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US EPA rule could stymie future efforts to curb carbon but is legally vulnerable

The U.S. Environmental Protection Agency is rolling the dice with its Affordable Clean Energy, or ACE, rule in a way that could severely hamper future administrations from using the Clean Air Act to regulate power-sector greenhouse gas emissions, according to a Harvard University white paper released Oct. 23.

The paper, co-authored by Caitlin McCoy, a legal fellow in the school's energy and climate law program, and Joe Goffman, former general counsel in the Obama EPA's air office, argues that the agency under the Trump administration is intentionally seeking to curtail its own authority to curb carbon dioxide emissions from the nation's existing generating fleet.

However, the authors also asserted that the legal theory underpinning the ACE rule is legally vulnerable because the U.S. Court of Appeals for the District of Columbia Circuit for decades has applied a unique "Chevron Step 1.5" approach when reviewing agency actions.

Issued in June, the ACE rule is intended to serve as what the Trump administration and supporters of the regulation have described as a legal alternative to the Clean Power Plan for addressing carbon emissions. The Obama-era rule, which sought to curb CO2 emissions from existing fossil fuel-fired power generators through a systems-based approach, was stayed by the U.S. Supreme Court in 2016 before it could take effect.

A legal challenge to the ACE rule is currently before the D.C. Circuit, with 22 states, seven municipalities, and a coalition of environmental and public health groups arguing the regulation is illegal because it would reduce CO2 emissions less than 1% compared to a business-as-usual approach. One of the central issues judges will consider in the litigation is whether the EPA's determination that efficiency upgrades known as heat-rate improvements at coal-fired plants represent "the best system of emission reduction," or BSER, under Section 111(d) of the Clean Air Act.

In reviewing that determination, the court will apply what is known as the Chevron doctrine: a two-step analysis grounded in the 1984 case Chevron v. Natural Resources Defense Council. Under that doctrine, courts first ask whether Congress has explicitly spoken to the question at issue. If Congress is silent, the court then assesses whether an agency's interpretation of a statute is reasonable. Historically, courts have given agencies wide deference at step two when a statute is ambiguous.

'Fatal to an agency's cause'

In a potentially fatal flaw, McCoy and Goffman asserted in their paper, the ACE rule does not attempt to argue that its interpretation of the BSER under Section 111(d) is reasonable. Instead, the Trump EPA claimed in the ACE rule that the regulation reflects the "plain meaning" of "unambiguous" statutory language that precludes outside-the-fence line compliance flexibilities such as generation shifting, which was encouraged under the Clean Power Plan.

In risking a full remand, McCoy and Goffman suggested, the Trump EPA decided to gamble on the chance that either the D.C. Circuit or U.S. Supreme Court agrees with its narrow interpretation. The white paper said if the Trump administration's interpretation prevails, the ruling would prevent a future EPA from issuing another CO2 reduction rule under Section 111(d).

In addition, the authors suggested the EPA declined to argue its interpretation of BSER is reasonable because it allowed the agency to sidestep arguments from commenters that it is unreasonable. Groups such as the Environmental Defense Fund noted, among other things, that the agency's own modeling shows the ACE rule would increase CO2 emissions in 18 states and lead to a spike in air pollution in 20 states.

Responding to those comments, the EPA said, "Because generation shifting exceeds the scope of measures that the EPA is authorized to include within BSER, the Clean Power Plan must be repealed." However, McCoy and Goffman argued that stance risks a full remand at the D.C. Circuit because that court asks a third, separate question in between Chevron steps one and two: whether the agency itself recognized that it was dealing with an ambiguous statute.

"In the D.C. Circuit, a misstep at this intermediate stage is fatal to an agency's cause: the court will remand if the agency claimed that the statute is clear but the court concludes it is not," the authors wrote. Moreover, they asserted that the court could easily determine that Section 111(d) is ambiguous because utilities have engaged in generation shifting for decades to comply with other air pollution regulations issued by past administrations under Section 111(d).

The EPA did not respond to a request for comment.