On January 19, the D.C. Circuit vacated the Affordable Clean Energy Rule (ACE), a rule intended to reduce greenhouse gas (GHG) emissions emitted from power plants. Am. Lung Ass’n et al. v. EPA, No. 19-1140. The lengthy opinion touches on numerous issues raised over the last 10 years as EPA has bumped toward the goal of regulating greenhouse gases. The opinion appears to be grounded in EPA’s own assertions, made in this and other rulemakings, that climate change is a grave threat to society and power plants are a significant source of GHGs.

The Trump administration had offered ACE to replace the Clean Power Plan (CPP), a rule requiring electric generation to “shift” from fossil fuels to low- or zero-emitting technologies to meet GHG goals. However, the cost-benefit analysis done to support ACE showed the new rule had little impact on power plant emissions.

The court stated that EPA has misconstrued its Congressional directive, noting: “Although the EPA has the legal authority to adopt rules regulating [power plant] emissions, the central operative terms of the ACE Rule and the repeal of its predecessor rule, the Clean Power Plan, 80 Fed. Reg. 64,662 (Oct. 23, 2015), hinged on a fundamental misconstruction of Section 7411(d) of the Clean Air Act. In addition, the ACE Rule’s amendment of the regulatory framework to slow the process for reduction of emissions is arbitrary and capricious.”

The court’s opinion focused on the following major points:

Fundamental Misconstruction: The court held that EPA misconstrued the first step set forth in Section 111, which is to determine the best system of emissions reduction. EPA had confined, through a series of definitional steps, its authority to action that could take place at a facility. The court said that “system” should be given its ordinary meaning, that the entire generation and delivery of electricity was a system, and that EPA had the flexibility to evaluate possible emission reductions based on the system, not actions taken at each unit. “In sum, traditional tools of statutory interpretation reveal nothing in the text, structure, history, or purpose of Section 7411 that compels the reading the EPA adopted in the ACE Rule.”

Major Question Doctrine: The court found no major question was presented. Because of the potential cost and re-making of the power industry, EPA argued that the CPP had overstepped its authority and only Congress had the ability to address such a major question as climate change regulation. To the contrary, the D.C. Circuit now says, EPA did have the authority to flexibly propose mechanisms that went beyond any specific power plant. This flexibility will likely be referenced as the Biden administration considers options for regulating power plants and other GHG emission sources.

Implementing Regulations: EPA proposed a set of implementing regulations to tie Section 110 and 111 procedures for cooperative federalism issues. These procedures modified long-enacted rules governing Section 110 submissions and the approval process from states to EPA. While the rules covered a number of issues that are more general in nature, the court found that tying the ACE and the general rules was unnecessary, and further found that the extended deadlines for an issue with dire consequences was arbitrary and capricious.

Through this opinion the D.C. Circuit has rejected many arguments about EPA’s lack of authority to regulate GHGs, and the role of EPA, states and energy regulators in the electricity sector. The decision may set the stage for a more ambitious approach to regulating GHGs in the electricity sector under the Biden Administration EPA.