On January 19, 2021, the U.S. Court of Appeals for the D.C. Circuit vacated and remanded the Trump administration’s Affordable Clean Energy Rule (“ACE Rule”), which itself was a rollback of the Obama administration’s Clean Power Plan (“CPP”); once again reshaping the heart of American climate policy. American Lung Association v. EPA, No. 19-1140 (D.C. Cir., Jan. 19, 2021). The CPP and ACE Rule both sought to regulate greenhouse gas (“GHG”) emissions from existing stationary sources but used highly divergent interpretations of the Clean Air Act (“CAA”) to do so. In making its ruling, the Court called the Trump Environmental Protection Agency’s interpretation of the CAA a “fundamental misconstruction” of the statute and provided a lengthy analysis of its findings. Id. at 16. The Court ultimately held that because the Environmental Protection Agency (“EPA”) based the ACE Rule “on an erroneous view of the law” (as opposed to having based the ACE Rule on a valid exercise of agency discretion), the court had no choice but to vacate the rule and remand it to the EPA for additional interpretation. Id. at 46. Because President Biden has described climate change as the “existential threat of our time,” the Biden EPA will likely use this opportunity to draft new rulemaking regarding the regulation of GHG emissions.

The CAA requires the EPA to regulate any new and existing stationary sources of air pollutants that “cause[], or contribute[] significantly to, air pollution” and that “may reasonably be anticipated to endanger public health or welfare.” 42 U.S.C. § 7411. For existing stationary sources of air pollutants (such as the coal-fired power plants at issue in the CPP and ACE Rule), a “cooperative federalism” approach exists between the states and the EPA to regulate those sources. In that system, EPA’s role is to determine the “best system of emission reduction” for a source category and to develop corresponding emissions guidelines, while the states’ role is to design and enforce standards that will achieve the emissions guidelines set by EPA.

The Obama-era CPP sought to combat GHG emissions by heavily regulating existing coal-fired power plants, while simultaneously incentivizing energy production from lower GHG emitting sources, including natural gas and renewable power generation. The CPP established a regulatory scheme predicated on statewide carbon budgets; approached the issue of climate change in a more holistic manner than previous attempts; and encouraged GHG emission reductions from the industry overall. The CPP did not require that the states select any of the approaches identified by EPA and allowed states to meet emissions guidelines as they saw fit.

In 2019, the ACE Rule repealed and replaced the CPP. In that rulemaking, the Trump administration argued that the CPP represented an impermissible overreach by the agency because EPA’s authority to regulate GHG emissions under the CAA was actually much more limited in scope. The EPA argued that “‘the plain meaning’ of Section 7411(d) ‘unambiguously’ limit[ed] the best system of emission reduction to only those measures ‘that can be put into operation at a building, structure, facility, or installation.’” American Lung Assoc. v. EPA at 33 (quoting ACE Rule, 84 Fed. Reg. at 32,523-32,524). The ACE Rule, therefore, eliminated all of the “beyond the fenceline” approaches offered by the CPP, and relied solely on heat-rate improvements applied at and to existing coal-fired power plants. The EPA stated that its interpretation of the CAA under the ACE Rule was “the only permissible interpretation of the scope of the EPA’s authority,” and that it must repeal and replace the CPP in order to correct the Obama administration’s error. ACE Rule, 84 Fed. Reg. at 32,535.

Because the Trump EPA based its actions on statutory interpretation, as opposed to agency discretion, the Court was limited in its analysis of the ACE Rule, writing:

Our task is to assess whether Section 7411 in fact compels the EPA’s new interpretation. And because “deference to an agency’s interpretation of a statute is not appropriate when the agency wrongly believes that interpretation is compelled by Congress,” we may not defer to the EPA’s reading if it is but one of several permissible interpretations of the statutory language. That is, the “regulation must be invalid, even though the agency might be able to adopt the regulation in the exercise of its discretion, if it ‘was not based on the agency’s own judgment but rather on the unjustified assumption that it was Congress’ judgment that such a regulation is desirable” or required.

Id. at 45-46 (internal citations omitted). The Court held that EPA’s reading of the CAA in the ACE Rule was not correct for three main reasons: 1) the plain language of the CAA does not include a source-specific caveat; 2) there is no grammatical basis for EPA’s reading of the statute; and 3) the statute does not constrain EPA to at-the-source controls only. The opinion cited Supreme Court precedent, legislative history, and grammar and logic conventions to arrive at its conclusions.

Climate change and the regulation of GHG emissions will be a central focus of environmental policy in the new Biden administration, so expect new rulemaking on this topic to be promulgated soon.