Supreme Court rules to limit the Environmental Protection Agency’s authority on the fossil fuel industry

How does the recent Supreme Court ruling to limit the Environmental Protection Agency’s authority on the fossil fuel industry impact the US energy transition? Is the Court likely to continue limiting the Agency’s power to push its decarbonization agenda?

With no national legislation to put a price on carbon, this was the only regulatory tool to limit carbon. However, there are actions that the states can take – they can set their own limits (e.g., North Carolina has a carbon law, HB 951). But there will not be a price across most of the Southeast because those states don’t have a regional greenhouse gas initiative (RGGI), and they are where coal plants are the most prevalent. However, in the utility commissions, where regulation happens, renewables are least-cost, so that is a big factor. Yes – the Court will continue limiting the regulatory reach of EPA – it comes across as a conservative Court. They believe that more stringent regulation imposes costs and that it goes against free-market competition. The fossil fuel industry may have only delayed the inevitable though.

The initial verdict from the Supreme Court can be inferred as anti-decarbonization. However a few things need to be kept in mind. 1) Power Plants: The court’s ruling is specific to the EPA trying to curb emissions from power plants – not to all emitting sources. Although power plants represent 30% of emissions, the ruling does not cover all industrial emissions. 2) EPA-specific ruling: The Court also said curbing emissions is the direct responsibility of the Congress or one of its delegate bodies. Hence the Court limits EPA’s power, but not necessarily the decarbonization agenda in general. 3) Current White House: The White House is focused on a climate action agenda, and hence even if the Supreme Court is against the climate agenda, progress is likely to be made continuously.

The Court’s decision to limit the EPA’s authority to regulate energy sector emissions could rule out the EPA’s ability to impose a cap-and-trade system that allows the government to set an industry’s greenhouse gas emission limits and penalize the violating parties. Parties then buy and sell the rights to exceed that cap, essentially creating a market around emissions. The Court’s decision also impacts the Biden administration’s goal of zeroing out carbon emissions from power plants by 2035 and half the country’s emissions by 2100. The ruling, however, does not affect the EPA’s ability to limit greenhouse gas emissions at the source under the Clean Air Act (Section 111 and through other provisions). The ruling could have widespread consequences if it is used to question the authority of federal agencies to regulate greenhouse gas pollution in other contexts.