Federalism Games in the Clean Power Plan Battle

Next Tuesday, the U.S. Court of Appeals for the D.C. Circuit will hear four hours of argument over the Clean Power Plan (CPP). Federalism-linked statutory, regulatory, and doctrinal law has been and will be crucial to the CPP's fate, and several issues of federalism will play a key role.

In designing the CPP, the U.S. Environmental Protection Agency built on states' actions in reducing greenhouse gas (GHG) emissions in recent years through use of GHG trading regimes, and nudging or requiring power plants to produce energy through cleaner or renewable sources. The CPP's core requirements – capped pollution targets for each state – are built on EPA's assessment of what "best systems of emission reduction" have been "adequately demonstrated," and derives the targets from that assessment.

States were able to make such progress during recent decades due both to their longstanding powers to regulate retail energy markets and the Clean Air Act's explicit "saving" of state authority to take regulatory actions in addition to and more stringent than federal regulation. Because of this, some members of the court will no doubt ask about EPA's authority to build the CPP's emissions targets on these past state accomplishments. 

The Plan's challengers disagree that EPA has such authority. Most have been pushing the "inside the fenceline" argument, claiming that the key Clean Air Act provision – Section 111(d) – requires EPA to look at "demonstrated" emissions reductions strategies on a facility-by-facility basis, while EPA's  system-wide basis instead builds on what states and utilities have actually been accomplishing, including through emissions trading and shifting of fuels. EPA's argument is that the actual language and structure of the statute do not focus on particular power plants, and that the law uses the term "system," not "technology," and nowhere mandates such a plant-by-plant focus.

Federalism-linked structures are crucial to EPA's claim. The key provision cross-references Section 110, the Act's long-used State Implementation Plan provision that uses region-based state planning and performance standards to achieve emissions targets. Since 1990, Section 110 has explicitly authorized use of market-based regulatory strategies, such as trading. Relatedly, judges may ask challengers how they can argue today that EPA lacks such power when, in 2004, many energy companies and linked associations strongly argued in official regulatory filings that EPA could regulate them under Section 111(d) through a cap-and-trade strategy that was not focused on each facility separately.

The CPP also seeks to harness states' broad flexibility to devise cost-effective means to reduce greenhouse gas (GHG) emissions. The CPP, consistent with the Clean Air Act, explicitly calls for actions involving the federal government and, should they accept the regulatory opportunity, the states. Challengers argue that even though the CPP claims to give the states the choice between taking on CPP responsibilities or leaving the work to the federal government – a clear requirement and permissible strategy under longstanding federalism law – energy regulators and other state officials would still be coercively saddled with new regulatory obligations. EPA argues that its federalism design is directly allowed by statutory and case law and, furthermore, that its careful attention to state interests and room for flexible state implementation make its choices especially deserving of deference. The challengers' arguments here are quite a stretch; judges' sympathy or skepticism about such arguments will be important.

Another key issue will concern EPA's latitude to reconcile an inartful cross-reference in Section 111(d) to Section 112, the Act's hazardous air pollutant provision. To make matters worse, Congress actually sent to the president for signature two versions of the cross-reference. EPA says that its interpretation of the Section 112 carve-out from 111(d) regulation should be based on pollutants, not a whole industry, but challengers argue the opposite.

Once again, federalism will matter, but for a different reason. One strain in federalism law is that regulation that impinges on traditional or important state regulatory turf, but lacks a strong textual basis, may not receive the usual agency-favoring deferential read. Federalism concerns hence can be used to undercut or even neutralize such judicial deference. Challengers also argue for such undeferential judicial review based on their assertion that this regulation triggers more probing review of regulation that involves major or extraordinary regulation due to its claimed novelty or broad social and economic impacts. EPA argues that its regulation deserves the usual deferential review and is far from novel, but challengers will surely repeatedly argue for lack of deference due to federalism and so-called "major questions" concerns.  

One last twist involving federalism is worth notice and will surely be the subject of court argument. If an agency has clear authority, then these frames seeking to remove judicial deference generally disappear. In the 2011 American Electric Power decision, the Supreme Court precluded litigants from suing power plants under claims rooted in the federal common law of public nuisance. In doing so, the Court explicitly referenced Section 111(d) and stated that EPA had power to regulate such power plants due to their GHG emissions. This, for lower courts and litigants, is binding precedent. The D.C. Circuit has to follow it.  

Furthermore, regulation harnessing cooperative federalism structures is explicitly provided for by the statute and long utilized by EPA. Here, EPA built the CPP on the states' actions and provides the states huge flexibility in how they can meet federal pollution targets. We can therefore expect exchanges about this at argument: if the Supreme Court has already declared that EPA has authority under Section 111(d), and this regulation is much like many past assertions of regulatory power, then should usual deferential frames be applied by the court? If yes, then federalism and statutory interpretation issues would still be discussed but would receive the usual deferential review.

Federalism was central to the CPP's development and design. Now, in the courts, federalism-linked choices and law will shape both the argument and, in a few months, a judicial ruling either upholding or rejecting this regulation.