ESG INTEL
...On Supreme Court Limiting EPA’s Authority to Regulate Greenhouse Gas Emissions
Written by Leslie Wong and Hussein Sayani
On June 30, 2022, the Supreme Court of the United States issued a ruling that curtails the EPA’s ability to regulate greenhouse gas (GHG) emissions outside the fenceline of new power plants under the Clean Air Act of 1990. Specifically, the Court said that EPA does not have the authority to create a GHG cap-and-trade system for existing power plants absent specific Congressional approval.
This ruling solidified the Supreme Court’s application of the “major questions doctrine” to EPA regulations. This doctrine holds that government agencies cannot adopt rules that are “transformational” to the economy unless Congress has specifically authorized it. The major questions doctrine is not a new concept. It has been developing in judicial opinions for years as EPA proposes regulations with progressively broader reach and judges remind EPA its authority is limited to regulating in accordance with Congressional legislation. As environmental legislation has aged, EPA has faced challenges developing regulations that keep pace with emerging technology and environmental issues without crossing the line to legislating without authority. For example, the Clean Air Act was enacted over 30 years ago and it does not explicitly provide regulation of GHGs. The current EPA GHG regulations were established by complex arguments that the Clean Air Act implicitly provided for GHG regulation.
Now that the Supreme Court has drawn a line for EPA authority, does this mean there will be no GHG regulation at all? No. Federal agencies, including EPA, can still issue regulations as long as they are not “transformational” to the economy. However, the extent to which a regulation is deemed “transformational” remains to be seen.
We now know that the EPA broadly limiting how power can be generated is considered transformational, but what else will be affected by this ruling? What about the proposed Securities Exchange Commission rule requiring that public companies must report both GHG emissions and climate-related risks? What about the Federal Energy Regulatory Commission interim policy stating that GHG emissions and their contributions to climate change should be addressed at the same level as other environmental impacts? These agencies regulate different activities and a different range of companies than EPA, but it should be expected that their regulations will be subjected to the major questions doctrine as well, and the result will not be known until challenges are made and litigated.
The frequent use of the major questions doctrine to challenge federal regulations has already begun. Within a week of the ruling, the State of Texas cited the major questions doctrine in an argument against the Nuclear Regulatory Commission (NRC). The state challenged NRC’s authority to license a radioactive waste storage facility in Texas, arguing the underlying legislation does not regulate the storage of spent nuclear fuel.
In addition to subjecting current and proposed regulations to new scrutiny, this restraint on federal GHG regulation will likely create fractured regulations across the US as states unwilling to wait for federal Congressional action begin enacting their own rules.
To predict the practical impact of this fracturing, we can look at oil and gas production regulations. When EPA rolled back and/or rescinded many of the June 3, 2016 Clean Air Act methane reduction regulations for oil and gas facilities from 2017 to 2020, states like Colorado and New Mexico introduced their own regulations. This resulted in a confusing mix of operational requirements that necessitated the development of multiple compliance programs for companies doing business in multiple states. Another impact of managing different regulatory requirements is the potential backlash to companies simply complying with state-specific regulations. Are they undervaluing the health and safety of employees in less regulated states because they are only applying clearly feasible practices in those that are more highly regulated?
The Supreme Court ruling will likely result in a significant reduction of federal environmental compliance costs, but don’t assume that this will lead to bottom-line savings. Instead, companies may need to invest that time and money into tracking court movements, following state rules, and convincing stakeholders that their approach to each unique regulatory situation is sound.
Application of the “Major Questions Doctrine”
Frequent Use of the Doctrine Anticipated
Expected Impacts
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