On Monday, the Supreme Court’s decision in Utility Air Regulatory Group v EPA, No. 12–1146 (June 23, 2013) limited EPA’s authority to regulate greenhouse gases (“GHGs”) under the Clean Air Act, reversing in part and affirming in part a decision by the D.C. Circuit dismissing challenges to that authority.  In an opinion authored by Justice Scalia, the Supreme Court rejected EPA’s determination that a source’s emission of GHGs could serve as a “triggering” pollutant that would require industrial sources, like manufacturing facilities or power plants, to obtain prevention of significant deterioration (“PSD”) preconstruction permits or Title V operating permits.  The Court’s decision did, however, uphold EPA’s authority to require industrial sources that were required to obtain PSD or Title V permits by virtue of their emission of conventional pollutants—so-called “anyway” sources—to apply the best available control technology, or BACT, for the reduction of GHG emissions.  While the Supreme Court’s decision is one for the casebooks, five prominent aspects of the decision bear noting at this time.

First, the Court’s decision greatly clarifies the scope of its prior decision in Massachusetts v. EPA, 549 U.S. 497 (2007), holding that GHGs were “air pollutants” as defined by the Clean Air Act.  FollowingMassachusetts, EPA and many stakeholders had diametrically opposed views on the implications of that decision.  EPA’s view was that, as air pollutants subject to regulation under one part of the Clean Air Act, the Agency was obligated to regulate GHG under other parts of the Act.  Thus, under EPA’s interpretation of the Act, the inclusion of GHG standards for light-duty motor vehicles automatically triggered inclusion of GHG emissions in the Act’s preconstruction permitting program, which applies to major emitting facilities that have the potential to emit over 100 or 250 tons per year.  In contrast, many stakeholders argued that EPA had always interpreted the term “air pollutant” in the context of individual Clean Air Act programs, and that the inclusion in any given Clean Air Act program should be considered on a case-by-case basis.

In UARG, the Court rejected EPA’s view, holding that Massachusetts “does not strip EPA of authority to exclude greenhouse gases from the class of regulable air pollutants under other parts of the Act where their inclusion would be inconsistent with the statutory scheme.”  Slip Op. at 14.  Considering that Congress provided precise numeric thresholds for PSD and Title V applicability, and that treating GHGs as a threshold pollutant would potentially require the inclusion of millions of additional sources, the Court held that interpreting the term “air pollutant” as triggering PSD or Title V applicability would be antithetical to the Act’s structure and design.  Slip Op. at 17.  This holding mandates that EPA should regulate GHGs as a pollutant only where it makes sense to do so for a particular Clean Air Act program.

Second, even where the Supreme Court provided EPA with the regulatory flexibility to require “anyway” sources to implement BACT to control GHG emissions, it did not write EPA a blank check to do so.  The Court noted that while the Act’s language that “BACT is required ‘for each pollutant subject to regulation under this chapter (i.e., the entire Act)” expressed Congress’ intent that “anyway” sources apply to each regulated pollutant, the Court refused to endorse all aspects of EPA’s BACT approach and warned that EPA should not use the authority to require BACT as a means of imposing “an unreasonable and unanticipated degree of regulation.”  Slip Op. at 27-28.

Third, the UARG decision may require new action by the EPA even to implement the BACT requirement for “anyway” sources.  The Court held that “EPA may require an ‘anyway’ source to comply with the greenhouse-gas BACT only if the source emits more than a de minimis amount of greenhouse gases,” Slip Op. at 28, but EPA’s Tailoring Rule adopted a 75,000 tons per year of GHG emissions threshold for other, unlawful reasons.  See Slip Op. at 23 (“an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate”).  Accordingly, EPA will need to consider appropriate de minimis thresholds for GHG emissions even for anyway sources.  Id. at 23-24.

Fourth, the UARG decision will provide significant regulatory relief for sources that were included under EPA’s Tailoring Rule, but are not “anyway” sources otherwise required to obtain a PSD permit.  These types of sources were, by definition, not previously required to obtain PSD or Title V permits and were unused to the regulatory requirements of those programs.  As a result, these sources were major “winners” and other types of sources that had previously obtained PSD permits might seek to obtain synthetic minor-source permits that would likewise allow them to avoid GHG BACT limits.

Fifth, the UARG decision undermines the EPA’s recent regulatory proposal of existing source performance standards for fossil-fuel-fired power plants under Section 111(d) of the Act.  Although the UARG decision did not address Section 111(d), the Supreme Court expressed significant skepticism of any attempt by EPA to use the Clean Air Act to regulate GHG in a manner that differs fundamentally from how it used the Act to regulate conventional pollutants:   “When an agency claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy, we typically greet its announcement with a measure of skepticism.”  Slip op. at 19.  Given the transformative nature of EPA’s Section 111(d) proposal, which cannot be met through traditional end-of-pipe pollution controls but instead is premised on the presumption that Section 111(d) allows EPA to require states to reorganize their electric generation portfolios to emphasize renewable power generation and demand-side electricity consumption reductions, the UARG decision emphasizes the litigation risk that would attach to any decision by EPA to finalize its proposal without significant changes.