On June 30, 2022, the United States Supreme Court ruled in West Virginia v. EPA, 142 S. Ct. 2587 (2022), a case involving hotly contested legal questions about the scope of EPA’s authority to control greenhouse gas (“GHG”) emissions from existing power plants under Section 111(d) of the Clean Air Act. Siding with the petitioners, the Supreme Court held 6 to 3 that the “generation shifting” approach in the Clean Power Plan exceeded the powers granted to EPA by Congress, though the Court did not address the related issue of whether EPA may only adopt measures applied at the individual source. Of broader significance in administrative law generally, the Court also expressly grounded its opinion in the Major Questions Doctrine (“MQD”).
In the short time since the ruling was issued, the case has already had ramifications beyond the Clean Air Act, with other litigants citing the case in other contexts. West Virginia v. EPA also likely will generate debate as to whether EPA can seek to curb GHGs through methods other than generation shifting; for example, through setting primary or secondary national ambient air quality standards (“NAAQS”). The Court’s opinion did not expressly answer that and other similar questions, resulting in significant debate about the extent to which EPA may use less direct approaches to cut back on power sector GHG emissions.
The Obama Administration’s Clean Power Plan (“CPP”) adopted a broad view of EPA’s Section 111(d) authority, requiring the electric power sector to shift generation away from fossil fuels to renewables. The CPP was stayed by the Supreme Court in 2016 and never went into effect. For its part, the Trump Administration’s Affordable Clean Energy (“ACE”) Rule adopted a narrow view of Section 111(d), finding that it only allowed the Agency to set GHG emission standards based on pollution control measures that could be applied at or to the source.
On January 19, 2021, the D.C. Circuit issued a judgment vacating and remanding the ACE Rule. See American Lung Ass’n, et al. v. EPA, 985 F.3d 914 (D.C. Cir. 2021). The D.C. Circuit found that Section 111(d) of the Clean Air Act does not require the best system of emission reduction (“BSER”) to be limited to only those measures that can be applied at and to an individual source. Because the Trump EPA expressly based its repeal of the CPP and promulgation of the ACE Rule on the premise that Section 111(d) limits BSER to such “behind-the-fenceline” measures, the D.C. Circuit held that the CPP Repeal and the ACE Rule must be vacated. Id. at 995.
On October 29, 2021, the Supreme Court granted review of the case, specifically agreeing to hear the parties’ arguments on whether EPA’s Section 111(d) authority allows the Agency to regulate the electric generating industry in a manner as broad as the CPP. Oral argument occurred on February 28, 2022, and the Supreme Court rendered its 6 to 3 decision on June 30, 2022.
Chief Justice Roberts authored the majority opinion, which was joined by Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett. Justice Kagan filed a dissenting opinion, joined by Justices Breyer and Sotomayor.
At the outset of the opinion, Chief Justice Roberts framed the core issue before the Court as “whether [the CPP’s] broader conception of EPA’s authority is within the power granted to it by the Clean Air Act.” The majority’s answer was “no.”
The Five Big Questions in West Virginia v. EPA
The majority opinion addressed five significant questions:
1. Is there standing to hear the case?
The Court held that West Virginia’s challenge remained justiciable under Article III of the Constitution. The Biden Administration had hoped—not unreasonably so—that the Court would decide to forego further review on the basis that EPA is no longer seeking to implement the CPP or the ACE Rule. Yet the Court found that, because EPA’s regulation on the same basis is expected to recur, the case was not mooted by the Biden Administration’s decision to no longer pursue ACE or CPP.
The Court found that “at least one group of petitioners—the state petitioners—are injured by the Court of Appeals’ judgment.” 142 S. Ct. at 2606. The Court found that the D.C. Circuit’s judgment purported to bring the CPP back into legal effect, and thus inflicted a cognizable injury upon the petitioner States. That is, the reinstatement of the CPP would injure the States since it would require them to regulate power plant emissions more stringently within their borders.
In the Court’s view, since EPA’s mootness argument relied upon EPA’s “voluntary conduct” not to reinstate the CPP, EPA had not carried the “heavy” burden of showing that the Section 111(d) challenge was moot. The Court noted that EPA never disclaimed an intent to “reimpose emissions limits predicated on generation shifting” and “vigorously defend[ed]” the legal basis for the CPP. Id. at 2607.
