The following article was originally published in the San Francisco Daily Journal on August 7, 2015. ©2015 Daily Journal Corporation. Reposted with permission.

Will The Carbon Plan Survive?

By R. Morgan Gilhuly

Almost everyone has an opinion about big topics in litigation like marriage equality and Obamacare, but almost no one has an opinion about the Clean Power Plan. The CPP is one of the most far-reaching regulatory initiatives of recent years, and will likely become the next big litigation piñata to issue from the U.S. EPA. Despite its importance, few know what it is or how it will affect them.

The CPP is the Obama administration's 1,560-page plan to reduce greenhouse gas emissions from power plants. Having failed to obtain any cooperation from Congress to fight climate change, the administration has proposed new regulations that require states to set "standards of performance" for fossil-fuel-fired electric generators. Like Obamacare, the CPP requires each state to prepare a plan - in this case, to reduce carbon dioxide emissions from its electricity generating network. The plans may use any combination of three "building blocks" - (1) improved efficiency at coal-fired plants; (2) generating more power from natural gas; and (3)Â generating more power from renewable sources - or other measures.

The states will have until 2016 to submit initial plans and until 2018 to submit final plans. If a state does not submit a plan, then the federal government will set standards of performance for electric generators in the state. The goal of the CPP is to reduce carbon dioxide emissions from power plants by 32 percent from 2005 levels by 2030. The CPP does not require states to adopt cap-and-trade emissions reductions plans, but it does allow states to use such plans to meet their emissions reductions targets.

The CPP is significant not only as a transformative domestic program, but also as foreign policy. It will likely be an important component of the administration's attempt to demonstrate to other developed nations at the UN Framework Convention in Paris this December that the U.S. is taking a leading role to combat climate change.

Like any big new program, the CPP creates winners and losers, and litigants, including some states, are already lining up to challenge the CPP. Will it survive the onslaught? No one knows for sure, but my guess is probably yes.

The main legal arguments that have been advanced in the more than 4.3 million comments submitted to the EPA relate to whether the EPA has authority to issue the CPP under Section 111(d) of the Clean Air Act, the legal authority for the plan. One argument is that the EPA cannot regulate carbon dioxide emissions from power plants under Section 111(d) because of something called the "Section 112 exclusion."

Just to make things interesting, there are two different Section 112 exclusions in Section 111(d). In 1990, when the CAA was amended, the House and Senate passed conflicting amendments that were never harmonized. The Section 112 exclusion in the Senate amendment seems clearly to support the EPA's interpretation that it has the required authority under Section 111(d), but only the House amendment was incorporated into the United States Code. The House amendment is a confusing muddle, but can be read to bar the EPA from regulating carbon dioxide emissions from power plants because other pollutants from power plants are already regulated under Section 112.

The House amendment allows the EPA to regulate "any air pollutant (i) for which air quality criteria have not been issued or which is not included on a list published under section [108] or emitted from a source category which is regulated under section [112]." Because power plants are a "source category which is regulated under" Section 112, the argument goes, the EPA cannot regulate emissions of carbon dioxide from power plants.

There are major problems with this argument, however. First, so interpreted, the House amendment is in conflict with the Senate amendment. Which should control? Second, Section 112 limits emissions of only one category of pollutants - "hazardous air pollutants." If regulation of a hazardous air pollutant from a source category under Section 112 precludes regulation of other pollutants from that source category under Section 111, that creates a potential hole in the coverage of the CAA, and there is ample legislative evidence that Congress intended to enact a comprehensive plan covering all pollutants. Although the Section 112 exclusion argument has been forcefully asserted by numerous commentators, it is certainly not an obvious winner.

Another potentially meritorious argument is that the EPA's proposed rule relies on emissions reductions that cannot be achieved simply by implementing technological changes at existing coal-fired and natural-gas facilities; to achieve the required reductions, electricity generators must take measures "outside the fence-line" by switching generation to cleaner facilities, including renewable energy facilities.

Some argue that such regulations go beyond the authority granted to the EPA under the CAA, which they say authorizes only technological requirements that apply to a particular source. The EPA acknowledges that the CPP will require states to shift electricity generation to cleaner sources and to renewable energy - indeed those are two of the "building blocks." But it contends the electric generation industry is unique because of its interconnected grid, and that similar outside-the-fence-line requirements have been applied to other pollutants (such as acid rain) under other provision of the CAA.

In the end, a court, maybe the U.S. Supreme Court, will have to decide whether the CAA's mandate to adopt the "best system of emissions reduction" (an undefined term, naturally) gives the EPA the authority to require outside-the-fence-line measures.

Will the CPP survive? The EPA has had a pretty good batting average lately. It lost significant battles on the Mercury and Air Toxics rule (in Michigan v. EPA) and the Tailoring Rule (in Utility Air Regulatory Group v. EPA), but both decisions appear more in the nature of detours than real losses. In fact, the EPA has been generally winning the war to defend comprehensive, national air pollution control programs.

And the Supreme Court has already twice held that the EPA has authority to regulate carbon dioxide emissions, first in Massachusetts v. EPA in 2007, and again in American Electric Power v. EPA in 2011. In AEP, the Supreme Court held that the CAA displaced any potential common law claims against power companies related to carbon dioxide emissions because it was "plain that the Act 'speaks directly' to emissions of carbon dioxide from [power] plants" and that "the Act ... provides a means to seek limits on emissions of carbon dioxide from domestic power plants." Those comments suggest that challenges to the CPP may face significant headwinds.

R. Morgan Gilhuly is a partner in Barg Coffin Lewis & Trapp LLP, in San Francisco. You can reach him at [email protected] or (415) 228-5400.