Supreme Court Temporarily Blocks EPA’s Efforts to Transform Domestic Energy Industry

Date: February 10, 2016

One behalf of 325,000 small business owners throughout the nation, the National Federation of Independent Business has been fighting—alongside other industry groups and 26 state attorneys general—to block a controversial new rule out of the Environmental Protection Agency (EPA). The so called “Clean Power Plan” invokes the Clean Air Act (CAA) to impose new rules, sweeping virtually all aspects of electricity production within EPA’s control. Specifically, the Clean Power Plan imposes emission reduction targets on the states, requiring them to submit plans to achieve those targets. This requires states to take actions to overhaul the power sector, including passing new laws to ensure the permitting, construction, and funding of EPA’s preferred power sources, as well as shutting down existing disfavored plants.

The rules provide that states may lose federal funding if they refuse. Furthermore, EPA will prepare and impose plans to achieve emission reduction targets for uncooperative states—a threat that is intended to prompt states into action so that they can at least retain some modest sense of autonomy. But of course, EPA can and will reject state plans that it deems inadequate to satisfy federally assigned emission reduction targets. Consequently, these rules likewise require the industry to begin taking actions to comply, all of which will result in higher energy rates for commercial and residential utility users.

In addition to raising serious federalism issues,the Clean Power Plan controversially invades and displaces the authority of the Federal Energy Regulatory Commission and the police powers of sovereign states (often exercised through their Public Utility Commissions (PUCs) to regulate electricity generation, transmission, and rate-setting). Moreover, the Clean Power Plan further upsets the regulatory regimes Congress enacted by setting up a form of cap-and-trade regulation—notwithstanding the fact that Congress has explicitly rejected bills that would have mandated a cap-and-trade system. Indeed, under the Clean Power Plan, states that cannot otherwise meet their assigned emission reduction targets can come into compliance by subsidizing the development of renewable energy in other states. Alternatively, a state may achieve compliance under the Clean Power Plan by requiring existing energy producers (e.g., coal-fired plants) to either build new renewable plants, or to buy credits from another renewable energy generator in an emissions trading market.

EPA’s Rule rests entirely on a single terse phrase plucked from a rarely used provision of the CAA, which authorizes EPA to establish a “procedure” for states to issue “standards of performance” for existing “sources.” But in challenge to the rule, NFIB and her allies maintain that EPA is re-writing the CAA to radically expand its statutory regulatory powers well beyond what Congress authorized. To be sure, EPA cannot bootstrap from a “long-extant statute an unheralded power to regulate ‘a significant portion of the American economy.’” UTIL. AIR REG. GRP. v. EPA (2014). That is especially true where, as here, Congress has repeatedly considered and rejected giving EPA the new statutory authority it claims, and where EPA is attempting to assert primacy over a sector traditionally regulated by the States. Simply put, a provision that exclusively addresses regulation of existing sources cannot supply a statutory basis for EPA to mandate the construction of new preferred sources for energy production.

Needless to say, EPA’s Clean Power Plan will impose huge costs if it ever goes into effect. But the good news—for the time-being—is that the U.S. Supreme Court has granted a request, on behalf of the states and industry plaintiffs, to temporarily stay the Clean Power Plan until the courts can determine whether it is legal. That’s important because otherwise the states and energy producers were going to have to begin taking steps to come into compliance with a potentially illegal regulation.

As NFIB Legal Center’s Executive Director, Karen Harned, explained in a recent Federalist Society blog post, the Obama Administration has—in the past—achieved its policy objectives by coercing the regulated community into making costly changes while illegal regulations were still being evaluated in the courts. (Susan Dudley explains the problem in more depth in this Forbes article). But with yesterday’s order temporarily blocking the agency from implementing the Clean Power Plan, the affected states and businesses have more breathing room. They are spared the costs and burdens of compliance unless and until the rule is deemed legal by the courts. And we think that’s unlikely to happen given the gravity of the legal concerns we’ve raised.

Harned was quoted by CNN as applauding the Supreme Court’s decision to stay the rule yesterday: “What the court said today is that states cannot be forced to comply with a regulation that it may ultimately decide is unconstitutional. This is a temporary but important victory for small businesses, which were facing substantially higher energy costs.”  For more commentary, check out Jonathan Adler’s commentary at Volokh Conspiracy. *Adler and Dudley both serve on the NFIB Small Business Legal Center’s Advisory Board, and are leading experts on regulatory issues. 

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