The Supreme Court’s EPA Ruling Is Going to Be Very, Very Expensive

The agency can still regulate carbon pollution, just not in the most efficient, system-wide ways.

Emissions rise from a generating station.
Luke Sharrett / Bloomberg

Today’s major environmental ruling from the Supreme Court, West Virginia v. EPA, is probably most notable for what it did not do.

It did not say that the Environmental Protection Agency is prohibited from regulating heat-trapping carbon pollution from America’s existing power plants.

It also did not strip the EPA of its ability to regulate climate pollution at all.

In short, it did not, as some progressives feared, blast away any possibility of using the federal government’s environmental powers to solve climate change, the biggest environmental problem of our time.

Yet its effects will be felt for years to come. The ruling limits the EPA’s ability to regulate climate change, but leaves enough room that the agency still must try to do so. With these constraints, the Court is forcing the agency to approach the problem of carbon pollution with brute-force tools. In short, the Court has ensured that climate regulation, when it comes, will prove both more cumbersome and more expensive for almost everyone involved.

If that sounds strange … well, it was a weird case. West Virginia concerns an Obama-administration proposal that never carried the force of law, having been temporarily blocked by the Court and then repealed in the Trump era. This proposal, the Clean Power Plan, would have mandated that power utilities reduce their carbon pollution over time and created a de facto cap-and-trade market for carbon pollution. The proposal then nudged that statewide power system to generate less electricity from coal plants and more from renewables and natural-gas plants. According to textbook economics, an emissions market is one of the cheapest and most efficient ways to regulate climate change. But actually setting one up required the EPA to treat the electricity-generating system in each state as a single entity; today, the Court ruled that the EPA cannot do that, but must regulate carbon emissions from power plants individually.

Ironically, that means that the Court’s conservative supermajority just ruled that the market cannot be allowed to find its own solutions when it comes to how utilities should adjust to climate change. Instead, the EPA should instruct power plants on what technology to use to meet their goals.

Although the ruling will not stop the regulation of carbon pollution altogether, it is still ominous for liberals. In 2007, the Supreme Court ruled that the EPA could regulate carbon pollution and other greenhouse gases. Since then, though, the justices have raised concerns about most of the proposals to actually do so. This state of unofficial nonregulation has protected fossil-fuel companies, which have yet to bear significant regulatory burdens but which are simultaneously insulated from nuisance lawsuits involving climate change—because they are, at least in theory, regulated by the federal government.

The ruling’s effects may be more seriously felt outside of climate policy. In his decision, Chief Justice Roberts cited the “major questions doctrine,” a conservative legal idea that says federal agencies cannot issue regulations about questions of “vast economic and political significance” if Congress has not told them to do so. That doctrine carves out an exception to another idea, which legal experts call “Chevron deference,” that allowed agencies some freedom to interpret the laws governing them when Congress had not spoken clearly on a topic. (Chevron deference was named after a lawsuit involving the oil company Chevron and Justice Neil Gorsuch’s mom.)

The major-questions doctrine could theoretically prevent the Biden administration from issuing new rules on other major topics, such as student loans or immigration.

To get a better sense of the ruling, I talked with Michael Wara, a scholar of climate and energy policy at the Stanford Doerr School of Sustainability. Our conversation has been edited and condensed for clarity.

Robinson Meyer: How are you feeling about the ruling?

Michael Wara: It doesn’t limit EPA from regulating greenhouse-gas emissions in general, which was a possibility in this case. It doesn’t say that EPA can’t regulate greenhouse-gas emissions from existing power plants. It does say, however, that that regulation has to focus on the individual power plant as opposed to the electricity system as a whole.

Meyer: In other words, what it says is, if you’re the operator of a coal-fired power plant, the EPA can’t tell you not to generate electricity—

Wara: —and to let some other power plant generate electricity. That, exactly, is off the table.

Meyer: But under the ruling, can the EPA actually say, for now, almost anything else?

Wara: There’s sort of this Justice Roberts move that’s very typical, where he says, “Oh, we’re just deciding the case before us.” But in reality, any other options that would involve, let’s say, systemwide change, are pretty clearly ruled out. So could you have a cap-and-trade program [under the Clean Air Act]? The answer is no, under this decision. Could you have some sort of efficiency regulation, which was initially considered under the Clean Power Plan—like, go after [electricity] demand rather than supply as a way to reduce emissions? I would say, probably not—I’d be extremely skeptical that could survive review. Any potential regulation has to stay “inside the fence line” [of a power plant].

But there, the decision really doesn’t say anything. So I think it’s possible that we could see the EPA require carbon capture and storage, and that would be the death of coal. I think there’s an opportunity there to take actions, under this decision, that are kind of very traditional [under the Clean Air Act]. The reason those actions haven’t been taken is not that they were perceived as illegal.

Meyer: If they’re not illegal, why hasn’t the EPA already mandated that coal plants use carbon capture?

