US Supreme Court overturns States GHG Lawsuit

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The US Supreme Court decision June 20th in American Electric Power versus Connecticut (No. 10-174) rejecting a lawsuit by seven states which sought to draw the courts into setting greenhouse gas emissions targets was an exercise in both common sense and self-defense.

Here is my take on the implications of the decision for the energy industry:

  • Utilities will claim victory that the courts turned back attempts by the states to interpose themselves between the US EPA and utilities by asking the courts to let their lawsuit proceed.  No way said the Supreme Court stating clearly that the intent of Congress was to vest the responsibility in the first instance in the US EPA and also stating that the courts lack the expertise to do that job.
  • Court system breathes sigh of relief since by overturning the Second Circuit court of Appeals decision, the Supreme Court served notice that it does not want to get dragged into endless litigation over setting specific emissions standards that it lacks the expertise to decide.  It remanded to the lower courts and specific damage claims telling the parties to settle it there.
  • EPA can claim victory that the Court recognized its supremacy in setting greenhouse gas emissions regulations it had previously ruled were covered by the Congressional action in the Clean Air Act.  The EPA does not want to fight out emissions regulations state by state or District Court by District Court.  But the decision puts a bull’s eye over the heart of the US EPA with clear accountability.  That could prove very difficult over the 2012 election campaign by turning EPA regulations into the target for those seeking to reduce regulatory burdens on the economy.  The recent retreat by US EPA on several regulatory fronts suggests politics may trump environmental agenda aspirations, at least, until after the election.  That merely turns the election into a referendum on confidence in EPA’s approach to GHG regulation.
  • The States Attorneys General will surely claim credit for framing the issues and fixing the clear accountability on US EPA to now issue the regulations sought by the states after having milked this issue for about all the political mileage they could get.
  • Advocacy groups have a less clear outcome.  Like the State AGs they benefit from tightening the noose around US EPA to act and they have influence with the Obama Administration to encourage such action, but they have skillfully used lawsuits to achieve through the courts what they have been unable to achieve legislatively.  The action of the Supreme Court in AEP v Connecticut and in the Walmart class action suit denying class status to plaintiffs may signal a growing reluctance by the courts to be drawn into such obviously political controversies.  If that proves true, business will surely cheer this decision reducing one looming uncertainty they face in clawing back to economic recovery.

The bottom line is that it is the 2012 election not this decision that will define the energy future. Industry estimates are that the proposed US EPA regulations on the energy industry, if implemented, will cause the premature retirement of as much as 48,000 MW of coal fired generation.  We are already seeing major utilities like AEP placing their bets by making decisions on which plants to retire, which to retrofit and what technology to choose to meet future demand.

This Supreme Court’s decision is unlikely to change that course of action but it might buy utilities a little more time. The still should expect actions that will likely reduce emissions by substituting cleaner natural gas generation for coal fired generation being retired, but not enough to satisfy the emissions reduction advocates.  It will reduce baseload generation and thus make the fuel mix for the power grid subject to more volatile gas prices than the relatively stable coal prices.  It may support more renewable energy in the mix by enabling more load-following gas fired generation at higher prices, and it will cost consumers more in higher electricity rates not only for the new generation that will be build but to pay-off the stranded cost for the older coal plants being prematurely retired.

In short, no one will be happy—that’s the common sense part of the decision!