A version of this article was published in BizWest in September 2022
For better or worse, depending on your perspective, the United States Supreme Court (“Supreme Court”) has certainly shaken things up lately. While much attention has focused on the overturning of Roe v. Wade, the recent opinion in West Virginia v. EPA is more directly relevant for businesses. This case struck down the Obama Administration’s Clean Power Plan (“CPP”), which sought to regulate greenhouse gas emissions from existing power plants under authority of the Clean Air Act (“CAA”).
While delivered in the context of a power plant regulation issued by the United States Environmental Protection Agency (“EPA”), the court’s ruling has implications for all federal agencies and the businesses they regulate. To better appreciate its significance, a little background on the rule and path it took to the Supreme Court is helpful.
The CPP relied on a somewhat atypical approach to controlling emissions. CAA regulations commonly limit emissions from the source itself (i.e., “inside the fence”). However, the CPP included provisions intended to shift electricity generation away from fossil fuels toward cleaner production methods. A coal burning plant could comply, for example, by purchasing emission credits from a cleaner source as part of a cap-and-trade program. Thus, the rule forced a source to look “outside the fence” to meet its regulatory obligations.
The CPP’s path to the Supreme Court was also notable. Upon its issuance, various states and industry interests immediately sued to block the rule. The D.C. Circuit Court of Appeals (“D.C. Circuit”), the initial arbiter of such challenges, ultimately upheld the CPP. However, while the D.C. Circuit was reviewing it, the Supreme Court, in an unprecedented move, stayed the rule, preventing it from taking effect.
After a change of administrations, the Trump EPA issued its own rule (known as the Affordable Clean Energy or ACE rule) that relied solely on inside the fence restrictions. This rule also repealed the CPP. The ACE rule was immediately challenged in the D.C. Circuit, which struck it down, including its repeal of the CPP.
Following another change of administrations, the Biden EPA announced plans to issue its own rule limiting greenhouse gas emissions from existing power plants. To avoid confusion, it asked the D.C. Circuit to keep the CPP from being reinstated in the interim. The court granted the request.
Notwithstanding, several parties, including West Virginia, appealed the D.C. Circuit’s ruling upholding the CPP. In a highly unusual move, the Supreme Court agreed to accept the case to decide the legality of a rule that applied to no one. The CPP had never gone into effect, and never would. Moreover, the electric power sector had already exceeded the emission reductions contemplated under the rule – ironically, largely by shifting electricity generation to cleaner sources. The Supreme Court clearly intended to use this case to make a statement to administrative agencies in general, and on the acceptable scope of the upcoming Biden rule specifically.
An agency has only the power Congress gives it. The issue the Supreme Court set out to decide was whether Congress, through the CAA, intended to empower EPA to control greenhouse gas emissions by shifting the nation’s mix of electricity generation away from fossil fuel plants toward cleaner generating sources. Typically, when analyzing the legality of an agency’s action, a court will defer to the agency’s reasonable interpretation of the statute it administers. The threshold for granting such deference is very low.
In this case, however, the Supreme Court employed a new analysis, dubbed the “major questions doctrine,” that completely sidesteps deference. Under this doctrine, in certain “extraordinary cases” where an agency’s assertion of broad authority has substantial “economic and political significance,” the agency must point to “clear congressional authorization” to support its action. (That is, in such cases the court leads with skepticism, not deference.) The court viewed the generation shifting approach EPA used in the CPP as implementing a major policy choice typically reserved for Congress. Finding no clear congressional authorization in the CAA for EPA to make this choice, the Supreme Court struck down the rule.
Though presented in a ruling on an EPA regulation, the newly articulated doctrine extends to all federal agencies. This, along with the Supreme Court’s extraordinary effort to weigh in on the issue, portends a potential seismic shift in the relationship between federal agencies and the entities they regulate. The major questions doctrine will be used to challenge all manner of regulations from environmental, to health and safety, to employment, to securities and beyond. This has major implications for businesses and agencies to ponder.