How Will EPA Regulate in Loper Bright's Uncertain Wake?

How Will EPA Regulate in Loper Bright's Uncertain Wake?

April 2024, Bloomberg Law

Introduction

This term, the Supreme Court heard oral arguments in two cases—Loper Bright Enterprises, Inc. v. Raimondo and Relentless Inc. v. Department of Commerce (“Loper/Relentless”)—in which the petitioners asked the Supreme Court to overturn its decision in Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984). That decision directed lower federal courts to grant deference—now called Chevron deference—to an administrative agency's interpretation of an ambiguous statute.

Based on the oral arguments and the Court's own reluctance to apply the Chevron framework since 2016, it appears that the Court is poised to either overturn Chevron or at least significantly limit the circumstances in which such deference might be afforded. Such a decision would have significant impacts on the Environmental Protection Agency (EPA) and the statutes it administers, such as the Clean Air Act (CAA), Clean Water Act (CWA), and many others.

Indeed, Chevron itself concerned interpretation of a provision of the CAA. In fact, many other Chevron cases also arose in the context of environmental statutes because Congress wrote the statutes to accommodate evolving scientific and technological knowledge and equip the agency with the power to decide questions that would change over time, such as:

• What pollution standard is adequate to protect the public health, with an adequate margin of safety?
• What is the best system of emission reduction for a particular source category and pollutant, taking into account a number of factors like cost and adequately demonstrated technology?

Loper/Relentless also arose in an environmental context. The petitioners in those cases challenged a National Marine Fisheries Service rule requiring vessels to pay for federal monitors aboard their boats to monitor compliance with fishery management plans under the Magnuson-Stevens Fishery Management and Conservation Act. But the outcome of the case may have repercussions for environmental law far beyond fisheries preservation, namely:

• The Court's overruling of Chevron could render new and established rules vulnerable to legal challenges claiming the agency's interpretation does not reflect the “best” or correct reading of the statute.
• From the EPA's perspective, however, the overruling or narrowing of Chevron may not lead to drastic changes in the short term. For several years now, the EPA's actions in promulgating rules and defending its position in litigation reflect an understanding that the agency's interpretation may not be afforded deference.

The Standard Today: Chevron Deference

The Supreme Court articulated the two-step Chevron framework in a unanimous decision on the EPA's regulation interpreting “stationary source” under the CAA some forty years ago. 467 U.S. 837 (1984). Under Chevron step one, a federal court determines whether Congress has spoken to the “precise question at issue” using the ordinary tools of statutory construction. Id. at 842–43. If the answer is yes, the analysis ends there, and the court must give effect to the “unambiguously expressed intent of Congress.” Id. at 843. If the answer is no, because the statute is ambiguous or silent, the court proceeds to step two. At that step, the court defers to the agency so long as the agency's interpretation is reasonable. Id. at 844.

Courts applied Chevron deference in many environmental cases of great import to regulated industries. While viewed by its critics today as a doctrine that allows unelected officials to impose their will upon regulated industries, it is important to observe that Chevron itself involved a case in which industry prevailed. The Court applied the doctrine to uphold the EPA's flexible interpretation of what constitutes a “stationary source,” such that an increase in emissions from one unit in the source would not trigger the requirement to install controls if that increase were offset by reductions occurring elsewhere within the source. Id. at 859–65. In other words, the impact of Chevron is not necessarily pro-regulation.

In fact, in many instances the agency adopted an interpretation that struck a careful balance between the impacts on the regulated entities and the environment. For example, the Supreme Court applied Chevron to hold that the CWA authorized the EPA to use a cost-benefit analysis in promulgating technology standards for structures that cool power plants and other industrial facilities in Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208, 208 (2009). In that case, the EPA's regulation spared huge costs to industry by declining to read the statute in a manner that would marginally reduce mortality of fish and wildlife caught in the cooling structures, but increase compliance costs by billions of dollars. Id.

Despite its opponents’ claims of Chevron’s seeming ubiquity as a means of insulating agency decision-making from judicial review, the EPA has not recently relied on Chevron deference in rulemaking or litigation, especially at the Supreme Court level. This trend likely reflects the Supreme Court's own recent reluctance to invoke Chevron deference and its concurrent invention of doctrinal devices that further erode the deference afforded by that doctrine, such as the Court's announcement of the major questions doctrine in West Virginia v. EPA, 597 U.S. 697, 142 S. Ct. 2587 (2022).

