What to Watch For in EPA’s Final Clean Power Plan: Can EPA Head Off Legal Challenges?

Nathan Richardson

Later this summer, the US Environmental Protection Agency (EPA) will release its final Clean Power Plan, setting carbon emissions goals for existing power plants. This is the eighth post of ten in a series—What to Watch For in EPA’s Final Clean Power Plan—in which RFF experts address what to look for when the final regulations are released.

The Clean Power Plan is extremely controversial. Critics claim that it will be costly, that resulting emissions cuts are meaningless without commitments from other countries, and that it is an illegitimate circumvention of Congress, which rejected climate legislation in 2010. Critics also claim that the Plan is (in whole or in part) an illegal extension of EPA authority beyond the limits of the Clean Air Act on which it is based. These arguments range from broad attempts to re-litigate the Supreme Court’s Massachusetts v. EPA decision allowing carbon regulation under the Act to much narrower, more technical points.

All EPA regulations are controversial, however, and most of them end up in court. What’s different this time is that there is so little precedent to guide EPA, its critics, judges, and interested observers like us. The Clean Power Plan is based on part of the statute, §111(d), that has been used so rarely that there are no major court decisions interpreting it, little practical experience with it at EPA, and (until very recently) no knowledge base on it in the legal community. That is extremely unusual for a regulation based on a 40+ year-old statute, much more so given the broad scope of the Plan, touching almost every part of the US economy directly or indirectly.

The result is significant uncertainty over how and whether the Plan will survive legal challenge. With any rulemaking, one of EPA’s chief goals is to insulate the final rule from legal attack – first and foremost by actually complying with the statute, but also by defending its interpretation and taking protective measures where the law is unclear.

For example, in the proposed Plan, EPA carefully divided the components of its target-calculation process in four “building blocks,” of which the third (additional renewable generation) and fourth (increased demand-side energy efficiency) have proved most legally controversial. Critics claim the agency lacks the authority to regulate (or, in this case, assume states will regulate) “beyond the fenceline” of the regulated fossil fuel plants. Anticipating this critique, EPA explicitly made building blocks three and four severable – the Plan would survive a court ruling that only “inside the fenceline” reductions could be considered (albeit at the loss of some stringency). EPA appears likely to preserve this approach in the final rule.

There are a variety of other possible legal attacks on the Plan, though isn’t space here to describe them in detail here. My recent Clean Power Plan Legal FAQ attempts to do so, however, and former EPA official Jeff Holmstead also detailed likely challenges in a recent interview. Nevertheless, it’s possible to speculate on some of the measures EPA might take in the final rule to head off or at least mitigate the impact of likely legal challenges.

One approach would be simply for EPA to reduce its ambition in the final rule, essentially surrendering in part to preserve the whole. For example, it could leave building blocks 3 and 4 out of the final rule entirely, or drop its proposal that states, rather than power plants themselves, be legally responsible for meeting the Plan’s targets. This seems extremely unlikely, however. Though EPA’s critics have made many legal arguments against the Plan, EPA has consistently defended its authority. This is in contrast to more technical critiques of the Plan, where EPA has shown some willingness to consider changes in the way targets are calculated.

Another approach is to make even more of the final rule severable. Now that EPA has heard legal critiques of its proposal, it can much better anticipate challenges to the final rule. To the extent that the agency sees risk in one part of the rule, it can make that part severable as it did for building blocks 3 and 4 in the proposal. EPA’s final rule may need to be substantially more detailed in terms of what measures states may take (and EPA will approve) – the proposal was notably more skeletal than is typical, with major issues left ambiguous. To the extent more definite action invites legal challenge, EPA can make these elements of the final rule severable.

This isn’t a foolproof strategy, however. Some legal challenges will attack elements of the rule that can’t realistically be severed, or will attack the ability of the agency to regulate the power sector under §111(d) at all. Moreover, EPA would not include severable parts of the rule in the first place if they did not improve environmental outcomes, reduce costs, or both. If parts are severed, the rule will be less effective, though it’s hard to say whether environmental benefits or economic costs would suffer. For example, EPA might tie severability of building blocks 3 and 4 to stringency of building block 1 – if outside the fence measures aren’t available, emitters may be required to do more inside the fence, at greater overall cost. Be careful what you wish for, EPA would be telling potential litigants.

Finally, it’s possible (albeit unlikely) that a court would view severable elements as offering it an easy way out, and therefore be more likely to sever those elements in response to challenge – EPA wants the rule to be able to survive legal challenge, but not to give courts or litigants an invitation to regulation a la carte.

Also, the final rule gives EPA an opportunity to address legal challenge directly in the rulemaking itself. A court (initially the DC Circuit, and possibly later the Supreme Court) considering a legal challenge will look first to the rule itself for EPA’s legal reasoning and policy objective. Putting the best legal arguments for EPA’s interpretation of the statute in the rulemaking, rather than scrambling to cover flaws in the briefing or oral argument stage, is at least likely to be rhetorically effective, if not legally determinative. Comments to the agency and public critiques of the proposal have in a sense given EPA a chance to write its legal brief into the final rule itself.

This is nothing new – agencies have this opportunity in any rulemaking, or at least any rulemaking controversial enough to attract legal criticism. But it may be a useful tool for the agency. At a minimum, it will give a preview of EPA’s best defenses of its positions (to which, of course, industry and state plaintiffs will respond in litigation).

Finally, litigants face a difficult choice of their own. While the Clean Power Plan will certainly impose costs on industry, regulatory uncertainty is also very costly. Fighting EPA in court substantially increases that uncertainty.

Read the other posts in the series, What to Watch For in EPA’s Final Clean Power Plan:

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