Ruling on Greenhouse Gas Emissions from Transportation Sector

On April 2, 2007, the Supreme Court ruled in a 5-4 decision (Massachusetts, et al. v. Environmental Protection Agency et al.) that the U.S. Environmental Protection Agency (EPA) had a duty to regulate carbon dioxide (CO2) and three other greenhouse gases (GHGs) as air pollutants under the federal Clean Air Act (CAA) unless it could find better support to justify its decision than it articulated to the court. The decision overturned EPA’s denial of a request filed by Massachusetts and 11 other states, as well as 13 environmental groups, to initiate a rulemaking that would regulate greenhouse gas (GHG) emissions from the transportation sector.

The majority opinion dismissed EPA’s argument that Massachusetts lacked standing to sue, finding that EPA’s refusal to regulate CO2 has led to "actual" and "imminent" harm, mainly through rising sea levels along the state’s coastline. The opinion also concluded that the Clean Air Act (CAA) gives EPA the authority to regulate emissions of CO2 and other GHGs from vehicles, and that the Department of Transportation’s (DOT) mandate to promote energy efficiency by setting mileage standards did not absolve EPA from its duty to protect public health and welfare under the CAA.

Furthermore, the majority opinion found that EPA’s "laundry list" of reasons was insufficient to justify its decision not to regulate GHGs, and said that EPA must tie its rationale more closely to the CAA. Particularly, it dismissed EPA’s argument that regulation of GHGs under the CAA would hamper the current administration’s efforts to address climate change in international negotiations as well as its contention that regulation of CO2 in the transportation sector would not result in significant emission reductions. Instead, the court concluded that EPA had a duty to "slow or reduce" global warming. The court remanded to EPA with instructions to "ground its reasons for action or inaction in the statute."

The majority opinion was written by Justice John Paul Stevens, who was joined by Justices Stephen Breyer, Ruth Bader Ginsburg and David Souter, and the court’s swing voter, Justice Anthony Kennedy. The majority said that "EPA can avoid taking further action only if it determines that greenhouse gases do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do."

The court’s four conservative justices—Chief Justice John Roberts and Justices Samuel Alito, Antonin Scalia and Clarence Thomas—dissented. The dissenters essentially argued that it is in the EPA’s discretion to determine whether GHG emissions are included or excluded in the CAA definition of "air pollutant" because some substances also are a primary component of the world’s atmosphere overall. In contrast, the majority opinion determined that "air pollutant" under the Clear Air Act is very broad and includes "all airborne compounds of whatever stripe," including compounds contributing to global climate change.

What’s next?

On April 4, 2007, EPA issued a draft decision that, if adopted as a final ruling, would allow California to adopt vehicle tailpipe standards restricting CO2 and other GHG emissions. Before the Supreme Court ruling, EPA had refused to grant California’s request for a waiver from the less stringent federal standards on the grounds that only DOT had the authority to regulate fuel economy standards. Ten other states have adopted the California standards, and another state is considering adoption of those standards.

With respect to federal standards, EPA may conduct the required analysis and decide that it is unable to conclude that sufficient "endangerment" exists to mandate regulation of GHG emissions, keeping with its apparent policy direction. A more likely course of action is for EPA to develop rules on its own. If EPA fails to to so, or if it moves very slowly, the states may force the issue by again petitioning the EPA directly to promulgate rules in this area. In addition to regulatory developments at the state and federal level, litigation exists that challenges state authority to regulate GHG emissions. In one important lawsuit filed in California, the auto industry claims that implementation of the California tailpipe standards is improper because only the federal government has authority to regulate GHG emissions.

While the Supreme Court’s decision is viewed as a critical moral victory for proponents of GHG regulation and as a mandate for EPA to promulgate rules on CO2 and other GHGs in the near future, it may not do much to change the pace of the climate change debate on Capitol Hill. The ruling does not resolve any of the GHG rule details or suggest how GHG tailpipe standards will mesh with emerging legislation initiatives for a possible national GHG cap and trade strategy to address global climate change.

Because of the variety of possible reactions from EPA and the states, the U.S. Congress may step in to ensure a comprehensive, federal initiative to address climate change. However, Congress may instead "wait and see" what the EPA decides to do in terms of regulating GHGs, a course of action that those opposed to such regulation are likely to espouse. Even if the EPA were to initiate a rulemaking soon, it is difficult for the regulatory process to conclude before the end of the current administration. If Congress does not adopt any major legislation on climate change, it still may push ahead with renewable power and energy efficiency legislation. There is much to watch and analyze in the coming months.

Related lawsuits are pending in California, Rhode Island and other states. These courts apparently will move forward now that the Supreme Court issued the Massachusetts v. Environmental Protection Agency decision. For example, California has a lawsuit alleging that major automakers are creating a public nuisance with their GHG emissions. New York has a similar GHG "nuisance" suit (joined by other states in the region) against energy companies, while others claim the EPA failed to regulate CO2 from new coal-fired power plants and industrial boilers.

Ruling on Duke Energy and Coal-Fired Power Plants

Also on April 2, 2007, the Supreme Court vacated a U.S. Court of Appeals for the Fourth Circuit ruling, which determined that Duke Energy did not violate the CAA when it upgraded coal-fired power plants during the last 20-plus years (Environmental Defense et al. v. Duke Energy Corp, et al.). In a CAA appeal, the court reversed, finding against Duke Energy, with the justices unanimously supporting efforts to force the installation of pollution control equipment on older coal-fired power plants. The court remanded the ruling to the lower court for reconsideration.

The court examined whether Duke Energy had violated the "prevention of significant deterioration" (PSD) clause of the CAA, thus sponsoring large increases in air pollution from coal-fired power plants in South and North Carolina. The Supreme Court ruled that the appellate court’s decision was wrong as it "amounted to invalidation of the PSD regulations."

The decision upholds legal claims by the United States and several environmental organizations such as Environmental Defense (together, the plaintiffs) that Duke Energy failed to obtain proper permits before undertaking the work and that the upgrades resulted in more air pollution. On remand, Duke Energy likely will argue in part that the court’s ruling fails to address whether EPA provided sufficient notice that it was reinterpreting and strictly enforcing its New Source Review (NSR) and whether Duke Energy had conducted "routine maintenance" at the power plants.

Duke Energy successfully argued in the lower courts that NSR applies only if a power plant’s hourly emissions rate increased (e.g., its coal power plants were allowed to run longer under various rules), while the plaintiffs argued that emissions should be measured on an annual basis. In the April 2 ruling, the Supreme Court held that ambiguity in the NSR rules allows EPA to interpret PSD as it sees fit.

The Supreme Court’s decision will likely affect other utilities involved in litigation, including such entities as the Tennessee Valley Authority, Cinergy Corp., American Electric Power Corp., Allegheny Energy Corp. and Southern Company.