Understanding the US Supreme Court’s Decision in West Virginia v. EPA

The US Supreme Court issued its highly anticipated ruling on West Virginia v. EPA earlier this summer. At issue was whether the US Environmental Protection Agency (EPA) could consider “generation shifting”—from higher carbon resources (i.e., coal and natural gas) to lower carbon resources (i.e., natural gas and renewables)—when determining the “best system of emissions reduction” under Section 111(d) of the Clean Air Act. In the majority opinion, the Supreme Court ruled that EPA cannot set the existing source standard based on generation shifting, but otherwise affirmed the agency’s ability to regulate carbon dioxide emissions at new and existing power plants.

The Great Plains Institute’s Carbon Management Program, which convenes or co-convenes the Carbon Capture Coalition, Industrial Innovation Initiative, and Regional Deployment Initiative, hosted a webinar on the case for its stakeholders on July 13 that covered the following:

• highlighted the court’s decision and the basis for the case
• provided an interpretation of what it may mean for states, industry, and particularly for deploying carbon capture technologies in the power sector

Speakers included:

• Doug Scott, Vice President, Energy Systems, Great Plains Institute
• Franz Litz, Consultant, Great Plains Institute
• Jay Duffy, Attorney, Clean Air Task Force
• Kevin Poloncarz, Partner, Covington & Burling LLP

The building blocks: Understanding West Virginia v. EPA

Franz Litz, a consultant to the Great Plains Institute, opened the webinar with a broad overview of the Supreme Court ruling. Litz, a former air regulator for the State of New York, broke down the legal context of the Clean Air Act and the Obama-era Clean Power Plan on which the Supreme Court focused its decision. The following summary highlights the key takeaways from this overview presented during the webinar.

The context

The federal Clean Air Act—originally passed in 1970 and amended several times since—is the primary legal authority under which EPA preserves and improves the nation’s air quality. The Supreme Court recognized greenhouse gases as “air pollutants” under the Clean Air Act in a 2007 ruling on Massachusetts v. EPA.

Under Section 111(b) of the Clean Air Act, EPA may control air pollution from categories of new stationary sources—New Source Performance Standards—based on EPA’s determination of the “best system of emissions reduction” for the category of sources.

Section 111(d) of the Clean Air Act covers certain existing source categories, but only those for which EPA has issued a new source performance standard—here meaning gas and coal plants. It also serves as a “gap filler” for pollutants that are neither criteria pollutants for which EPA has set a National Ambient Air Quality Standard nor toxic pollutants listed under Section 112.

In other words, Section 111(d) is where greenhouse gases make their way into the regulation of existing power plants. Section 111(d) was the primary focus of the Supreme Court’s decision.

The case

In January 2021, the DC Circuit Court of Appeals vacated the Affordable Clean Energy Rule put in place by the EPA during the Trump Administration. Instead, the court of appeals affirmed the interpretation of EPA’s regulatory authority outlined in the Obama Administration’s Clean Power Plan. On appeal, the Supreme Court reversed that decision in West Virginia v. EPA, focusing on the underlying rationale used to establish the emissions standards in the Clean Power Plan.

In 2015, the Obama EPA issued the Clean Power Plan to reduce carbon emissions from existing power plants by shifting production from dirtier to cleaner power sources. The agency set out to achieve the “best system of emissions reduction” based on a combination of heat rate improvements at power plants, shifting from coal to gas generation, and a broader shift from fossil plants to renewable energy generation.

As Litz noted during his remarks, of these three building blocks, this “generation shifting,” from coal to gas and fossil to renewables, is what the Supreme Court found was not permitted under the Act.

The decision

Since EPA had never set an emissions standard through generation shifting but had always relied on operational measures, add-on technology, or fuel-switching, in West Virginia v. EPA, the Supreme Court found the Clean Power Plan exceeded EPA’s statutory authority because Congress did not clearly vest EPA with authority over the makeup of the entire power system.

