The Clean Power Plan’s Legal Path

Standard

Background

The Clean Power Plan (CPP) issued by the U.S. EPA in August 2015 represents a hallmark in regulatory and judicial actions.  However, on February 9, 2016, the U.S. Supreme Court stayed implementation of the CPP by a 5-4 vote pending judicial review at the lower court level.  This decision in no way reflects a decision on EPA’s rule itself.  Rather, the Supreme Court ruling—made before the death of Associate Justice Antonin Scalia—has simply delayed implementation of the EPA rule pending review at the U.S. Court of Appeals for the District of Columbia (DC Circuit).  The DC Circuit is scheduled to hear the case on June 2, 2016 with a decision to be rendered later in the year.  The DC Circuit is likely to be favorably disposed to EPA’s plan as our analysis below shows.  Their ultimate ruling is critical because if the Supreme Court is later deadlocked at 4-4 on an appeal of the DC Circuit’s ruling, then the DC Circuit decision will stand (although it could be reviewed again later once a full complement of nine justices is empaneled).

The CPP issued by EPA is based on Section 111 of the Clean Air Act (CAA) authorizing performance standards for both new and existing sources.  The plan seeks to reduce power plant emissions through state compliance plans (SCPs) to be implemented by 2022.  More detail on the CPP can be found here: https://www.epa.gov/cleanpowerplan.  However, despite flexible compliance mechanisms, 27 states and other manufacturing groups filed to appeal the CPP rule.

Prior legal challenges to block EPA from finalizing CPP rules had failed up until the Supreme Court stay in February.  Generally, CPP opponents claim EPA is overstepping its authority under Section 111(d) of CAA, and since EPA’s plan extends deeply into unchartered legal territory, the Supreme Court decided to stay further actions.  While EPA cannot compel the states to take additional action on the CPP right now, it can still advance understanding of emissions trading and benefits of greenhouse gas (GHG) regulation.  Almost 20 states are still moving forward with development of their SCPs.

Legal Issues

When the Clean Air Act was enacted and later amended in 1990, there were two different versions of Section 111(d) in the final statue from the House and Senate.  These differences were never reconciled in Conference Committee before being signed by the President.  Indeed, EPA chose to follow the Senate version of this section in the CPP because it prohibits the agency from writing a second rule controlling a pollutant that is already regulated.  Since GHGs are not regulated from power plants elsewhere in Section 112, the EPA would be free to regulate them under Section 111. In fact, EPA believes it is simply upholding current law following its 2009 Endangerment Finding that GHGs (including CO2) meet the necessary guidelines to be regulated under the existing Clean Air Act, and thus the CPP is not intended to foster conflict but merely adhere to existing law.

The CPP’s definition of the “best system of emission reduction” is also being challenged. EPA believes this system can be applied to entire power sector on a statewide basis.  In contrast, opponents believe the system is limited to individual emitting sources, since all emission sources within a state are not equally integrated into the power sector.  CPP proponents favor EPA’s expertise and flexibility in determining the scope of the rule.

Additionally, federalism is being advanced as an issue by some states that do not wish to implement a national policy that runs counter to state authority.  This same issue has arisen related to water and healthcare with the states as well.

Timing is also a challenge. While the DC Circuit plans to rule on this case later in 2016, because of the annual rotation of law clerks in the DC Circuit every August, appellate justices could lose research continuity and support soon after the hearing thereby impeding progress.  Separately, if the Supreme Court elects to hear an appeal of the DC Circuit decision in early 2017, a final decision is likely not until 2018 from the Supreme Court on the merits of the case.  Regardless, the final outcome could hinge on the 2016 elections, as the party that wins the White House will likely appoint the next justice to the Supreme Court (replacing Justice Scalia).

Precedent and Conclusion

History shows a judicial deference to EPA decisions.  The authors reviewed all judicial rulings at the DC Circuit since President Obama took office (2009-present) in cases where EPA was the Appellee and an Appellant was challenging an EPA policy (or ruling) previously upheld at a lower court.  Out of the 289 cases reviewed, EPA’s record at the DC Circuit was 239 wins, 30 losses, and 20 mixed results.  Only slightly more than 10 percent of the time did EPA lose outright on cases decided before the DC Circuit, evidence of deference to EPA at the Appellate Court level.  Recall the DC Circuit’s ruling might prove to be pivotal because lower court rulings stand when the Supreme Court has a tied vote (e.g. 4-4).

The international Paris Agreement in December 2015 adds broader interest and pressures for GHG regulations.  The Paris commitments may need additional policies in the U.S. beyond the CPP and tax incentives to succeed—an opportunity for tools under existing law to be used for the first time to reduce emissions.  For example, Section 115 of the Clean Air Act could support GHG action beyond the power sector in the U.S. by offering broad country reciprocity over any air pollutant anticipated to harm or threaten public health or welfare in a foreign country.  The U.S. already treats GHG emissions as pollutants and the United Nations Framework Convention on Climate Change offers the U.S. the reciprocity required to pursue Section 115.