2. Does the Court think Section 111(d) is clear and unambiguous?
Section 111(d) of the Clean Air Act, in combination with definitions found in Section 111(a), authorizes EPA to set “standards of performance for any existing source” based on limits “achievable through the application of the best system of emission reduction” that has been “adequately demonstrated.” 42 U.S.C. § 7411(d). Unlike the approach in the CPP, which relied on agency deference, the ACE Rule took a “plain meaning” approach, finding that Section 111(d) is capable of only one “permissible reading.” The Court was asked to address whether the relevant language of Section 111(d) is “clear” and “unambiguous” (and thus, subject to just one interpretation) or ambiguous enough to support a variety of agency interpretations that may be entitled to deference. Specifically, the issue the Court had to decide was whether restructuring the nation’s overall mix of electricity generation—which the CPP sought to transition from 38 percent coal to 27 percent coal by 2030—can be the “best system of emission reduction” within the meaning of Section 111.
In its ruling, the Court did not tackle this question head-on. Instead, the Court focused on the MQD analysis, as discussed below, and chose not to address whether “the statutory phrase ‘system of emission reduction’ refers exclusively to measures that improve the pollution performance of individual sources, such that all other actions are ineligible to qualify as the BSER.” Id. at 2615.
Thus, several key aspects regarding the nature and scope of EPA’s authority under Section 111(d) have been left unaddressed, though the broad power to require generation shifting is now clearly prohibited. The Court simply found that the BSER approach adopted by EPA in the CPP was outside of the authority granted to EPA by Congress under Section 111(d). Presumably, EPA would be left to decide, at least initially, how much authority remains for it in the aftermath of the decision.
3. Does the Supreme Court rely upon the “Major Questions Doctrine?”
Perhaps most significantly for the future of administrative law (even beyond the Clean Air Act), the Supreme Court for the first time expressly adopted the “Major Questions Doctrine” and found that this case squarely fell within the MQD framework. West Virginia had argued that the ACE Rule’s plain reading approach is reinforced by the MQD, which requires an agency to have a clear statutory authorization from Congress to decide an issue of major national significance. The Court considered the CPP to “substantially restructure the American energy market,” thereby implicating such an issue. In its ruling, the Court placed the challenge to the CPP in the context of several other cases involving “extraordinary circumstances” where agencies have asserted “highly consequential power beyond what Congress could reasonably be understood to have granted,” including cases reviewing an agency’s asserted power to regulate tobacco products and the CDC’s attempt to institute a nationwide eviction moratorium. Id. at 2609. In so doing, the Court firmly cemented that it will not lightly presume delegations of broad authority where that delegation is not clearly given by Congress.
For the Court, EPA’s attempt to employ Section 111(d) for purposes of “restructuring the Nation’s overall mix of electricity generation” required review under the MQD framework. The Court explained that it would employ the MQD framework for reviewing the legality of statutes where the “history and the breadth of the authority that [the agency] has asserted, and the economic and political significance of that assertion, provide a reason to hesitate before concluding that Congress meant to confer such authority.” Id. at 2608 (internal quotations omitted).
In the Court’s words, “[e]xtraordinary grants of regulatory authority are rarely accomplished through ‘modest words,’ ‘vague terms,’ or ‘subtle device[s].’” Id. at 2609. Where an agency asserts authority in this manner, the Court will require the agency to “point to clear congressional authorization for the power it claims.” Id. (internal quotations omitted). The Court could not find such authorization; to the contrary, the Court asserted that “[t]he last place one would expect to find [such significant regulatory power over the nation’s electricity system] is in the previously little-used backwater of Section 111(d).” Id. at 2613. This conclusion was, according to the Court, reinforced by the reality that Congress never adopted—and even expressly rejected—legislative proposals to create programs similar to the CPP. See id. at 2614.
For as long as West Virginia v. EPA is on the books, it will be cited for this powerful principle of administrative law. Moreover, the Court distinguished between so-called “ambiguity canons” of interpretation, which “merely instruct courts on how to choose between equally plausible interpretations of ambiguous text,” and the kinds of interpretative questions raised in the MQD context. Id. at 2620 n.3. The Court found that this case was proper for application of MQD principles, not the traditional ambiguity principles like those found in Chevron (where agencies receive deference for reasonable interpretations of ambiguous statutes). Though the Court expanded the precedential power of the MQD, it did not provide much guidance to the lower courts on how to employ the doctrine. Litigants will certainly attempt to use the MQD more aggressively to advance their positions, arguing that broad delegations of authority to agencies should be struck down under the principles outlined in this case. (Even before the Court’s ruling, litigants tried to deploy the MQD to, for example, strike down the Biden Administration’s effort to use the Interim Social Cost of Carbon metric in rulemakings.)
