In a potential blow to EPA and President Barack Obama’s legacy on climate change (that was softened with Supreme Court Justice’s passing on February 13, 2015) the U.S. Supreme Court --in an unprecedented and extraordinary decision –on February 9, 2016 overruled the D.C. Circuit Court of Appeals and granted a motion to stay (or halt) the implementation of an agency rule while the appeal of the EPA’s rule is still pending before the D.C. Circuit. The legal issues before the D.C. Circuit have not yet been briefed or argued. Specifically, the Supreme Court in West Virginia et al. v. EPA, No. 15-1363, by a 5-4 decision, stayed the implementation of an important final rule promulgated by the U.S. Environmental Protection Agency (“EPA”), which issued carbon pollution emission guidelines (referred to as the “Clean Power Plan” or “Plan”) for existing fossil fuel-fired electric generating units.  Justices Roberts, Scalia, Kennedy, Thomas and Alito voted to grant the stay; Justices Ginsburg, Breyer, Sotomayor and Kagan voted to deny the application.  

The EPA’s Plan was developed with historic speed, having been  proposed on June 18, 2014, and finalized on October 23, 2015., commencing the 60-day period for appeal of the Plan to a federal appellate court.  A number of states moved quickly to challenge the Plan, with West Virginia filing its petition for appeal to the D.C. Circuit on the same day as the Plan was finalized—October 23, 2015. The D.C. Circuit has scheduled expedited briefing on all issues, with reply briefs due on April 5, 2016, and oral argument scheduled for June 2, 2016. The panel of judges on the D.C. Circuit includes Judges Henderson, Rogers and Srinivasan.  The petitioners who sought the stay included 29 states or state agencies, and 60 other parties comprised of utilities, labor unions, coal companies and power or energy cooperatives.  Opponents to the stay included the EPA, as well as 19 states (including Maryland), six cities, and ten utility or utility affiliated entities, three renewable energy trade associations, and nine non-governmental organizations.  

Among other matters, the EPA’s Plan seeks to establish: (a) carbon dioxide (CO2) emission performance rates as the best system of emission reduction for fossil fuel-fired electric utility steam generating units and stationary combustion turbines;  (b) state-specific CO2 goals reflecting CO2 emission performance rates; and (c) guidelines for the development, submittal and implementation of  state plans that establish emission standards or other measures to implement CO2 emission performance standards.  

At the heart of the case before the D.C. Circuit is whether the EPA has the legal authority under the Clean Air Act to require the shifting of electricity generation away from coal-fired and fossil-fuel fired power plants to natural gas or renewable energy sources, such as wind and solar, as the EPA seeks to do under the Plan and pursuant to its authority under §111(d) of the Clean Air Act.  The petitioners assert that the EPA’s effort to promulgate the Plan: (a) contravenes the Supreme Court’s decision by Justice Antonin Scalia in UARG v. EPA, 134 S. Ct. 2427 (2014), which required that an agency have clear congressional authorization before exercising significant and transformative powers; (b) unconstitutionally commandeers and coerces states and their officials into implementing federal energy policy; and (c) contravenes the clear and unambiguous mandate under § 111(d) of the Clean Air Act, which prohibits EPA from regulating a source category under 111(d), if already regulated under Section 112, which already regulates fossil-fuel-fired power plants.

The Supreme Court’s stay, the passing of Supreme Court Justice Antonin Scalia and the potential challenges to EPA’s Plan raise several issues, observations and implications:

