On June 30th, the United States Supreme Court issued its decision in West Virginia v. EPA. The Court concluded that the EPA had exceeded its authority under the Clean Air Act by establishing emission caps in the Clean Power Plan (CPP) that would have required a shift in electrical generation from coal to cleaner sources such as natural gas, wind and solar. The Court applied the “major questions doctrine” in determining that there was no clear Congressional authority for the type of regulatory control EPA outlined in the CPP.
What You Need to Know:
- The US Supreme Court is concerned with administrative agencies and the executive branch deciding issues through regulation that are reserved for Congress.
- Courts will likely be skeptical of any agency discovering newfound powers to regulate in long-standing statutes, especially when it represents a departure from the historical regulation by that agency.
- The US Supreme Court is looking toward Congress to answer any questions with significant economic or social impact that relate to climate change and emissions.
The “major questions doctrine” provides that “decisions of vast economic and political significance” cannot be assigned to an agency absent clear Congressional intent. As the Court explained, “in certain extraordinary cases, both separation of powers principles and a practical understanding of legislative intent make us ‘reluctant to read into ambiguous statutory text’ the delegation claimed to be lurking there.” In other words, an agency’s assertion of authority to act in an area of great national consequence cannot rely upon implied authority to do so. To overcome a major questions dispute, an agency must point to “clear congressional authorization” for the power it claims, which the Court held EPA could not do in this instance.
By interpreting Section 111(d) of the Clean Air Act to allow generation-shifting emission caps that would “substantially restructure the American energy market,” the Court concluded that the EPA was “’claiming to discover in a long-extant statute an unheralded power’ representing a ‘transformative expansion in [its] regulatory authority.’” The Court further noted that this power was based on “vague language” from an “ancillary provision” of the Clean Air Act that was intended to be a “gap filler” and had rarely been used in the past.
Indeed, the Court pointed to the fact that in the 50 years since the passage of the Clean Air Act, the EPA had exercised its authority to regulate power plants by setting standards for the “best system of emission reduction” that would reduce pollution by causing plants to operate more cleanly. With the CPP, however, the EPA issued a rule concluding that the “best system of emission reduction” for coal-fired power plants was a “cap and trade” system that would require them to reduce their production of electricity or subsidize increased generation by cleaner energy sources. According to the Court, this represented not only a dramatic shift in the EPA’s regulation of emissions under the Clean Air Act, but also a regulatory program that Congress has repeatedly declined to adopt itself. Given this context, the Court concluded that it was “highly unlikely that Congress would leave” to “agency discretion” the decision of how much coal-based generation there should be over the coming decades.
The Court specified that its holding was narrowly limited to the question of whether the “best system of emission reduction” identified by the EPA in the CPP was within the authority granted to the EPA in Section 111(d) of the Clean Air Act, and that it was 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 “best system of emission reduction.”
Implications for Other Regulatory Initiatives
The Supreme Court’s decision has major implications for federal regulations relating to climate change and greenhouse gas (GHG) emissions where Congress has not clearly delegated such “sweeping and consequential authority.”
For example, critics of the Securities and Exchange Commission’s (SEC) proposed rules requiring issuers to make certain disclosures relating to climate-related risks and GHG emissions, and establishing disclosure requirements for funds and advisers that market themselves as having an ESG focus, have argued that the proposed rules exceed the SEC’s rulemaking authority and decide issues of significant economic and political significance without clear Congressional authority. The Supreme Court’s decision here lends further support for the argument that the SEC is similarly discovering a newfound power to regulate issues relating to climate change and emissions, which issues were not traditionally regulated by the SEC in the new manner proposed, under long-standing statutory authority. Likewise, the Federal Energy Regulatory Commission’s (FERC) draft policies, its Updated Policy Statement on Certification of New Interstate Natural Gas Facilities and Interim Policy Statement (GHG Policy), which propose to significantly change the manner in which FERC quantifies GHG emissions, may face similar challenges based on the application of the “major questions doctrine.”
How Will Courts Apply the Major Questions Doctrine?
The Supreme Court noted the major questions doctrine is implicated in certain “extraordinary cases.” For that reason, use of the doctrine will generally be limited to regulatory initiatives that have “vast economic and political significance” and seek to expand the “history and the breadth of the authority” that an agency has traditionally asserted. However, as the Court noted, the doctrine “took hold” because of “a particular and recurring problem: agencies asserting highly consequential power beyond what Congress could reasonably be understood to have granted.”
As the decision illustrates, a “major questions” analysis will require an inquiry into not only the text of an agency’s enabling statute, but also the history of the agency’s regulatory initiatives. A court’s skepticism may increase when there is a “mismatch” between an agency’s challenged action and its congressionally assigned mission and expertise.
Please contact the authors for any questions you may have relating to the West Virginia v. EPA decision or its implications for your company or industry. The members of Saul Ewing’s Energy and Environmental Industry Groups are available to offer counsel and assist in any matters relating to project development and operations that may be impacted by this decision.