Wara: It was because [such a rule] was perceived to harm certain states more than others. States that are very coal-dependent for their electricity supply would face higher costs. And so much of the Clean Power Plan was driven by a desire to minimize the costs of taking effective action. That’s really been true since the 1990 Clean Air Act, with a lot of EPA air regulation. The EPA has strived to do what it needs to do as cost-effectively as possible to deliver maximum emission reductions at minimum cost for society.

Meyer: Is there a chance that this ruling means that effectively—I guess it’s still constrained by cost-benefit analysis but—that we may get more expensive climate policy?

Wara: Yeah, I think that’s right. What the Court is doing today is stripping them of that interpretive flexibility that allows them to be economically efficient.

Meyer: Can the EPA, at least under this ruling, issue a very blunt regulation? Can it say something like, Power plants can now only emit X amount of carbon per year, period—that’s it, have fun meeting that standard?

Wara: They can’t completely do that for old plants. They can do that for new power plants if there is existing technology available. And there, I think the problem that the states that oppose climate action are going to have is that many of them are also vociferously pushing development of CCS [carbon capture and storage], and pushing their utilities to try it. Those are bad facts for a case saying the technology is not available. And lots of industry is also pushing that.

There are limitations in section 111(d) [of the Clean Air Act] that relate to feasibility. Like, what does it mean to say that a technology is “adequately demonstrated” for purposes of part of the Clean Air Act? I think you could make a case that carbon capture has met that standard for new plants.

For existing plants, the law requires that you consider the circumstances. Like, is there space at the existing plant? Is it feasible at the thing that’s already there? And in a lot of cases, the answer is going to be no. And then you’re left with, Well, what do we do then? And there’s language in 111(d) about the remaining useful life of a power plant. You have to take that into consideration. The EPA has used that in the past to give plants some breathing room, allow them to operate a few more years before they effectively have to come up to code. We’ll see if they’re willing to do that here.

Meyer: Will this ruling slow down the pace of decarbonization in the electricity sector?

Wara: I don’t think so. Electric-sector decarbonization is well under way. We’re in a period right now where renewables, especially given the run-up in fossil-fuel prices like natural gas or coal prices, are highly competitive assets. And in certain parts of the country where utilities want to hold on to assets because they want to fully amortize the investment, it may delay things, in places like the Southeast, for example.

But even there the cost differential—like the cost to operate a coal plant is in some places higher than the cost to build replacement renewable generation. And so it’s just getting harder and harder, and that’s not going to change. It is just not the case that solar and batteries are going to get more expensive in a material way.

One tell there is what the coal-mining industry is doing. Coal prices are up; coal mining, not up. And in the oil-and-gas industry, the natural-gas sector is mostly doing share buybacks and dividends. Doing a little extra drilling, but it’s not material.

Meyer: Does it change how the EPA might go about regulating carbon pollution from “mobile sources”—in other words, cars and trucks?

Wara: The Supreme Court has never heard a mobile-source case on greenhouse gases. They’ve never ruled on the tailpipe-emissions rule or the joint EPA-NHTSA rule, and they’ve never ruled on the waiver that California gets. I think there is legal risk there. We’re sort of where we were with the Clean Power Plan in 2014 with that stuff.

On the other hand, what is different is that the industry is committed. At least, large parts of the industry are committed to electrification. And it’s just totally clear that there are alternatives, and the industry is making investments such that by the time that case gets heard, it may not matter. Because if the growth in vehicle sales is in the developing world, in China, India, [those countries] are just going to say ‘No, it’s going to be electric.’ And that’s already happening in China. So if you want to be a profitable global company, you gotta do it.

But imagine a world where we didn’t have those rules. How much more would we be hurting right now if, instead of investing in vehicle fuel-economy for the last decade, we’d been investing in increasing the power of vehicles, which was the history before that rule? We’d be in a world of pain right now as a country.

Meyer: Zooming out, what does this mean for Chevron deference broadly? Is it possible that this actually has bigger implications for the rest of the Biden administration’s ability to do ambitious stuff with agencies, even more than it does for the EPA?

Wara: I think it does. One of the most striking things about this decision is the majority doesn’t even mention Chevron in the decision. It’s not on the agenda. They are taking a much more activist and skeptical view of how creative agencies can get using the statutes they have to address the problems they confront today, as opposed to the problems that were imagined by Congress who knows how many decades ago when the legislation was passed.

In this Court, we are in a new world when it comes to agencies coming up with new approaches or using the power they have to address new problems. And this case is definitely going to stand, alongside a bunch of other cases that have been decided this term, for that principle.

The hard thing is going to be predicting when this new body of administrative law, this major-questions doctrine, is going to apply and when it isn’t. Because Chevron is still the law under normal circumstances. But the question is, who decides what’s normal and what isn’t? And I think that one of the major criticisms of this approach is that basically that’s left to the Supreme Court, and it’s normal when they think it is, and it’s “extraordinary” when they think it’s extraordinary.

So you’re left kind of guessing what the Court thinks. And it’s not rooted in a particular theory of constitutional law. I think it’s really unclear where the boundaries of this new kind of administrative law are, and the Court has not made much of an effort to articulate them.