On June 30, 2022, the U.S. Supreme Court reversed a D.C. Circuit decision vacating U.S. EPA’s Affordable Clean Energy rule, which replaced the Obama administration’s Clean Power Plan (“Plan”). Because the Circuit Court’s decision also vacated the repeal of the Plan and, thus, put the Plan back into legal effect, the Supreme Court determined that the validity of the Plan was appropriately before the Court for review.

Section 111 of the Clean Air Act (CAA) – the New Source Performance Standards regulatory program – requires U.S. EPA to identify “categories of stationary sources” that it determines “cause, or contribute significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare.” For each such category of sources, U.S. EPA must then promulgate “Federal standards of performance for new sources.” A “standard of performance” is one that “reflects the degree of emission limitation achievable through the application of the best system of emission reduction [BESR] which (taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.” Under CAA Section 111(d), once U.S. EPA has established standards addressing emissions of a particular pollutant for new sources, it must then address emissions of that same pollutant from existing sources.

U.S EPA’s promulgation of the Plan in 2015 established such performance standards for carbon dioxide emissions from new and existing power plants. Notably, the BESR that U.S. EPA established for existing coal-fired power plant comprised of three “building blocks”. The first building block required “heat rate improvements” to burn coal more efficiently. The second and third building blocks, which were the focal points of the Supreme Court’s review, required “generation shifting from higher-emitting to lower emitting” electricity production operations in order to reduce the percentage of electricity generated by coal plants from 38% to 27% by 2030. The Plan provided three options for existing plants to satisfy the “generation shifting” obligations: (1) reduce its own production; (2) build (or invest in an existing) natural gas plant, wind farm, or solar installation; and (3) purchase emission credits as part of a cap-and-trade program. The BESR for existing sources under the Plan effectively imposed emission limits established that were more stringent than the emissions limits for new sources.

The issue before the Supreme Court was whether restructuring the Nation’s overall mix of electricity generation, to transition from 38% coal to 27% coal by 2030, can be the “best system of emission reduction” within the meaning of CAA Section 111. The Court invoked the “major questions” doctrine, which requires large-scale regulatory actions with broad economic impacts to be derived from clear express grants of statutory authority and be grounded in vague and obscure provisions of law, and held that “it is not plausible that Congress gave EPA the authority to adopt on its own such a regulatory scheme in Section 111(d). A decision of such magnitude and consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body." The Court found no such clear delegation of authority in CAA Section 111(d), and noted that the BESR established under the Plan was significant departure from prior exercises of U.S. EPA’s authority under Section 111(d). The Court explained that, prior to the Plan, U.S. EPA had always set emissions limits under CAA Section 111 “based on the application of measures that would reduce pollution by causing the regulated source to operate more cleanly . . . It had never devised a cap by looking to a “system” that would reduce pollution simply by “shifting” polluting activity from dirtier to cleaner sources.” The Court highlighted that under the Plan, “by design, there is no control a coal plant operator can deploy to attain the emissions limits established by the Clean Power Plan.”

While the Supreme Court’s decision in West Virginia v. EPA was specific to the “generation shifting” regime employed under the Clean Power Plan, the decision may have broader implications with respect to limiting U.S. EPA’s authority under CAA Section 111(d). For example, U.S. EPA recently proposed Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources in the Oil and Natural Gas Sector (86 FR 63110) (“NSPS OOOOc”), establishing the first nationwide emissions guidelines for GHGs (in the form of methane limitations) for the Crude Oil and Natural Gas source category. Under NSPS OOOOc, certain existing oil/natural gas production sources will be required to retrofit control technology to achieve methane emissions reductions equivalent to that of new sources, the installation of which may be technically or economically infeasible such that existing sources will no longer be able to operate. The Supreme Court considered a similar scenario in footnote 3 of its decision in West Virginia v. EPA, explaining “Section 111(d) empowers EPA to guide States in establishing standards of performance for existing sources, not to direct existing sources to effectively cease to exist.”