Joanne Spalding, Chief Climate Counsel and Alejandra Núñez, Staff Attorney, Sierra Club

Suppose there were a product that everyone used all day every day. And suppose there were two ways of making that product — one that emits a massive plume of dangerous pollution that disperses throughout the nation and indeed the globe, causing great damage, and one that doesn’t. Now suppose Congress passed a law for pollution prevention, designed to protect the nation’s air to promote public health and welfare, and gave a government agency broad powers to implement and enforce that law. Would it be reasonable to believe that the agency charged with enforcing the pollution prevention law has no power to tell manufacturers using the dirty production method to either clean up their process or switch to the clean method? Would it be reasonable to believe that Congress wanted the dirty method to be used indefinitely, even though everyone agreed that it was causing untold harm?

Of course it wouldn’t be reasonable. Yet that is the position that the coal industry and its allies took in court last week in their challenge to the Clean Power Plan, EPA’s modest standards to reduce (not eliminate) climate pollution from coal- and gas-fired power plants. Fortunately, the judges didn’t seem to be buying it.

On September 27, the D.C. Circuit Court of Appeals heard oral arguments in West Virginia et al. v. EPA (D.C. Cir. No. 15-1363). An en banc court comprised of ten well-prepared judges questioned 16 lawyers for the petitioners, EPA, and intervenors for nearly 7 hours. Predicting the outcome of a lawsuit based on oral argument is a fraught enterprise — and as advocates before the court, our views are hardly objective — but we agree with the general consensus that the odds strongly favor EPA, and the climate.

In the Clean Power Plan, EPA determined that fossil fuel-fired power plants — the largest source of carbon dioxide in the nation — could most easily reduce their emissions by shifting electricity generation: decreasing generation from more polluting plants and increasing generation from plants using cleaner technologies, like wind and solar. In their lawsuit, the coal industry and its allies raised a host of arguments complaining that EPA lacks authority to adopt the Clean Power Plan. The outcome of the litigation is likely to turn on two interrelated issues: the standard the court uses to review EPA’s action (that is, how much deference EPA gets), and EPA’s determination of the “best system of emission reduction” (BSER) for power plant carbon pollution.

Does EPA get deference?

The standard of review should be straightforward. The Supreme Court decided over 30 years ago, in Chevron v. Natural Resources Defense Council, that if the language of a statute is ambiguous, courts should defer to the reasonable interpretation of the expert agency charged with enforcing it. 467 U.S. 837 (1984). And more recently, citing Chevron, the Supreme Court decided in American Electric Power v. Connecticut that Congress designated EPA as the expert agency charged with primary regulation of greenhouse gas emissions, which must decide “whether and how to regulate carbon-dioxide from power plants.” 131 S.Ct. 2527, 2538-40 (2011). That’s just what EPA did in the Clean Power Plan, so the agency should get deference in interpreting ambiguous terms — end of story.

But the petitioners don’t see it that way, and it turns out that the standard of review discussion occupied a surprising amount of oral argument time. The petitioners relied on two cases in which the Supreme Court did not defer to agency statutory interpretations when the agency’s interpretation would bring about “an enormous and transformative expansion in [its] regulatory authority without clear congressional authorization.” UARG v. EPA, 134 S. Ct. 2427, 2444 (2014) (citing Brown & Williamson, 529 U.S. 120, 159 (2000)). In UARG, Justice Scalia, writing for the majority, cautioned, “We expect Congress to speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’” Id. at 2444. West Virginia Solicitor General Elbert Lin argued that EPA is overreaching, attempting to regulate the entire energy sector through the Clean Power Plan, and the court therefore must use this “clear statement” standard of review.

At the outset of the argument, Judge Thomas Griffith questioned Mr. Lin on whether the Clean Power Plan is transformative. He noted that this case “does not sound like UARG,” because EPA predicts that it will result in only a modest reduction in coal generation by 2030. Both Judge Griffith and Judge David Tatel distinguished this case from UARG. There, the Supreme Court struck down an EPA statutory interpretation that would have had the effect of applying permitting requirements to millions of small sources that had not previously been regulated. UARG v. EPA, 134 S. Ct. at 2443. As Judge Tatel explained, in the Clean Power Plan, EPA has simply invoked existing authority to address sources that have been regulated under the Clean Air Act for decades. The only thing that is transformative, he said, is that the agency is regulating carbon dioxide, which the Supreme Court held is an air pollutant under the Clean Air Act nearly a decade ago in Massachusetts v. EPA.  549 U.S. 497 (2007). Judges thus understood that EPA is not attempting to subject any entity other than the affected power plants to the rule’s requirements, or to expand the Clean Air Act to previously unregulated types of sources.

Judge Brett Kavanaugh asked Department of Justice attorney Eric Hostetler to convince him that the Clean Power Plan does not raise a question of economic and political significance that would require a clear statement from Congress. Judge Tatel elaborated further on this question, asking whether what is transformative here is that the emission control techniques that EPA used to derive its emission guideline are dramatically different from the agency’s approach in prior rules. (In fact, the approach isn’t so different from prior rules.) Judge Griffith also asked Mr. Hostetler to directly address Justice Scalia’s language in UARG.

Mr. Hostetler answered these questions satisfactorily, putting to rest any concern that a standard of review other than Chevron deference applies to this case. He cited the AEP v. Connecticut holding that EPA has the authority and responsibility to regulate greenhouse gases (GHG) from power plants under section 111(d) of the Clean Air Act and that Congress delegated to the agency the decision of “whether and how” to regulate carbon dioxide from power plants. If the court were to adopt petitioners’ interpretation, Mr. Hostetler said, it would make a mockery of the Supreme Court’s decision in AEP. Judge Patricia Millett later underscored that the Supreme Court has already upheld EPA’s authority to regulate GHG emissions from a major contributor to this pollution without invoking the clear statement rule. So why would a clear statement be required to trigger EPA’s particular exercise of authority in the Clean Power Plan? All in all, the judges appeared to view the applicability of the clear statement rule with skepticism.

