On June 19, 2019, the Environmental Protection Agency (EPA) released a final rule repealing the Obama-era “Clean Power Plan” (CPP) and replacing it with the “Affordable Clean Energy” (ACE) Rule. While both rules regulate greenhouse gas (GHG) emissions from existing coal-fired power plants under Section 111(d) of the Clean Air Act (CAA), the ACE Rule is significantly narrower in scope, regulating reductions based only on improving the efficiency of the individual power plants. Conversely, the CPP had attempted to reduce emissions through a set of sweeping “outside the fence-line” efforts, including increasing the use of natural gas and renewable energy, achieving greater energy efficiency, and encouraging emissions trading. Both versions of the rule provided discretion to states. While the CPP established target emissions reduction percentages for each state and the District of Columbia, it gave the states wide latitude in how to achieve those targets that went beyond emission reductions from specific power plants. The ACE Rule also gives states implementation discretion, but focuses solely on reducing carbon dioxide emissions from individual power plants to achieve its goals.

Under the CAA, EPA is required to establish a standard known as “best system of emission reduction” (BSER) in regulating existing sources of air pollution. In issuing the ACE Rule, EPA asserted that regulating the efficiency of specific power plants is BSER, and that conversely, there was no legal authority under the CAA to support the CPP’s approach to BSER of regulating outside the fence-line. The question of EPA’s authority under the CAA to regulate an incentive-based regime, as opposed to a facility-specific permitting regime, was the basis of the many legal challenges to the CPP. The ACE Rule will also undoubtedly be challenged quickly by states, cities and environmental groups, and a primary question for the courts to resolve will be the scope of BSER under the CAA.

Background: How Did We Get Here?

The ACE Rule represents the culmination of decades of efforts to regulate carbon dioxide emissions in the United States. The evolving legal framework governing this issue began in 1999, when 12 states and several cities and environmental groups petitioned EPA requesting that it initiate the process of regulating carbon dioxide as a pollutant under the CAA. In 2003, EPA denied the petition, asserting that it did not have legal authority under the CAA to regulate carbon dioxide or similar GHGs as air pollutants.

The states (led by Massachusetts) appealed EPA’s decision to the US Court of Appeals for the District of Columbia Circuit, which upheld EPA’s position. The states then appealed to the US Supreme Court, which held in April 2007 that carbon dioxide and other GHGs are indeed air pollutants under the CAA and can be regulated by EPA if found to present a danger to health and welfare. See Massachusetts v. EPA, 549 U.S. 497 (2007). The Court ordered EPA to undertake an “endangerment finding” analysis to determine whether carbon dioxide and other GHGs contribute to air pollution that could harm public health and welfare.

Two years later, in December 2009, EPA released its endangerment finding, concluding that greenhouse gases, including carbon dioxide, endanger public health and welfare by causing more intense, frequent and long-lasting heat waves; worse smog in cities; longer and more severe droughts; more intense storms, hurricanes and floods; wildfires; the spread of disease; and a dramatic rise in sea levels. EPA’s 2009 endangerment finding served as the basis for EPA’s initial regulations limiting carbon dioxide emissions from motor vehicles and from certain individual large stationary sources, such as steel mill plants and iron manufacturing facilities. EPA did not, however, issue regulations governing carbon dioxide emissions from power plants.

Several years later, in June of 2013, President Obama announced a comprehensive climate change policy, which included reducing carbon dioxide emissions from coal-fired power plants and increasing renewable energy use. To implement this policy, President Obama directed EPA to issue regulations limiting carbon dioxide emissions from power plants.

Clean Power Plan and the Subsequent Challenges

In August 2015, EPA issued the CPP, the Obama Administration’s signature climate change regulation. The CPP was designed to regulate carbon dioxide to reach an overall 32% reduction in emissions from power plants by 2030 compared to 2005 levels. The CPP’s fundamental premise was that the BSER could focus on improving the operating efficiency of individual power plants, but that it also included increasing the use of wind, solar, nuclear, hydropower and natural gas.

EPA gave each state a specific emissions reduction target based on that state’s current circumstances, including energy generation mix and emissions profile. The CPP directed states to submit plans to EPA outlining how each state would meet the CPP’s overall goals and the state-specific targets. The CPP offered states tremendous flexibility and a wide range of choices in developing their plans to meet their reduction targets, including increasing the use of renewable energy, reducing demand, improving technology and energy efficiency, making use of carbon trading credits, and joining other states in multistate regional carbon reduction plans. Although the CPP’s compliance period was not set to begin until 2022, the rule called for states to submit their initial plans to EPA by September 2016 and final plans by September 2018, describing how they would implement the rule to meet their emission targets. If a state failed to present a plan to EPA, the agency would craft a plan for that state.

