Climate Policy in the Courts

The Supreme Court decision West Virginia v. EPA in 2022 holds significance and creates uncertainty for environmental regulations. This conversation with experts helps explain why and explores potential legal hurdles for future climate policy.

Robert N. Stavins: Let’s talk about climate policy, especially from a legal perspective. I assume that the most important and most prominent legal event affecting climate policy was the Supreme Court decision in West Virginia v. EPA. Can you briefly summarize that decision?

Jeffrey R. Holmstead: The West Virginia v. EPA decision is probably the most important decision in administrative law in the last 20 or 30 years, given the way that the Supreme Court approached it. They developed the contours of a legal doctrine that’s been floating around in a half dozen Supreme Court cases over the last 20 years. It’s known as the “major questions doctrine.” The West Virginia case is the first time that the court majority has used the doctrine explicitly.

They basically looked at the Obama administration’s Clean Power Plan. The procedure of the case was unusual: The Clean Power Plan was stayed back in 2015 and finally made its way to the Supreme Court. The centerpiece of the Clean Power Plan was what EPA called “generation shifting,” which was the idea that, to get the necessary CO₂ [carbon dioxide] reductions, they would explicitly shift generation from coal-fired power plants to natural gas plants and renewables. The court looked at the specific provision in the Clean Air Act that the Obama administration had used and noted that it had been interpreted in a very different way for 40 years.

In the case, the court said that there are certain extraordinary cases that involve a major question of great political and economic significance. The court said that, before an agency can regulate in that area or in that way, they need to be able to point to a clear statement from Congress that that is what Congress intended the agency to do.

Since there was no such clear statement in the Clean Air Act, the court ruled that that was beyond EPA’s regulatory authority. They explicitly said EPA can regulate CO₂ under the Clean Air Act, but they can’t explicitly use generation shifting. At that time, roughly 40 percent of the electricity generation came from coal-fired power plants, and EPA wanted to limit that to about 20 percent. The court said that was beyond EPA’s regulatory authority.

Is a fair, simplistic summation of this case that, under the major questions doctrine, the Supreme Court found that Chevron deference does not apply?

Yes. I think that’s fair. People have talked about this as a preliminary step before you get to Chevron, and that’s probably a good way to characterize it.

In response to the West Virginia v. EPA decision, some parties—mainly ones on the left, such as the Center for Biological Diversity and 350.org—have argued fairly recently for EPA to set a national standard for CO₂ concentrations under a different part of the Clean Air Act: the National Ambient Air Quality Standards (NAAQS), which you’re familiar with. To a non-lawyer, that strikes me as even more problematic than using section 111(d) of the Clean Air Act for the Obama Clean Power Plan. What do you think?

When the Obama administration was looking at how to regulate CO₂, they looked at a number of different options. One of those was whether they could develop NAAQS. They also noted that it was plausible that CO₂ could be classified as a hazardous air pollutant and regulated under section 112 of the Clean Air Act. They decided that the most defensible approach would be to regulate it under section 111(d), which is what they did in the Clean Power Plan.

I give that by way of background, because I think they understood that regulating it with NAAQS, or as a pollutant, was a stretch. There’s very little chance that any effort like that would pass muster in the courts—and certainly not with the Supreme Court. I don’t think this administration, even if it has a second term, would ever pursue that approach, because they wouldn’t want to spend the time and the effort knowing in advance that they were almost certain to be struck down.

Stepping back—what is your assessment of the Biden administration’s climate policy? Or, if you prefer broader environmental policy, how do you assess the approaches they’ve taken—the achievements, successes, and failures?

The Biden administration has made clear that climate change is one of its highest priorities, and officials have done a couple of very important things. Their first priority was in the transportation sector, and they finalized much more aggressive CO₂ emissions standards for vehicles. They also have proposed—but not yet finalized—an aggressive approach to regulate methane emissions from oil and gas operations. It’s a bit surprising that that hasn’t been finalized yet, but those are difficult issues to deal with.

Those are significant efforts. The West Virginia case could cause issues for EPA’s approach to vehicle emissions, but those are their two big initiatives in the regulatory area. Biden administration officials were focused much more on the possibility of legislative efforts that could achieve their goals when it came to climate change.

It seems that the approach you were mentioning with methane in the oil and gas sector—addressing leaking from pipelines and wellheads—would be a technology-specific approach at the source. Do you think that will pass muster with the Supreme Court?

Yes. I doubt it’ll ever get to the Supreme Court.

What’s happening with the Biden administration with the social cost of carbon? That’s something that’s near and dear to the hearts of economists like me. The social cost of carbon also has been in the courts. What’s your view on that from a legal perspective?

It depends entirely on how it is used. There have been efforts to strike down the social cost of carbon, and you’ve probably been following those cases. I think the courts have correctly said that the social cost of carbon is not itself reviewable in court; it won’t be reviewable until it’s used in a regulation. It will depend on the specific contours of the regulation. As you know, all these regulatory programs have different standards that the agencies have to meet. If it’s the kind of standard that allows them to consider benefits and costs, it depends on the specific context. I think there will be some interesting litigation about that.

We could see that in the context of natural gas pipelines. If the Federal Energy Regulatory Commission decides to use the social cost of carbon as a rationale for rejecting a natural gas pipeline, that would present the issue in a different context. They might run into trouble there. That’s something under consideration, but they have not done that yet.

Of these various policies that are moving forward, some that are in proposed regulations may survive and not go to the Supreme Court. But the one that I would think would be the greatest stretch and most difficult would be the proposed rules from the Securities and Exchange Commission (SEC) about disclosure. Do you think differently?

I think that’s absolutely right. In some ways, I think the West Virginia decision will have a much bigger impact on agencies other than EPA.

One of the things that the court looks at is whether an agency historically was understood to have that kind of role. The SEC would essentially be regulating greenhouse gases in the form of a disclosure. At least as proposed, it would be a pretty intrusive form of disclosure. There’s a fairly good chance that if the SEC finalizes what it proposed, it’s likely to run into trouble in the courts.

Where does that leave you, finally, in terms of the scale of optimism to pessimism about future progress on climate change?

I’ve thought a lot about that, and I have two answers. When it comes to climate change in the United States, I still think that there is a good chance of having comprehensive climate change legislation. People are skeptical when I say that, because they look at the polarized Congress.

I think you need something like the situation that occurred in 1990, where you have a Republican president, Congress in Democratic hands, and the back-and-forth and negotiation that goes into something like that. There are many people in the business community that would like to have the certainty of legislation. So, I’m still optimistic that we could see something like that in the relatively near future.

But ultimately, it seems to me that it’s a technology question. Until there is a way to provide people with electricity and to power mobility that is at least close to being cost-competitive with coal and oil, it’s going to be an uphill battle. My hope, and you’ve heard me say this before, is that we’ll not only look at regulatory approaches, but we’ll consider whether those approaches are the best way to incentivize next-generation technologies, or whether there are actions that the government could take.

I tend to be a technological optimist. I think that there are technological breakthroughs that are at least on the horizon that could help us solve the problem. For me, climate change ultimately is a technology issue and not a regulatory issue.