While the Supreme Court confirmed EPA’s authority to regulate carbon emissions under Section 111(d), it ruled that the DC Circuit had applied too broad an interpretation of “best system of emission reduction” when it decided EPA could base its standard on generation shifting.

The court ruled that EPA cannot set its emissions reduction standard in this way. As Jay Duffy of Clean Air Task Force later explained:

“The court was very focused on the intent—whether that was [to] change the electric grid or to regulate carbon emissions from an individual source.”

Ultimately, the court ruled that control of the power system’s makeup is a major question that Congress would not grant an administrative agency without a clear expression in the statute. Instead, EPA should have focused on measures more clearly within its traditional sphere of authority, such as operational improvements at power plants, add-on technologies, and/or partial fuel switching or co-firing.

Discussion: Implications for state, industry, and carbon management stakeholders

After reviewing the foundations of West Virginia v. EPA, Litz was joined by attorneys Jay Duffy of Clean Air Task Force and Kevin Poloncarz of Covington & Burling LLP to discuss the implications of the Supreme Court’s decision.

Duffy, an attorney who represented several public health and environmental organizations in the case, remarked on the possibilities for carbon capture as a basis for EPA rulemaking.

Poloncarz, an attorney who represented over ten power companies in the litigation and was present for this discussion on behalf of the power company Calpine Corporation, provided additional insight on the possible basis of carbon capture as a standard for EPA to establish a best system of emissions reduction.

The following summary highlights several reflections from the discussion, including the impact on future EPA rulemaking, the role of states in planning for and implementing federal standards, the role of carbon capture and hydrogen moving forward, and potential implications for heavy industry.

What does the West Virginia v. EPA decision mean for EPA?

EPA has indicated it intends to issue draft regulations under Section 111(b) and 111(d) in March 2023. The decision does offer some clarity as to what the EPA can and cannot rely on to set its standards.

Following West Virginia, EPA can and will move forward with both new source performance standards under Section 111(b) and an existing source standard under 111(d).

“The only thing that was taken off the plate here was the Clean Power Plan system, the sort of generation shifting. The court leaves the door open for systems that allow the regulated source to operate more cleanly,” Duffy explained.

When setting standards, EPA will be on safer ground by determining the required emissions reductions based on the measures that can be applied “inside the fence line” or at the physical power plant. This can mean measures such as efficiency and operational improvements, add-on technologies like carbon capture, and improving the carbon profile of fuels (switching to or co-firing with lower carbon or zero-carbon fuels).

What does the West Virginia v. EPA decision mean for states?

During his presentation, Litz explained that “under Section 111(d), you have what is  very common in the Clean Air Act: a federal and state interplay—a collaboration, or cooperative federalism.” EPA determines the standard based on the “best system of emissions reduction” and sets guidelines for state plans to achieve these standards. Litz added, “that includes things like when the state has to submit that plan, and what needs to be in the plan in order to be approved by EPA.”

States then develop plans that include specific requirements applying to their sources. So, while EPA sets the standard, states have flexibility in deciding how it is met.

The Court appeared to affirm the ability of states to be flexible when it comes to complying with EPA’s standard, including through emissions trading. But as Litz noted, it’s important to remember:

“It’s not just the standards; it’s the guidelines that apply to states…to the extent that there’s stringency in this standard, people will care about what goes in the guidelines.”

He emphasized engaging with EPA and state leadership directly to affect the guidelines and plans that are produced, reiterating the importance of stakeholder engagement to the outcome of decisions.

What does the West Virginia v. EPA decision mean for carbon capture?

EPA has signaled the anticipation of a new rule by March of 2023, covering new source performance standards for natural gas and existing source performance standards for natural gas and coal.

