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The Insider

Final ACE Rule Tees Up Major Fight Over Scope Of Air Act GHG Authority

EPA’s final Affordable Clean Energy (ACE) rule imposing narrow greenhouse gas limits on power plants and replacing the Obama-era Clean Power Plan (CPP) is teeing up a major fight over the scope of the agency’s Clean Air Act authority to limit climate-warming emissions.

The final rule, signed June 19, formally repeals the CPP while issuing limited GHG requirements on coal plants that are premised on improving plants’ efficiency:

EPA Repeals Obama-Era CPP, Finalizes Narrow ACE Replacement GHG Rule
The Trump EPA has finalized its Affordable Clean Energy (ACE) rule, a narrow policy intended to address greenhouse gases from existing power plants, while also formally repealing the Obama-era Clean Power Plan (CPP) in the agency’s first high-profile climate rule rollback to be completed.

The ACE rule largely relies on the current industry trajectory away from coal toward lower-emitting natural gas and renewables, prompting swift criticism from those pressing for strong climate action.

“I believe this is the first rule in EPA’s history that acknowledges the existential threat of climate change but by the agency’s own admission does absolutely nothing to stop it,” Obama EPA Administrator Gina McCarthy said.

Many expect litigation over ACE to focus on the key issue of the agency’s power to set GHG requirements under section 111 of the Clean Air Act.

ACE makes an aggressive argument on the issue, charging that the air law unambiguously precludes the types of broad GHG standards in the CPP.

That argument is riskier than simply claiming that ACE’s narrower approach -- setting standards based only on emission reduction projects taken “within the fenceline” of a regulated plant -- is the most reasonable and thus should be granted deference by the courts:

EPA Adopts Risky Legal Stance In ACE To Limit Air Act GHG Authority
EPA’s just-issued Affordable Clean Energy (ACE) rule, which seeks to replace the Obama-era Clean Power Plan (CPP), adopts a risky legal interpretation arguing that the agency is prohibited from issuing the types of broad greenhouse gas standards that were included in the CPP in a bid to block a future administration from re-imposing similarly expansive requirements.

Joe Goffman, an Obama EPA air official who helped write the CPP, told reporters ahead of the rule’s release that if the agency took the position that its narrow, “inside-the-fenceline” approach is the only allowable interpretation, that is a high-risk argument.

Yet, he also acknowledged that if the agency successfully defends that argument in court, it would hamper a future Democratic administration from reversing course and broadening the rule.

The legal contest “will be over whether . . . the way the agency is now interpreting the statute is superior to the way the agency interpreted the exact same language four years ago. And the more that the agency insists that its current interpretation is the only interpretation available, I think the harder it will be for the agency to explain why, just four years ago, it came up with a completely different interpretation,” he said.

Other air act experts are agreeing with Goffman’s assessment, though some industry attorneys are more bullish on EPA’s chances in court:

Experts See ‘Uphill Climb’ For EPA Bid To Limit Air Law GHG Authority
Clean Air Act experts say EPA faces a tough legal lift to convince a key appellate court that its just-issued Affordable Clean Energy (ACE) rule to address power sector greenhouse gases is lawful, in part because the agency opted for a relatively risky claim that its standard-setting approach is the only permissible interpretation of the law.

One knowledgeable observer says Goffman’s argument is correct, and that EPA took the tougher position because it “wants to tie future administrations’ hands so they can never do anything” that looks like the CPP.

“To lock that down, they had to take a Chevron step 1 approach,” the source says, referring to the Supreme Court’s precedent on agency deference. “But that means they must convince the court that this is the only way.”

Under Chevron step 1, an agency must show that a statute is not ambiguous, which EPA is arguing here. Under Chevron step 2, an agency is entitled to deference for its “reasonable” interpretation of ambiguous text, but there is no requirement for future administrations to keep following their predecessors’ interpretations.

This source points out that EPA spends more than 15 pages in the rule’s preamble to explain why the statute is “clear. To me, that is not a step 1 argument. . . . Step 2 would be easier to defend.”

EPA may prevail on the issue if the case gets to the Supreme Court during the Trump administration, this source says, but is unlikely to win at the U.S. Court of Appeals for the District of Columbia Circuit, which reviews all suits over nationwide air rules.

During September 2016 oral argument over the CPP before the full appeals court, the observer says at least six judges appeared in favor of saying section 111 standards can encompass generation shifting. “That means the statute is ambiguous and can go that far, at least in the opinion of the majority of active sitting judges. So unless EPA gets a very good draw here, there is a very good chance it will draw at least two judges [on a three-judge panel] who will say the statute can encompass generation shifting. . . . EPA faces an uphill climb.”

Analysts had agreed that the Obama EPA held an edge in the litigation following the 2016 oral argument -- until President Donald Trump’s election scrambled the dynamic and ultimately led to the CPP’s undoing:

After Arguments, Analysts Agree EPA Has Advantage In ESPS Litigation
Law professors and other observers are solidifying their views that EPA has the advantage in litigation challenging its landmark power plant greenhouse gas rule, arguing the majority of appellate judges appointed by Democratic presidents gave few indications during oral arguments that they will side with their GOP-appointed colleagues to vacate the rule.

At the time, most observers said the six Democratic appointees on the full court gave little indication that they would side against EPA on the two core issues of the case: Whether to use a strict judicial review standard because the CPP is “transformative,” in lieu of the traditional, deferential standard; and whether it was appropriate for EPA to establish GHG limits based on generation shifting in the power sector.

In the upcoming litigation over ACE, Trump officials are also arguing that their CPP repeal is legally distinct from the ACE rule:

EPA Argues Its Repeal Of Obama CPP Rule ‘Severable’ From ACE Policy
EPA says its formal repeal of the Obama-era Clean Power Plan (CPP) is severable from its newly finalized Affordable Clean Energy (ACE) rule in an effort to persuade courts to allow the repeal to go forward even if they find the narrow replacement unlawful -- though sources say it is far from clear that judges will accept this position.

Some sources are skeptical that EPA will prevail on this point, however, because both actions are premised on the same legal argument that the air law clearly precludes “beyond the fence” actions from being part of the rule’s standard-setting formula, known as the best system of emission reduction (BSER).

“So, if [ACE] goes down in court” because judges find the statute is in fact ambiguous in defining BSER, “that means the CPP repeal would also fail,” one observer says.

In addition, the final rule does not set a presumptive standard of performance, a rebuff to state air regulators’ requests for such language -- which they sought to give them protection against lawsuits challenging whatever requirements they impose on power plants in state compliance plans:

States Warn EPA’s ACE Rule Could Make Them Vulnerable To Lawsuits
State air regulators are warning that EPA’s imminent Affordable Clean Energy (ACE) power plant greenhouse gas rule will, if finalized as proposed, leave them vulnerable to suits from regulated utilities, their competitors and environmentalists because it does not set an GHG reduction target against which their plans would be assessed.

States say that the rule’s fundamental architecture -- where EPA does not set the level of GHGs that must be achieved or reduced -- leaves them vulnerable to lawsuits. They liken final, plant-specific ACE compliance plans to clean air permits, which are often challenged in court, rather than as strategies to achieve a rule that imposes a uniform requirement.