1. While a decision by the D.C. Circuit is expected later this year, its outcome is all but certain to be appealed to the Supreme Court with the Supreme Court’s final decision not expected until at least 2017 -- after the elections and under a new administration. As expected the views of the presidential candidates fall along party lines, with Hillary Clinton and Bernie Saunders pledging support for the Plan, and the Republican contenders sharply criticizing the Plan.  
2. Justice Scalia’s passing could have a significant impact on the outcome of the case when it reaches the Supreme Court in 2017.  Should Justice Scalia’s successor not be approved by the U.S. Senate prior to the case being argued, which is likely, and based on the justices who decided the motion for stay, the case could be decided by a tied 4-4 vote, in which event the decision of the D.C. Circuit would prevail.  Indeed the mere absence of Justice Scalia on the Court, an originalist or textualist, could significantly affect the outcome of the case, as the Court will be without its most vocal critic of EPA and its most vocal advocate for the strict construction and interpretation of laws, as reflected in the UARG decision. Regardless of whether a successor is named by a democratic or republican president, Justice Scalia’s successor will not match Justice Scalia’s views and influence on the Court, which not only softens the impact of the Court’s stay upon EPA and the Obama administration, but increases the chances that the Clean Power Plan will survive.    
3. The case has been described as the “Superbowl of litigation,” involving a broad spectrum of interested parties.  Over 150 petitions were filed before the D.C. Circuit seeking to invalidate EPA’s Plan.  The petitioners include 27 states, and numerous interested parties representing the utilities, labor unions, coal companies and business groups.   Approximately 64 parties have moved to intervene in support of the EPA, including 18 states (including Maryland), seven cities, five power companies, environmental groups, renewable energy associations, as well as former EPA administrators William D. Ruckelshaus and William K. Reilly.
4. The Supreme Court, under well settled principles of law, granted the stay based on (a) a reasonable probability that four justices would grant certiorari, (b) a fair prospect that a majority of the Court would vote to reverse a judgment below or invalidate the Plan, (c) a likelihood of irreparable harm, and (d) a balancing of the equities and weighing of the relative harms between the parties.  As the appellate review is still pending before the D.C. Circuit, the Supreme Court’s grant of the stay could influence the D.C. Circuit’s views of the case, although less so with the passing of Justice Scalia. In granting the stay, the Supreme Court clearly differed with the D.C. Circuit, which had previously denied the petitioners’ application for stay and without expressly stating so, by implication acknowledged that there is a likelihood that the petitioners could prevail on the merits of their arguments. The outcome of the D.C. Circuit case looms even more important with the passing of Judge Scalia, as the panel of the D.C. Circuit includes one Republican and 2 Democratic appointed judges, including Judge Sri Srinivasan, whose name has been mentioned as a possible nominee to replace Judge Scalia on the Supreme Court.     
5. The Supreme Court’s stay is likely to jeopardize the Paris Agreement reached in December, 2015.  The Paris Agreement is a global agreement and framework reached by a consensus of 196 countries seeking the reduction of greenhouse gas emissions. The Paris Agreement requires adoption by at least 55 countries representing at least 55 percent of global greenhouse emissions between April 21, 2016 and prior to April 21, 2017. The EPA’s Plan was an essential element of the United States’ commitment under the Paris Agreement. With the legal validity of the Plan is now called into question, the commitments by other major counties under the Paris Agreement, such as China and India, could falter as well.
6. For those utilities and states (such as California, New York and Maryland) that already have undertaken efforts to reduce greenhouse gas emissions and to shift to natural gas, solar or wind energy, the legal outcome of the EPA’s Plan should have limited effect, as such utilities or states will be better prepared if the Plan’s legal validity is affirmed, or will continue its existing programs if the Court invalidates the EPA’s Plan.  Since 2007, Maryland has been a member of the Regional Greenhouse Case Initiative, which is a cooperative effort among nine U.S. states to reduce greenhouse gas emissions.
7. States and utilities that have not developed greenhouse gas reduction programs or contingency plans to shift to natural gas and renewable energy sources could be at competitive disadvantage if the Plan’s validity is upheld, and the states must meet numerous deadlines under the Plan beginning with the submittal of a final state implementation plan or an initial submittal with an extension request by September 6, 2016, and final complete state implementation plans by September 6, 2018.    Conversely, those states that either develop contingency plans or have undertaken greenhouse gas emission reduction programs could be at a competitive advantage.  
8. Regardless of the EPA’s Plan and the legal challenges ahead, market forces are strongly influencing the reduction of greenhouse gas emissions as a result of the historically low prices of natural gas and the extension of Federal tax credits for renewable energy sources. While the EPA’s Plan projects that the share of the energy market derived from coal generation will be 27% by 2030, the current market share derived from coal generation is about 29%.   

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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