trending Market Intelligence /marketintelligence/en/news-insights/trending/27_dwohfvqwleuji0-jm6g2 content esgSubNav
In This List

Environmental attorneys see legal holes in US EPA's new carbon rule


Despite turmoil, project finance remains keen on offshore wind

Case Study

An Energy Company Assesses Datacenter Demand for Renewable Energy


Japan M&A By the Numbers: Q4 2023


See the Big Picture: Energy Transition in 2024

Environmental attorneys see legal holes in US EPA's new carbon rule

The Trump administration's proposed replacement for the Clean Power Plan for regulating electricity sector carbon emissions could extend the lives of some aging coal-fired generating plants. But a brewing clash over competing interpretations of the Clean Air Act ultimately could decide whether the proposed regulation withstands legal scrutiny.

The U.S. Environmental Protection Agency still needs to finalize its Affordable Clean Energy, or ACE, rule once a 60-day public comment period has run, but pro-environmental attorneys already have identified what they view as a range of legal flaws in the proposal.

Critics of the EPA's system-wide approach to reducing carbon dioxide emissions under former President Barack Obama argued that his plan trampled upon states' rights and therefore was unconstitutional. However, opponents of the proposed ACE rule are preparing to argue that President Donald Trump's replacement plan is illegal because it would not go far enough.

The competing arguments rest on fundamentally different readings of the Clean Air Act, which remains open to interpretation nearly 50 years after it was passed.

Issued in 2015, the Clean Power Plan set a loose target of cutting carbon emissions 32% below 2005 levels by 2030. It also assigned each state a specific carbon emissions reduction goal that ranged in severity depending on the state's individual coal generation capacity.

States were given three main options for meeting those goals: improving the heat rate, or efficiency, of existing coal-fired power plants; increasing their reliance on lower-emitting existing natural gas plants; and boosting their use of renewable energy sources such as wind and solar. The Clean Power Plan also would have allowed states to use energy efficiency and participate in regional emissions trading programs to help meet their CO2 targets.

That rule immediately was challenged by 27 states and electric utilities, which accused the EPA of administrative overreach for effectively mandating an accelerated shift to natural gas and renewables. The U.S. Supreme Court stayed the rule in 2016, and it never went into effect.

In contrast to the Clean Power Plan's broader approach, the proposed ACE rule would only require changes within the fence line of existing coal-fired power plants. It would define the "best system of emission reduction," or BSER, as heat-rate efficiency upgrades to existing coal-fired power plants. The ACE rule also would allow plant operators to modify existing facilities without triggering additional environmental controls under a program known as new source review, or NSR, possibly extending the lives of plants headed for retirement.

Repeal and replace

Joseph Goffman, a chief legal architect of the Clean Power Plan, said he expects the EPA to finalize the ACE rule at the same time the agency finalizes its repeal of the Obama-era regulation. Goffman, now executive director of Harvard Law School's environmental and energy law program, said the timing would make sense because the ACE rule incorporates the same legal theory the EPA used to justify its repeal of the Clean Power Plan.

The theory holds that Section 111(d) of Clean Air Act does not authorize the EPA to force utilities to make "outside the fence line" changes to power plants to cut CO2 emissions, such as requiring shifts to natural gas and renewables. The U.S. Court of Appeals for the District of Columbia Circuit was in the midst of deciding the matter when the Supreme Court stepped in, and the case was placed on hold to give the Trump administration time to review the plan.

"They incorporate by reference the legal theory that they proposed in the repeal rule, and without that legal theory ACE falls apart," Goffman said in a recent interview.

Andrew Grossman, a partner at BakerHostetler who represented states in their legal challenges to the Clean Power Plan, agreed that the two actions possibly could be finalized at the same time. "Obviously, the repeal in some logical sense would have to come first, but they could also be done simultaneously and that would make sense, as well," he said.

After both actions are final, a coalition of blue states and environmental groups have vowed to take the EPA court.

No numerical standard

Andres Restrepo, a staff attorney with the Sierra Club, said one of the ACE rule's most glaring vulnerabilities is that the proposed regulation fails to establish specific emission reduction targets for CO2. Instead, the rule would outline a menu of optional heat-rate improvement technologies states could choose from to incorporate into their own plans.

Under the proposal, each state would have three years from when the regulation is finalized to prepare and submit a plan that includes performance standards for individual coal-fired generators. Those standards would need to reflect the degree of emissions reductions plants could achieve through heat efficiency gains, but emission reduction targets would be left to the states.

"For us, that's blatantly unlawful," Restrepo said. "You don't even know if there's going to be any emission reductions achieved at all."

The language of Section 111(d) clearly implies that specific metrics should be included with any BSER recommendations, according to Restrepo. "If you don't actually have a numerical standard there in place, then how can you say they reflect the degree of emissions reductions achievable," he asked. Restrepo also noted that the Supreme Court in 2007 affirmed that the EPA has authority to regulate climate-changing greenhouse gases, and the agency in 2009 found that such emissions endanger public health.

Margaret Claiborne Campbell, a partner with the Troutman Sanders law firm who represents electric utilities, said the EPA under the current administration has taken a more narrow view of the Clean Air Act.

"No question, supporters of the Clean Power Plan who are likely to challenge this rule will take issue with EPA's decision to leave the standards up to the states," she said in a recent interview. "They prefer for EPA to establish national standards, but the Clean Air Act does not provide that. That's the states' job, and there's nothing in the Clean Air Act that says it's EPA's job to come up with presumptive limits."

'Really problematic'

The ACE rule also could unravel if a court strikes down its proposed changes to the Clean Air Act's NSR program, Goffman said.

Under the current NSR program, changes to fossil-fueled generators that are expected to result in a "significant increase" in hourly or annual emissions could also trigger the need to install state-of-the-art pollution controls. However, the ACE rule would exempt coal-fired plants from those controls if proposed heat-rate improvements are not projected to increase hourly emission rates.

"Changing the trigger for the way NSR is calculated makes all the sense in the world," Grossman said. "This favors the kinds of efficiency and emission reduction technologies that at the end of the day, everyone is in favor of."

But critics say the upgrades also could cause more efficient coal-fired plants to run more often, potentially increasing total annual emissions.

Some previous efforts to revise the NSR program, which was established in 1977 as an amendment to the Clean Air Act, were unsuccessful. The D.C. Circuit struck down two attempts by the EPA to weaken the program in 2005 and 2006 under the George W. Bush administration, when Bill Wehrum, the current EPA Office of Air and Radiation assistant administrator, first served in the office.

"This approach overlaps pretty significantly with the earlier proposals that have been rejected by the court," Goffman said.

The EPA is proposing to make the changes "severable" from the ACE rule, meaning the rest of the regulation would be left intact if a court invalidates the revisions to the NSR program. But challengers could argue that the NSR modifications are central to the ACE rule because struggling coal-fired plant operators will not invest in heat-rate improvements if they also are required to install expensive pollution controls, Goffman said.

"In terms of defensibility, the NSR changes are really problematic," he said.

Speaking more broadly, Goffman expects that the EPA will likely take one of two approaches, the first of which is to argue that its reading of the Clean Air Act is the only correct interpretation. If successful, that approach would prevent a future administration from using Section 111(d) to regulate CO2 emissions at the national level. "But that's a much harder thing to demonstrate because challengers would offer reasons why the statute could be interpreted in a different way," Goffman added.

The other alternative, Goffman said, would be for the EPA to contend that the statute can be read in multiple ways but still maintain that the interpretation underlying the ACE rule is reasonable. "Even if the court doesn't agree with the agency's interpretation, they could still say it's reasonable," he said.