4. Is EPA’s Section 111(d) authority limited to measures applied at or to individual power plants?
In the ACE Rule, EPA adopted an interpretation that Section 111(d) was limited to those measures “that can be put into operation at” a particular facility, such as heat rate improvements at a coal-fired power plant, i.e., “within the fenceline” measures. As noted above, in its ruling, the Court said that it was not deciding whether “the statutory phrase ‘system of emission reduction’ refers exclusively to measures that improve the pollution performance of individual sources, such that all other actions are ineligible to qualify as the BSER.” In declining to review that question, the Court found it “pertinent to [the Court’s] analysis that EPA has acted consistent with such a limitation for the first four decades of the statute’s existence.” Id. at 2615. While the Court did not explicitly decide this question, it did suggest that Section 111(d) regulations extending “beyond the fenceline” might be less likely to withstand judicial scrutiny going forward.
5. Does the Court leave the door open for EPA to adopt system-wide measures like averaging and emissions trading?
Related to the “fenceline” question discussed above, the Court was also expected to address whether Section 111(d) allows EPA to require performance standards based on emissions averaging and trading programs. The state challengers argued that Congress explicitly added language to the statute allowing cap-and-trade under other Clean Air Act programs, but it did not do so in Section 111. The United States and the power company respondents, however, argued that trading programs are “adequately demonstrated” in the power sector. As discussed above, the Court did not specifically address whether emissions averaging or trading programs that do not rely on generation shifting are within EPA’s authority under Section 111(d), presumably leaving this question for EPA to grapple with in later rulemakings.
The Court did, however, observe that the cap-and-trade scheme for reducing sulfur dioxide emissions under Title IV of the Clean Air Act—i.e., the Acid Rain Program—is described by the statute as an “emission allocation and transfer system.” Id. at 2614. The Court reasoned that, unlike Section 111, the Acid Rain Program contemplates trading systems as a means of “complying with an already established emissions limit” set directly by Congress. Id. at 2615. Conversely, Section 111 requires EPA to “come up with the cap itself.” Id. The Court held that “[i]t is one thing for Congress to authorize regulated sources to use trading to comply with a preset cap, or a cap that must be based on some scientific, objective criterion, such as the NAAQS. It is quite another to simply authorize EPA to set the cap itself wherever the Agency sees fit.” Id. Therefore, the Court may have left the door open for EPA to at least consider adopting some system-wide measures such as averaging and emissions trading, as long as the trading systems are designed to comply with an already-existing emissions limit. Whether that approach would also withstand judicial scrutiny is already subject to much debate.
Justice Gorsuch’s Concurrence
Justice Gorsuch, joined by Justice Alito, filed a concurring opinion to offer some additional observations on the Major Questions Doctrine. Comparing the MQD to other long-established judicial canons such as the presumption against retroactive liability and the doctrine of sovereign immunity, Justice Gorsuch wrote that the MQD “works in much the same way to protect the Constitution’s separation of powers.” Id. at 2617 (Gorsuch, J., concurring). Gorsuch invoked the idea that Congress, not expert agencies, should pass laws through bicameralism and presentment to ensure “that any new laws would enjoy wide social acceptance. . . [p]ermitting Congress to divest its legislative power to the Executive Branch would ‘dash [this] whole scheme.’” Id. at 2618. As such, Gorsuch argued, legislation “would risk becoming nothing more than the will of the current President, or, worse yet, the will of unelected officials barely responsive to him.” Id.
Gorsuch traced the history of the MQD to at least 1897, when the Court confronted a case involving the Interstate Commerce Commission, which argued that Congress had endowed it with the power to set carriage prices for railroads. According to Gorsuch, the Court deemed that claimed authority “a power of supreme delicacy and importance,” and the Court therefore required a “clear and direct” statement from Congress to delegate such power. Gorsuch then traced the application of the MQD to the modern day, concluding that the Court has applied the MQD “in all corners of the administrative state.” Slip op. at 2619 (Gorsuch, J., concurring).
Noting a gap in the Court’s guidance to lower courts as to when the MQD doctrine should apply, Gorsuch tried to supply his own. First, he argued, the doctrine applies when an agency claims the power to resolve a matter of great “political significance” or when it tries to end an “earnest and profound debate across the country.” According to Gorsuch, such matters may be more easily identified when Congress has “considered and rejected’” bills authorizing something akin to the agency’s proposed course of action.” Id. at 2621. Second, Gorsuch stated that an agency must point to clear congressional authorization when it seeks to regulate “a significant portion of the American economy” or when it requires “billions of dollars in spending” by private persons or entities. Third, Gorsuch argued that the MQD may apply when an agency seeks to “intrud[e] into an area that is the particular domain of state law.” Gorsuch said that, while these three “triggers” may not be exclusive, they compose the three primary signs that the Court has found significant in applying the MQD in the past.
