Supreme Court Chips EPA GHG Authority, Says Agency Has No Power to “Tailor” Laws to Policy Goals

A divided Supreme Court on Monday partly reversed a 2012 federal court decision, ruling that the Environmental Protection Agency (EPA) exceeded its authority under the Clean Air Act when it required permitting for stationary sources based on their greenhouse-gas (GHG) emissions.

In a 5–4 ruling, the court’s right-leaning majority concluded that the agency may not treat GHGs as a pollutant for purposes of defining a “major emitting facility” in the context of its Prevention of Significant Deterioration (PSD) provisions, or as a “major source” in the Title V context. It also ruled that the EPA’s rewriting of statutory thresholds was unlawful, saying the agency has no power to “tailor” legislation to “bureaucratic policy goals.”

There was some disagreement amongst the justices on the reach of the opinion. Justice Antonin Scalia, who wrote for the court, was joined in full by Chief Justice John G. Roberts, Jr., and Justice Anthony Kennedy. Justices Samuel Alito and Clarence Thomas joined the part of the opinion that struck down the attempt to regulate GHGs under Title V and PSD, making that a 5–4 ruling, but dissented on upholding the EPA’s power to regulate GHGs at sources already restricted in releasing other pollutants. Justice Stephen Breyer, joined by Justices Ruth Bader Ginsburg, Elena Kagan, and Sonia Sotomayor concurred on the second element of the majority opinion—making that 7-2 decision—but would have upheld the EPA’s interpretation of the Clean Air Act’s language on “any pollutant.”

Importantly, the decision is limited to portions of the Clean Air Act that do not bar the EPA from regulating GHGs from new or existing stationary sources under Section 111, as the EPA recently proposed.

Yet, for attorneys from law firm Sidley Austin, LLP, several aspects of the decision “may cast a shadow” as the EPA proceeds with rulemakings under the New Source Performance Standards (NSPS). “The decision’s admonition that EPA’s regulatory authority—even when conferred by the statute, as with the [best available control technology (BACT)] standards—must be exercised with caution and is not entitled to boundless discretion would seemingly apply also to EPA’s attempts to regulate GHG emissions under NSPS,” they said.

The Deciding Question

The case Utility Air Regulatory Group v. EPA—deemed by some as the term’s most anticipated environmental decision—stems from a number of petitions, from which the Supreme Court chose to decide a single question: Whether it was permissible for the EPA to determine that its motor-vehicle GHG rules automatically triggered permitting requirements under the Clean Air Act for stationary sources that emit GHGs.

The EPA regulates most stationary sources under the Clean Air Act’s PSD provisions, because, it reasons, they are designated “attainment” or “unclassifiable” for at least one of any six air pollutants—sulfur dioxide, particulate matter, nitrogen dioxide, carbon monoxide, ozone, and lead—for which the agency has issued national ambient air quality standards (NAAQS).

PSD provisions state that it is unlawful to build or modify a “major emitting facility” in “any area” to which the PSD program applies without first obtaining a permit. Meanwhile, Title V of the Clean Air Act makes it unlawful to operate “any major source”—or 100 tons per year of any air pollutant—without a comprehensive operating permit.

But after the Supreme Court in Massachusetts v. EPA (2007) held that Title II of the Clean Air Act allowed the EPA to regulate GHGs from new motor vehicles if the agency found that such emissions contribute to climate change, the EPA declared that once GHGs became regulated under any part of the Clean Air Act, the PSD and Title V permitting requirements would apply to all stationary sources emitting GHGs in excess of 100 tons per year under Title V and 100 or 250 tons per year under the PSD program.

And in 2009, after its “Endangerment Finding” determining motor vehicle GHG emissions foster global climate change, the EPA issued the “Triggering Rule,” a final decision on the prospect that motor-vehicle GHG standards would trigger stationary source permitting requirements. Then, it announced a “phased in” approach to “tailor”the PSD program and Title V programs to GHGs

A Legal Storm

The EPA’s GHG actions stirred up outrage from several states and industries, many of which filed petitions for review in federal appeals court. But while the D.C. Circuit dismissed some petitions for lack of jurisdiction, it eventually upheld the Endangerment Finding and “Tailpipe Rule,” which took effect in January 2011 and covered GHG emissions from vehicles. Later, it upheld that the EPA’s interpretation of the PSD permitting requirement as applying to “any regulated air pollutant,” including GHGs, was “compelled by the statute”—and it found it “crystal clear” that the PSD permitees must install the best available control technology (BACT) for GHGs.

After the D.C. Circuit denied a rehearing en banc, the case moved to the Supreme Court, though justices agreed to decide only the question of whether the EPA’s regulation of GHG emissions from new motor vehicles triggered permitting requirements for stationary sources that emit GHGs.

‘Faulty’ Logic

The nation’s highest court on Monday said in its decision that it considered two distinct challenges: Whether the EPA lawfully determined that a source may be subject to the PSD and Title V permitting requirements on the “sole basis” of the source’s potential to emit GHGs, and whether the agency lawfully determined that a source already subject to the PSD program (because of its emission “anyway” of any of the conventional six NAAQS-covered pollutants) may be required to limit its GHGs by employing the BACT.

