06 Jul 2022
Climate Progress Will Accelerate Despite The Supreme Court's Recent EPA Ruling
On Thursday, June 30, the US Supreme Court ruled to limit the Environmental Protection Agency’s (EPA) authority to regulate carbon emissions produced by coal- and gas-fired power plants in the case West Virginia v. EPA.
Today, power plants are the second-largest GHG emitters in the US. Among electricity-producing power plants, coal combustion is the most carbon-intensive energy source compared to natural gas and other fuel sources. In order to tackle these emissions, the EPA issued the Affordable Clean Energy Rule in 2019 promulgated under the Clean Air Act. Under this rule, the EPA issued new guidelines for states to use in developing plans to limit CO2 emissions from existing fossil fuel-fired power plants.
The EPA identified three tools (or “building blocks”) to create a “best system of emission reduction” (BSER) for a collection of power plants:
Heat Rate Improvements, which are improvements that a coal plant makes to burn fuel more efficiently
“Generation Shifting” from coal to natural gas plants
“Generation shifting” from coal and natural gas to renewable sources
The EPA would apply a three-step process to determine exactly how a collection of power plants should reduce GHGs:
The EPA would identify the BSER based on the three “building blocks.”
The states would establish standards for designated facilities under the BSER and submit plans to the EPA for approval.
Once approved, designated facilities would follow set standards using appropriate technologies and methods.
This new process would have resulted in the EPA expanding its oversight from individual power plants to the grid level. However, the Supreme Court ruled that the EPA will not have the authority to review and approve grid-level plans based on the “major questions doctrine,” indicating that such regulations are beyond the EPA’s authority as allowed by Congress today.
It is important to note that the EPA has had and maintains the authority to manage power plants on a facility by facility level. Although the Court’s decision may be a setback, the EPA never exercised the authority to enforce generation shifting at a grid-level because this case was held up in court before it came into effect.
As seen firsthand in this ruling, Congress tends to be reactive in its decision-making, and does not always update regulatory authority to keep pace with new strategies which may improve outcomes. As a result, unless Congress acts, many agencies will be limited to their current set of tools when dealing with threats like climate change.
The positive, however, are other climate trends accelerating sustainable developments:
1) Technology is getting cheaper and better.
No amount of protectionism can change the fact that solar, wind, and hydroelectric energy are unambiguously cheaper, easier to scale, and growing far more rapidly than coal. The renewable energy industry has increased its annual generating capacity by roughly 8% over the past decade, expecting to reach over 8300 TWh in 2021. Renewable sources will supply nearly one third of the expected electricity demand of 23300 TWh by 2030.
For example, NextEra Energy recently launched an ambitious and comprehensive Real Zero Plan. It anticipates installing hundreds of millions of solar panels to reach 90 gigawatts (GW) of capacity by 2045 in comparison to the 4 GW of solar capacity today. The goal will eliminate Scope 1 and 2 carbon emissions from all operations, ensuring that all downstream power purchasers can rely on clean energy to meet their own Net Zero goals.
2) Regulations are one thing, stakeholder expectations are quite another.
Investors have realized the existential threat of climate change and are rewarding cleaner projects with substantially lower costs of capital. While renewable energy seemed costly and inaccessible on a large scale just 15 years ago, over $87.5 billion was invested in ClimateTech from the second half of 2020 through the first half of 2021. With stronger regulations enforced by the SEC, expectations of company commitments to meet ESG goals are higher. Peter Gajdoš, a partner at Climate Tech at Fifth Wall explains, "Climate doesn't care about inflation. The oceans are warming up. The forests are burning. These problems are still there, and someone needs to solve them, which creates opportunities."
3) State actions are untouched.
Some states like California have strong market positions that become nationwide industrial standards. Due to California’s size and topography of the state, it is authorized to enforce its own standards under the Clean Air Act.
California has been a trailblazer in reducing tailpipe emissions. The California Air Resources Board (CARB) set stringent rules for new vehicle models and updated zero-emission vehicle programs requiring increased production of plug-in hybrid, battery electric, and fuel-cell electric vehicles from 2018 to 2025. Its goal is to collectively reduce carbon emissions by 22% by phasing into lower-emitting cars and trucks. Due to its market position, other states have adopted California’s vehicle standards. Currently, 17 states have adopted CARB rules and automotive manufacturers like General Motors recently recognized California’s rules as a set of standards for all future models.
California is committed to supporting clean renewable energy and has introduced incentivization programs like The California Solar Initiative. Ongoing programs include incentives for financial credit for low-income customers installing solar systems and utility customers installing solar water heating systems.
4) International action.
Among many nations, the EU enforces precise and explicit climate rules, establishing the precedent for other nations to follow. Fit for 55 is a set of legislative proposals adopted by the EU to reduce total GHG emissions by at least 55% by 2030. The package includes a renewable energy directive, which increases the target use of renewable energy sources by up to 40% by 2030. The EU established goals to increase energy efficiency within public sectors and is expecting to accelerate the deployment of alternative vehicle fuels. Although meeting these standards is not required to enter the US market, multinational companies with complex supply chains will find that adhering to the strictest regulations simplifies their operations.
5) Conscious consumerism.
A rallying cry for eco-conscious products and services from consumers has been heard around the world - and it’s only getting louder. As seen in large industries like fashion, consumers are educating themselves and purchasing goods that are sustainable or upcycled. A National Retail Federation study shows that 50% of consumers are willing to pay a premium for sustainability. With climate change conversations being held at both a national and international level, consumers are also more inclined to invest in their future.
Moving forward, individual efforts and business operations need to work collectively to address the climate crisis. As we learn from setbacks, we must recognize that progress has to be seen throughout the supply chain up to power plants. The positive, however, is that climate trends continued to accelerate throughout the duration of this case. New technologies emerged, investors increasingly prioritized green tech, and nations set transformative targets. And, together, we can continue to strive toward a greener planet.
Illustration by Stefan Gustafsson of Stefangus Design.
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