SCOTUS ruling on EPA leaves US businesses with the devil they don’t know
For American companies seeking clarity on U.S. climate policy, the Supreme Court decision on West Virginia v. EPA just made an already uncertain environment worse. Read More
Washington D.C. – May 8th 2022: The Supreme Court of the United States with non-scalable fence. Image via Shutterstock/Brian P Irwin
Amid the churning intensity of a news cycle dominated by the Jan. 6 hearings and an explosive Supreme Court session — which ended Thursday with a ruling that curtails the Environmental Protection Agency’s authority to regulate greenhouse gas emissions from power plants — the majority of Americans likely didn’t notice a relatively small business story that also ran last week.
The headline: “First Solar rejects U.S. site for new factory, eyes Europe or India instead.”
Reported by Bloomberg, the article goes on to explain how the country’s largest solar panel manufacturer has decided against building a new facility in the United States because of “uncertainties around trade policy and tax incentives.” First Solar CEO Mark Widmar didn’t cite the Supreme Court case known as West Virginia v. EPA as a reason for the company’s decision, however the EPA case and First Solar’s plan to look outside the country for its next opportunity are connected nonetheless — thematically if not directly.
The theme they share can be summed in one word: uncertainty.
Think of it as the devil you know versus the devil you don’t syndrome. While Corporate America has no love lost for government regulations, if one thing makes companies and investors squirm even more, it’s uncertainty. For those seeking clarity on national climate policy, the SCOTUS EPA ruling not only didn’t deliver, it made matters significantly worse. And as the decision by First Solar illustrates, investment often follows policy’s lead or lack thereof.
“I represent big corporations and regulated entities primarily, and what I can say is those folks always, always, always want as much certainty as they can get, especially those that are doing big capital projects,” said Joel Johnston, a partner at business law firm Hall Estill, who specializes in environmental and regulatory issues. “If you’re going to build a power plant, for example, you’ve got to have some degree of certainty that the economics in 10 years aren’t going to be so different than they are today, in terms of compliance costs and emissions standards and everything else.”
Because the SCOTUS ruling has far-reaching implications for federal regulations beyond the EPA and GHG emissions, no one knows exactly where or how far its reach could stretch — adding to an already uncertain environment for businesses and investors in clean energy and beyond.
Narrow ruling, broad reach
The ruling itself was actually less limiting of EPA authority than many people expected. By a vote of 6-3, SCOTUS agreed with Republican-led states and coal companies that a lower court was wrong when it interpreted the Clean Air Act to give the EPA expansive power over regulating carbon emissions. Specifically, the court’s conservative majority said the agency cannot resurrect President Barack Obama’s Clean Power Plan, a defunct rule that would have obligated utilities to do something called “generation shifting” — switching from coal-fired power generation to natural gas or renewable energy.
While the ruling itself is relatively narrow — the court did not take away the EPA’s ability to regulate greenhouse gases from power plants, vehicle tailpipes or other major sources of planet-warming pollution — it could hamper President Joe Biden’s plan to fight climate change. Crucially, it could limit the authority of federal agencies across the executive branch. That’s because the decision means agencies such as the EPA can’t create regulations that have expansive social and economic impacts on their own, despite decades of precedent doing exactly that.
Written by Chief Justice John Roberts, the decision is based on something called the “major questions doctrine” — the idea that if Congress wants to give an administrative agency the power to make “decisions of vast economic and political significance,” it must say so clearly.
“Until recently, the major questions doctrine was little-used, and it remains poorly defined,” Dena Adler, a research scholar at the Institute for Policy Integrity at NYU School of Law, said in an email. The doctrine “remains the exception, not the norm. However, if it is applied more expansively by lower courts, that could be problematic because Congress has legislated for decades with an expectation that it can broadly authorize agencies to use their expertise to address problems.”
Up next, the SEC?
Because the case is about an environmental regulation that no longer exists and never took effect, a good number of legal experts have expressed the opinion that the conservative court took up West Virginia v. EPA in an effort to “dismantle the administrative state.”
“I could see challenges being attempted in a broad range of areas: food and drugs, occupational health, labor, communications, financial regulation …” said Michael Gerrard, an environmental lawyer and founder and director of the Sabin Center for Climate Change Law at Columbia University. “Whenever the underlying statute is general and gives an agency authority to regulate an important area, those who don’t like a particular regulation or action will seize on this theory.”
Indeed, West Virginia Attorney General Patrick Morrisey has made his state’s intentions to continue challenging Biden’s climate agenda — and use the major questions doctrine to do it — clear.
At a news conference following the EPA ruling, Morrisey said, “West Virginia is ready for President Biden’s workarounds. We took them all the way up to the Supreme Court, and we beat them this time. And we are prepared to do it again, again and again.”
Morrisey hinted that his next target might be the U.S. Securities and Exchange Commission’s controversial climate disclosure proposal. The rule would require publicly traded companies to disclose important information about the extent to which climate change is affecting their financial performance, their approach to climate-related risk management, their climate-relevant governance structures and their greenhouse gas emissions.
“That would also fall into the major questions category where the Biden administration is trying to transform all these agencies and turn them into an environmental regulator,” Morrisey said.
Opinions differ as to whether such a challenge would be successful. The SEC is mandated to protect investors, and its Division of Corporate Finance’s role is to ensure investors are provided with material information (information relevant to a company’s financial prospects or stock price) in order to make informed investment decisions.