The Solicitor General, representing the EPA, noted that “anyway” NAAQS pollutant emissions sources account for about 83% of U.S. stationary source GHG emissions, compared to just 3% of non-“anyway” sources, which the EPA had sought to regulate under the Tailoring Rule.

But the Supreme Court on Monday fundamentally disagreed with the D.C. Circuit’s ruling that the Clean Air Act “compelled” the EPA’s interpretation that a source’s GHG emissions required a PSD or Title V permit, saying the appellate court “reasoned by way of a flawed syllogism.”

“Under Massachusetts, the general, Act-wide definition of ‘air pollutant’ includes greenhouse gases; the Act requires permits for major emitters of ‘any air pollutant’; therefore, the Act requires permits for major emitters of greenhouse gases,” the court said of the earlier decision.

However, “[that] conclusion follows from the premises only if the air pollutants referred to in the permit-requiring provisions (the minor premise) are the same air pollutants encompassed by the Act-wide definition as interpreted in Massachusetts (the major premise). Yet no one—least of all EPA—endorses that proposition, and it is obviously untenable.”

In many other instances in the Clean Air Act, the EPA does not use “air pollutant” in Massachusetts’ broad sense to mean “any airborne substance whatsoever,” the court noted.

It went on to say: “It is plain as day that the [Clean Air Act (Act)] does not envision an elaborate, burdensome permitting process for major emitters of steam, oxygen, or other harmless airborne substances. It takes some cheek for EPA to insist that it cannot possibly give ‘air pollutant’ a reasonable, context-appropriate meaning in the PSD and Title V contexts when it has been doing precisely that for decades.”

As significantly, the court clarified that Massachusetts did not hold that the EPA must always regulate GHGs as an “air pollutant,” everywhere that term appears in the Clean Air Act, but only that EPA must “ground its reasons for action or inaction in the statute.”

In sum, said the Supreme Court, there is no “insuperable textual barrier to EPA’s interpreting ‘any air pollutant’ in the permitting triggers of PSD and Title V to encompass only pollutants emitted in quantities that enable them to be sensibly regulated at the statutory thresholds, and to exclude those atypical pollutants that, like greenhouse gases, are emitted in such vast quantities that their inclusion would radically transform those programs and render them unworkable as written.”

The EPA itself has repeatedly acknowledged that applying the PSD and Title V permitting requirements to greenhouse gases would be inconsistent with—”in fact, would overthrow,” the court said—the Clean Air Act’s structure and design.

“We conclude that EPA’s rewriting of the statutory thresholds was impermissible and therefore could not validate the Agency’s interpretation of the triggering provisions,” the court ruled. “An agency has no power to ‘tailor’ legislation to bureaucratic policy goals by rewriting unambiguous statutory terms. Agencies exercise discretion only in the interstices created by statutory silence or ambiguity; they must always ‘give effect to the unambiguously expressed intent of Congress.’”

On the BACT Question

The Supreme Court, on Monday, however, allowed the EPA to continue to treat GHGs as a “pollutant subject to regulation under [the Clean Air Act] for purposes of requiring BACT for “anyway” sources.

The BACT provision is “far less open-ended than the test of the PSD and Title V permitting triggers, the court ruled. But even if the text were not clear, applying BACT to GHG’s is not “so disastrously unworkable, and need not result in such a dramatic expansion of agency authority, as to convince us that EPA’s interpretation is unreasonable,” it said.

But the court acknowledged that GHG BACT could lead to an “unreasonable” degree of regulation, adding: “Our decision should not be taken as an endorsement of all aspects of EPA’s current approach, nor as a free rein for any future regulatory application of BACT in this distinct context. Our narrow holding is that nothing in the statute categorically prohibits EPA from interpreting the BACT provision to apply to greenhouse gases emitted by ‘anyway’ sources.”

Possible Implications

Though the ruling does not directly affect the recent proposed rule on GHG emissions from existing power plants under Section 111, it suggests the court may be receptive to arguments from those opposed to the new rule when litigation over the proposal finally reaches it.

“As a legal matter, the ruling has some significance:  the Court’s conclusion that EPA’s regulation of GHGs remains lawful in some, but not all cases, indicates that EPA’s discretion in applying two Clean Air Act regulatory tools to GHGs is not unbounded,” Bicky Corman, the former EPA’s Deputy General Counsel, Senior Sustainability Advisor, and Deputy Associate Administrator told POWERnews on Monday.

The ruling has less significance, though, as a practical matter, as it leaves EPA still able to use the two mechanisms to limit GHGs from sources obtaining permits ‘anyway’ because of their non-GHG emissions (which, per the Solicitor General means 83%, rather than 86%, of U.S. stationary source GHG emissions),” she said.

On Monday, meanwhile, the court’s ruling prompted mixed reactions. Some from environmental legal groups, as expected, decried the Supreme Court’s rebuke of one way the EPA could have regulated GHGs from power plants and other sources. Industry and some states partly applauded the ruling.

However energy policy expert and senior fellow William Yeatman of the Competitive Enterprise Institute, which was a co-petitioner in the case along with the Southeastern Legal Foundation, called the ruling “unfortunate,” because it would allow the EPA to try to “hammer a square peg (regulating GHGs) into a round hole (the PSD/Title V programs).”

Sonal Patel is a POWER associate editor (@POWERmagazine, @sonalcpatel).