The stage is set for a three-way convergence (or train wreck, depending on your point of view) on federal climate change policy as all three branches of government wrestle with big-picture questions about whether, when, and how greenhouse gas (GHG) emissions will be controlled. This week, the U.S. Supreme Court agreed to consider the question whether states can seek to control industry emissions of GHGs through the federal common law of public nuisance. At the same time, the D.C. Circuit Court of Appeals is set to decide a number of legal challenges brought against the U.S. Environmental Protection Agency (EPA) to prevent the agency from enforcing its new rules to control GHG emissions. As these developments ensue, the 112th Congress will continue to play a pivotal role in either enabling or disabling EPA's power to regulate GHG emissions.
This update highlights recent GHG regulatory developments, related judicial challenges, and the significance for businesses of the Supreme Court's pending decision on the application of tort law to control GHG emissions.
The Emerging GHG Regulatory Landscape
Since President Obama took office, EPA has completed several landmark rulemakings to force industry to disclose and control GHG emissions. First, the agency published its final rule to require significant sources of GHGs to publicly report their emissions on an annual basis. This rule, discussed in detail in a prior update, does not control GHGs, but the reported results will position EPA to better define which sectors and sources in the economy have significant emissions, where are they located, what GHGs they release, and how they can be controlled.
EPA Administrator Lisa Jackson then published her "Endangerment" and "Cause or Contribute" Findings, concluding that GHGs threaten the public health and welfare and that GHG emissions from motor vehicles contribute to that threat. These Findings were issued in response to the April 2007 decision of the U.S. Supreme Court in Massachusetts v. EPA, where a five-to-four court majority ruled that GHGs are pollutants subject to regulation under the Clean Air Act (CAA) and emphasized that EPA can avoid taking further regulatory action only if it determines that GHGs do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do. The Findings do not impose any requirements on industry, but EPA considers them a prerequisite to controling GHG emissions under the CAA for mobile sources.
On the heels of the Endangerment Finding, EPA launched the first phase of GHG control regulations. Under the first rule—the "Vehicle Rule"—EPA set standards for the emission of GHGs for new motor vehicles built for model years 2012–2016. The next rule—the "Tailoring Rule"—will control GHGs from large stationary sources under the two major CAA air permitting programs. This rule, as described in a prior update, establishes thresholds for GHG emissions that determine when permits under the CAA's New Source Review Prevention of Significant Deterioration and Title V operating permit programs will be required for new and existing industrial facilities. The rule will regulate GHG emissions from certain sources beginning on January 2, 2011.
The Role of Judicial Review of Efforts to Control GHG Emissions
EPA rulemakings reshape business practices, deeply influence economic sectors, and can drive some parties out of business. As with many major rulemakings over the agency's 40-year history, the new GHG rules have been challenged in a number of cases that have been consolidated in the D.C. Circuit Court of Appeals. The challenged EPA rules and actions include the Endangerment Finding, the Vehicle Rule, the Tailoring Rule, and an EPA decision regarding when pollutants are covered by the CAA for permitting programs.
In opposition to the petitioners' requests to stay the effect of these rules, EPA argues that the parties attack these rules as if they were a single, monolithic agency action, rather than four unique actions addressing separate and distinct statutory requirements and that they attempt to re-litigate the fundamental issue that the Supreme Court resolved in Massachusetts, that is, whether GHGs can be regulated at all under the CAA. In support of their motion to stay these rules, petitioners argue that EPA identifies no meaningful consequence of staying the rules while their legal challenges are adjudicated as EPA projects that the rules will forestall only a .01º C. in temperature rise over the next century, so a year's delay should not cause undue hardship. The Court's ruling on the stay requests is expected by year's end. As a threshold matter, successful litigation against the Endangerment Finding could undercut (at least temporarily) EPA's authority to control GHGs under the CAA.
Also before the federal courts are three significant nuisance lawsuits1 that concern whether GHGs released from industry are a nuisance and whether states and private parties can rely on nuisance law to prevent industry from releasing GHGs or force them to pay damages. The leading nuisance case is Connecticut v. American Electric Power Co. (AEP), 582 F.3d 309 (2d Cir. 2009), cert. granted, No. 10-174 (U.S. Dec. 6, 2010), where several states, the City of New York, and three land trusts have sued six electric power companies that own and operate power plants in twenty states to abate defendants' alleged ongoing contributions to the public nuisance of global warming. The federal district court for the Southern District of New York dismissed the lawsuit on the ground that it presented nonjusticiable political questions and finding that plaintiffs' causes of action could not be decided without an initial policy determination of a kind clearly outside judicial discretion. The Second Circuit vacated and remanded the ruling, finding that plaintiffs had stated claims under the federal common law of nuisance, that the claims did not present political questions, and that plaintiffs satisfied standing requirements.
