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Environmental, Natural Resources, & Energy Law

Prof. Ryan on EPA’s authority re: state greenhouse gas plans

December 02, 2014

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Climate Daily News

EPA’s Uncertain FIP Power Drives Competing Lobbying On State ESPS Plans

Posted: December 01, 2014

States are facing competing pressures over whether to submit plans to comply with EPA’s proposed standards to cut greenhouse gases (GHGs) from the power sector, with many in the industry urging states to submit plans or risk strict federal mandates, while conservative critics are urging states to ignore the requirement in a bid to test the agency’s uncertain federal implementation plan (FIP) authority.

With comments on EPA’s proposed existing source performance standards (ESPS) due Dec. 1, the issue of EPA’s FIP power is one of the most crucial – though it may not draw significant attention in comments, as many of those are expected to focus on substantive provisions in the proposed regulation rather than on future implementation issues.

One power industry source says states that submit state implementation plans (SIPs) to comply with the rule are “in a better position politically, judicially and in public perception” than if they ignore federal requirements and bait EPA to either issue a FIP or cut off highway funding.

“Do you want to gamble” and risk having EPA impose strict or unworkable requirements? the source asks. “There’s a danger in doing that,” the source adds, predicting that all states will eventually submit compliance plans.

The industry push comes in response to new efforts by conservative critics of EPA’s proposal to convince states to “do nothing” to comply with the ESPS.

For example, a recent paper published by the conservative Federalist Society argues that states have nothing to lose if they were to withhold SIPs. “The outcome of a State’s refusal to comply cannot be predicted, but it would leave the State no worse off than if the State begrudgingly agreed to become EPA’s partner in producing potentially disastrous consequences for the State,” says the paper, authored by Peter Glaser, Carroll McGuffey and Hahnah Williams Gaines – attorneys with Troutman Sanders LLP.

And GOP strategist Mike McKenna argued in an October memo – shared with 30 states – that forcing EPA to impose a FIP would likely result in less severe impacts on states because EPA’s FIP authority is much more limited than what states can do in SIPs.

McKenna says doing nothing would have the benefit of forcing EPA, rather than states, to take responsibility for implementing the standards. In addition to testing the agency’s questionable authority, he says, it would show that EPA has neither the resources nor desire to craft FIPs for multiple states.

He expects between 10 and 30 states will be barred from submitting compliance plans by their legislatures or governors, and that the prospect of EPA having to issue that many FIPs means the agency may scale back the rule.

Also, the free-market R Street Institute says in a Nov. 24 paper that the ESPS will fail due to state resistance.

Concerns about EPA’s overreach “have resulted in a number of state legislatures adopting laws that would actually forbid pursuing compliance methods ‘outside the fence,’” the institute says. “Next year, that list of states will likely grow, as state officials become more aware of the threat posed by EPA… . Many of these states will fall short of EPA compliance. Other states may simply refuse to provide plans to the agency.”

FIP Authority

EPA’s proposed ESPS sets GHG targets for each state, and recommends four compliance strategies or building blocks: improving heat rates at a coal plants, increasing dispatch of existing natural gas plants, boosting renewable energy, and increasing demand-side efficiency.

However, many question whether EPA in a FIP can impose any of those measures except heat rate improvements because it is unclear whether the agency has authority to require actions beyond a plant’s fenceline.

Tony Clark, a Republican appointee to the Federal Energy Regulatory Commission, recently urged states to delay development of their SIPs until the agency issues guidance on what constitutes a FIP.

“If I were a state official, I wouldn’t pick up a pencil to start drafting … what my [compliance plan] is until the EPA tells me what a [FIP] looks like,” Clark said. “Because if I don’t do that I’m just negotiating against myself because I don’t know what the goal posts are in terms of a [FIP].”

Environmentalists say EPA’s FIP authority is critical to preserving a national regulation in the face of opposition from reluctant states.

And Lewis & Clark Law School professor Erin Ryan, who studies the agency’s FIP authority, says she expects it to withstand legal challenges, including from critics who cite the Supreme Court’s 2012 ruling limiting the federal government’s ability to coerce states to adopt expansive new Medicaid requirements under the healthcare law or risk their federal funding.

She says the agency’s FIP power provides an alternative remedy to withholding states’ highway funds in cases where they fail to submit SIPs and could save the GHG rule from a potential legal challenge over Congress’ authority to coerce state actions.

But EPA officials are keeping mostly silent on the extent of their FIP authority should a state refuse to comply with the ESPS. Most recently, EPA senior air office counsel Joseph Goffman told an Nov. 6 event that the agency had made “no decisions” on whether to issue guidance on its FIP powers under the rule. “The statute says we have authority to issue a federal plan for a state that doesn’t submit a plan or doesn’t submit an approvable state compliance plan. That term, ‘authority,’ implies an element of discretion, and we are still on this side of any decisionmaking about when, how or whether we use this kind of authority,” he said.

