Supreme Court Issues Split Decision on EPA's Greenhouse Gas Regulations

On June 23, 2014, the U.S. Supreme Court issued a split decision in Utility Air Regulatory Group v. EPA . [1] A 5-4 majority of the Court held that the Clean Air Act (the "Act") does not authorize the U.S. Environmental Protection Agency ("EPA") to require stationary sources to obtain permits under its Prevention of Significant Deterioration ("PSD") or Title V programs solely on the basis of potential greenhouse gas emissions. However, a 7-2 majority of the Court held that the EPA could require stationary sources already requiring permits based on emissions of other pollutants, to meet the Best Available Control Technology ("BACT") standards for greenhouse gas emissions.

Part I of the opinion rejected EPA's position that since it has determined that greenhouse gases are a pollutant under the Act and has enacted regulations governing carbon emissions from automobiles, the regulation of greenhouse gases for stationary sources under both the PSD pre-construction and Title V permitting programs is appropriate and, in fact, automatically triggered. The Court explained that the definition of the term "air pollutant" had traditionally been interpreted and applied more narrowly in the context of PSD and Title V permitting, and EPA's regulation of greenhouse gases under other provisions of the Act did not invalidate those interpretations.

Moreover, it was unreasonable for EPA to use its discretionary authority in this manner because such an interpretation would result in the regulation of millions of sources that Congress clearly did not have in mind when writing the Act. Office and residential buildings, hotels, schools, churches, and retail establishments are examples of the millions of previously unregulated sources that may have been required to obtain permits based solely on greenhouse gas emissions.

However, in Part II of the opinion, the Court handed EPA a victory, finding that it had acted within its discretion and reasonably interpreted the Act to require those sources that already are subject to a PSD and/or Title V permit based on other emissions (what the Court calls "anyway" sources) to use the BACT to reduce greenhouse gas emissions. The Court found that the Act was clear with respect to the definition of the term "pollutant" in such cases, and even if this was not the case, requiring such sources to meet BACT requirements for greenhouse gases did not result in "disastrously unworkable" results or the "dramatic expansion of agency authority" that were contemplated in Part I of the opinion.

These "anyway" sources include power plants, refineries, factories, and other large stationary sources. The Court noted these "anyway" sources generate far more greenhouse gas emissions (83% of American stationary source greenhouse gas emissions) than the additional, non-"anyway" sources in question (only 3%). The Court's decision therefore does not affect the EPA's general authority to regulate greenhouse gases under the Act, and these "anyway" sources will be required to satisfy BACT standards for greenhouse gas emissions. The Court's opinion is, however, a huge relief for owners and operators of these non-"anyway" sources, particularly smaller businesses. They will no longer be required to obtain and comply with PSD and/or Title V permits based on potential greenhouse gas emissions.

Beyond these direct implications, it is uncertain what impact the Court's opinion may have on future challenges to EPA's regulatory authority. The Court reprimanded EPA, clarifying that the Agency "has no power to 'tailor' legislation to bureaucratic policy goals by rewriting unambiguous statutory terms," and it cannot unreasonably interpret the Act to "bring about enormous and transformative expansion in EPA's regulatory authority without clear congressional authorization." Additionally, the Court made clear that even though EPA is indeed authorized to regulate greenhouse gases in certain scenarios, it does not have a mandate to regulate greenhouse gases in every possible way under the Act. Instead, the EPA must work within the confines of its statutory authority and consider the practical implications of its regulations.

Please feel free to contact a member of Clark Hill's Environment, Energy and Natural Resources practice group with any questions about the Supreme Court's decision and how it may affect your business.