In light of this, Litz highlighted the agency’s draft natural gas technology white paper released with a request for public input this past spring. The white paper summarizes available information on control techniques and measures with the potential to mitigate greenhouse gas emissions from natural gas plants. The white paper features post-combustion carbon capture and storage as a possible control technology to reduce greenhouse gas emissions from stationary combustion turbines. Public comment was accepted through June 6, 2022, and EPA will evaluate this feedback as it develops a proposal.

Litz also emphasized the important federal and state dynamic at play when considering how carbon capture and storage (CCS) may translate into existing rulemaking, stating that “it’s important to keep in mind the two-stage approach to existing standards.”

With existing plants, emissions standards set by the EPA with CCS may not lead to CCS being the requirement states choose in their state plans.

As for new plants, the cost of installing CCS can be prohibitive relative to alternative types of power generation. This could mean fewer or no new plants, even if the new source performance standard is based on CCS.

In certain circumstances, CCS is already a part of the equation. As Duffy pointed out:

“Currently, if a new coal-fired power plant is built, the standard is based on partial carbon capture. And there they did find that it was adequately demonstrated, cost reasonable—all the hallmarks of a valid Clean Air Act system of emission reduction.”

Under the Trump Administration, that final rule for coal-fired power plants was challenged in the DC Circuit Court in a case called North Dakota v. EPA. Though the case was never finalized, the proceedings may be compelling to watch.

In thinking through what a Section 111 CCS-based standard might mean, Duffy went on to highlight two important considerations:

• First, “a technology need not be on every street corner to form a basis or part of the basis for emissions standards…” He emphasized the robust record for CCS compared to other technologies that previously formed the basis for EPA standards—a record that becomes stronger every day.
• Second, he stated the important distinction that “a standard based on CCS is not a mandate to install CCS,” and while EPA may set the standard in this way, individual power plants have flexibility in how they comply.

Poloncarz recognized this distinction as well and acknowledged that while the court has undergone a “seismic shift” in its thinking, one that favors a more traditional approach to standards setting, he noted that with CCS, “there’s a lot of room for creativity.”

Poloncarz went on to emphasize the relevance of previous administrations’ proposed standards in informing discussion of how carbon capture may come into play, emphasizing, “I think that’s a really critical thing for us to think about in how EPA might develop a CCS-based standard for plants, and then provide flexibility, so this doesn’t amount to, as Jay said, a ‘CCS mandate.’”

What does the decision mean for industry?

While it is uncertain how the Clean Air Act will be used to regulate industrial sources in the future, Litz cited two studies he helped author while at World Resources Institute as a basis for reflection.

In 2010 and 2013, Litz and colleagues surveyed Clean Air Act lawyers to determine how they thought Section 111(b) and 111(d) would be applied. They found that “in general, it was thought of that 111(b) and 111(d) would be the way that EPA ultimately could use the Clean Air Act to get reductions from industrial sources.” Though, he went on to note that how West Virginia affects this is nowhere near settled.

Poloncarz also noted that EPA has always recognized the distinct and integrated makeup of the electricity sector. That indicates it would not proceed in the same way to develop regulations for industrial sources such as refineries and cement plants. He agreed that “to the extent that EPA does a rule and its very traditional, it should be fine, and it should be subject to review based on its technical merits.”

Regarding the use of carbon capture at industrial facilities, Litz also noted that “since add-on technology is squarely in that traditional mode of regulation for EPA, and fuel switching as well, both carbon capture and carbon capture as a way to decarbonize hydrogen production seem to be squarely in the realm of what EPA can consider when setting these standards.”

Duffy later explained that certain places in the industrial sector have an even better cost and demonstration case for CCS-based standards. He provided hydrogen production as an example, which EPA could take measures to list as a new source category. While there is nothing preventing EPA from these taking steps, Duffy explained that carbon capture is being highlighted largely due to its relevance as a traditional pollution control technology.

While EPA looks to update its source performance standards early next year, the role CCS will play has yet to be determined. But Duffy astutely concluded, “building up the record for CCS is more important after this decision. Even more important than it was before.”