Did EPA properly determine the “best system of emission reduction”?

The long discussion of the clear statement rule was a prelude to the main attraction: whether EPA properly interpreted the statutory phrase, “best system of emission reduction” or BSER.

The Clean Air Act requires standards of performance to reflect “the degree of emission limitation achievable through the application of the best system of emission reduction which [taking into account cost and energy requirements] the Administrator determines has been adequately demonstrated.” 42 U.S.C. § 7411(a)(1). Petitioners’ claimed that the “best system of emission reduction” is narrow language that cannot support EPA’s decision to rely on generation shifting that reduces the utilization of regulated power plants (even though reducing utilization reduces pollution). Instead, they argued that EPA can only look to emissions reductions that each plant can achieve on its own through on-site technologies, while continuing to operate unabated. Those measures, however, are either ineffective or far more expensive than the system that EPA chose. Mr. Hostetler explained that shifting generation to cleaner sources is the best system of emission reduction in the context of the highly integrated nature of the power sector and global nature of carbon dioxide.

In questioning Peter Keisler, attorney for the industry petitioners, Judge Tatel harkened back to the Supreme Court’s decision in Massachusetts v. EPA, comparing the attempt to limit the scope of “best system of emission reduction” here to the effort to limit “air pollutant” to exclude greenhouse gases in that case. TheMassachusetts Court held that “greenhouse gases fit well within the Clean Air Act’s capacious definition of ‘air pollutant,’” noting that the broad language of the statute “reflects an intentional effort to confer the flexibility necessary to forestall . . . obsolescence” and to address changing circumstances and scientific developments. 127 S.Ct. 1438, 1462 (2007). Judge Tatel recounted that reasoning and asked, “Why isn’t that exactly the same thing here? ‘BSER’ here is like ‘pollutant’ in Mass. v. EPA.”

Mr. Hostetler explained that EPA’s application of that broad language is appropriately limited by the relevant statutory factors, including cost and energy requirements. Generation-shifting is also adequately demonstrated. As Kevin Poloncarz, attorney for intervenor power companies explained, generation-shifting is “business-as-usual.” It is exactly what the industry is doing to reduce carbon dioxide emissions and what power companies on both sides asked EPA to authorize for compliance. It is, as Judge Tatel later recognized, “in fact” the BSER.

Mr. Keisler seemed to understand that his clients and their co-petitioners are in an awkward position. They want to have it both ways: they want to use generation shifting for compliance but they want the standard to be set using only measures that can be implemented at the power plant. It should thus be no surprise that Judge Sri Srinivasan asked how Congress could have prevented EPA from taking into account generation-shifting in setting the emission guideline when the reality on the ground is that generation-shifting can be used for compliance. Judge Rogers also chimed in, asking, how could EPA not have looked at what is happening on the ground? Judge Nina Pillard dismissed petitioners’ claim that the BSER can only be based on a technology or measure integrated into the design or operation of the source: Congress and the EPA “crossed that bridge” nearly three decades ago when they included pre-combustion coal cleaning in the BSER.

According to the petitioners, basing the BSER on shifting generation “requires” affected sources to subsidize clean energy. As Mr. Poloncarz explained, however, this so-called “subsidy” is the market effect of environmental regulation as sources internalize the cost of their pollution and the least expensive power is dispatched first. That market effect would occur even if EPA had determined the BSER based on on-site technologies. In fact, the petitioners got the subsidy backwards. As Judge Pillard asked, “Isn’t it the case that the Clean Air Act represents Congress’ judgment that the public . . . should not have to subsidize dirty-burning forms of energy production?”

Noting that “Congress has expressed a clear commitment to reducing pollution, and to reducing the externalities on the health and welfare of the Nation that air pollution causes,” Judge Pillard identified the fundamental flaw in the petitioners’ argument. She pointed out that an implication of their position would be that, in an economy in which certain sources were so dirty that they could not be fixed — i.e. no technology or on-site measure could reduce their emissions — and other sources were clean, the requirement that the BSER be based only on on-site technologies would mean that the dirty source would be “necessarily immunized from regulation under section 111(d).” She concluded, “That can’t be right.”

And it isn’t right. The aging, dirty coal plants that are subject to the Clean Power Plan have been spewing millions of tons of carbon dioxide unabated for many years, and in most cases decades (along with a host of other dangerous pollutants). In enacting the Clean Air Act, Congress anticipated that these dinosaurs ultimately would shut down and be replaced by cleaner facilities. The very language of the provision that EPA relied on — section 111(d) — contemplates that these sources will not operate indefinitely, with a lifespan limited by their “remaining useful life.” Indeed, we believe that the Clean Air Act gives EPA authority to go much further to reduce carbon pollution from fossil fuel-fired power plants by requiring steeper emissions reductions and by requiring individual plants to reduce their emissions on site through reduced utilization if they can’t do so through on-site control technologies. In our view, EPA’s approach here is moderate.

It’s high time that we close the book on the era of dirty coal-fired electricity. Clean energy technologies are booming, ready to provide the very same product without the pollution. Coal can’t compete without the subsidy of unchecked climate pollution. The Clean Air Act gives EPA ample authority to hasten the transition. The Clean Power Plan is but a modest step in that direction. We hope that the D.C. Circuit, and the Supreme Court, clear the path.