D.C. Circuit Hears Challenge to Clean Power Plan Regulations

On April 16, 2015, the United States Court of Appeals for the District of Columbia ("D.C. Circuit") heard oral arguments in two consolidated cases that challenge EPA's proposed greenhouse gas emission standards for existing coal-fired power plants (the "Clean Power Plan"). The two cases—Murray Energy v. EPA, No. 14-1112 (D.C. Cir.) and West Virginia v. EPA, No. 14-1146 (D.C. Cir.)—were heard by a three-judge panel comprising Judges Thomas Griffith and Brett Kavanaugh (appointed by George W. Bush) and Judge Karen Henderson (appointed by George H.W. Bush).

In both cases, Murray Energy and a group of states ("Petitioners") are challenging EPA's legal authority to promulgate the Clean Power Plan, arguing that EPA is precluded from regulating existing coal-fired power plants under Clean Air Act ("CAA") § 111(d). Petitioners contend that the Clean Power Plan represents an impermissible "double regulation" because EPA already regulates such facilities under CAA § 112 (the Mercury and Air Toxics Standards, or "MATS"). Articles in the Summer 2014 and Fall 2014 editions of The Climate Report have detailed the issues and arguments in each case. 

While the three-judge panel heard arguments on the merits of the double regulation issue, a significant portion of oral arguments was spent on whether the court had jurisdiction to block an agency rulemaking that had not been finalized. Petitioners argued that the Clean Power Plan should be blocked before EPA finalizes the rule because: (i) statements made by EPA—specifically regarding the issue of double regulation—indicate that EPA's final rule will substantively mirror the proposed rule; (ii) the Clean Power Plan is unprecedented in scope and will cause ongoing, irreparable harm to states that attempt to implement it; and (iii) the double regulation issue—if found in Petitioners' favor—would serve as an absolute prohibition against any EPA regulation of existing coal-fired plants. In defense of the proposed rule, lawyers for EPA emphasized to the three-judge panel that the Agency had invited comment on the Clean Power Plan, and that the Clean Power Plan should not be subject to litigation until EPA has issued a final rule that both incorporates and responds to comments it has received.

Members of the three-judge panel appeared hesitant to grant Petitioners' request for a writ blocking EPA's proposed rule, noting the extraordinary and difficult nature of issuing a decision on the contents of a rule that has yet to be finalized. When asked for legal precedent for the type of relief that Petitioners sought, Petitioners could not cite any case in which a court has similarly halted a proposed rulemaking. In contrast, the D.C. Circuit and the District Court for the District of Nebraska have both reached the opposite conclusion in recent cases, dismissing for lack of jurisdiction challenges to EPA's proposed rules for carbon emissions at new power plants. Nebraska v. EPA, 4:14-CV-3006, 2014 U.S. Dist. LEXIS 141898 (D. Neb. Oct. 6, 2014); Las Brisas Energy Ctr., LLC v. EPA, Order No. 12-1248, 2012 WL 10939210 (D.C. Cir. Dec. 13, 2012) (regarding EPA's since-withdrawn 2012 proposed rule). EPA cited both cases in its Response to Murray Energy's Petition, and counsel for the Environmental Intervenors briefly raised the Las Brisas case in oral arguments, but no member of the three-judge panel commented on either case. 

A decision in this case is expected from the three-judge panel this summer; however, the issues raised by Petitioners may be rendered moot prior to that time. On March 25, 2015, the U.S. Supreme Court heard oral arguments in Michigan v. EPA, a case in which EPA's MATS rulemaking is being challenged on the basis that EPA refused to consider costs in determining whether it was appropriate to regulate hazardous air pollutants emitted by electric utilities. If the Supreme Court overturns the MATS rulemaking, the D.C. Circuit could find that the Clean Power Plan no longer poses any threat of serving as a double regulation on existing coal-fired power plants. 

Regardless of the outcome of these consolidated cases, this litigation foreshadows the upcoming legal battle that will ensue once EPA finalizes the Clean Power Plan. 

FERC Declines to Expand Consideration of GHG Emissions in Project Approvals but Allows Recovery of Environmental Compliance Costs in Certain Cases

While the D.C. Circuit remanded a pipeline approval to the Federal Energy Regulatory Commission ("FERC") last year in Delaware Riverkeeper v. FERC for failing to consider the "cumulative environmental impacts" of new natural gas pipeline projects and expansions as required by the Natural Gas Act, FERC has not expanded the court's holding into the climate change arena. According to commenters in numerous certificate application proceedings, FERC has failed to consider or give sufficient weight to cumulative impacts on climate change in pipeline certificate proceedings. See, e.g., Comments of the Sierra Club, the Clean Air Council, and the Allegheny Defense Project. These commenters argue that FERC must consider each project's greenhouse gas emissions together with emissions from related shale gas development because midstream projects support upstream development. So far, FERC rejects this approach. 

