The D.C. Circuit Court of Appeals on Tuesday rejected the Trump administration’s Affordable Clean Energy (ACE) Rule  for regulating power plants’ greenhouse gas emissions, saying EPA’s rulemaking and its repeal of the Obama administration’s Clean Power Plan “hinged on a fundamental misconstruction” of the Clean Air Act.

Ruling on the last full day of Trump’s term, the court also said the ACE Rule’s delayed enforcement deadlines were “arbitrary and capricious.” It vacated the rule and remanded it to EPA for further action.

The case was decided by Obama appointees Patricia Millett and Cornelia Pillard in a 147-page ruling, while Judge Justin Walker — appointed last year by Trump — filed a 38-page opinion concurring in part and dissenting in part. (American Lung Association and American Public Health Association v. Environmental Protection Agency and Andrew Wheeler, Administrator, et al.)

The court, which consolidated 12 petitions for review of the ACE Rule, agreed with a coalition of state and municipal governments, utilities, and renewable energy and environmental advocates who challenged EPA’s contention that Section 7411 of the Clean Air Act only permits emission reduction measures that can be implemented at and applied to the generation source.

The court also ruled in favor of the Biogenic CO2 Coalition in finding EPA in error for saying states could not count biomass co-firing as a method of complying with numerical emission limits under ACE.

Section 111 of the Clean Air Act, which was added in 1970 (42 U.S.C. Section 7411), ordered EPA to regulate any new and existing stationary sources of air pollutants that contribute significantly to air pollution and endanger public health or welfare.

The court said Section 111 acts as “a catch-all” to prevent gaps in regulations controlling stationary source emissions.  Section 111(b)(1)(A) says the EPA administrator “shall” regulate any category of sources that, “in his judgment … causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare.”

The court rejected an argument that a drafting error in the 1990 Clean Air Act amendments prohibits EPA from regulating carbon emissions under Section 111(d) because the agency already regulates mercury from power plants under Section 112.

“Policy priorities may change from one administration to the next, but statutory text changes only when it is amended,” the court wrote. “The EPA’s tortured series of misreadings of Section [111] cannot unambiguously foreclose the authority Congress conferred. The EPA has ample discretion in carrying out its mandate. But it may not shirk its responsibility by imagining new limitations that the plain language of the statute does not clearly require.”

The D.C. Circuit heard arguments on challenges to the CPP in 2016 but never ruled on it after Trump’s EPA said it planned to withdraw it. (See Supreme Court Blocks Clean Power Plan.) The administration said the rule violated the CAA because it endorsed generation shifting and emissions trading among permissible emission-control measures.

EPA contended “the plain meaning” of Section 111(d) “unambiguously” limits the best system of emission reduction to only those measures “that can be put into operation at a building, structure, facility or installation.” Based on that interpretation, the agency determined the best system of emission reduction was limited to seven heat-rate improvement techniques for existing coal-fired generators. (See EPA Finalizes CPP Replacement.)

EPA predicted that the ACE Rule would reduce CO2 emissions by less than 1% from baseline emission projections by 2035, a calculation that did not consider potential emission increases from the “rebound effect” — the possibility that coal plants could run more often due to the efficiency gains.

“The EPA left unaddressed in this rulemaking (or elsewhere) greenhouse gas emissions from other types of fossil fuel-fired power plants, such as those fired by natural gas or oil,” the court noted.

Best System of Emission Reductions

The court said EPA was ignoring its own precedents. “Nothing that the EPA identifies or that we discern in the relevant history shows the enacting Congress myopically ‘focused on steps that can be taken at and by individual sources to reduce emissions,’” it said.

“Where the characteristics of the source category and the pollutant at issue point to emissions trading programs or production shifts from higher- to lower-emitting sources as components of the ‘best system,’ the EPA has in the past consistently concluded that it had the authority to consider them,” the judges wrote, citing the 2005 Clean Air Mercury Rule, which included a cap-and-trade program to reduce emissions from coal-fired generators.

The court said EPA’s interpretation “effectively relegates federal regulators back to the sidelines where they stood before Congress overhauled the Clean Air Act in 1970 … [in which] a virtually unanimous Congress dramatically strengthened the federal government’s hand in combatting air pollution.”

