US court ruling may leave door open to CO2 trading

The US Environmental Protection Agency (EPA) may still be able to use emissions trading to reduce power plant CO2 emissions despite the recent US Supreme Court decision curbing its authority.

The high court ruling does not foreclose the ability of EPA to use a cap-and-trade system or requirements for the use of technology such as carbon capture, according to lawyers who spoke today during a virtual forum hosted by the Georgetown Climate Center.

"If anything, it gives them more flexibility than I think they thought they had," said Jeff Holmstead, head of the environmental practice at law firm Bracewell, who led EPA's Office of Air and Radiation during the administration of former president George W Bush. "They spoke approvingly of trading. They talked about the flexibility that states have in meeting any section 111(d) guidelines or limitations," referring to the part of the Clean Air Act used to issue the Clean Power Plan.

In a 6-3 decision, the court last week said EPA lacks the authority under the Clean Air Act to require generation shifting to reduce CO2 emissions from power plants, as envisioned by the Clean Power Plan the agency issued under former president Barack Obama. The majority, made up of the court's conservative justices, said that section 111(d) of the law does not grant the agency broad authority to use such measures that would, in effect, "restructure" the nation's energy mix. The justices called it a "major questions" case, citing the legal doctrine which says issues of significant economic or political importance require specific authorization from Congress.

But it did not say EPA could only use measures done "inside the fence line" at a power plant, a view the agency had taken under former president Donald Trump, nor did it say it had no authority to regulate CO2 at all under section 111(d).

That could also open the door to EPA mandating the use of carbon capture or co-firing as ways to address the power sector emissions, although each may face its own legal challenges.

"There's nothing in this opinion that would preclude that," said Jonathan Adler, director of the Coleman P Burke Center for Environmental Law at Case Western Reserve University School of Law. "I suspect the big argument would be over the cost side for carbon capture."

Another option for EPA could be to rely more heavily on other well-established regulations, such as standards for criteria air pollutants, that may have a co-benefit of reducing emissions.

"I think they should focus on things that can drastically affect coal but not because of climate change," said Lisa Heinzerling from the Georgetown University Law Center, who served as senior climate policy counsel at EPA during the Obama administration.

But EPA will also need to worry about using "policies that look like the agency is doing one thing but is doing it for the reason of reducing greenhouse gas emissions," Adler said.

Regardless of what path EPA choose, it will have to make sure it thoroughly explains its rationale for the regulations, or the agency could wind up losing again as the Supreme Court has given federal agencies less leeway in recent years.

One of the messages from the decision is "agencies if you want to have a prayer for deference, really explain yourself, Georgetown professor Bill Buzbee said.

EPA has said it is working on a successor to the Clean Power Plan that would incorporate lessons learned from that regulation.

Holmstead predicted the ruling will have little impact on how the agency approaches the issue in large part because it was ready to move on well before last week.

"I don't think that the political appointees or the career appointees had any interest in pursuing something like the Clean Power Plan," he said.

By Michael Ball