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What If States Opt Out Of EPA’s Existing Source Rule?

Editor’s note: This article was originally published to the ACC’s online magazine website (www.acclive.com) in November, 2014. It has been moved to the Coalblog as part of our redesign of our online publications.

By Scott C. Oostdyk and E. Duncan Getchell Jr., McGuireWoods LLP

Law360, New York (November 24, 2014, 11:27 AM ET)

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In Section 111 of the Clean Air Act, Congress expressly tasked the U.S.Environmental Protection Agency with regulating “sources” of pollution, by category, when the EPA administrator determines that the source category “causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare.”[1] Congress directed that the 111(d) process was to be modeled after Section 110.[2] Having made the cause or contributes determination, the EPA may formulate, for a given source category, “the best system of emission reduction.”[3] Once the EPA identifies the BSER, then the states may propose standards of performance that apply the BSER to the state’s existing sources, in light of the state’s circumstances and facilities.[4] One consideration in formulating standards of performance is “the remaining useful life of the existing source to which such standard applies.”[5] In the event that a state declines to participate, the CAA generally allows the EPA “to prescribe a plan for a state in cases where the state fails to submit a satisfactory plan,” and also permits federal enforcement “in cases where the state fails to enforce.”[6] While rarely invoked, this has been the system since Section 111 became law.

With its proposed existing source rule for electricity generating units under CAA Section 111(d), the EPA has departed from this structure to the point of overturning the apple cart. The EPA aims to reduce annual carbon dioxide emissions from existing power plants nationally to 30 percent below 2005 levels by 2030.[7] To achieve this ambitious result, the EPA has prescribed rigid state-by-state emissions limits.[8] Because the EPA recognizes that source-site reductions alone cannot achieve such deep cuts, the agency identifies four “building blocks” as the foundation of the applicable BESR. They are: (1) lowering heat rates at source plants, (2) limiting coal and oil as a fuel in deference to gas, (3) increasing noncarbon renewable generation and (4) mandating consumer conservation.[9]

While the EPA promotes the Clean Power Plan as a “flexible” approach because it permits states to choose their tools, there is nothing flexible about the state-specific reductions themselves. The EPA’s proposal “lays out state-specific CO2 goals that each state is required to meet,”[10] and the EPA’s targets are “binding” once set.[11] The EPA even mandates that states, not the federal government, enact the mechanisms for legal action against noncompliant generation sources or state regulators.[12] Therefore the states are actually being directed to do all the things that would make the Clean Power Plan enforceable, not the federal government.[13]

The initial legal question is whether long-standing principles of federalism permit the EPA to force states to build and then to enforce a federal program like the Clean Power Plan. Precedent establishes that the EPA cannot.

The Constitution bars the EPA from forcing federal programs on states

Many of the EPA’s supporters apparently believe that if states decline to implement the Section 111(d) rule as drafted, the EPA could itself issue federal implementation plans to impose the proposed rule through state authority. On Nov. 5, 2014, for example, J.R. Tolbert, executive director of the National Caucus of Environmental Legislators, opined that if multiple governors balked at complying with the Clean Power Plan, this would “forc[e] the federal government to step in and essentially write state rules.”[14] The trade press recently quoted “environmentalists” as claiming that the EPA, when faced with unwilling states, “could impose an emissions rate target on states, which could be implemented using state authority.”[15]

It is settled law, however, that state officials control the means of electrical generation and retail transmission, not the federal government,[16] and clear that regulating actors entirely outside the source category — what “blocks” three and four plainly require — exceeds Section 111’s delegation to the EPA. Furthermore, because the proposed rule would increase, not decrease emissions from gas-fired units, the EPA has not acted within its BSER authority for building block two. As a result, the EPA only has jurisdiction over the first of its four BSER “building blocks,” namely the plant heat rate level. The Clean Power Plan cannot achieve targeted reductions unless the states enact mandates to switch fuels, to use renewables and to cut power use. The EPA cannot compel states to enact these measures, however, a lesson the EPA learned from the courts in 1975. In that year, the EPA sought to broaden its regulation of automobile emissions under CAA Section 110 by forcing the states to embrace “clean commuting.” By rule, the EPA directed states to build bicycle paths, to construct bus lanes to take cars off the road, to add off-ramps to curtail highway idling and to adopt inspection, maintenance and retrofit programs. The D.C. Circuit in District of Columbia v. Train reigned the agency in ruling that the EPA was acting beyond its statutory delegation and transgressing constitutional boundaries.[17] Courts have repeatedly struck down similar forays by the federal government, developing in the process state-protective doctrines like “commandeering,” “coercion” or “entrenchment,” depending on the method the federal government has used to usurp state authority.[18]

The EPA’s error in Train was overinterpreting the authority delegated to it by Congress, though the outcome would have been the same even if Congress had prescribed clear federal mandates, but directed the states to enforce them. This is because in 1992 the U.S. Supreme Court barred the federal government from compelling states to legislate the storage of radioactive waste, finding that “[s]tate governments are neither regional offices nor administrative agencies of the Federal Government.”[19] “The Constitution,” the Supreme Court concluded, “has never been understood to confer upon Congress the ability to require the States to govern according to Congress’ instructions.”[20]

The EPA is increasingly aware of its federalism problem

In the face of settled law, it appears that the EPA, unlike its surrogates, may be receding from the bold belief that it can regulate power production and transmission. When EPA Administrator Gina McCarthy was recently urged to use the 111(d) rule to curb fugitive methane emission leakage and to compel the use of electric vehicles, she demurred that “she did not think she had the legal authority within 111(d) to explicitly encourage that.”[21] EPA Associate General Counsel Lorie Schmidt conceded to a Nov. 5 gathering of the Energy Bar Association that the EPA has not created a model FIP for 111(d), offering that it is “‘much smarter’ for states to do their own plans.”[22] In response to the challenges brought by private coal producer Murray Energy and a dozen states to the EPA’s authority to even promulgate the 111(d) rule because 112 already regulates the same source categories, the EPA filed a brief Nov. 3 that was an opportunity to showcase federal authority. The EPA did the opposite, merely telling the court that “[w]hile the [111(d)] proposal lays out individualized CO2 goals for each state, it does not prescribe how a state should meet its goal.”[23] The agency downplayed the binding impact of the proposed rule, endeavoring, it would seem, to sidestep the question of unlawful commandeering in defending the earliest federal court challenge to the Clean Power Plan.