In the 50 years since the amendments, the court noted, combined emissions of six key pollutants regulated under the National Ambient Air Quality Standards dropped by 73%. “The EPA’s new reading of Section [111] would atrophy the muscle that Congress deliberately built up.”

The court also rejected claims from two coal mining companies that contended the ACE Rule was illegal because EPA failed to make a specific endangerment finding for carbon dioxide emitted from existing power plants, citing the agency’s 2015 finding that GHGs “endanger public health, now and in the future.”

The statement reaffirmed its 2009 endangerment finding, which followed the Supreme Court’s 2007 ruling in Massachusetts v. EPA that carbon dioxide and other GHGs are “air pollutants” under the CAA.

Revised Deadlines

The ACE Rule also sought to extend state deadlines for the submittal of their emission-reduction plans from nine months to three years and EPA’s deadline to act on those plans from four months to one year.

The court said EPA “failed to justify substantially extending established compliance time frames, including deadlines that it has had in place since 1975,” citing the agency’s “failure to say anything at all about the public health and welfare implications of the extended time frames.”

“The EPA’s weak grounds for routinizing additional compliance delays in the amended implementing regulations are overwhelmed by its total disregard of the added environmental and public health damage likely to result from slowing down the entire Section [111](d) regulatory process.”

Opponents said the amended rules would allow a delay of up to five years between finalizing an EPA emission guideline and the beginning of emission reductions.

Dissent

Judge Walker, who previously clerked for then-Judge Brett Kavanaugh and Justice Anthony Kennedy, disagreed with Judges Millett and Pillard on EPA’s ability to conduct “outside the fence line” regulation. He also rejected EPA’s authority to regulate GHGs under Section 111.

“Hardly any party in this case makes a serious and sustained argument that Section 111 includes a clear statement unambiguously authorizing the EPA to consider off-site solutions like generation shifting. And because the rule implicates ‘decisions of vast economic and political significance,’ Congress’ failure to clearly authorize the rule means the EPA lacked the authority to promulgate it,” Walker wrote.

“In my view, the EPA was required to repeal the [CPP] and wrong to replace it with provisions promulgated under Section 111. That’s because coal-fired power plants are already regulated under Section 112, and Section 111 excludes from its scope any power plants regulated under Section 112. Thus, the EPA has no authority to regulate coal-fired power plants under Section 111.”

Walker also said Massachusetts v. EPA did not answer crucial questions. “For example, does the Clean Air Act force the electric power industry to shift from fossil fuels to renewable resources? If so, by how much? And who will pay for it? Even if Congress could delegate those decisions, Massachusetts v. EPA does not say where in the Clean Air Act Congress clearly did so.”

Reaction

Observers differed Tuesday on how the ruling might affect the incoming Biden administration’s efforts to address climate change.

“For four years, state attorneys general used every tool at their disposal to reveal the shoddy legal arguments and fudged math behind the Trump administration’s anti-climate policies. The so-called ‘Affordable Clean Energy’ Rule was no exception,” said Jessica Bell, deputy director of the State Energy & Environmental Impact Center at the NYU School of Law. “Now the hard work begins to put in place a permanent, legally sound rule that will reduce carbon pollution from power plants as the broader economy continues to transition to clean energy generation. State AGs, the State Impact Center and clean energy allies are ready to get to work.”

Dorsey & Whitney attorney Megan Houdeshel, who represents mining, petroleum and chemical industry clients, said the ruling “is just the first example of many we are going to see in terms of industry uncertainty when it comes to Trump era regulations.”

“Whether it be courts overturning regulations, or the incoming Biden administration reversing course on executive orders and policy, companies should be ready for changes in environmental regulations applicable to their business and operation,” Houdeshel said.

“Quite a loss for [EPA Administrator Andrew] Wheeler and Trump on the way out the door,” tweeted Harvard Law School professor Jody Freeman. “Today’s decision clears the deck for the Biden EPA team to adopt a strong new rule for power plants and puts pressure back on Congress to pass a climate regime, because a fresh legislative approach would be most cost effective and comprehensive.”

But Craig Oren, a Rutgers Law School professor emeritus who specializes in the CAA and environmental law, responded with a caution. “This decision seems to say that Section 111(d) authorizes regulation away from any particular plant and may be used despite the mercury limits under Section 112,” he said. “But the Supreme Court is sure to reverse given the stay it issued against the Clean Power [Plan].”