Whenthe parties litigating the Clean Power Plan appear before the U.S. Court ofAppeals for the District of Columbia Circuit on June 2, their arguments willreflect the ambiguity left by more than a decade of legal wrangling over theregulation of greenhouse gases.

TheClean Power Plan established statewide carbon dioxide emission standards forexisting fossil fuel-fired electric generating units with the goal of cuttingCO2 emissions 32% as measured from a 2005 baseline by 2030. The proceeding challengingthe rule before the D.C. Circuit is currently in the briefing stage, and thedocuments that have been tendered to the court provide a glimpse into theenergy policy and litigation history that gave rise to the carbon rule.

Eachkey case has been picked through and analyzed for the one hidden clause thatmay change the judges' mind one way or the other. In some instances,stakeholders on each side of the debate cited identical cases but put forthdiffering interpretations of the same text.

Inan unprecedenteddecision, the U.S. Supreme Court on Feb. 9 stayed the carbon rule, rendering it unenforceable whilethe litigation proceeds. States were to have submitted their initial stateplans or request a two-year extension in September, while compliance was notscheduled to begin until 2022.

A long and winding road

Acoalition of 18 states plus large cities and counties impacted by climatechange submitted their defense of the Clean Power Plan on March 29. Many of thestates were among those that sued the EPA over a decade ago in an effort toforce the agency to start regulating carbon, resulting in the seminal 2007Supreme Court case Massachusetts v. EPA.In ruling on that case, the high court determined that the EPA can and should regulategreenhouse gases, including carbon, if it finds that their emission endangersthe public's health and welfare.

TheEPA administrator in late 2009 made that determination, referred to as the ,concluding that carbon emissions cause lengthy heat waves, smog in cities,longer and more severe droughts, more intense storms, rises in sea levels andother problems.

Oncethe endangerment finding went into effect in January 2010, the EPA began totake its first formal steps to regulate greenhouse gases under the preventionof significant deterioration, or PSD, and Title V permitting programs. Largeemitters of greenhouse gases began collecting data on those emissions for submission in2011.

Meanwhile,in March 2010, the EPA issued a notice often referred to as the "timing rule,"which advised that no stationary sources would have to get permits to covergreenhouse gases before January 2011. In that notice, the agency also reaffirmedthat the release of the pending greenhouse gas emissions standards for vehicleswould trigger a requirement for the agency to also regulate the emissions fromstationary sources of the pollutant.

Theemissions standards for cars and light trucks, often referred to as the"tailpipe rule," were finalized and published in the Federal Registeron May 7, 2010, and became effective in January 2011. Just six days after thetailpipe rule was published, the EPA announced the final rule targeting power plants and other largestationary sources, which is often referred to as the "tailoringrule" because it changed the permitting programs to better suit greenhousegases.

Thetailoring rule created criteria for determining which stationary sources andmodified projects would be subject to the new permitting requirements,excluding smaller emitters and instead focusing on power plants and otherindustrial operations responsible for 70% of the greenhouse gases fromstationary sources. Any affected stationary source that was already obtainingClean Air Act permits for other pollutants would have to start meeting the newgreenhouse gas requirements as of January 2011. However, the first phase of thenew requirements did not apply to stationary sources that emit only greenhousegas emissions; regulation of those sources would be phased in later on.

Asthe EPA worked on its greenhouse gas regulations, the states involved in Massachusetts decided to move ahead inhopes of forcing action on the emission of climate change-causing pollutants.The states filed common-law public nuisance suits directly against fourutilities alleging that the plant operations were a "public nuisance"because their emissions contributed to global warming. The Supreme Court's June2011 ruling in American Electric Power v. Connecticutrejected the common-law claims but determined that the Clean Air Act"directly" authorizes the EPA to regulate greenhouse gases from powerplants under Section 111(d).Justice Ruth Bader Ginsburg, who wrote the decision, noted that the EPA wasactively engaged in regulating carbon dioxide from power plants as part of thetailoring rule, which is what the states were seeking in AEP. "We see no room for a parallel track," Ginsburgwrote.

TheEPA's greenhouse gas rules, including the tailoring rule, were later challengedbefore the federal courts, where they first found in the 2012 D.C. Circuit case Coalition for Responsible Regulation Inc. v.EPA. The court upheld both the tailoring rule and the timing rule, aswell as the EPA's endangerment finding.

Butin June 2014, the U.S. Supreme Court in UtilityAir Regulatory Group v. EPA struck down the tailoring rule, that the agencyoverstepped its jurisdiction by requiring permits from thousands of emittersthat would need to apply solely because of greenhouse gas emissions, a grouprepresenting 3% of American stationary source emissions. The court did,however, generally uphold the EPA's authority to require greenhouse gascontrols under the PSD and Title V programs.

'There is an exception'

Allof these court challenges and rulemakings have essentially culminated in theAugust 2015 release of the final version of the Clean Power Plan, which the EPAdeveloped at the request of President Barack Obama. The rule set carbonemissions standards for existing power plants, as well as for new and modifiedsources in a separate, although related, regulation. The courts' affirmation ofthe EPA's authority provides evidence — at least according to the supportivestates — that the agency lawfully crafted the Clean Power Plan under Section111(d) of the Clean Air Act.

Butthe carbon rule's opponents take a different view of AEP, specifically citing a single sentence penned by Ginsburg thataddressed various sections of the Clean Air Act.