In West Virginia, the Supreme Court vacated the Obama Administration's rule to reduce carbon emissions from the power sector—the Clean Power Plan—which never went into effect because it had previously been stayed by the Court in what some regard as the birth of the modern use of its “shadow docket.” In the full opinion in 2022 in West Virginia, the Court held that, because the question involved an issue of “economic and political significance,” it would not read the ambiguity in a provision of the CAA as a delegation to the EPA. The statute requires the agency to identify the “best system of emission reduction,” but the Court held that this provision did not authorize the EPA to mandate a shift away from fossil electricity generation. (See 597 U.S. at 700: “[I]n certain extraordinary cases, both separation of powers principles and a practical understanding of legislative intent make us ‘reluctant to read into ambiguous statutory text’ the delegation claimed to be lurking there.”)

This was despite the fact that, just a decade before, the Supreme Court said—in a decision affirming the EPA's authority to regulate power-sector carbon emissions under that same provision of the CAA—that “Congress delegated to EPA the decision whether and how to regulate carbon-dioxide emissions from power plants.” American Electric Power Co. v. Connecticut, 564 U.S. 410, 426 (2011).

Potential Post-Chevron Implications: Opening the Floodgates

The Supreme Court has not relied on the Chevron doctrine in analyzing any case since 2016. And it is almost 10 years since the last time the Court relied on Chevron to uphold the EPA's interpretation of a statute in EPA v. EME Homer City Generation, L.P., 572 U.S. 489 (2014). The Court's avoidance of Chevron does not mean, as Chief Justice Roberts stated in the Relentless argument, that Chevron has been overruled “in practice.” (Relentless Oral Argument Transcript at 81.)

Indeed, Chevron undergirds decades of precedent, including at least 77 Supreme Court cases and thousands of lower court decisions, which could be vulnerable to legal challenges in a post-Chevron world, many involving environmental issues. (Relentless Tr. at 38.) Those precedents that upheld prior interpretations by granting Chevron deference (at step two) would be the most susceptible to revision if and when the same interpretation is articulated by the agency again in support of a new rule, even where that rule amounts to little more than a tightening of the previously upheld one.

The best example of this is perhaps the recent state and industry challenge to the EPA's “Good Neighbor Rule” in Ohio v. EPA, No. 23A349. Previously in 2014, the Court in EME Homer City Generation applied Chevron to uphold the EPA's creation of a cap-and-trade program under the CAA's Good Neighbor Provision, 42 U.S.C. § 7410(a)(2)(D)(i)(I), which requires upwind states to reduce emissions that result in nonattainment or interference with maintenance of the EPA's air quality standards in downwind states. EME Homer City Generation, 572 U.S. at 495–96. The Supreme Court's decision in EME Homer City affirmed the EPA's methodology for determining how much upwind states should be required to reduce their emissions.

But now, in Ohio v. EPA, several upwind states are challenging EPA's application of that same methodology—this time to require deeper reductions needed to achieve the 2015 ozone standard. When the D.C. Circuit denied their request for a stay, the states and industry representatives then filed an emergency appeal to the Supreme Court through the shadow docket, asking the Court to issue a stay of the rule prior to a ruling from the D.C. Circuit on the merits.

In EME Homer City, the Supreme Court held that the EPA's approach to regulating upwind states’ contributions to downwind nonattainment or maintenance of the national ambient air quality standards—which was based on reductions that could be achieved through implementation of cost-effective controls—was a reasonable interpretation of an ambiguous provision at Chevron step two, despite the fact that it could theoretically amount to an upwind state being required to eliminate more than its contribution to nonattainment or maintenance of those standards. And in so doing, the Court reversed the D.C. Circuit's decision, authored by then-Judge Kavanaugh, which vacated the EPA's rule due to that theoretical risk of over-control. See EME Homer City Generation, L.P. v. EPA, 696 F.3d 7, 19, 38 (D.C. Cir. 2012).

Now, a decade later, the Supreme Court appears poised to stay the EPA's successor rule, notwithstanding that it reflects application of the same methodology upheld in EME Homer City. In this respect, Ohio substantiates the concern voiced by Justice Barrett during the Relentless oral argument that overruling Chevron would “invit[e] a flood of litigation.” (Relentless Tr. at 60.) In essence, any rule previously upheld on a Chevron step two analysis can now be challenged again, even if the agency adopts the same approach and reasoning as it did in the prior rule. The possibility of increased challenges to old rules is enhanced, as the Supreme Court also considers this term whether the Administrative Procedure Act's general statute of limitations for challenging rules runs when a rule is promulgated or restarts when a party is injured by a rule. See Corner Post, Inc. v. Board of Governors of the Federal Reserve System, No. 22-1008.

During the Relentless oral argument, the Petitioners proposed that well-established past precedent on agency rules and actions will be protected by stare decisis, or respect for settled precedent. (Relentless Tr. at 60-62.) But if stare decisis cannot prevent the Supreme Court from overruling Chevron, it is unlikely to serve as a meaningful check on new regulatory challenges to agency actions previously upheld at Chevron step two.

