Supreme Court's Ruling Against the EPA's Oversight and the Future of Emissions Regulations

Episode 16 of The Green Investor Podcast from Investopedia (July 7, 2022)

The U.S. Supreme Court ruled last week that federal regulators, namely the Environmental Protection Agency (EPA), exceeded its authority in seeking to limit emissions from power plants. The decision reduces the authority of the federal government's executive branch to make policy actions on a broad range of issues and shifts that power to the Congress. We saw this one coming as we discussed last episode, but let's get up to speed on what's happened. The Supreme Court ruled 6-3 in a decision penned by Chief Justice John Roberts that the EPA, the Environmental Protection Agency, had overstepped when it devised the Clean Power Plan. That plan, enacted during the Obama administration, effectively set a goal for each state to limit carbon emissions, while letting those states determine how to meet those goals. The court said that when federal agencies issue regulations with sweeping economic and political consequences—in this case—rules to address climate change, the regulations are presumptively invalid unless Congress has specifically authorized the action. Chief Justice John Roberts wrote in his decision in West Virginia v. The Environmental Protection Agency, "A decision of such magnitude and consequences rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body."

Environmental activists and organizations decried the decision, as you can imagine, while the coal industry celebrated it, as you can imagine. But the court's decision is a little more complex than meets the eye, and many of the unanswered questions could be very meaningful to the future of the fossil fuel industry, and the U.S. government's ability to help regulate emissions.

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Meet Carrie Jenks

Carrie Jenks is the Executive Director of the Environmental & Energy Law Program (EELP) at Harvard Law School. Her work focuses on identifying legally durable strategies to support climate and environmental policies and advance clean energy deployment. Throughout her career, Carrie has worked to build strategic alliances among stakeholders to advance policy solutions. Prior to her current role at the Environmental & Energy Law Program, Carrie was an Executive Vice President at M.J. Bradley & Associates, where she directed power company coalitions. Before that, Carrie was an Associate at Goodwin Procter and Willkie Farr & Gallagher. She received her J.D. from Georgetown University Law Center and B.A. from Harvard University.

What's in This Episode?

We're going to break format this episode and bring in our special guests earlier in the show to get a better handle on what happened, why it matters, and what comes next. Kari Jenks is the executive director of the Harvard Law School's Environmental and Energy Law Program and has studied this issue very closely. And she's our special guest this week on The Green Investor. Thanks for being here.

Carrie: Thanks for having me.

Caleb: So how big of a deal is this SCOTUS decision? You put it in context for us and we'll get to what it means and what it doesn't mean after you set it up.

Carrie: Yeah, I think it's a big deal and that it's the first time we're seeing major questions doctrine explicitly named and referred to in the majority opinion. But this was foreshadowed in the oral argument and in several cases leading up to this one. I think it's a big deal because it's an emerging doctrine. It's not yet well-defined, but it can be a way to constrain administrative agencies, including the EPA, but not limiting the EPA.

Caleb: Right. So would you say it's a setback for policy emissions and reduction goals in general, or just sort of the groundwork for what could be more lawmaking that could loosen regulations on these industries even more?

Carrie: I think it's a caution for agencies to not do big things. And the court is constraining the agency in a way that we're seeing as new. We're still learning what major questions doctrine means. And as you mentioned in the intro, it was something that was economically and politically significant. But in West Virginia, we're seeing a subtle shift to say it applies in extraordinary cases. The court talks about history and breadth of what the agency is doing, and whether it's been something that the agency has done before. And in those specific cases, it needs Congress to be explicit in telling the agency how to regulate. The majority spends a lot of pages in the opinion to say this isn't new, but I think it is new in the way the court is articulating the doctrine and embracing it.

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Caleb: So let's talk about what this actually covers and what's still an open question. It doesn't really say that the EPA can't regulate power plants, does it?

Carrie: No, I think people thought it could be a lot worse. From a greenhouse gas perspective, all the court did was say they couldn't regulate using generation shifting. And that was how the Clean Power Plan assumed that a higher emitting source, like a coal plant, would reduce its generation. And instead, a solar plant or a wind farm could replace this generation, and thereby you'd see emission reductions. And the court said, that's going too far—EPA can't do that. But what's an open question is what else can EPA do? I would argue that the EPA thought even before the court took up this case, that it wasn't going to do a system like the Clean Power Plan. They signaled that to the court. I think the court is different than the justices that were on the court when the Clean Power Plan was first proposed. So this decision takes that tool off of EPA's table, but there's still a lot of other things that could happen. The technologies continue to advance. EPA has signaled that they're thinking about coal firing with natural gas, carbon capture, how to make plants run more efficiently—all of that is still on the table. The question is, do those technologies trigger major questions? That's still to be determined.

