In 2015, the Obama-Era Environmental Protection Agency promulgated the Clean Power Plan, a first-of-its-kind rule by which EPA sought to regulate and reduce coal and natural gas-fired power plants’ carbon dioxide emissions from across the national generation system. Relying on the 2007 U.S. Supreme Court holding in Massachusetts v. EPA, which found that carbon dioxide is a pollutant within the meaning of the Clean Air Act and for the first time directed EPA to regulate it, the CPP vested EPA with the ability to regulate carbon emissions from both new power plants and existing power plants pursuant to Section 111(d) of the act.
The CPP has since been abandoned; it was replaced by the Trump-era Affordable Clean Energy Plan, which was later abandoned by the Biden administration.
The Court's Decision
Nonetheless, the U.S. Supreme Court recently held in West Virginia v. EPA that Congress did not grant EPA with authority to devise and implement systemwide emissions limits under Section 111(d) of the act. Rather, according to West Virginia, Congress’ intent under the act vested EPA with the authority to set emissions limits on an individual source basis. In other words, the court held that the CPP exceeded the authority granted to EPA via the Clean Air Act by seeking to regulate the nation’s generation system – regulation that likely would have involved measures such as federal cap and trade policies. These measures would encourage a shift away from coal (and to a lesser extent, natural gas) in favor of advanced energy and renewable sources like wind and solar. In so holding, the court relied on the major questions doctrine, which requires that Congress must clearly authorize administrative agency action when that regulation action involves matters of “vast economic and political significance” – such as climate change regulation – and particularly where that agency action would be novel.
The EPA was clear in its promulgation of the CPP that the plan’s intent was to “improve the overall power system” rather than the emissions performance of individual power plants. While this holding represents a setback to EPA’s ability to regulate carbon dioxide as a pollutant from existing power plants, the act still requires the EPA to set standards for existing power plants, as long as the new pollution reduction system does not mandate a shift in generation technologies to advanced energy.
Congress could (explicitly and specifically) expand EPA’s authority to more closely match that sought in the CPP, though doing so in the near term would require consideration and adoption of new legislation by both chambers as well as by the executive branch, all in a time of fiscal uncertainty and volatility.
Potentially more troubling, however, is the precedent West Virginia may set. The West Virginia court relied on the major questions doctrine, and in so doing the court may be opening a door to review, revision and rescission of other regulations.
The effects of West Virginia are likely to extend beyond federal climate policy and chemical regulation. Going forward, expect all federal agencies to show that their actions are supported by clear, express congressional authority, particularly where their regulatory actions might be viewed as yielding “vast economic and political significance,” where the agency is taking novel action, or where Congress has tried, but failed, to authorize the agency action at issue.
Similarly, the effect of West Virginia will be felt at state and local levels, though perhaps in a less direct fashion. Federal inaction or inability to act has long been a reasonable vehicle to fuel state action.
Making Local Economies Greener
In the greenhouse gas reduction and climate change mitigation space, states can, have and will continue to take a variety of novel steps to decarbonize regional economies.
An increasing number of states, for instance, have adopted aggressive goals to reduce greenhouse gas emissions and curb their impact on the environment. Seven states as well as Puerto Rico and Washington, D.C., have legislatively committed to reaching 100% clean electricity generation by 2050, while another eight states have set similar, though nonbinding, goals.
State zero-emission building mandates may be another area of increased focus in the coming years. States have realized they can drive significant building decarbonization by expanding energy-efficiency resource standards. These standards generally provide between $2 and $5 in economic benefits for each dollar invested to decarbonize, and these investments can take a variety of forms: energy-efficient windows, doors and installation; solar or wind-fueled appliances (and related infrastructure); and new heaters that provide heat via water or air sources as opposed to gas.
Businesses should expect that each of these steps, if and when adopted, would require new regulatory structuring at utility levels as well as infrastructure investment and expansion. Subsidization of energy-efficient building equipment and appliances would be a critical aspect.
Given the administrative restrictions signaled by the Supreme Court in West Virginia and the potential expanded use of the major questions doctrine as one means to limit novel federal agency action, as well as challenges inherent in congressional action of this magnitude, businesses and citizens should expect states to increasingly take steps to independently address carbon pollution via energy efficiency subsidization and encouragement of advanced energy technology adoption. This will be of major importance to real estate developers in Colorado and beyond.
This article was originally published by Colorado Real Estate Journal.