The US Supreme Court today rejected six to three certain steps the US Environmental Protection Agency tried in the past to regulate greenhouse gas emissions. 

The court concluded that EPA has only narrow authority under section 111(d) of the Clean Air Act to regulate greenhouse gas emissions from existing power plants.

It said that capping carbon dioxide emissions at a level that will force a nationwide transition away from the use of coal to generate electricity may be a sensible solution to “the crisis of the day,” but a “decision of such magnitude and consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body.”

The decision in West Virginia v. EPA is a clear win for coal.  Coal is the most significant source of greenhouse gas emissions from the US power sector.  It accounted in 2020 for about 54% of carbon dioxide emissions from the US power sector while accounting for only about 20% of US generating capacity.    

The case revolved around whether the Obama EPA had authority to impose a “Clean Power Plan” on the states in 2015 that would have required them to shift electricity generation away from coal toward cleaner sources.  The Obama plan would have pushed states to reduce coal-fired electricity generation from 38% to 27% of total electricity generation over time. 

The court also said that EPA does not have authority to impose a cap-and-trade system on carbon or any other types of emissions, other than SO2 and NOx. 

It said that if EPA wants to take these types of actions, it needs clearer authority from Congress than it has been given to date.

The only clear authority EPA has currently to the reduce greenhouse gas emissions from existing power plants is to require individual power plants to install the best available pollution control equipment, the court said.

The decision leaves EPA unable to take direct regulatory action to address greenhouse gas emissions from existing power plants unless a gridlocked Congress grants clearer authority. 

Regulators are now likely to try creative work-arounds.  For example, agencies may focus on further regulation of other pollutants, such as coal ash or mercury, where the delegation of regulatory authority is arguably better grounded and where reductions in greenhouse gas emissions would also result. 

The Biden administration is working on a replacement for the Clean Power Plan that EPA suggests could come as soon as March 2023.  The court decision will necessarily narrow the contours of that replacement plan.

The reasoning used by the court suggests the greenhouse gas decision could be the first in a series of similar decisions that limit agency authority to regulate in a range of areas in the absence of clear legislative delegation, fundamentally shifting the current understanding of federal regulatory authority. 

The court has a Clean Water Act case already on its calendar for the fall term that could lead to new limits on federal ability to address water pollution.

The effect of the decision on the renewable energy sector is indirect.  Renewables have gotten traction in part because coal and nuclear power plants have shut down, thereby making room for new generation in a market where electricity demand is static.  Coal-fired power plants will continue to be retired for economic reasons and advancing age.  Many have been in service for more than 50 years.  The court said today that EPA has limited ability to accelerate the shift.

The decision will increase calls for more tax and other incentives for renewables from Congress because there is more need for carrots if the stick is taken away.