SCOTUS Stumbles: EPA’s Power Plant Rule Is Inflicting Irreparable Harm

By Travis Fisher and Joshua Loucks of Cato.

"Last week, the Supreme Court issued an order that left many in disbelief. The Court denied several motions for stay (a legal pause) regarding the Environmental Protection Agency’s (EPA’s) Clean Power Plan (CPP) 2.0 rule after granting a stay of the original CPP in 2016 and elaborating on the Major Questions Doctrine in overturning the CPP on its merits in West Virginia v. EPA in 2022.

The EPA rule, which we call CPP 2.0 because it’s the second attempt at a CPP under section 111 of the Clean Air Act, hurts the reliability and affordability of electricity when both are already at risk. The EPA now requires existing coal and new natural gas power plants to significantly change their operations or shut them down entirely. CPP 2.0 is a costly and unlawful mandate for the unproven technology of carbon capture and sequestration/​storage (CCS).

The fate of CPP 2.0 will be the same when the Supreme Court reviews it on the merits—it will be overturned because it plainly violates the statute it cites as authority from Congress. But it will hurt many more Americans than it needs to because the Supreme Court took a narrow view of “irreparable harm.”

The irreparable harm ignored by the Supreme Court is that demand for electricity in the United States is growing again in exceptional ways (in part due to unforeseen growth in computing load), and CPP 2.0 is preventing economic growth—and possibly causing electricity shortages—by mandating impossible standards for existing and new electricity supplies.

The CPP 2.0 Mandate

In its most basic form, CPP 2.0 requires existing coal and new natural gas power plants to implement CCS on an unprecedented scale. For existing coal-fired power plants, CPP 2.0 requires the owners of any plant that might remain operational after 2039 to capture and store 90 percent of its carbon dioxide emissions by 2032. (Some less stringent options are available for coal plants that will be closed by 2032 or 2040.)

Likewise, the rule requires any new combined-cycle natural gas–fired power plants operating above “baseload” levels (at an annual capacity factor above 40 percent) to reduce their carbon emissions by 90 percent by 2032 by implementing CCS.

How did the EPA come up with this rule? Dating back to the 1970 Clean Air Act amendments, Congress authorized the EPA to issue nationally binding emissions standards for stationary sources like power plants through section 111 using proven technology as a baseline.

Specifically, EPA’s standards of performance under section 111 must be based on “the best system of emission reduction which (taking into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.” (emphasis added)

In CPP 2.0, the EPA claimed CCS at a 90 percent capture rate had been adequately demonstrated, which is a patently false account of the facts on the ground. This is the key issue of statutory interpretation relevant to CPP 2.0, and we believe the rule will fail on EPA’s fundamental misreading of the statute and/​or its misreading of the facts in the record.

The short version of the merits argument is this: CCS depends on a mind-bogglingly large set of new infrastructure (rivaling the existing network of fossil fuel infrastructure itself), including CO2 pipelines to carry enormous amounts of CO2 from power plants to injection sites. Such infrastructure may be impossible to build and certainly has not been “adequately demonstrated.” For more detailed legal and technical arguments, see comments on the proposed rule.

The only power plant in the United States that captures anywhere near 90 percent of CO2 emissions is perhaps the Petra Nova plant in Texas, which has not operated continuously and does not technically sequester CO2 at all—it injects CO2 into oil wells in a process known as enhanced oil recovery. Another power plant often cited by proponents of CCS (and explicitly cited by the EPA) is the Boundary Dam project in Canada, which has consistently underperformed on its CCS goal of—you guessed it—90 percent.

Thus, EPA’s emissions standard is far too stringent because it is based on plants that are located near profitable CO2 injection and storage sites or are falling woefully short of the EPA’s goal. A rule mandating 90 percent CCS nationwide is therefore at odds with the part of the statute that says the “best system of emission reduction” must be “adequately demonstrated.”

CPP 2.0’s Irreparable Harm

The mandate to close existing coal plants and prevent the building of new “baseload” natural gas plants is a recipe for electricity shortages, skyrocketing electricity prices, or a mix of both. The lack of certainty regarding which set of rules a power plant owner is likely to face in the coming years is itself a deterrent to building or retaining needed supplies.

In practice, the much-needed new electricity supplies are likely to come from less efficient simple-cycle natural gas power plants—essentially methane-fueled jet engines—which will increase costs and preclude more efficient investments until CPP 2.0 is finally overturned.

At the wholesale level, prices will be set more often by these less efficient units with higher marginal costs, meaning wholesale electricity prices will be higher than necessary. Further, the US Energy Information Administration (EIA) estimates only 2.6 gigawatts of new natural gas–fired power plants will come online in 2024, while 3.8 GW will be retired.

Coal plant closures will also reduce power supplies. PJM Interconnection Inc., the largest electricity market in North America by revenue and volume, has issued stark warnings about the collision course we are on between growing demand and falling supply, stating that there is a “timing mismatch between resource retirements, load growth and the pace of new generation entry.” CPP 2.0 exacerbates such a mismatch because it would force the retirement of coal units, which produced 16 percent of the electricity in the United States last year.

To be clear, we don’t expect anyone at the EPA, the Supreme Court, or any government agency to accurately predict the timing and scale of Americans’ future electricity needs. Efforts to centrally plan electricity markets are likely to lead to supply shortages, increased costs, top-down rationing, and rolling blackouts. But that is precisely why CPP 2.0 is so harmful—it allows the EPA to be the national gatekeeper for new electricity supplies, which will have disastrous consequences.

The Court’s Mistake

In his statement about the denial of applications for stay, Justice Brett Kavanaugh argued that applicants “are unlikely to suffer irreparable harm before the Court of Appeals for the DC Circuit decides the merits” because “applicants need not start compliance work until June 2025.” Unfortunately, that is untrue. For would-be builders of new natural gas power plants, the irreparable harm likely began in May 2023 (the date of the proposed rule) and was cemented in the final version of CPP 2.0, which featured an effective date of July 8, 2024.

While Justice Kavanaugh’s approach may make sense in the legal compliance world, it ignores economic decisions that predate compliance. As Frederic Bastiat might say, the court focused on what is seen—the compliance measures undertaken by plants that are already built—and failed to recognize the unseen harms. We cannot see, for example, the business activities or consumer savings that might have occurred if the Supreme Court had granted the motions for stay. In other words, CPP 2.0 is already causing irreparable harm because it’s preventing much-needed electricity supplies that would be built in its absence. (We note that Justice Clarence Thomas would have granted the applications for stay, and Justice Samuel Alito did not participate.)

PJM and other grid operators articulated this harm in their amicus brief, stating that the EPA has “failed to adequately consider the impact of premature retirements driven by the Rule’s compliance timelines.” They also highlighted how investments in the grid, particularly large power plants, are based on “the expected revenues associated with continuing operation of the unit. Unit owners may decide to retire units early rather than incur additional expense and risk.” Premature power plant closures—and the stalling of new supplies in an era of demand growth—are the irreparable harm the Court failed to see.

Conclusion

Supreme Court justices clearly understand the law. However, the order in this case demonstrated that many of them do not understand market processes and fall into the knowledge problem trap of attempting to assume the unknowable. By denying the motions to stay CPP 2.0, the Supreme Court squandered a perfect opportunity to limit executive branch overreach in the new post-Chevron era and protect millions of Americans from government-induced harm."