Invest here, not there
Even if these challenges do not succeed, the uncertainty around whether rules will be challenged and whether they will prevail, as well as the significant time lost as cases wind their way through the courts, could affect decisions regarding where and how companies and potential investors allocate their funds.
“Investment capital likes to go where there’s a clear set of laws and principles and rules. … This ruling is upsetting long-term policy regarding what leading federal agencies can do, particularly in the area of climate,” said Peter Davidson, CEO of asset management firm Aligned Climate Capital. “And companies, particularly overseas companies, that were planning to make big investments, now that there’s so much uncertainty … it’s just going to slow that investment down.”
Without a strong piece of climate legislation from Congress, much climate policy will continue to fall to the states. This means states with aggressive emissions reduction targets and incentives to attract clean energy and climate technology companies will likely come out the winners in the investment game, while states that prioritize fossil fuel production and consumption will lose out.
“This will mean much less demand for clean energy solutions in large swaths of the United States,” Davidson said. “That’s the economic impact of this ruling. And the states that were already moving forward on the energy transition, they will continue to do so because it’s cheaper and cleaner, and they have requirements to produce low-carbon energy. And the states that are not taking action, they’re just going to fall further behind. So all the investment in jobs and innovation that’s occurring will simply flow to those states that are taking action.”
Already moving away from coal, utilities side with the EPA
For its part, the U.S. utility industry has indicated that the EPA decision will not derail its long-term plans to decarbonize.
In January, the Edison Electric Institute (EEI), a lobbying group that represents all U.S. investor-owned electric utilities, filed an amicus brief with the Supreme Court in support of the EPA. Along with the National Association of Clean Water Agencies, the EEI asked SCOTUS to preserve the agency’s authority to regulate greenhouse gases, arguing that failing to do so could open the door to lawsuits against power and water providers, and raise costs for consumers.
If the federal agency loses its authority, EEI argued in its brief, groups seeking to restrict the industry’s climate emissions could launch a wave of public nuisance claims against utilities.
“EEI members have undertaken a wide range of initiatives over the last 30 years to avoid, reduce or sequester GHG emissions, with impressive results,” the organization said in the brief. “More than four dozen EEI members have announced carbon reduction goals; over half of these intend to achieve net-zero CO2 emissions by 2050.
“While it may seem counterintuitive that the nation’s investor-owned electric companies, in particular, should favor EPA regulatory authority, the alternative could be the chaotic world of regulation by injunctive fiat.”
Alex Bond, deputy general counsel of EEI, told Reuters at the time, “We are simply saying here that EPA has the regulatory authority to address carbon. We would like to invest the money in new, clean renewable resources, not in fighting about new clean renewable resources.”
Indeed, regardless of the ruling, the United States is moving away from coal. U.S. coal production dropped 35 percent between 2015 and 2021, according to the Energy Information Administration, and the Sierra Club’s anti-coal campaign says that 357 coal-fired power plants have shut down, with 173 remaining.
The Clean Power Plan was supposed to shrink coal’s share of U.S. power generation to 27 percent by 2030; instead, it fell to 21.8 percent last year, according to the Environmental Integrity Project.
“We don’t really see that there would be any immediate impact on our transition plans,” Vicky Sullivan, director of climate policy at Duke Energy, told the Washington Post last week. “We still plan to transition out of coal by 2035, and we don’t see the Supreme Court’s decision having a material impact on that.”
The Manchin behind the curtain
While the EPA and other regulatory agencies still have climate levers to pull, any semblance of certainty around national climate policy rests with the dysfunctional U.S. Congress. And at the moment, the tiny state of West Virginia once again holds all the cards.
All eyes remain on negotiations currently taking place between Senate Majority Leader Chuck Schumer and the persistent holdout on all things climate, West Virginia Sen. Joe Manchin, to revive a budget reconciliation bill. However, many Democratic lawmakers don’t hold out much hope they can get Manchin to agree to any budget reconciliation deal that includes climate provisions, such as clean energy tax incentives, a fee on methane emissions and a border tax on carbon-intensive imports.
“One very good way … to achieve certainty in the market is for Congress to pass the long-term tax incentives and other provisions under consideration in” the budget reconciliation bill, said Zach Friedman, director for federal policy at Ceres. “At the end of the year, the clean energy tax credits expire. So there are projects planned for next year that may not happen; you have wind energy companies, for example, with blade manufacturing facilities in places like Iowa, and they need to know that these investments are going to happen to be able to keep those folks employed and producing across the country. So, it’s incredibly important.”
Schumer told reporters recently that he’s making progress with Manchin, but they still have significant differences that need to be resolved.
In the meantime, First Solar will be going with the surer bet of Europe or India for its next factory. The company, the only top 10 global solar manufacturer headquartered in the U.S., has two U.S.-based facilities and another on the way, all in Ohio, as well as factories in Malaysia and Vietnam.
So far, First Solar has invested more than $2 billion in U.S. manufacturing. The third Ohio factory, expected to begin operations in the first half of 2023, will scale the company’s U.S. panel production footprint to a total annual capacity of 6 gigawatts. Once fully operational, the facility will bring the total number of people permanently employed by First Solar in Northwest Ohio to roughly 2,300.