trending Market Intelligence /marketintelligence/en/news-insights/trending/Yt3x8IZxb-mERVTWamF6_g2 content esgSubNav
In This List

Both sides land punches during Clean Power Plan oral arguments

Blog

Funding Social and Affordable Housing: A Credit Perspective

Blog

Global M&A By the Numbers: Q2 2021

Blog

Global Capital Markets & SPAC Activity – H1 2021

Blog

Over 150 state-level energy-related measures enacted during Q2'21


Both sides land punches during Clean Power Plan oral arguments

The case against the Clean Power Plan is about whether, nothow, power plants can be regulated by the U.S. EPA for carbon dioxide emissionsto the degree mandated by the agency, petitioners argued Sept. 27 before the U.S.Court of Appeals for the District of Columbia Circuit.

One of the key issues discussed during the daylong hearingbefore an en banc group of judges was whether the changes mandated by the EPA'sClean Power Plan are "transformative" and therefore can only berequired by Congress.

The rule, which the EPA finalized in August 2015, wouldrequire states to meet individual carbon emissions rate limits at existingpower plants beginning in 2022. More than half of U.S. states and several powerindustry groups filedsuit in the D.C. Circuit to overturn the rule, but a coalition of 18 states andmany environmental organizations filed petitions to intervene in the case on the EPA's behalf.The U.S. Supreme Court stayed the rule in February until all legal challengesare resolved.

Throughout the arguments, parties on both sides, and thecourt itself, seemed to lament that Congress had not taken action on a numberof points at issue, such as moving legislation to specifically regulate powerplants for carbon in the first place.

West Virginia Solicitor General Elbert Lin argued that thecarbon rule is transformative, and therefore a measure that should have beentaken up by Congress rather than the EPA. But Lin was questioned as to whetherthe true impact of the Clean Power Plan on the coal and power industries wouldbe marginal.

"The only thing that seems transformative here is thatit's regulating CO2 for the first time," Judge David Tatel said, notingthe seminal 2007 U.S. Supreme Court ruling in Massachusetts v. EPA that handed the EPA the authority to regulatecarbon.

Arguing on behalf of the EPA, the U.S. Department ofJustice's Eric Hostetler opened with an explanation of the rule's importance,calling it "urgent." Judge Brett Kavanaugh took that to mean the EPAfelt the rule was indeed transformative and asked Hostetler to clarify.

But Hostetler maintained that the carbon rule does notcontain any new expansion of the EPA's authority and therefore is not"transformative," given the Massachusettsv. EPA ruling. Kavanaugh appeared unconvinced, laughing as he called thecase "huge" and noted that it had the attention of the president,Congress and the international community. "I just find that a little hardto swallow."

Judge Thomas Griffith later quipped, "It was on NPRthis morning, it's big news." Judge Janice Rogers Brown noted that evenEPA Administrator Gina McCarthy has called the rule "transformative."

Given the heightened attention around the case, the judgeswondered whether Congress should not be dealing with the issues presented."Why isn't this debate going on in the floor of the Senate, instead of infront of a panel of unelected judges?" Griffith pondered.

"I understand the frustration in Congress. I've livedthat too," Kavanaugh said, prompting laughs from the courtroom.

The court also heard questions regarding the EPA's authorityto regulate carbon emissions from power plants under Section 111(d) of theClean Air Act if those sources are already regulated under Section 112, whichpertains to hazardous air pollutants.

Lin argued that amendments made to the Clean Air Act in 1990prohibited the EPAfrom regulating emissions from the same source simultaneously under bothsections, even for different air pollutants.

The court discussed at length two of those specificamendments, one developed by the House and the other by the Senate. The Senateamendment states that pollutants can be regulated under Section 111(d) so longas they are not on a list created under previous sections of the act. The Houseamendment limits regulation under Section 111(d) to any air pollutant "forwhich air quality criteria have not been issued or which is not included on alist" in the previous sections "or emitted from a source categorywhich is regulated under Section [112] of this title."

Lin told the court that the House amendment should hold themost weight. While the Senate drafted different language regarding Section 112exclusions, Lin reasoned that the Senate "receded" to the House'sversion, which Clean Power Plan opponents say expressly excludes regulatingexisting sources under Section 111(d) that are already covered by Section 112.In addition, Lin asserted that the House amendment was more substantive.

Kavanaugh, however, was skeptical of Lin's assertions,referring to the two amendments as a "hall of mirrors." Instead ofpicking and choosing, the judge suggested that the court should look at thelegislative history to determine Congress' true intent.

Lin agreed with Judge Sri Srinivasan's suggestion that theentire conflict may have been a scrivener's, or clerical, error. Judge JudithRogers asked Lin to present the actual text that Congress created that wouldcreate a "loophole" exempting sources regulated under Section 112from Section 111. The judge stressed that the amendments refer to the source ofthe pollution, not the pollutant itself.

Amanda Shafer Berman, a DOJ attorney representing the EPA,said the amendments were not meant to prevent regulation under Section 111(d)of non-hazardous air pollutants such as carbon from power plants, even if thosefacilities are regulated for air toxics under Section 112. As an example, shementioned that municipal solid waste landfills are regulated under bothsections of the law.

Defenders of the rule have said Congress gave the EPA"gap-filling" authority under the Clean Air Act to regulate anyemissions that pose a threat to public health and welfare.

Another major area of focus for the arguments was whetherthe EPA can require states to shift generation from a high-emitting source to alow- or non-emitting source such as a renewable resource or natural gas-firedpower plant.

Lin argued that the Clean Power Plan is not aboutperformance or making power plants operate better, and given that WestVirginia's generation mix relies on 96% coal, the state would need to shut downpower plants and shift generation to other sources. The rule therefore isdesigned to force a state to find new sources of electricity, Lin said.

Peter Keisler, speaking on behalf of the non-statepetitioners, argued that generation shifting forces utilities to subsidizecompetitors. Tatel, however, said that in order for petitioners to win on thatpoint, they will need to prove that the foundation upon which the Clean PowerPlan is built, the "best system of emission reduction," specificallybars the agency from using generation shifting as a compliance method.

Representing several power companies supportive of the rule,Kevin Poloncarz defended generation shifting and said his clients specificallyrequested that the EPA authorize such a compliance mechanism.

"Generation shifting is business as usual for the power[industry]," Poloncarz said. He also noted that "most" utilitiessubject to the rule already have alternative generation sources, such asrenewables, that can be used to generate trading credits

Kavanaugh, however, took issue with the word"most," reminding Poloncarz that "most" does not mean allsources will have alternatives to their fossil fuel-fired resources.