Employing the three “triggers,” Gorsuch found the CPP to be a “relatively easy case for the doctrine’s application.” Id. He argued that EPA’s claim of authority to force coal- and gas-fired power plants to cease operating altogether is a “vitally important” question that Congress had debated frequently, with no legislative outcomes. Further, he argued that the electric power sector is among the largest in the U.S. economy, thus creating another question of great importance. As such, Gorsuch argued that only “the people’s elected representatives in Congress” can make such sweeping policy decisions, not EPA.
Justice Kagan’s Dissent
Writing in dissent, Justice Kagan, with whom Justices Breyer and Sotomayor joined, contended that the Court’s decision “strips the [EPA] of the power Congress gave it to respond to ‘the most pressing environmental challenge of our time.” Id. at 2626 (Kagan, J., dissenting). Noting that climate change’s “causes and dangers are no longer subject to serious doubt,” Justice Kagan argued that Congress charged EPA with addressing the potentially “catastrophic harms” of climate change, “including through the regulation of fossil-fuel-fired power plants.” Id. at 2626-27.
Justice Kagan claimed that the Court’s majority had improperly issued an advisory opinion “on the proper scope of the new rule EPA is considering.” Id. at 2628. Kagan noted that, due to the Court’s stay of the implementation of the CPP and the Trump Administration’s repeal of the rule, the CPP never went into effect. Further, Kagan explained, the Biden Administration announced that, instead of implementing the CPP, it would commence a new rulemaking. Kagan contended that in issuing its opinion, the Court “determined to pronounce on the legality of the old rule anyway,” stating that “this Court could not wait . . . to constrain EPA’s efforts to address climate change.” Id.
Writing that the “limits the majority now puts on EPA’s authority fly in the face of the statute Congress wrote,” id., Kagan claimed that Congress did, in fact, broadly authorize EPA in Section 111 to select the BSER for power plants. Justice Kagan reasoned that generation shifting is not only a “system” under Section 111, but that all sides agree it is the “most effective and efficient way to reduce power plants’ carbon dioxide emissions.” Id. Justice Kagan employed the dictionary definition of “system” to demonstrate that Congress purposely “used an obviously broad word . . . to give EPA lots of latitude in deciding how to set emissions limits.” Id. at 2630. Justice Kagan explained that cap-and-trade programs are clearly “systems” that should be within EPA’s authority under Section 111(d). She also spoke to the majority’s claim that Congress would not have wanted EPA to dictate the mix of energy sources nationwide, asserting that “[e]very regulation of power plants ‘dictat[es]’ the national energy mix to one degree or another.” Id. at 2637.
Further, she claimed that unlike other provisions in the Clean Air Act, Section 111(d)’s text and legislative history do not restrict EPA’s authority to regulate through technology-based limitations, signaling Congress’s intent that the provision grant broad powers to EPA to regulate stationary sources. In addition, Justice Kagan disputed the majority’s view that Section 111(d) is an “ancillary provision” or “statutory backwater,” instead calling it a “backstop” that provides a critical function: ensuring the regulation of pollutants like carbon dioxide that are not covered under other Clean Air Act programs.
Justice Kagan then turned to the majority’s use of the MQD, criticizing the majority for “announc[ing] the arrival” of this doctrine through mischaracterizing cases that purported to employ the doctrine and pointing out that the Court had never before even used the term “major questions doctrine.” Id. at 2633-34. The cases the majority used to justify the doctrine, Kagan explained, “simply insisted that the text of a broad delegation, like any other statute, should be read in context, and with a modicum of common sense.” Id. at 2633. In those cases, the Court only struck down agency actions either where the agency was operating “far outside its traditional lane, so that it had no viable claim of expertise or experience,” or the agency’s action “would have conflicted with, or even wreaked havoc on, Congress’s broader design.” Id. Kagan argued that neither were true—the CPP fit well within EPA’s wheelhouse and the CPP addressed major issues of environmental policy that Congress wanted EPA to address through the Clean Air Act. Kagan concluded her dissent by criticizing the majority for appointing itself—instead of Congress or the expert agency—as the decision-maker on climate policy. She concluded, “I cannot think of many things more frightening.” Id. at 2644.