The CPP is a part of an ongoing public debate in the U.S. regarding energy and environmental policy.  Pivotal to that public debate will be the judicial rulings on the CPP likely to arrive in early 2017 by the DC Circuit.  With the prospect of Congressional action on climate policy unlikely, all eyes are on the courts to decide if the first, nationwide policy limiting GHG emissions in the U.S. will take effect or not.

Addendum: On May 16, the DC Circuit announced that oral arguments will be delayed until September 27, 2016.  Furthermore, the case will be heard en banc by the full panel of DC Circuit judges, rather than the usual, smaller three-judge panel.  Experts believe that the en banc review at this step of the judicial review will expedite final resolution of the legal issues surrounding the Clean Power Plan.

CE3 Blog by Daniel H. Karney, Department of Economics and Michael J. Zimmer, Executive in Residence & Senior Fellow, Ohio University; Edited by Elissa E. Welch, Project Manager, CE3. May 2016.

 

Advertisements

What is at Stake? Assessing the Real Impact of the Clean Power Plan

Standard

On February 9th, 2016, the U.S. Supreme Court issued a stay on the implementation of the U.S. EPA’s Clean Power Plan (CPP).  Hearings on the case will be held during the summer with a potential decision likely by end of the year.  Future blog entries will discuss the political and legal aspects of the case.  The purpose here is to discuss the impact of the CPP nationwide if it were ultimately implemented.

The EPA’s website says the CPP is “a historic and important step in reducing carbon pollution from power plants that takes real action [emphasis added] on climate change.”[1]  The key step in determining the veracity of this claim is figuring out what “real action” means.  Appealing to the logic of the scientific method is the best way to generate fact-based conclusions.

Scientists like experiments, and scientific progress often comes from experimental results.  For instance, start with two petri dishes: one labeled “control” and the other labeled “treatment”.  Add bacteria to the treatment dish and watch the bacteria colony grow, while the control dish remains dormant.  This simple experiment demonstrates the basic logic of the scientific method; keeping all else equal, observe the effect of changing one variable between the control and treatment scenarios.  The same logic can be applied to determining the CPP’s real effect.

To start, EPA summarizes the CPP’s impact as follows: “When the Clean Power Plan is fully in place in 2030, carbon pollution from the power sector will be 32 percent below 2005 levels, securing progress and making sure it continues.”[2]  The problem with this characterization is that it only presents the “treatment” scenario; that is, EPA states what would happen with CPP implementation.  Indeed, the logic of the scientific method requires us to look at the difference between the treatment (“with CPP”) and control (“without CPP”) scenarios when determining the impact.  Therefore, what would be the emission levels in the “control” scenario without CPP implementation?

Fortunately, EPA conducted a Regulatory Impact Analysis (RIA) that provides the information necessary to implement our “scientific method”-based analysis.[3]  Below is Table ES-4 from the RIA that provides CO2 emission projections for a base case without CPP implementation and two policies cases under CPP implementation.  The two policy cases are labeled “rate-based” and “mass-based”, respectively, but for this analysis the distinction is not important.  Consider the base case the “control” scenario and the policy cases the “treatment” scenario.

CPP Table ES-4

The Table ES-4 reports projections emission projections out to 2030 for the base case (or business as usual) and policy cases.  By 2030, the policy cases both achieve a 32 percent reduction from the 2005, just as EPA claims (see the last column of the table).  However, the base case without CPP implementation projects an emissions reduction of 17 percent by 2030 relative to the 2005 baseline.  This is mainly due to the falling price of natural gas generation relative to coal generation, where the former is significantly less carbon intensive than the latter.  But, importantly, this change in the generation mix is independent of CPP implementation and thus included in the control scenario (i.e., base case).  Therefore, the difference between the control and treatment scenarios is only 15 percent, not 32 percent!  That is, implementing the CPP, all else equal, leads to a 15 percent difference between in the emission level from existing power plants by 2030.[4]

As litigation surrounding the CPP proceeds during the summer, it is important to remember what is really at stake: 15 percent.  While that 15 percent reduction in U.S. power plant emissions might seem small, it actually represents over 400 million short tons of CO2 reductions, which is equivalent to all 2011 carbon emissions from Spain.[5]

CE3 Blog by Daniel H. Karney, Department of Economics, Ohio University.

[1] https://www.epa.gov/cleanpowerplan/clean-power-plan-existing-power-plants
[2] https://www.epa.gov/cleanpowerplan/fact-sheet-overview-clean-power-plan
[3] https://www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis
[4] This analysis relies on the results from EPA’s model of the U.S. electric power sector given a set of assumptions.  Different assumptions – for instance, a higher economic growth rate – change the model results.  Furthermore, a different model with a different model structure might yield different results and therefore different conclusions.
[5] http://www.ucsusa.org/global_warming/science_and_impacts/science/each-countrys-share-of-co2.html#.VvP8uHDeMgs