Site Sections to Include

NEWS & INSIGHTS

June 23, 2014
U.S. Supreme Court Strikes Down EPA’s Greenhouse Gas Permitting Regulations: Five Things You Need to Know

Today, June 23, 2014, the Supreme Court issued a significant decision in Utility Air Regulatory Group v. EPA, No. 12-1146 (L), that substantially restricts the authority of the U.S. Environmental Protection Agency (EPA) to regulate greenhouse gas emissions (GHGs) from stationary sources under the Clean Air Act’s Prevention of Significant Deterioration (PSD) and Title V permitting programs. That decision, adopting one of the petitioners’ principal arguments, holds that EPA may not impose permitting requirements on facilities based solely on their emissions of GHGs, but may regulate those emissions under these programs only if a facility is otherwise subject to permitting based on emissions of other air pollutants.

Below we offer a brief background of the case and discussion of the Court’s holding, followed by several immediate key points from the decision.

Background

In the rules under review, EPA adopted an interpretation of the Clean Air Act under which stationary sources would be required to obtain construction and operating permits under the PSD and Title V programs, whenever a facility emits GHGs above certain threshold levels as set forth in the Clean Air Act. EPA recognized, however, that because the statutory thresholds were quite low when applied to GHGs (compared to “conventional” air pollutants), applying the programs as written to GHG emissions would lead to “absurd results” by subjecting millions of small sources such as schools, hospitals and churches to permitting requirements. Despite that outcome, EPA chose to include GHGs among the pollutants that could trigger permitting requirements. At the same time, EPA modified the statutory emission thresholds, in a rulemaking known as the Tailoring Rule, so that only large industrial sources would be subject to permitting requirements at the outset, although the agency retained authority to lower the thresholds further over time to cover additional sources.

A wide range of commercial and industrial associations and advocacy organizations challenged those rules and the interpretation of the Clean Air Act on which they were based. The petitioners argued that EPA’s interpretation could not stand as an initial matter because, by the agency’s own admission, it produced “absurd results” through application of the PSD and Title V permitting programs to millions of smaller sources of GHG emissions that Congress never intended to cover. To avoid these results, the petitioners argued, EPA should have adopted a different interpretation of the Clean Air Act under which either (i) GHGs cannot ever constitute an “air pollutant” for purposes of these programs and therefore cannot be regulated under them in any circumstances or, in the alternative, (ii) emissions of GHGs cannot trigger permitting obligations under PSD or Title V but may be regulated under those programs only if a facility is otherwise subject to permitting by virtue of conventional pollutant emissions.

Six petitions for certiorari by several different groups were granted by the Court, and consolidated for purposes of decision. Oral argument was heard on February 24, 2014. Peter D. Keisler of Sidley Austin LLP presented argument on behalf of all petitioners.

Holding

In today’s divided 5-4 decision, authored by Justice Scalia, the Court agreed with the petitioners’ alternative argument and held that EPA’s rulemakings were invalid. It reasoned that, although the Court in Massachusetts v. EPA, 549 U.S. 497 (2007), had held that GHGs qualify as an “air pollutant” for purposes of the term’s general definition in the Clean Air Act, that broad definition does not compel EPA to regulate GHG emissions as an “air pollutant” when doing so would be contrary to the statutory purpose and context. Given the “absurd results” that would admittedly be produced by applying the PSD and Title V programs to facilities based solely on their emissions of GHGs, the Court held that those emissions cannot reasonably be deemed an “air pollutant” for purposes of the triggering provisions of those programs. The Court specifically and unequivocally rejected EPA’s attempt to avoid those absurd results by modifying the statutory thresholds in the Tailoring Rule, stating that “[t]he power of executing the laws … does not include a power to revise clear statutory terms that turn out not to work in practice.”

The Court, however, stopped short of holding that GHGs could not be regulated at all under the PSD and Title V programs. In particular, it held that, for those sources otherwise required to obtain a PSD permit absent GHG emissions, such sources must comply with “best available control technology” (BACT) standards for GHGs. While the Court acknowledged that the application of BACT to GHGs could conceivably “lead to an unreasonable and unanticipated degree of regulation,” by subjecting essentially every aspect of a facility’s operation to oversight and control to limit overall GHG emissions, it concluded that these problems were not certain to result and might be addressed through appropriate agency guidance. The Court emphasized, though, that it was not approving of EPA’s current approach to BACT regulation of GHGs, or of any approach that may be adopted, and that it was holding only “that nothing in the statute categorically prohibits EPA from interpreting the BACT provision to apply to greenhouse gases.”

The decision was joined in different parts by different groups of Justices. The principal opinion, authored by Justice Scalia, was joined in full by Chief Justice Roberts and Justice Kennedy. Justices Thomas and Alito joined in the holding that GHG emissions cannot trigger PSD or Title V permitting, but (as stated in a concurring and dissenting opinion authored by Justice Alito) would have gone further and held that GHGs are not subject to BACT under any circumstance. Justice Breyer authored a separate opinion, with Justices Ginsburg, Sotomayor and Kagan, dissenting from the Court’s conclusion that GHG emissions cannot trigger permitting, but agreed with and joined the Court’s opinion holding that those emissions are subject to BACT.