When faced again with challenges rooted in its commandeering problem, the EPA may try to characterize the existing source rule as a mere invitation to cooperate in EPA/state action against climate change. If so, another legal question arises: whether a proposed rule that cannot be enforced by means of a FIP, and which the EPA expects to be ignored by a material number of states, is arbitrary and capricious and thus unenforceable. This article examines that second issue.

The Clean Air Act regulates the nation’s air

The CAA came into existence because Congress recognized that air pollution is a national issue transcending the regulatory competence of individual states.[24] Congress, therefore, set out in the CAA a national framework for regulating emissions that did not intend or anticipate dependence for its implementation on state law.

Courts have long applied a “clear statement” rule when discerning whether congressional enactments were intended to be dependent upon state law.[25] Thus, to hold that Congress intended the federal CAA to depend on the police power of the 50 states, the courts would expect to find something in the text where Congress explicitly said so.[26] Congress made no such statement. Furthermore, since Train in 1975, the courts have concluded, as noted, that the EPA cannot commandeer states to run the CAA.

The problem with the Clean Power Plan is that the 30 percent reduction in CO2 emissions that the EPA proposes to achieve by 2030 is based on 50-state modeling. The EPA’s model assigns to each state a precise level of reduction.[27] Each state must meet its specified target for the states, collectively, to reach this stated emissions goal. But West Virginia and Kentucky have already passed state laws forbidding the issuance of standards of performance that adopt certain of the EPA’s building blocks for CO2 reduction.[28] That means that West Virginia and Kentucky’s target reductions have to be reallocated to other states for the proposed model to operate as the EPA intends. Other states should be expected to follow suit. Because the EPA lacks the power to impose building blocks two through four without unlawfully commandeering a given states’ police power, then the nonparticipation of any state (let alone the more than 15 that have already indicated serious discontent[29]), could invalidate the EPA’s model, and, as demonstrated below, render it arbitrary and capricious.

Once before, the EPA found itself in the predicament of building participation models assuming a fixed level of state participation and then experiencing a sliding number of state participants. In 1996, the D.C. Circuit considered Virginia’s protest to being forced into a northeast regional ozone reduction plan that effectively required the regulated states to adopt California’s aggressive auto emission standards.[30] In the resultant decision, Virginia v. EPA, the D.C. Circuit struck down the EPA’s plan on two grounds.

First, it ruled Congress had delegated to the EPA no power to compel Virginia, or any other state, to adopt California’s standards, noting that the “EPA’s rule does not respect the states’ independent authority; it removes it.”[31] But even more relevantly, the court of appeals determined that the “EPA’s modeling,” upon which the EPA based its mandate, was itself “based on an important and, it turns out, invalid assumption: that it could order each northeastern state to adopt the California program.”[32] As a result, the agency’s findings in support of the rulemaking were invalid even though three of the states voluntarily adopted the measures.[33] Because the noncooperating States did not have to participate, and nonparticipant Virginia’s emissions were unaccounted for in the model, the administrative record was rendered “inadequate” to support the agency’s determination. The court then invalidated the rulemaking.[34]

The principle of Virginia is that when the EPA lacks the authority to compel state participation, and cannot simply issue a FIP, then the EPA’s determination to regulate based on a model that incorrectly assumes full participation cannot stand — and neither can the resulting rule.

Unless Congress were to pass legislation to take from states the power to regulate the generation, dispatch and transmission of electricity, the EPA cannot evade the commandeering and coercion problems that threaten to undermine the “building blocks” of its Clean Power Plan. Correspondingly, any proposed rule that presumes unanimous state participation will be struck down as unlawfully arbitrary when the unanimity does not materialize. This legal framework puts impossible constraints on enforcing the EPA’s carbon reduction modeling as law, and therefore dooms the Clean Power Plan as policy.

The EPA may have come to the end of its capability to force substantial greenhouse gas emissions reductions without congressional action. The Clean Power Plan collides with so much settled law that it is difficult to see how it will withstand legal challenge in the courts. Right now, many states are merely planning to complain in upcoming comments, and then to lobby the EPA for more favorable emissions targets, request credit for past carbon reductions and to put off the tight compliance dates in the Clean Power Plan. Once states begin to fully comprehend their power to decline the federal directives in the proposed 111(d) rule, expect more states to opt out.

 

Scott Oostdyk is a partner in McGuireWoods’ Richmond, Virginia, office.
E. Duncan Getchell Jr. served as Virginia’s Solicitor General and is currently a partner in McGuireWoods’ Richmond, Virginia, office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

 

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Download the original article here.

28. November 2014 by Jason Hayes
Categories: CAA, Emissions, Environment, EPA, Policy, Regulation | Tags: CAA, Clean Air Act, EPA, existing source, Q4 2014, regulation, rule | Comments Off on What If States Opt Out Of EPA’s Existing Source Rule?