Implication of Michigan v. EPA for Challenges to the Clean Power Plan

On June 29, 2015, the U.S. Supreme Court issued its opinion in Michigan v. EPA, which may have serious implications for legal challenges to the Clean Power Plan ("CPP"), which seeks to cut carbon emissions by 30 percent from 2005 levels by 2030. In a 5-4 decision, the Court invalidated U.S Environmental Protection Agency ("EPA") regulations setting limits on mercury, arsenic, and acid gas emissions from coal-fired power plants ("MATS Rule" or "Rule") by determining that EPA should have considered the compliance costs imposed on utilities at the first stage of the Agency's regulatory analysis.

The Court's opinion is a solid endorsement of the need for agencies to engage in a cost–benefit analysis in deciding whether to regulate. The opinion is also another example of the Court's gradual shift away from paying broad deference to EPA decisions. See , e.g.,Utility Air Regulatory Group v. Environmental Protection Agency (rejecting EPA's request for deference to its interpretation of the Clean Air Act to require certain air permits for greenhouse gas emissions from stationary sources) and King v. Burwell (expressly refusing to apply Chevron deference to an agency's interpretation of the Affordable Care Act).

Given that the Court remanded the case to the D.C. Circuit, the MATS Rule will technically remain in effect while that court determines EPA's next steps. The form of the final D.C. Circuit mandate will make a difference for whether and when compliance with the Rule is ultimately required. For example, if the D.C. Circuit remands to EPA, the Rule may remain in effect while the Agency is considering the required costs and benefits. If the court vacates the Rule, however, EPA must begin the regulatory process again, and power companies may not have to comply with upcoming deadlines imposed by the Rule.

The Supreme Court's decision and the D.C. Circuit's ultimate resolution of the case also will have implications for electric and coal companies' legal challenges to the CPP. The CPP is promulgated by EPA under § 111(d) of the Clean Air Act. Two versions of § 111(d) of the Clean Air Act were signed into law—one from the Senate and one from the House—and critics of the CPP argue that one version forbids EPA from issuing carbon emissions standards under § 111(d) for sources already covered by other regulations like the MATS Rule.

If the MATS Rule is ultimately vacated and fossil-fuel-fired power plants are not subject to regulation under the hazardous air pollutant provisions of the Clean Air Act, critics of the CPP may lose one of their legal arguments against the new greenhouse gas regulations. Alternatively, if the D.C. Circuit remands to EPA and the MATS Rule remains in effect, the court's decision will preserve power companies' § 111(d) argument in their challenge of the Plan. Given the significant implications of the D.C. Circuit's upcoming decision, power companies and other challengers of the CPP are likely to press for a speedy resolution. Nevertheless, resolution may not occur before the challenges to the CPP unfold.

Additional information on the Court's decision in Michigan v. EPA can be found in our Jones Day Commentary, "Supreme Court Rejects EPA Mercury Rule for Power Plants and Raises Questions about Judicial Deference to Future EPA Rules."

EPA's Proposed Endangerment Finding for Aircraft Greenhouse Gas Emissions Opens Door to Additional Industry Regulation 

On June 10, 2015, EPA proposed an endangerment finding that it calls "a preliminary but necessary first step to begin to address GHG emissions from the aviation sector" under the Clean Air Act ("CAA"). EPA also issued an Advance Notice of Proposed Rulemaking("ANPR") proposing domestic adoption of the forthcoming International Civil Aviation Organization ("ICAO") rules, which are expected in February 2016. The proposed finding that greenhouse gas ("GHG") emissions from certain classes of aircraft engines contribute to climate change and endanger public health and welfare is in response to a citizen petition and exempts military and smaller aircraft, including most private aircraft.

It is not clear from the finding whether EPA is seeking to regulate only domestic operators or whether it will also attempt to regulate international parties operating in the United States. While the Obama administration likely will not have time to promulgate regulations before leaving office, once EPA finalizes the endangerment finding, the CAA requires the new administration's EPA to issue standards of some kind regulating aircraft emissions from the identified classes of engines. There has been industry concern that, because EPA must act on a finalized endangerment finding, if ICAO fails to meet its February 2016 deadline, EPA will be forced to promulgate its own rules, possibly leading to the piecemeal regulation ICAO's international efforts seek to avoid.

The aviation industry has been proactive in reducing carbon emissions. The International Air Transport Association ("IATA"), the world's largest aviation trade group, has set goals to stabilize net carbon dioxide emissions by 2020 and halve carbon dioxide emissions by 2050. In the area of technology, IATA believes that aviation biofuels can reduce carbon dioxide emissions by up to 80 percent over their full lifecycle. In the area of operations efficiency, Boeing, Alaska Airlines, the Port of Seattle, and FAA have worked together on the Greener Skies over Seattle program to reduce emissions by improving flight protocols, with the goal of using these protocols as a template for improving efficiency across the United States.

In its call for input, EPA is taking comment on when carbon standards should take effect, how stringent they should be, and whether standards should apply only to newly designed aircraft or to designs already in production. Comments are due by August 31, 2015, at 11:59 p.m., EST. A public hearing will be held in Washington, D.C. on August 11, 2015.

California Air Resources Board Aims to Reduce Short-Lived Climate Pollutants and Readopt the Low Carbon Fuel Standard 

The California Air Resources Board ("ARB") published a Concept Paper on May 7, 2015, proposing initial strategies for reducing emissions of short-lived climate pollutants ("SLCPs"). SB 605, signed into law by Governor Jerry Brown on September 21, 2014, directs ARB to develop a comprehensive strategy by January 1, 2016, for reducing SLCP emissions. SLCPs are agents with a relatively shorter lifetime in the atmosphere but a greater warming influence than carbon dioxide.

ARB's Concept Paper identifies three categories of SLCPs—methane, black carbon (particulate matter from combustion sources), and fluorinated gases—that ARB estimates may be responsible for up to 40 percent of global warming to date. The Concept Paper contains "initial ideas" for reducing SLCP emissions. ARB will publish an initial draft Strategy and hold public discussion forums in the summer of 2015, and it will present a draft Strategy to the Board during the fall of 2015.

In developing the SLCP strategy, ARB will consider, for example, how to reduce methane emissions from California's natural gas infrastructure and agricultural sector (particularly dairies), eliminate the disposal of organic material in landfills, and expand the use of wastewater treatment facilities to recapture renewable natural gas and soil amendments. Regarding black carbon, ARB will look to expand upon ongoing programs for reducing diesel particulate matter emissions in the freight transportation and other sectors, and black carbon emissions from burning biomass (such as wood stoves, agricultural wastes, and wild fires). ARB will consider regulations limiting or prohibiting the use of high-global-warming-potential fluorinated gases from new refrigeration and air conditioning units, insulating foams, and aerosols, and for reducing leaks from current and end-of-life units.

ARB also is moving toward readoption of the Low Carbon Fuel Standard ("LCFS"). In Poet, LLC v. ARB (2013), the California Court of Appeals ordered ARB to correct deficiencies in the rulemaking process and readopt the LCFS. ARB published a proposed regulation readopting the LCFS in December 2014 and an amended version in June 2015. The amendments would, among other things, streamline the process for recertification of certain fuel pathways previously certified under the original regulation and remove certain limitations on the sale or transfer of LCFS credits. ARB will hold a public hearing on the proposed amended regulation on September 24, 2015.