Tounderstand Ginsburg's comment, one must first understand that the Clean Air Actgives the EPA threeways to regulate pollutants from sources such as power plants.Sections 108 through 110 deal with criteria pollutants, and notable regulationsestablished under those sections include the National Ambient Air QualityStandards, which cover ozone, sulfur dioxide and other pollutants individually.Under Section 112, which the EPA has used to promulgate the Mercury and Air ToxicsStandards, Congress maintains a list of pollutants deemed hazardous. Section111 is considered a catch-all for pollutants that do not fit under either ofthe other two provisions, and Congress left that section fairly ambiguous toensure that no gaps in coverage exist.

Ginsburgwrote that Section 111 directs the EPA administrator to list the types ofsources that "cause or contribute significantly to air pollution which mayreasonably be anticipated to endanger public health or welfare." Once apower plant, for example, is listed as a source of a pollutant, the agency mustestablish standards of performance for emissions of that pollutant for new andmodified power plants under Section 111(b) of the act. And, under Section111(d), the agency must do the same for existing power plants.

Wherethe opponents find a crack in the statute is through the seventh footnote ofGinsburg's opinion, in which she wrote: "There is an exception: EPA may notemploy [Section 111(d)] if existing stationary sources of the pollutant inquestion are regulated under the national ambient air quality standard program,[Sections 108-110], or the 'hazardous air pollutants' program, [Section 112]."

TheClean Power Plan's challengers quoted that footnote in their opposition briefto the D.C. Circuit, insisting that since power plants are regulated formercury under Section 112 they cannot be regulated again for a differentpollutant under Section 111(d). "If a source category is governed by arule under Section 112, EPA may not require states to set a standard ofperformance for sources in that category under Section 111(d). Or, as theSupreme Court has said, 'EPA may not employ [Section 111(d)] if existingstationary sources of the pollutant in question are regulated under … [Section112]," according to the opposition brief.

BracewellPartner Scott Segal does not believe anyone could interpret Ginsburg's passagein any other way. "Those that say that Footnote 7 refers only to thespecific pollutant are engaged in wishful thinking. The footnote clearlyreinforces the well-understood language that use of Section 112 authorityexcludes the use of Section 111(d)," said Segal, who is also the directorof the Electric Reliability Coordinating Council, a coalition of energycompanies that opposes the Clean Power Plan.

Segalsaid Footnote 7 is unambiguous and suggested that even the EPA in thepast has admitted that the passage means regulating a pollution source underSection 111(d) is prohibited when that source already is regulated underSection 112.

"Itis not just us lawyers saying this," Segal said. "EPA now says themeaning of the language is ambiguous. But that is a post hoc rationalization byEPA, newly minted only to win this case. There is no ambiguity in the phrase'source category.'"

Thechallengers also say in their brief that the "EPA has repeatedly agreedthat this prohibition against regulating under Section 111(d) any existing'source category … regulated under Section [1]12' means what it says … Theagency consistently concluded that this text means that 'a standard ofperformance under CAA Section 111(d) cannot be established for any airpollutant … emitted from a source category regulated under Section 112,'repeatedly describing this as the text's literal meaning."

Conversely,Daniel Riesel, a principal with environmental law firm Sive Paget & Riesel,reads Ginsberg's footnote to mean a pollutant already regulated as either acriteria or hazardous pollutant cannot be regulated under Section 111(d), andnoted that carbon is listed as neither.

Rieselfails to see how the footnote could be read to address only the source. "Idon't know how you would get that out of AEPbecause she says there's only one exception. … There is an exception, meaning one."

'A measure of skepticism'

Thelate Supreme Court Justice Antonin Scalia authored the opinion in UARG, writing that the court reviews theEPA's interpretations of the Clean Air Act using the standard set forth in thelandmark 1984 case Chevron vs. NaturalResources Defense Council. That landmark case set the standard for givingfederal agencies deference over issues on which Congress has not clearlyprovided guidance unless those agencies' interpretations are unreasonable asdetermined by a court.

WithChevron as a backdrop, Scalia saidthe court presumes that when an agency-administered statute is ambiguous withrespect to what it prescribes, Congress has given the agency authority toresolve the ambiguity. However, the courts must consider whether the agency inquestion acted reasonably and within the bounds of its statutory authority indoing so.

ButScalia was also critical of the agency in UARG for claiming new powers granted under well-established laws."When an agency claims to discover in a long-extant statute an unheraldedpower to regulate 'a significant portion of the American economy,' we typicallygreet its announcement with a measure of skepticism," Scalia wrote.

Inthe Clean Power Plan case, the petitioners say the carbon rule is an example ofthe "transformative expansion in EPA's regulatory authority" to whichScalia referred in UARG. Moreover,the petitioners cite King vs. Burwell,a Supreme Court ruling on the Affordable Care Act that upheld federal subsidiesto help Americans buy health insurance. In that case, Chief Justice JohnRoberts refused to defer to the IRS's interpretation of the law. "Inextraordinary cases … there may be reason to hesitate before concluding thatCongress" intended courts to defer to agency interpretations, Robertswrote. "This is one of those cases."

Therefore,the Clean Power Plan challengers assert that deference should not be granted tothe EPA because the rule is an attempt to aggressively transform the powerindustry, about which they believe the EPA has no expertise.

Forits part, the EPA argues that Chevrondoes indeed apply because the Clean Air Act clearly gave the agency authorityto fill in any gaps in regulation of pollutants that have long been regulatedfrom a source. As for King, the EPAsaid Congress had clearly not assumed that the interpretation of health carereform would be tasked to the "IRS — the agency that collects taxes buthas 'no expertise' in health-care policy." Conversely, the EPA says it hasdecades of experience in regulating power plant emissions.

Giventhe Supreme Court's early interest in the Clean Power Plan and decision to staythe rule while the litigation proceeds, experts say the carbon rule has aguaranteed trip to the high court in its future where, hopefully, the issue ofregulating carbon from power plants will be put to rest once and for all.