Now the Supreme Court will decide whether the plaintiffs (including state governments) can pursue their nuisance claims in federal court. Petitioners ask the Supreme Court to decide whether judges have the authority to regulate GHGs at the behest of states and private parties and, if so, under what standards. They also point out the financial implications of the decision, commenting that the potential compensation for climate change impacts would dwarf the tobacco payouts. Significantly, while the Obama Administration has pursued GHG controls through EPA rulemaking, the Tennessee Valley Authority (an Executive Branch agency), is a defendant in the nuisance suit and has argued to the Supreme Court that EPA has regulated GHGs under the CAA and displaced the need for a public nuisance lawsuit against the defendants. The Supreme Court's ruling on this case will likely affect other climate-nuisance suits that have been brought as well as prospective plaintiffs' interests in filing new and novel GHG tort claims.
The last time the Supreme Court took up the issue of GHG controls, the majority's decision in Massachusetts drove EPA to reverse track and reconsider whether it would regulate GHGs under the CAA. Now, the Supreme Court's consideration of nuisance law in AEP could also have far-reaching effects. First, the composition of the Supreme Court has changed, and a new majority on the Court could take the opportunity to alter or undercut the decision in Massachusetts. Second, unlike the decision in Massachusetts, the pending decision in AEP does not concern the validity of agency action (or inaction) on climate change; rather, the decision concerns the rights of private and public litigants to redress their alleged injuries from climate change by directly controlling the sources of GHG emissions.
If the Supreme Court decides that nuisance suits have been displaced by EPA's actions under the CAA, it may still need to decide the thorny issue of whether damages alleged to have occurred from defendants' past actions can still be redressed by the courts. The Court could also set a precedent that could appreciably bolster the prospects for future GHG tort suits.
The Role of Congress
Nuisance law is considered a gap-filling creature of the common law that thrives when the legislature fails to act on an issue of concern and leaves the field open for resolution in private litigation. While comprehensive GHG legislation passed in the House, such legislation languished in the Senate. Many now seriously question whether either body will take up GHG legislation any time during the Obama Presidency, a development that has likely fanned the fire of the GHG tort suits. At least some Justices are likely to consider the relatively bleak prospects for federal GHG legislation in determining whether federal nuisance tort law has been preempted by congressional action. Further, if the D.C. Circuit stays or invalidates EPA's existing rules to control GHGs, the "gap" in federal law could grow wider. The tort suits will likely ramp up and diversify if the regulatory or legislation process bogs down.
Future Developments
It is important for business to stay abreast of developments in the legal challenges to EPA rulemaking and the Supreme Court's consideration of GHG tort liability in AEP. The challenges to the EPA rules are critical to watch because they concern the architecture on which EPA will structure its future GHG control rules. Regardless of how the D.C. Circuit resolves these consolidated lawsuits, the court's decision will likely have lasting and wide-ranging implications for many businesses across the country regulated by the existing rules or prospective GHG rules. Further, if the D.C. Circuit stays or invalidates EPA's rules, that might add weight to prospective nuisance claims that are based on the premise that tort claims are the only mechanism that plaintiffs have to control industry's GHG emissions.
The Supreme Court's consideration of the GHG nuisance suit in AEP is also significant because, in rendering its decision, the Court could reshape the direction of climate change policy and the role of federal courts in establishing that policy. As noted, the newly constituted Supreme Court could retract or limit the force of its decision in Massachusetts, which drove EPA to regulate GHGs under the CAA in the first place. Further, the Court could find that GHG nuisance suits are unmanageable and cannot reasonably be addressed in federal courts, which could kill the prospects of future GHG tort suits against industry. Or the Court could side with the Second Circuit and conclude that these suits can proceed, which would fuel new and potentially more far-reaching tort suits against business. Such an outcome would also create new pressure on Congress to supplant nuisance law by enacting comprehensive climate change legislation.
In the coming months, we will continue to track these developments. Please contact the Perkins Coie attorney with whom you work with any questions.
Footnotes
1 Comer v. Murphy Oil USA; (2) Native Village of Kivalina v. ExxonMobil Corp.; and (3) Connecticut v. American Electric Power Co.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