Key Points

The Court’s decision will have significant and continuing impacts on EPA’s authority to regulate GHG emissions and the interpretation of the Clean Air Act. In the near term, five key points are relevant:

  1. Greenhouse Gas Emissions Do Not Trigger Permitting Obligations – The principal legal holding of the decision is also the most significant from a practical perspective. Stationary sources cannot, under the Court’s ruling, be subject to permitting requirements—either the pre-construction requirements of the PSD program or the operating requirements of the Title V program—based on their emissions of GHGs. In the short term, facilities going through the permitting process, or various administrative and judicial appeals of permits, only because of GHG emissions should be relieved of their permitting obligations. In the longer term, this means that the millions of sources that might otherwise have been obliged to apply for and obtain permits under these programs, including not only industrial plants but also smaller commercial and agricultural operations, will not be required to do so.
  2. The Tailoring Rule is Invalid – The Tailoring Rule was not directly under review in the case, but the Court nevertheless considered it and unambiguously declared it to be invalid. That rule purported to modify the emissions thresholds set forth in the Clean Air Act—governing when PSD and Title V permitting would be triggered—to account for GHGs, and it made clear that EPA intended to further modify the thresholds in the future to cover additional sources, whenever the agency deemed it appropriate. The Court squarely rejected this proposition, reaffirming “the core administrative-law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.” With this decision, the Tailoring Rule—and subsequent related rulemakings—should be vacated.
  3. Greenhouse Gas Emissions Are an “Air Pollutant” Subject to Regulation under the Act – While the decision holds that GHGs are not an “air pollutant” for purposes of triggering PSD and Title V permitting requirements, it stops short of holding that GHGs are not an “air pollutant” for other purposes. To the contrary, the Court affirmed its prior holding in Massachusetts v. EPA, 549 U.S. 497 (2007), that the term “air pollutant,” as generally defined in the Clean Air Act, includes GHGs. Notwithstanding this general definition, however, the scope of the term may be more limited when used in particular contexts.
  4. EPA May Regulate Greenhouse Gas Emissions under BACT, But Its Authority is Limited – The decision expressly holds that, for facilities that are otherwise subject to PSD permitting obligations (by virtue of their emissions of conventional pollutants), EPA may regulate GHGs from those facilities through the PSD BACT standards. However, the decision admonishes that EPA’s authority in this regard is limited, and must be exercised in accord with the purpose of the Clean Air Act. In particular, the decision states that BACT regulation cannot be exercised in a manner that allows the agency to require “every conceivable change that could result in minor improvements in energy efficiency,” merely because those changes might result in some decrease in GHGs. It also prohibits EPA from imposing BACT requirements on sources of de minimis emissions of GHGs, and directs the agency to determine an appropriate threshold before proceeding with BACT regulation. The decision notes expressly that it “should not be taken as an endorsement of all aspects of EPA’s current approach, nor as a free rein for any future regulatory application of BACT in this distinct context,” and that future BACT rulemakings will be subject to review and potential challenge.
  5. EPA’s Authority to Regulate Greenhouse Gas Emissions under the New Source Performance Standards is Not Directly at Issue, but the Court Casts a Shadow – The decision notes that EPA’s authority to regulate GHG emissions under the New Source Performance Standards (NSPS)—rulemakings that are currently pending before EPA—are “not at issue here” and need not be addressed. Several aspects of the decision, however, may cast a shadow as EPA proceeds with those rulemakings. The decision warns, for instance, that “[w]hen an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy,’ we typically greet its announcement with a measure of skepticism.” That statement, although relating here to the regulation of GHGs under the PSD and Title V programs, might apply with equal force to the regulation of those emissions under the NSPS program under EPA’s current proposals that dramatically impact coal and natural gas utilitzation by utilities. Similarly, the decision’s admonition that EPA’s regulatory authority—even when conferred by the statute, as with the BACT standards—must be exercised with caution and is not entitled to boundless discretion would seemingly apply also to EPA’s attempts to regulate GHG emissions under NSPS.

If you have any questions regarding this update, please contact the Sidley lawyer with whom you usually work or

Peter D. Keisler
Partner
 
+1.202.736.8027

Roger R. Martella
Partner
 
+1.202.736.8097

Quin M. Sorenson
Partner
 
+1.202.736.8456


Teleconference - Debrief of the Supreme Court's UARG v. EPA Opinion on EPA's GHG Rulemakings
June 24, 2014, 2:00 PM ET

To learn more about this topic, join Roger Martella, who will be moderating this teleconference sponsored by the Environmental Law Institute, ABA Section of Environment, Energy, and Resources and the D.C. Bar Environment, Energy, and Natural Resources Section.

Please click here to register for this event.


 

Sidley Environmental Practice
 
Sidley Appellate Practice

To receive future copies of this and other Sidley updates via email, please sign up at www.sidley.com/subscribe.

Sidley Austin provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.

Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, 212.839.5300; One South Dearborn, Chicago, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washington, D.C. 20005, 202.736.8000.