Vol. 51-2 Washington Update

Washington Update

Affordable Clean Energy Rule Vacated by the D.C. Circuit and What Could Be Next Under the Biden Administration

Introduction

President Biden campaigned on reforming the United States’ approach to addressing climate change. The “Biden Plan” includes, among other things, a goal to “ensure the U.S. achieves a 100% clean energy economy and reaches net-zero emissions by no later than 2050.”[1]

On President Biden’s first day in office, he issued numerous climate-related executive orders and took executive actions to advance this goal. As a result, the U.S. rejoined the Paris climate agreement,[2] federal agencies are required review all new and proposed Trump regulatory changes,[3] the Keystone XL pipeline permit was revoked[4], and oil and gas leasing in the Arctic National Wildlife Refuge was paused.[5]

While these executive orders could be implemented immediately, President Biden is likely to push for new legislation and engage in new rulemaking. In particular, President Biden is expected to address President Barack Obama’s Clean Power Plan (CPP) and President Donald Trump’s intended CPP replacement—the Affordable Clean Energy Rule (ACE Rule), which the U.S. Court of Appeals for the D.C. Circuit recently struck down.

ACE Rule as a Replacement to the Clean Power Plan

In 2015, the Obama Administration enacted the CPP to regulate power plants’ greenhouse gas (GHG) emissions.[6] Deriving its authority from the Clean Air Act’s Section 111(d), the CPP established budgets (or targets) for each state’s GHG emissions generation and directed each to develop GHG emissions-reduction plans statewide.[7] The CPP effectively required each state to create plans that would phase out coal from power plants and increase renewable energy generation. The goal was to decrease the power sector’s emissions so that 2030’s emissions are 32% less than 2005’s emissions.[8]

The plan faced legal challenges almost immediately after it was unveiled. These challenges were consolidated in a case brought before the D.C. Circuit. In February 2016, during the pendency of the case’s appeal, the Supreme Court issued an order that stayed the CPP’s implementation, pending a decision on the merits by the D.C. Circuit.[9] President Trump was elected before the D.C. Circuit could rule, and his administration replaced the CPP with the ACE Rule.

The ACE Rule emphasized a much narrower reading of the CAA’s authority. The Rule, finalized in June 2019, also repealed the CPP on the grounds that it unlawfully required states “to consider emission reductions through generation shifting,” like moving generation away from coal.[10] Instead, the ACE Rule emphasized heat rate improvements (or efficiency improvements) that could be achieved “inside the fence” of each regulated electric generating unit.[11]

Just prior to President Biden’s inauguration, the D.C. Circuit vacated the ACE Rule and its plan to relax power plants’ GHG emissions’ restrictions.[12] The Court called the ACE Rule a “fundamental misconstruction” of the CAA,[13] and rejected the Trump Administration’s narrow reading of its statutory authority as “not supported by the text, let alone plainly and unambiguously required by it.”[14]

Specifically, the Court rejected the Trump Administration’s CAA interpretation that Section 111(d) constrained emissions reduction methods to site-specific, inside-the-fence locations (i.e., “at and to the source”).[15] Instead, the Court reasoned that “Congress imposed no limits on the types of measures the EPA may consider beyond three additional criteria: cost, any non-air quality health and environmental impacts, and energy requirements.”[16]

Importantly, on February 22, 2021, the D.C. Circuit granted EPA’s request to partially stay its decision as it applied to the Trump EPA’s CPP repeal.[17] As a result, the CPP did not immediately go back into effect, leaving a clear path for the Biden EPA to develop a new rule limiting power plants’ GHG emissions.

A former Obama Administration legal counsel, Jody Freeman, called the ruling a “massive win” and argued that Biden “could go on the offense” immediately in crafting a new power plant plan.[18]

Potential Next Steps for the Biden Administration

The vacating of the ACE Rule grants the Biden administration an opportunity to develop a new regulatory structure to address the power industry’s GHG emissions. So long as the D.C. Circuit decision is upheld, the Biden Administration is not required to go through the extensive regulatory process of repealing the ACE Rule.

The Biden administration has indicated that it does not intend to revive the CPP.[19] During Biden’s EPA Administrator nominee’s, Michael Regan, confirmation hearings, Mr. Regan testified that the EPA would draw on the lessons from the CPP and ACE Rules, and that the current lack of an existing standard “‘presents a significant opportunity for the [EPA] to take a clean slate and look at how [to]] best move forward.”[20] At the time of this development’s drafting, the Biden Administration had not set forward a regulatory or legislative plan to address GHG emissions from power plants, though one is certainly expected during the President’s term.

Potential Obstacles to the Biden Administration

Though the D.C. Circuit struck down the ACE Rule, the Rule may not be entirely finished. Its proponents can mount challenges to prolong its life. Among their options, the litigants could petition for panel reconsideration of remedy or petition for rehearing en banc. Following the D.C. Circuit’s final decision on these appeals, the litigants could also appeal to the U.S. Supreme Court. These appeals’ outcomes may allow the ACE Rule to remain in place pending resolution of the hearing.

Conclusion

Regardless of whichever path the Biden Administration may take in replacing the CCP and ACE Rule, one outcome is certain: there will be continued legal battles. Any replacement rule issued by the Biden administration, even if accounting for legal concerns previously articulated by CPP opponents, will still likely be subject to extensive legal challenges in the D.C. Circuit, and if necessary, before the Supreme Court.

Jacob Arechiga is a Special Counsel in Duane Morris LLP’s Austin, Texas, office. His practice is focused on complex commercial matters, particularly those in the energy and electric power industries.

Matthew T. Goldstein is a third-year student at The University of Texas School of Law and is a Staff Editor of the Texas Environmental Law Journal.