By Jody Freeman
Now that the Obama administration has released the full details of its highly anticipated Clean Power Plan today, industry and state opponents are champing at the bit to challenge it in court.
The plan is the first national regulation to limit carbon dioxide pollution from the power sector, and challengers had already identified some vulnerable elements of the original draft, released in June 2014. For example, the draft set overall pollution targets for states, but the Clean Air Act provision authorizing the EPA to regulate refers to setting performance standards for pollution sources. And the proposal required states to file implementation plans or accept a federal plan, which, though routine under the law, was portrayed by opponents as an unconstitutional infringement on state sovereignty. The draft also gave states only about a year to file their initial plans, which opened the door for unhappy governors to say they would immediately ask a federal court to stay the new rule entirely.
For those handicapping the litigation, however, the government’s odds of success just got a significant boost. A close analysis of the language in the final plan released today suggests that EPA has addressed each of these problems in subtle but significant ways, and the legal battle will now likely be much harder for the challengers.
The final version makes five key changes.
First, and crucially, it places the regulatory burden directly on power plants, not on states. The rule tells coal and gas plants how much carbon pollution they can emit per megawatt-hour of electricity, setting a single national rate for each category. While it might sound minor, this change is important to legal defensibility. It responds to the concern that the Clean Air Act authorizes EPA to set performance standards for sources. (States can still comply with the law by using overall state emissions targets, but only if they choose to.) And by setting one rate for coal units and another for gas units, it brings the rule into line with long-established EPA precedent, which tailors emission rates to different types of technology, and so will be familiar to courts.
Second, the draft version of the plan included elements that led opponents to charge the EPA with “jumping the fence-line,” straying beyond its acknowledged authority to regulate power plants.
One of these potential fence-jumps was the agency’s use of energy efficiency as a basis for setting emission rates. The EPA’s draft rule projected that states could cut energy demand from consumers 1.5 percent per year after 2020, helping to reduce power plant emissions. But doing so exposed EPA to vehement criticism that it was seeking to regulate how consumers use energy, not just whether power sources can produce electricity more cleanly. To neutralize this vulnerability, the new standard drops energy efficiency as a consideration for stringency, and the EPA’s final rule sets rates without assuming any reduction in consumer demand. (However, because it is such a low-cost way to reduce emissions, the EPA does allow sources to use energy efficiency in order to hit their targets.)
Critics saw another potential fence-jump in the EPA’s new method for setting its carbon targets. The Clean Air Act instructs the EPA to set performance standards at a level that can be achieved using the “best system of emission reduction.” The draft version of the Clean Power Plan defined “best system” broadly to encompass measures, both within and outside plants, which could reduce emissions, like substituting natural gas or renewables for coal power. Critics said the EPA legally could base the standards only on technological changes the sources could adopt on their own, like equipment upgrades.
The EPA’s final rule explains, much more clearly than the draft did, how it conceives of power plants as interconnected, essentially treating them as one giant machine. This new approach basically asks: what can networked sources achieve by taking advantage of emission reduction opportunities already available to them on a regionally interconnected grid? Though this is a novel idea, it also reflects the reality of the power system: grid operators already manage the system by ramping up or down energy from different sources to match supply with demand.
Third, revisions to the final rule will make it harder for opponents to argue it intrudes on state sovereignty. This has been one of the highest-profile claims against the draft plan, which asked states to meet individual, state-level emissions targets. But the new structure of the final version lets states meet their obligation simply by applying the EPA’s uniform national rates for coal and gas units to the power plants in their jurisdiction—the most straightforward compliance plan imaginable. The rule will offer states other ways to comply by translating these two rates into a single state emissions target; this allows states to, for example, adopt an emissions cap and create a credit-trading scheme. But no one will force any state to do so.
In addition, the rule now spells out that if states opt not to file compliance plans, they will not lose highway funds or suffer any other legal penalty. The EPA simply will enforce the power-plant emission rates on the sources itself. Under well-established Supreme Court precedent, such a scheme is perfectly constitutional and doesn’t impinge on state sovereignty. States that do file plans will now have up to 2018 to do so, a two-year extension over the original 2016 deadline. This puts to rest the claim made by coal industry lawyers that the Clean Power Plan is a “gun to the head” and “commandeers” states in violation of the Constitution.
Fourth, the administration is giving the power industry until 2022, two years longer than the draft called for, to begin complying with emission targets. And they can ramp up slowly, making smaller reductions in the early years. These changes have a specific legal effect: they’ll help the government fend off efforts to stay the rule while a federal court considers the legal challenge.
To win a stay application, petitioners must show they will suffer “irreparable harm” during the six months to a year in which it takes the court to complete its review. States have alleged the harm to them lies in having to file plans within a year, and industry has maintained the harm to them stems from making immediate, massive and irretrievable expenditures. But the extended planning and compliance deadlines make these arguments much harder to support. Nothing but the most preliminary steps need be taken while the court decides.
Finally, the plan explains more comprehensively than the draft did why EPA has the required legal authority. Doing so is necessary because, in a bizarre drafting glitch, Congress inadvertently passed two different versions of the relevant provision when it amended the Clean Air Act in 1990.
Of the two versions Congress passed, one, adopted by the Senate, clearly permits the EPA to regulate power plant carbon emissions. The other, adopted by the House of Representatives, prohibits the EPA from regulating pollutants “emitted from a source category which is regulated under” the Clean Air Act’s toxics program. Both were signed into law. Since power plants are regulated under the toxics program, challengers say the House version means the EPA can’t regulate them otherwise. But the EPA’s final rule includes a strong and detailed argument that this reading of the law makes no sense, and that the better interpretation, supported by both legislative history and the scheme of the Clean Air Act—and reinforced by the clear text of the Senate version— merely prevents the EPA from regulating the same pollutant twice.
These changes come at an overall cost, although one the administration believes it can bear. The EPA has left potentially greater emission reductions on the table by being conservative about what it put into the baseline “best system of reduction,” and by dropping energy efficiency from consideration for setting the rates. Its standards could undoubtedly be tougher, and move faster. There is a risk too, that states and industry will not fully utilize the voluntary incentives in the rule designed to push early renewables deployment, in which case renewables might not get built any sooner than they normally would. This could further delay emission reductions to later in the compliance period.
Overall though, the rule’s ambition remains largely intact: even with the changes, the EPA estimates power sector emissions in 2030 will be 32 percent below 2005 levels.
The legal battle to defend the Clean Power Plan will be long and arduous. State and industry challengers likely will make two main claims: first, that the EPA has zero legal authority to regulate existing power plant carbon emissions; and second, even if it does, the standard may only require sources to make modest efficiency upgrades to units on site.
Courts are unpredictable and the best arguments do not always carry the day. But there is no question that in the final plan, the government has shored up its legal vulnerabilities and put itself in a far better position to defend its ambitious rule.
Jody Freeman is Archibald Cox Professor of Law and Director of the Environmental Law Program at Harvard Law School. She served as White House Counselor for Energy and Climate Change in 2009-10.