Caleb: Right. And it also doesn't say the decision that the EPA can't regulate greenhouse gases from other sources, or that it can't regulate other air pollutants. This wasn't a blanket thing about the EPA and regulating emissions in general. It was the use of the Clean Power Plan to do it, which some would argue was pushing the coal industry and the fossil fuel industry towards greener measures because that was the more economically viable way and the way to reduce emissions over time. But it's not limiting the EPA's ability to do that going forward, is it?

Carrie: No, it's not. I think the power companies that were in this case supporting EPA said we will use generation shifting and we have historically used generation shifting to reduce emissions because that's the most cost-effective way to do that. And that's the way the grid operates historically, and companies will continue to be able to do that, to comply. But in setting the standard, the court said, you have to just look at what the technology availability is to reduce, not do the generation shifting. But I think you're right. I think it's clear EPA should be regulating greenhouse gases. The question is how. They also made it clear, I think it's important that the EPA is the entity, not the states, to determine what are the emission reductions that should be achieved. States then have to comply with that standard and figure out how best to do that. But I think it's important when we think back to what the Trump administration was arguing, where it was going to give states a lot more discretion, here the EPA and the court clearly think that EPA should be setting the standard.

Caleb: Right, and some would argue, or many argue, especially environmental activists and groups, that Congress has no business setting climate goals, climate reduction goals, or even being involved in that conversation. They're not scientists. The scientists do that. Congress is a lawmaking body. And they also say that the court in the Congress has been bought out by hundreds of millions of dollars in lobbying from the fossil fuel industry, and they simply aren't in a position to make these types of decisions. But was that too narrow a reading of what went down last week?

Carrie: No, I think it's interesting and it's really difficult, I would say. You know, Congress did speak. They enacted the Clean Air Act and they designed the Clean Air Act to evolve. They're not the experts to assess technologies. They're not the experts, the scientists. And Congress is supposed to give broad authority to the agencies, and then the agencies need to work within that authority. Even if we had a Congress that I would say could enact legislation to address climate, they're still not going to be the right people to figure out how best to do that. That's what the agency should do. So that dynamic, I think, is going to be a difficult struggle to figure out.

Caleb: And then President Biden could use executive action as well if he wanted to put a bigger foot down on climate control or climate or emissions control if the administration wanted to do that as well through other measures. Is that wrong?

Carrie: I mean, I think EPA and other agencies can still look at their authority to understand what is possible. The challenge is going to be figuring out whether any of those actions trigger major questions. And I think we're going to have to keep evolving. The doctrine will keep evolving. We'll have to see how the court responds to each decision by agencies.

Caleb: So what's next the for the EPA in this battle, through legal recourse or other?

Carrie: I think they go back to the drawing board. They already thought they were doing that. They were starting to work on a new rule. They signaled that they're anticipating a new rule by March of 2023. They recently put a white paper out seeking comment on the technologies that are available. So they're going to be evaluating that. And I think all these questions they thought they were going to have to deal with anyway. I don't think the court's opinion really changes the questions, but the decisions they make will depend on the legal record that they establish—what are the technology options, what's the commercial availability, what are the cost considerations? All of those factors will matter very significantly now for EPA to evaluate and they'll start to put a proposal out, they'll take comment, and then they'll have to finalize the rule. I think we'll end up back in the courts, but we'll see what happens.

Caleb: Talk about the outlook then for the coal and fossil fuel industry given this decision. Again, this was well-telegraphed. I think, as you said, the EPA was probably preparing for this long before it came up or was coming up in the Supreme Court. But where does this position, if anything, the coal and fossil fuel industry now that we do have a decision?

Carrie: Yeah, I think the power sector is in a transition. I think it's important, really essential to recognize the targets that were in the Clean Power Plan were already achieved a decade in advance on a nationwide basis, even without any regulation on greenhouse gases from EPA, and many of the power companies have aggressive climate targets for their own companies. So what has changed, though, is that when the Clean Power Plan was finalized, is the debate is not really about whether we need to transition to lower emitting sources, it's really about the pace. So the question remains is what will EPA do that alters that pace, or will the industry continue on the pace that it's at right now?

Caleb: Was there anything inside the Supreme Court's decision that surprised you? You follow this issue pretty closely. Was there any wording or things that were left unanswered beyond what we've talked about that surprised you?

Carrie: I think we thought we were going to be fighting about what is a system and a very plain language argument of whether or not generation shifting fix fit into a system. I think the justices really use this opinion to shape what we now know as the 'major questions' doctrine. I don't know that's surprising given what happened in the oral argument, but I think it's no longer about what the statute says necessarily, but more, does an agency action strike the court as being too big?

Caleb: So, for folks like me who don't know what 'major question' really means, and a lot of our listeners probably don't understand that as well, what does that actually mean and why is it significant in this decision?