Where the Court Lands Matters

The least watershed outcome of these cases would be for the Supreme Court to “Kisor-ize” Chevron. In Kisor v. Wilkie, the Court upheld but narrowed the Auer doctrine, under which courts granted deference to “reasonable” agency interpretations of their own regulations. There, the Court set forth a new multifactor test for when deference should be afforded to an agency's interpretation of its own regulations, which requires the court to make an independent inquiry into whether the character and context of the agency interpretation warrants controlling weight. Kisor v. Wilkie, 139 S. Ct. 2400, 204 L. Ed.2d 841 (2019).

The Court could adopt a similar approach for an agency's interpretations of statutes. This is the approach generally laid out by the Solicitor General in the Loper Bright oral argument. (Loper Bright Tr. at 81-85.) It would essentially bulk up the courts’ analysis at both steps of the Chevron analysis and encourage courts to take a hard look at the meaning of the statute and whether the advanced position reflects the agency's “fair and considered judgment.”

The second potential outcome would replace Chevron deference with Skidmore deference, which looks to similar factors as Kisor. Skidmore v. Swift & Co., 323 U.S. 134 (1944). Despite the name (Skidmore “deference”), Skidmore does not afford the agency's interpretation special weight. Rather, under Skidmore, the courts decide whether the agency's interpretation is persuasive based on a number of factors such as thoroughness of the agency's consideration and consistency with earlier pronouncements. Id. at 140.

The third and the most radical departure by the Court would reflect the nondelegation principle advocated by Justice Gorsuch in the oral argument. That doctrine holds that exercises of “legislative” power must be exercised by democratically accountable legislators, who cannot delegate these powers without providing an “intelligible principle” to guide the agency's exercise of those delegated powers. See A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935). The Court has not invalidated a Congressional delegation based on this principle since 1935. Yet in recent years, Justice Gorsuch has advocated for the resurrection of the doctrine where the “breadth of the authority Congress granted . . . in [] few words can only be described as vast” but the theory has not been firmly embraced by a significant number of other justices. See Gundy v. United States, 139 S. Ct. 2116, 2132 (2019) (Gorsuch, J., dissenting). This dissent is the basis for his concurrence in West Virginia and the principle that imbues quasi-constitutional implications into what were previously understood as questions of mere statutory interpretation.

In the worldview espoused by Justice Gorsuch, if courts stop deferring to agencies’ interpretations of ambiguous statutes, Congress's feet will be held to the fire to legislate more frequently and with greater clarity, such that agencies do not have to rely upon statutes enacted more than a half-century ago like the CAA to address problems as modern and acute as climate change.

Yet even recently enacted laws, such as the American Innovation and Manufacturing Act, which was enacted in 2020 and authorizes the EPA to achieve the hydrofluorocarbon-reduction goals of the Kigali Amendment to the Montreal Protocol pursuant to provisions codified as a new title VII of the CAA, are now being challenged under the nondelegation doctrine. See RMS of Georgia v. EPA, No. 23-1263. There, the EPA is doing nearly exactly what it did pursuant to the provisions of the CAA that allowed it to regulate the precursors to hydrofluorocarbons and the petitioners argue that Congress's delegation for the EPA to promulgate a trading scheme is unconstitutional.

If even such clear delegations from Congress cannot be upheld, then the anti-regulatory goal of Chevron’s opponents becomes clearer: it's not just about who gets to decide tough questions, but whether the federal government should be in the business of addressing threats to the planet or public welfare at all.

Practical Considerations

Beyond the bigger questions posed by this doctrinal dilemma, there are some recommendations for what environmental practitioners should be doing in their own practices:

• Monitor EPA's Proposed Rules: Practitioners should continue monitoring and analyzing whether the EPA's proposed rules align with the words of the statute, using all traditional tools of interpretation. Where the law “runs out,” analyze how the proposal aligns with clear Congressional delegations of authority and amplify that alignment.
• Reevaluate Impact of Previous Agency Rules: In a post-Chevron world, prior agency interpretations, when announced in a successor rule, may be vulnerable to legal challenges. Practitioners should consider whether and how prior agency interpretations previously upheld at step 2 could be vulnerable to a renewed challenge when announced again as a basis for rulemaking.
• Prepare for a Period of Uncertainty: In the near term, the legal challenges may lead to more uncertainty than relief from regulatory burdens as certain rules get embroiled in litigation or in the event that the Court publishes a splintered opinion.

Copyright 2024 Bloomberg Industry Group, Inc. (800-372-1033) How Will EPA Regulate in Loper Bright's Uncertain Wake? Reproduced with permission.