On January 19, 2021, in a 2-1 decision, the D.C. Circuit Court vacated the Trump administration’s 2019 Affordable Clean Energy (ACE) Rule and remanded it to the U.S. Environmental Protection Agency (EPA). The decision offers a strong statement about EPA’s breadth of authority to regulate greenhouse gases (GHGs) under the Clean Air Act (CAA) and, if its position is upheld, clears the way for the Biden administration to regulate power plants.

The Affordable Clean Energy Rule

The EPA promulgated the ACE Rule in 2019 under the CAA, replacing the Obama administration’s 2015 Clean Power Plan (CPP). Both rules sought to reduce GHG emissions from the power sector; but where the CPP implemented broader industry-wide mechanisms, the ACE Rule limited reduction efforts to the actual source power plants.

The 2015 CPP offered “beyond the fenceline” tools for states to reduce emissions by replacing fossil fuels with renewable energy sources and participating in emissions credit-trading programs; however, in February 2016 the U.S. Supreme Court stayed the implementation of the CPP pending litigation in the D.C. Circuit. During the stay and subsequent freeze of litigation, the Trump administration rescinded the CPP and promulgated the ACE Rule.

In promulgating the ACE Rule, the Trump EPA took an alternative view of the CAA than the Obama EPA and reasoned that the CAA expressly limited the EPA’s power to only “at the source” emissions reduction options, such as heat rate improvement technologies. As a result, the Trump administration removed all of the CPP’s “beyond the fenceline” options and limited emissions restrictions to those applied directly to power plants.

Litigation

A group of states, led by New York, clean energy providers, and environmental

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groups argued that in drafting the ACE Rule, the EPA took too narrow a view of its own authority. At the same time, other states led by West Virginia and industry groups defended the ACE Rule with some entities contending that the Rule still went beyond the EPA’s authority to regulate GHGs.

In response to those stating the ACE Rule was too limiting, the EPA argued that the CAA unambiguously and strictly limits the EPA’s authority to “at the source” actions.  It is interesting to note that rather than claim the CAA was ambiguous and that the EPA’s interpretation was entitled to Chevron deference, the EPA chose this hard line approach.

Judges Millett and Pillard of the D.C. Circuit Court disagreed with the EPA’s interpretation. In the majority opinion, the Court concluded that there is “no bases—grammatical, contextual, or otherwise—for the EPA’s assertion” that its authority was limited to “at the source” controls. In examining the language of the CAA, the Court concluded that the EPA’s understanding failed in three ways. First, the Act’s definition of best system of emission reduction (BSER) did not limit control methods to only those applied at the source. Second, the source-specific language utilized in a different subsection did not modify the definition of BSER.  And third, the EPA’s proposed interpretation added terms not found in the statutory text. Additionally, the Court stated that the EPA’s interpretation requires it to “turn its back” on major elements that the power sector is already successfully utilizing to efficiently and cost-effectively reduce emissions.

In the end, the Court vacated the ACE Rule and remanded it back to the EPA just in time for the Biden administration to take over.

GHG emissions regulation forecast

The Court’s decision appears to clear the way for the Biden administration to regulate GHG emissions from the power sector.

In his first week in office, President Biden has taken a number of actions to undo many of the Trump administration’s environmental policy decisions, including rejoining the Paris Climate Accord. The new Biden EPA has also requested that the Department of Justice have all Trump-era litigation seeking judicial review of any EPA regulation promulgated between January 20, 2017 and January 20, 2021. Based on the Court’s show of support and the Biden Administration’s actions within the first week, we may see some of the Obama-era or similar regulation brought back to life in the coming months.