In a landmark 5-4 decision, the US Supreme Court has significantly pushed the EPA to regulate greenhouse gas (GHG) emissions under one facet of the Clean Air Act. The Supreme Court's April 2, 2007 decision in Massachusetts v. Environmental Protection Agency held not only that the EPA has the authority to regulate GHG emissions from new motor vehicles, but that the Clean Air Act requires it to regulate them if it finds that those gases, in the words of the Clean Air Act, "may reasonably be anticipated to endanger the public health or welfare." In reaching that determination, the Court resolved three key questions: (1) Who may challenge decisions by the EPA not to regulate GHG emissions? (2) Does the EPA have the authority to regulate greenhouse gases under the Clean Air Act? and (3) May the EPA decline to exercise its discretion to regulate GHG emissions?

Background

This case stems from a 1999 petition requesting that the EPA set regulatory standards for four GHG compounds (including CO2) emitted by motor vehicles. The petition asserted that such emissions were "air pollutants" that "may reasonably be anticipated to endanger public health or welfare" and that must be regulated under Clean Air Act §202(a)(1) due to their climate change effects. The EPA rejected that petition, concluding that: (1) it had no authority to regulate GHG emissions to address concerns about climate change and (2) even if such authority existed, it would exercise discretion not to regulate due to the conflicting scientific information on climate change and because regulation could adversely affect the Administration's ongoing policies and programs. Twelve states, three cities and numerous environmental organizations challenged those determinations before the D.C. Circuit Court of Appeals, which issued a sharply divided opinion that was appealed to the Supreme Court.

Legal Analysis

The majority opinion, authored by Justice Stevens (and joined by Justices Souter, Ginsburg, Kennedy and Breyer), addressed the three primary issues as follows:

Standing: Granting special status for Massachusetts as a quasi-sovereign, the Court found that the EPA's "steadfast refusal to regulate greenhouse gas emissions presents a risk of harm to Massachusetts that is both 'actual' and 'imminent.'" The Court also concluded that there was a "substantial likelihood that the judicial relief requested" – regulation of tailpipe GHG emissions – would "reduce that risk" in a nontrivial way. Thus, the Court concluded that Massachusetts (but not necessarily any other petitioner) had standing to sue.

Authority to Regulate: The high court held that the Clean Air Act's "sweeping definition" of the term "air pollutant" embraced "all airborne compounds of whatever stripe" including compounds contributing to climate change. In contrast, the four dissenting justices would have found that the EPA had the discretion to determine whether GHG emissions were included or excluded from the definition of "air pollutant," since some such substances permeate and are central components of the world's atmosphere.

EPA Discretion: Finally, the Court sharply limited the EPA's discretion to withhold regulation of GHG emissions under Clean Air Act §202(a)(1). The five-justice majority concluded 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 then held that "EPA offered no reasoned explanation for its refusal to decide whether greenhouse gases cause or contribute to climate change." While the Court stopped short of expressly requiring regulation, it remanded to the EPA with instructions to "ground its reasons for action or inaction in the statute."

Key Implications

While little immediate change is expected, the Massachusetts v. EPA decision has dynamic regulatory and political implications. From a regulatory standpoint, the rulemaking petition will be remanded back to the EPA for a determination regarding whether GHG emissions contribute to climate change. Given the scientific information currently available and the conflicting political views, the EPA may well conduct the required analysis and conclude that it is unable to make a finding that sufficient "endangerment" exists to require the regulation of GHG emissions. Regardless of any such conclusion, the next administration may have different views and would have clear authority to adopt a different position under a thorough regulatory analysis. Furthermore, we expect that states will file petitions for rulemaking to govern GHG emissions at power plants, manufacturers and other stationary sources. Related permit challenges by environmental organizations are also expected.

Even absent an immediate regulatory impact, the Supreme Court's ruling will significantly alter the ongoing legislative and political debate on climate change. For example, there is likely to be a call for immediate, comprehensive climate change legislation to avoid the creation of piecemeal regulation. However, the true impact may well be to slow the climate change debate in Congress by permitting Congress the option of reacting to (and critiquing) potential EPA climate change analysis rather than establishing a direct, immediate regulatory structure.

Conclusion

The rapidly building emphasis on climate change regulation promises to have a significant impact on all business sectors through direct regulation, increased public scrutiny and increased energy and supply costs. Squire Sanders lawyers have developed considerable insight into the rapidly evolving legal, regulatory and political environment shaping the evolution of the climate change debate and would be pleased to discuss the strategic implications that climate change may have on your business. If you have questions or concerns, please contact any of the Squire Sanders environmental lawyers listed in this Alert or the one with whom you are most familiar.