Carrie: I don't think you have to not be a lawyer to be confused. I think the lawyers are equally confused about what 'major questions' is. It is something that is too big for an agency to be doing and they want Congress to be able to speak. In this case, it was too big for EPA to assume generation shifting when it set up the standard. And they said that was too much. But what is not 'major questions' or what is—we're going to have to wait and see.

Caleb: Well, how has this been brought up, or has it been brought up in some of the other cases you follow?

Carrie: It's come up in some other cases, but in that case, it was an FDA case about tobacco products. And the court said, here, we don't think that Congress told the FDA that they had the authority to regulate tobacco products. It's very different. We saw this in the dissent by Justice Kagan, very different here, where EPA is supposed to regulate air emissions. It is supposed to regulate greenhouse gas emissions. It is supposed to regulate power sector emissions. And the court, in this case, for the first time, is really focusing on how the agency regulates, as opposed to whether the agency regulates.

Caleb: So, again, you follow this all very closely. What's looming on the regulatory or legal horizon that will also be a major factor in emissions reductions, regulations, targets, and the use of federal agencies like the FDA or others to help bring down emissions and get us to those climate goals?

Carrie: Yeah, I think the power sector is obviously a major contributor to greenhouse gases, but EPA is working on other sectors that will reduce greenhouse gases, including the car rule, and they're proposing methane rules for the oil and gas sector. And I think it is consistent that the EPA will continue to look at its full authority under all of the different regulations to continue to reduce power sector emissions, public health, traditional air pollutants, as well as greenhouse gases.

Caleb: And are there other agencies beyond the EPA that are involved, that may have the regulatory eye sort of cast upon them, who are also working towards these efforts?

Carrie: From the very start, the Biden administration has approached greenhouse gases and climate from a whole-of-government approach. They are looking at every agency's piece. So you've got the Securities and Exchange Commission (SEC) also thinking about climate disclosures and what that means. No doubt they're already raising 'major questions' doctrine of whether that's part of the SEC's authority. I think there's good arguments as to why that is. Investors are trying to understand climate risk and the SEC is responding to that. But that's going to be a critical piece, and it'll be interesting to see how the SEC finalizes that role as it's taking in comments and reviewing the comments that were already submitted.

Caleb: So we've talked about that on this show as well, the SEC, under Chair Gary Gensler has been very adamant about wanting to get to a better definition of what ESG is, what responsible investing, impact investing is. They're trying to do away with greenwashing, which becomes sort of a scourge in the industry right now and a lot of funds, you know, have participated in that. And we know that's a thing. You've probably read the SEC's proposal. What's missing in that that you think is important that folks maybe haven't focused on enough?

What You Need to Know

The use of the term "greenwashing" dates back to the 1960s, when hotel chains were the first to engage in the practice. Hotels regularly placed notices asking guests to reuse their towels to save the environment, with the aim of reducing their laundry expenses. Today, greenwashing occurs as companies attempt to market their products as environmentally sustainable through a process of renaming, rebranding, and repackaging. These products and services are then marketed in mass media, providing the false impression of sustainability. In the financial world, greenwashing often occurs when providers of financial services and indexed products include companies with mixed or poor sustainability metrics into ESG-focused funds and indices, thereby deceiving investors.

Carrie: I think it's important to think about what do investors need, what are they asking for and what's already happening? a lot of companies are disclosing their climate risks. So I think investors need to have clear rules so that there's consistency and an ability to compare the different disclosures that are happening. But to the extent someone's relying and trying to understand what a climate risk is, there are climate risks that are important to do. And I think the SEC has the ability to provide guidance and clarity about what should be required to be disclosed.

Caleb: Okay, going forward to the second half of the year, what are you looking at within the Harvard Law School's Environmental Energy Law program that could be a hot take or something that may surprise us by year end or over the next couple of years?

Carrie: That's a great question. I think it's going to be important for EPA and other agencies to really develop the record, the legal record, have it be technology-based so that the court can understand how each industry works. What is the industry already doing? EPA often follows state action, often follows what industry is doing, and builds a record based on what is already happening. It's a backstop. It also can be forward looking and create incentives for others to keep moving in that direction. But I think it's going to be essential for agencies to think about what the record is that they're developing. Take a comment, listen to industry, what's working, what's not. For the SEC, for example, what do companies need? What are they already disclosing? How can the SEC's rule make sure that they're disclosing something in a consistent way but not require something that's wholly new? And I don't think the SEC's intending to do that.

Caleb: Well, we're going to find out pretty soon when that comment period ends, and we'll see what the SEC comes out with. Carrie Jenks, the executive director of Harvard Law School's Environmental and Energy Law Program. Thanks for breaking down that decision and for joining the Green Investor. We appreciate it.

Carrie: Thank you.

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  1. U.S. Supreme Court. "West Virginia et al. v. Environmental Protection Agency et al."

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