One environmentalist says EPA is likely downplaying its FIP authority “for political reasons” because officials do not want to debate the reach of its authority, while noting that the agency’s willingness to issue FIPs for recalcitrant states is imperative.

“I don’t see how EPA implements the ESPS rule as national rule (which is the point) absent exercising its FIP authority in the event that some state does not put forth an approval plan,” the source says. “If there is not complete coverage across the United States, moreover it subverts the policy interest to reduce [carbon dioxide] since that would allow some states’ existing sources to emit at levels above the target levels. That’s the so-called ‘leakage’ problem.”

Medicaid Ruling

Lewis & Clark’s Ryan says EPA’s FIP authority might help save the GHG rule from legal challenge since it can be used as an alternative to withholding states’ highway funds if they fail to submit SIPs.

In the high court’s healthcare ruling, National Federation of Independent Businesses v. Sebelius. the justices largely upheld the Affordable Care Act (ACA) but found that the government could not withhold Medicaid funding from a state that refused to expand the program.

Some states, like Texas, are already citing the high court’s ruling in a bid to test the reach of the agency’s FIP power but so far no court has endorsed the argument. In the latest pending case, the state is citing the high court ruling to challenge EPA designations of areas that are not in attainment with its ozone air quality standard but the U.S. Court of Appeals for the District of Columbia Circuit has not yet ruled in the case, Mississippi Commission on Environmental Quality, et al., v. EPA.

Ryan says that EPA’s ability to withhold highway funding – a sanction that has never actually occurred – is not jeopardized by the Sebelius ruling because EPA can issue a FIP in the alternative to the funding sanction, which gives the agency a less-coercive option.

While the calls for states to “do nothing” may gain traction, in the end she expects states to submit plans because they “prefer the autonomy,” she says in a recent interview. However, she also acknowledges that EPA’s FIP threat can “ring hollow” if too many states refuse since “everyone knows EPA doesn’t have the capacity to step in” for all states. “If 30 states” refuse to comply, that “makes it difficult for how EPA will handle it.

“What the Supreme Court said was that Congress can’t take a pot of money the states are used to getting and hold that hostage to states making a decision to do something else,” Ryan explains.

Because states have the option of saying no and facing a FIP, that “doesn’t force them to do the condition they don’t want to do” the so-called coercion theory under Sebelius. Instead, they “just submit to direct regulation by EPA and EPA has the constitutional authority to do this under the Commerce Clause,” she explains.

Ryan explored the issue in an April 29 paper, “The Spending Power and Environmental Law after Sebelius,” published by Social Science Research News. “Because the [Clean Air Act (CAA)] conditions the receipt of federal highway funds on a state’s performance of CAA duties that are only indirectly related to those highway funds, it comes closer than any other environmental law to the vulnerable crossover condition at the heart of the Sebelius doctrine,” the paper says.

But Ryan also finds in the paper that “Sebelius claims targeting SIP and highway fund sanctions must contend with a critical point that distinguishes the CAA crossover condition from the invalidated Medicaid expansion condition. In contrast to the ACA, the CAA provides states with the straightforward option to avoid all SIP-related obligations and sanctions by simply opting out of the SIP program and invoking the federal FIP alternative. After all, the premise of the Sebelius doctrine is that Congress should not be able to coerce the states, and enabling the states to opt out without losing the funds at issue is the antithesis of Sebelius coercion.”

In the interview, Ryan says the assertion of some states – that the agency is trying to force them to take steps in the ESPS that the agency itself lacks authority to do – may be troubling. “If that is true, then the way the FIP prevents the spending powers claim [at issue as a result of Sebelius] is weaker.” However, she notes, “This is all about state/federal bargaining and adopting all the tactics you see in a smoke-filled” backroom poker game. It is unknown at this point which side has the stronger hand, though Ryan does find EPA’s silence curious.

She adds that even if EPA cannot impose all of the strategies it outlined for states, “It strikes me that EPA would nevertheless have the authority using tried and true traditional … controls. It would be a terrible way of doing it – potentially really intrusive and economically harmful, at least in comparison to what the states could do – but they could still do it. And perhaps that’s enough of a counter threat?”

 Further, she says if states do not submit SIPs, then at some point EPA must issue a FIP. “EPA has discretion to delay and try to work things out, and even to not issue sanctions if the state is acting in good faith… . But EPA doesn’t have the discretion not to issue a FIP.” – Dawn Reeves (dreeves@iwpnews.com) and Lee Logan (llogan@iwpnews.com)