Parties—including 27 states, several labor unions, more than two dozen industry and trade groups, several nonprofit organizations, more than two dozen fossil-fuel-related companies, and local electric utilities—immediately filed lawsuits challenging the CPP. In all, more than 100 parties filed lawsuits challenging the CPP. Significantly, many parties filed briefs in support of the CPP, including a coalition of 18 states, 60 cities, municipal utilities and power companies, environmental organizations, medical groups, scientists, grid experts, business and labor groups, faith groups, the National League of Cities, the US Conference of Mayors, and members of Congress.

While several arguments were advanced in opposition to the CPP, the most widely cited was the inside the fence-line argument. The essence of this argument is that EPA’s authority under the CAA is limited to requiring individual facilities to adopt “performance” measures, such as installation of pollution control devices or efficiency technology, and that those performance measures can be enforced only through individual CAA permits. The opponents of the CPP argued that EPA is not authorized to use the CAA to regulate energy policy through broad concepts such as shifting from one type of energy source to another, or by use of regional plans or credit trading.

As the litigation on the CPP proceeded, those challenging the rule sought a judicial stay of the CPP’s implementation, on the grounds that the Trump Administration had promised to issue a replacement rule. The lower courts denied the stay; however, in 2016, the US Supreme Court overruled those decisions and granted the stay. This represented the first time in history where the Supreme Court stayed a regulation that was still being reviewed by lower courts.

Affordable Clean Energy Rule

In August 2018, the Trump EPA announced its intent to repeal and replace the CPP through the ACE Rule. 83 Fed. Reg. 44746 (Aug. 31, 2018). EPA issued the final ACE Rule on June 19, 2019. Like the CPP, the ACE Rule would allow states to develop plans to reduce carbon dioxide emissions from existing fossil fuel-fired power plants. But, unlike the CPP, the ACE Rule does not set state-specific numerical targets for GHG reductions; rather, it gives states wide latitude to establish their own performance targets. In the most striking departure from CPP, the ACE Rule adopts an exclusively inside the fence-line approach to BSER: performance standards established for power plants may reflect only those emission reductions that can be achieved on a plant-by-plant basis. Under the ACE Rule, states are not permitted to establish performance standards based on “outside the fence-line” measures, such as switching to cleaner energy sources, fuel switching, increasing demand-side energy efficiency, carbon capture and storage, or emissions trading.

In determining the plant-by-plant reductions, EPA issued a list of six “candidate technologies” that states can use to establish performance standards for individual power plants within their jurisdiction. The ACE Rule allows states to consider the cost, suitability and potential improvement from each technology, taking into account a plant’s age and remaining useful life. States will have three years to submit plans to EPA, which then has one year to review the plans.

Certain parties have suggested that GHG emissions will not be significantly reduced as a result of the ACE Rule. Although in EPA’s analysis of the rule it predicted a 35% reduction in carbon dioxide emissions from power plants below 2005 levels by 2030—exceeding the CPP’s 32% reduction by 2030—the agency’s analysis admits that very little of these reductions are attributable to ACE. Rather, EPA’s analysis predicts that emissions reductions will primarily be due to market forces driving the retirement of coal-fired power plants. As a measure of ACE’s direct effect on carbon dioxide emissions, when the proposed rule was published, EPA estimated that the ACE Rule could reduce 2030 carbon dioxide emissions by up to 1.5% from projected levels.

What’s Next?

CPP is officially repealed, and all litigation related to CPP is now mooted by the issuance of a final replacement rule. As with the CPP, challenges to the ACE Rule will certainly be filed very quickly, and will be based on the rule’s substance, as well as EPA’s rationale for repealing the CPP and dramatically changing its interpretation of BSER. Numerous Democratic state attorneys general and environmental groups are expected to file lawsuits in the coming weeks. For example, 19 states and several cities submitted a joint 150-page comment letter in opposition to the proposed ACE Rule; that comment letter provides a preview of the legal arguments we can expect to see.

House Democrats have also floated the idea of using the Congressional Review Act (which allows Congress to overturn federal regulations within 60 legislative days) to undo the final rule, but this effort would largely be symbolic due to an inability to override an inevitable veto from President Trump. The House may also opt to use its oversight power or inject a rider into the Interior-EPA spending bill to block funding for EPA to implement the ACE Rule.

The finalization of the ACE Rule represents the most recent phase of efforts to regulate GHG emissions. The durability and legality of the rule and its interpretation of the CAA will be tested in court, and any final resolution may still be years away.