How Litigants are Using West Virginia v. EPA
In the six weeks since the Court ruled, litigants have already begun using West Virginia v. EPA for the proposition that significant decisions—so-called “major questions”—can only be decided by an agency when there is a clear congressional statement supporting that action. The implications of this case extend beyond federal environmental law. For example, on July 14, 2022, the State of Texas filed a lawsuit challenging President Biden’s Executive Order 14076 (“Protective Access to Reproductive Healthcare Services”), citing West Virginia v. EPA and contending that the order would “override individual states’ abortion laws.” State courts also have begun considering the implications of West Virginia v. EPA in other non-environmental contexts. The Supreme Court of Arizona, for example, cited the case to say that a state statute authorizing compensatory time off to law enforcement personnel did not delegate authority to decide overtime requirements for such personnel to a state agency. See Roberts v. State, No. CV-21-0077-PR, 2022 WL 2560002, at *8 (Ariz. July 8, 2022).
It remains to be seen how litigants will cite West Virginia v. EPA in environmental contexts. Undoubtedly, many will try to use the case to curb EPA and other agencies’ regulatory powers. Some likely will test the limits of what does, or does not, constitute a “major question,” and it will be unsurprising to see litigants use this case to challenge federal and state environmental regulations, alleging that a whole host of issues warrant judicial review under the MQD. MQD concerns have been raised recently in comments opposing climate-related disclosure proposals by the U.S. Securities and Exchange Commission, as well as similar proposals by other federal financial regulatory agencies. Some have also suggested that the Biden Administration’s “whole of government” approach to climate change, ESG, and other issues may implicate the MQD. In an opinion published on August 12, 2022, the D.C. Circuit expressly declined to apply the MQD framework from West Virginia v. EPA in a challenge to a fisheries management rule. Loper Bright Enterprises, Inc. v. Raimondo, No. 21-5166, 2022 WL 3330362, at *2 (D.C. Cir. Aug. 12, 2022) (“Here, the Service's challenged actions are distinct. Congress has delegated broad authority to an agency with expertise and experience within a specific industry, and the agency action is so confined, claiming no broader power to regulate the national economy. The court's review thus is limited to the familiar questions of whether Congress has spoken clearly, and if not, whether the implementing agency's interpretation is reasonable.”).
Future of EPA Regulation of GHG Emissions
West Virginia v. EPA leaves open the debate about whether EPA can or should seek to curb GHGs through methods other than generation shifting. The case barred the most expansive interpretations of EPA’s authority under Section 111 of the Clean Air Act, but did not expressly prohibit EPA from using its traditional air pollution control authorities to regulate GHGs. For example, the Court did not overturn Massachusetts v. EPA, which generally held that EPA has authority under the Clean Air Act to regulate GHGs as air pollutants. Nor did the Court question the legality of other GHG regulatory schemes, such as the potential applicability of NAAQS or regulation under Section 111 in general. Some have even suggested that Chief Justice Roberts’ concluding paragraph in the majority opinion hinted at the use of EPA’s NAAQS authority to address climate change, though others have quickly sought to refute that suggestion. As it currently stands, the Clean Air Act still requires EPA to regulate GHG emissions from the power sector. EPA can still set standards for existing power plants under Section 111(d), as long as the BSER does not require generation shifting. Further, EPA can still regulate GHG pollution from new power plants under Section 111(b).
According to the most recent OMB Unified Agenda of Regulatory and Deregulatory Actions, EPA is expected to release a proposed successor rule to the CPP in March 2023. In a status report to the D.C. Circuit on July 29, 2022, EPA simply stated that “administrative proceedings for a new rulemaking action are ongoing.” The approaches proposed in that rule will likely fall somewhere in the middle of the CPP and the ACE Rule. The proposed rule could include BSER on measures other than generation-shifting, such as requiring power plants to incorporate greater use of natural gas or other “cleaner” fuels, or requiring the implementation of the heat improvement measures that achieve the greatest GHG emission reductions rather than the full suite that states were required to evaluate under the ACE Rule. The forthcoming rule also could potentially identify certain other technologies, such as carbon capture and sequestration, as the BSER.
It remains to be seen whether EPA will attempt to list GHGs as a criteria air pollutant under the NAAQS in an effort to curb GHG emissions. Environmental groups have petitioned EPA to establish a GHG NAAQS; as of this alert, the petition remains pending before the Agency. In addition, in July, a number of states wrote a letter to EPA in support of the establishment of a GHG NAAQS. However, establishing a GHG NAAQS (and requiring states to include measures in their state implementation plans to achieve the standard) likely would take several years and could further delay adoption of other mandatory requirements to cut GHG emissions from the power sector. Such reductions may, in any event, be overtaken by reductions achieved through already-scheduled retirements of fossil fueled power plant.
ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm whose lawyers practice throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.