A Bad Day for U.S. Energy and Climate Policy

Michael Wara 1

There aren’t very many decisions that emerge from the Supreme Court that are truly surprising. Tuesday’s decision to stay implementation of the EPA’s Clean Power Plan prior to a decision in the D.C. Circuit Court of Appeals was one of them. The Clean Power Plan is the Obama Administration’s signature initiative on climate change. It regulates carbon dioxide emissions from the power sector beginning in 2022. Rules like the Clean Power Plan, that are of general application, have not often—the SG in his briefing before the Court argued never—been stayed by the Court prior to a disposition at the appellate level. But there’s a first time for everything. And yesterday, much to the surprise of even the state and industry plaintiffs, was that first time. The Court’s stay is likely to have significant ramifications both for the U.S. electric power sector and for the Paris Agreement recently concluded by the UN Framework Convention on Climate Change.

The U.S. electricity industry has spent the better part of a decade needing an end to uncertainty on rules with respect to emissions of carbon dioxide from power plants. Although many in the industry would prefer no regulation, most had concluded that they could live with the Clean Power Plan and had begun the work of planning for compliance. The Court’s stay effectively extends this lack of clarity for at least the next two years, and possibly much longer. This regulatory risk is bound to make a difficult situation for electric utilities, even worse. The electricity industry is the most capital intensive in the United States. It depends on investment certainty for making the decision necessary for planning the grid. And we all benefit from this certainty in the form of lower electricity prices. Carbon has become the key risk factor in making decisions and has led to deferral of many long overdue investments as firms opt to wait for certainty from EPA. The Court has sent a strong signal that no such resolution is imminent. Firms will have to attempt to manage this regulatory risk while planning the next investment cycle in plant and equipment. Ultimately, this just means higher prices for energy consumers and a less competitive economy relative to our trading partners.

At the same time, the U.S., this past December, committed itself to a new framework for international cooperation on climate change – the Paris Agreement. The Paris Agreement envisions a 5-year cycle of cooperation in which all nations – including developing countries like China and India – make ever deeper cuts to their greenhouse gas emissions. Cycles of commitment like this are often the goal of international regimes because they allow for nations to develop reputations for compliance and trust in each other’s promises. The U.S., because of its past behavior involving the Kyoto Protocol and the Copenhagen Accord, does not have a particularly strong reputation within the climate talks. The Paris Agreement was inked in large part because of the U.S. commitment to regulate emissions from its power sector, now in doubt. India and China, the two partners that matter most to the future of climate change, will be watching closely to see whether or not the U.S. complies with its first promises under the new agreement. They cannot be reassured by developments at the Court this week. In addition, climate is one of the few areas in which China and the U.S. have been able to forge productive agreements over the past few years. If the U.S. proves unable to follow through on its promises, it could also complicate this crucial bilateral relationship.

So the Court’s decision throws both the domestic power sector and U.S. international relations into uncertain waters. What is particularly disheartening about the decision is the absence of any reasons given for it. Judicial decisions on stay motions do not often include fully developed legal reasoning. They are by design, preliminary. However, at least some view into how the five justices weighed the balance between the merits of the case, the harm to the plaintiffs of allowing implementation to proceed, and the benefits to the public of implementation could have significantly reduced the damage to both U.S. economic health and our international credibility. As it stands, we will have to wait at least two years to see a final resolution of the issues. During those years, the power sector will continue to delay and so make more costly an inevitable transition to cleaner power sources. Meanwhile our international partners on climate will have plenty of opportunities to wonder whether the U.S. can be trusted to honor its commitments. Whatever your feelings about the Clean Power Plan, this Tuesday was a terrible day for U.S. energy and climate policy.

Michael Wara is an energy and environmental law expert, whose research focuses on climate and electricity policy. He is an Associate Professor of Law and the Justin M. Roach, Jr. Faculty Scholar at Stanford Law School.