What’s Next for the Clean Power Plan?

“The Trump administration is listening to the people of Wyoming,” remarked Sen. John Barrasso (R-Wyo.), chairman of the Senate Committee on Environment and Public Works. His comment referenced a “listening session” scheduled by the Environmental Protection Agency (EPA) to hear public concerns about job losses that many argue could potentially be caused by the Clean Power Plan (CPP).

Finalized in August 2015, the CPP is a broad and ambitious regulatory effort to reduce U.S. carbon dioxide emissions from power plants to 32% below 2005 levels by 2030. In response, 27 states, 24 trade associations, 37 rural electrical co-ops, three labor unions, and various other entities challenged the CPP in courts around the country under various legal theories.

Most challengers cited regulatory overreach that would negatively impact U.S. industry and ultimately undermine economic competitiveness. Challengers achieved an early victory in February 2016, when the Supreme Court stayed implementation of the CPP while certain issues were considered and resolved in lower courts. Notably, this was the first time the Supreme Court ever issued a stay to block implementation of an executive branch regulation.

The Anatomy of the Argument Against the CPP

Since the early days of the Trump administration, the EPA has been considering how or whether to reconsider certain evidence for scientific conclusions that led the agency to create the CPP. The main issue is procedural, involving the sometimes convoluted and often criticized regulatory rulemaking process that produced the justification for the CPP, a justification known as the “Endangerment Finding.”

The Endangerment Finding is a 2009 decision by the EPA that six greenhouse gases in the Earth’s atmosphere (including carbon dioxide) threaten public health and the welfare of current and future generations. One main criticism of the CPP is the methods by which the EPA reached the Endangerment Finding, and some groups challenging the CPP cite these methods as the source of the regulation’s problematic history.

EPA Administrator Scott Pruitt has indicated he believes the CPP is likely an overreach of executive authority under the Clean Air Act, and that removing the CPP from the statute books would roll back unnecessary regulations and align EPA policy with President Trump’s March 2017 executive order aimed at enhancing American energy independence. The public comment period, open until January 16, 2018, is part of the EPA’s review of and stated plan to repeal the CPP.

The government’s primary argument in favor of repeal parallels arguments made in written briefs by the CPP’s challengers in court: That the EPA lacked the authority under the Clean Air Act to regulate greenhouse gas emissions “beyond the fenceline” of power plants. This argument reasons that the Clean Air Act only authorizes the EPA to regulate and assess the efficiency of power plants themselves, rather than factoring in energy efficiency measures taken by power plant owners (such as separate renewable energy development) when considering whether a state’s carbon emissions plan is compliant, that is, the CPP arguably regulates beyond the fenceline of power plants. Generators argue this scheme essentially forces coal plants to either subsidize their competitors or shut down.

Pruitt’s Playbook

The EPA has two main options for its approach to dealing with the CPP. It could use the same rulemaking system that created the regulation in the first place to eliminate the CPP entirely, requiring long periods of public notice and comment that could drag on for many months, likely mobilizing CPP supporters. Alternatively, many sources have reported that the White House has considered issuing a new executive order instructing the EPA to reconsider and perhaps replace the CPP, a measure that might fall short of eliminating it altogether.

It appears that, despite some public commentary to the contrary, the latter approach may be preferred by Administrator Pruitt. “We are going to be introducing a replacement rule, too,” Pruitt said in a hearing of the House Energy and Commerce Committee in December. Regardless of which approach the EPA chooses, critics have suggested (and will continue to argue) that the EPA shows signs of “regulatory capture,” which is when agency officials succumb to industry pressure in their decision-making, potentially to the detriment of the public interest.

Many energy industry observers and participants applauded the Trump administration’s quick and energetic actions expected to benefit power producers, their shareholders, and the energy-consuming American public, including the rollback or elimination of the CPP. At the same time, environmental groups and many on the political left are aggressively pursuing legal challenges to the implementation of these actions. It is very likely that court battles will continue for many months or even years, preventing the EPA from repealing the CPP for some time and contributing to uncertainty in the future regulatory environment of power generators. ■

Natalie Regoli is a partner at Baker McKenzie in the firm’s Houston office and Brian Polley is an associate in the firm’s Houston office.