In a May 2015 decision that is now being challenged at the D.C. Circuit, FERC rejected arguments by EarthReports and the Allegheny Defense Project that it failed to consider the climate change impacts of the Cove Point Liquefaction Project, which will enable the export of liquefied natural gas ("LNG") from an existing import terminal. 151 FERC ¶ 61,095 (2015). FERC reasoned that "the future development of upstream production is speculative and not reasonably foreseeable," and therefore falls outside the scope of the required analysis. Id. at P 57. In addition, it dismissed concerns about the impacts of end use consumption resulting from the project because "countries seeking to import natural gas will continue to negotiate and find natural gas supplies. Therefore, end use consumption of natural gas will likely occur regardless of whether this project is approved." Id. at P 58. Similarly, in April FERC rejected concerns about the climate change impacts of another new LNG and export project, stating that "the environmental impacts resulting from production activity induced by LNG exports to non-FTA countries are not 'reasonably foreseeable'" within the meaning of the rules governing environmental assessments. 151 FERC ¶ 61,012 (2015) at P 94.

FERC has further explained that it is unable to quantify a given project's impact on climate change because "[t]here is no standard methodology to determine how a project's incremental contribution to greenhouse gases would result in physical effects on the environment, either locally or globally." 149 FERC ¶ 61,255 (2014) at P 125. FERC notes that its view may change as the quality of available information improves. "Better information is emerging about fugitive methane emissions from natural gas production, both conventional and unconventional. When the quality of this information and its nexus with a proposed project allow for meaningful consideration, we will modify our analysis accordingly." 150 FERC ¶ 61181 (2015) at P 122.

Meanwhile, FERC recently reconsidered a longstanding policy that historically prevented natural gas pipelines from recovering through surcharges capital costs that the pipeline incurred to comply with environmental regulations. Referencing an Environmental Protection Agency ("EPA") White Paper on reducing greenhouse gas emissions from natural gas compression stations and an EPA Greenhouse Gas Reporting Program that includes methane monitoring for the natural gas industry, FERC recognizes that "pipelines may in the future face increased environmental monitoring and compliance costs, as well as potentially having to replace or repair existing natural gas compressors or other facilities." Cost Recovery Mechanisms for Modernization of Natural Gas Facilities, 80 Fed. Reg. 22,366, at 22,368 (Apr. 22, 2015). 

Under the Policy Statement, any proposal to recover pipeline modernization costs must satisfy five standards. First, FERC requires a recent review of the current rate, either through a rate case at FERC or through a collaborative effort between the pipeline and its customers. Second, the eligible costs must be limited to one-time capital costs incurred to modify the pipeline's existing system to comply with environmental regulations or safety standards. Third, the pipeline must protect its existing captive customers from cost shifts if the pipeline loses shippers or must offer increased discounts to retain business. Fourth, there must be a periodic review to make sure the surcharge and the pipeline's base rates remain just and reasonable. Finally, the pipeline must work collaboratively with shippers and get support for any surcharge proposal.

California Requires More Ambitious Reductions in Greenhouse Gas Emissions

On April 29, 2015, California Governor Jerry Brown issued an Executive Order setting stricter greenhouse gas emissions limits for the state. The Order directs state agencies with appropriate jurisdiction to implement measures to reduce GHG emissions to 40 percent of 1990 levels by 2030, in order to achieve the ultimate requirement (imposed by former Governor Schwarzenegger by Executive Order) of reducing GHG emissions by 80 percent from 1990 levels by 2050. The California Air Resources Board ("CARB") has not yet announced what regulations it will adopt or amend to achieve the required additional reductions. Governor Brown's January 2015 Inaugural Address provides some clues. In that Address, the Governor made three proposals for reducing GHG emissions by 2030: increase to 50 percent California's electricity derived from renewable sources, reduce the state's petroleum use in cars and trucks by up to 50 percent, and double the efficiency of existing buildings and make heating fuels cleaner. He also proposed reducing emissions of short-lived climate pollutants and managing farms, rangelands, forests, and wetlands to increase their storage of carbon. These proposals "align" with the new 40 percent reduction requirement, according to the Air Resources Board

CARB plans to update its Climate Change Scoping Plan by 2016, which will provide a framework for achieving the 40 percent reduction target. We would expect CARB to promulgate new regulations to comply with the governor's Executive Order as well. Senate Bill 32 is pending in the California Legislature. This bill, if adopted by the Legislature and signed by Governor Brown, would codify the required 80 percent reduction by 2050 into California law and would authorize CARB to set interim limits for 2030 and 2040.