were held on September 27th. Due to the case’s importance, the D.C. Circuit held an en banc hearing with ten judges instead of the usual panel of three.
Since the CPP is the first direct attempt to regulate CO2 emissions, it is critical to understand the challenges to the regulation and whether they stand a chance of striking down or severely limiting the rule.
The legal issues can be summarized as follows:
- Constitutional: The states that filed suit accuse the EPA of acting outside of its authority thus violating the sovereignty of the states. They claim the CPP is forcing a federal policy onto state governments and coerces state officials to implement and enforced the rule in violation of the 10th Amendment. The states also argue that the plan infringes on the traditional oversight and regulation of the electrical power system within their borders.
In response, the EPA argues that the CPP follows a long tradition of “cooperative federalism” between the Federal government and the states. The CPP sets emission targets for each state but gives them tremendous flexibility in determining how to achieve compliance at the lowest possible cost. Furthermore, state environmental agencies and utility commissions are already involved in CAA compliance for other pollutants. By asking these entities to include carbon dioxide as a part of the work they are already performing, the EPA is not commandeering state officials. Supporters argue that this is exactly the type of cooperation the CAA envisions.
- Statutory: The challengers argue that the CAA prohibits the EPA from regulating existing power plants under Section 111(d). This argument is based on the fact that in 1990, when major amendments to the CAA were passed, two different versions of Section 111(d) were approved by the House and Senate but never reconciled before final passage. The challengers claim that the provision passed by the House prohibits EPA from regulating a source under Section 111(d) that is already regulated under Section 112. It is important to note that the Senate version would allow regulation under both sections.
The EPA counters that its actions were necessitated by the Supreme Court’s decision in Massachusetts v. EPA. There, the Supreme Court held that carbon dioxide (and other greenhouse gasses) qualify as “air pollutants” under the statutory definition of the term and allows EPA to regulate them under the CAA. This holding has been reaffirmed in subsequent decisions that specifically noted that Congress delegated to the EPA the decision of whether and how to regulate carbon dioxide emissions from power plants. More specifically, the EPA contends that its interpretation of the competing versions of Section 111(d) is both reasonable and allows it to regulate CO2 emissions.
- Regulatory Authority: The challengers claim that the CPP exceeds the EPA’s regulatory authority because the CAA only allows the agency to regulate specific sources (inside the fence line) and not the broader power sector (outside the fence line). Since the required emission standards can only be met by generation shifting or by replacing coal power plants with low or zero carbon emitting sources, opponents argue that the EPA cannot set standards that individual power plants cannot achieve (i.e. cannot regulate outside the fence line).
The EPA argues that it arrived at the best system of emission reduction by using strategies that states and utilities have used for decades, by shifting generation among sources to comply with emissions regulations. Further, the EPA notes that emission limits on individual facilities, while feasible, would be much more expensive than shifting generation to lower- and non-emitting sources. The EPA also points out that utilities already engage in generation shifting due to a number of market and regulatory reasons.
Determining the likely outcome of a case based upon questions presented during oral argument is at best a speculative exercise. With that caveat, several themes emerged during the rule’s hearing. First, a majority of judges seemed to side with the EPA on its authority to regulate CO2 under the CAA. Second, a majority of judges rejected the challengers’ arguments on Section 111(d) and many legal experts feel that the EPA was able to defeat the Section 112 and 10th Amendment arguments. However, several of the more conservative judges of the court seemed skeptical that Congress intended to delegate regulatory authority over greenhouse gasses to the EPA. The judges seemed undecided on whether or not the EPA overreached its authority by relying on generation shifting. At the same time, with renewable energy representing the majority of annual energy capacity additions, the judges were skeptical about the transformative nature of the CPP on the power sector.
Overall, many legal experts believe there were a number of encouraging signs for the Obama Administration and the survival of the rule. The D.C. Circuit is now deliberating and a decision is not expected for several months. Regardless, it is widely expected that any decision will be appealed to the Supreme Court for a final ruling. However, since the ninth justice has not been confirmed, it is possible that the Supreme Court could deadlock and essentially confirm the D.C. Circuit’s decision. The power sector is shifting to cleaner energy sources at an unprecedented rate due to increasingly low costs. Hopefully, the federal judges will recognize that the CPP is a fair and flexible plan, designed to strengthen the fast-growing trend towards a low carbon, renewable energy economy.