Federal Court Rejects Stay on EPA's Carbon Pollution Standards in Setback for Power Industry

The U.S. Court of Appeals for the District of Columbia has denied motions to stay a suite of Environmental Protection Agency (EPA) regulations that champion carbon capture and storage (CCS) technology as a key pathway for reducing greenhouse gas emissions (GHGs) from fossil fuel-fired power plants. The rules face legal challenges from 24 states, eight industry groups, four power companies, and three labor unions, pushing them likely toward the Supreme Court.

The federal court ruled in a July 19 order that petitioners had not met the stringent requirements for a stay of the controversial rules pending the court’s review. The court cited Nken v. Holder, a landmark 2009 Supreme Court case that established the standard for granting a stay pending judicial review.

A Contentious Rule

At dispute in the case, West Virginia v. EPA (No. 24-1120) and its 16 consolidated cases, is the EPA’s May 9, 2024–finalized so-called “Carbon Pollution Standards.”

The standards are detailed in the“New Source Performance Standards for Greenhouse Gas Emissions from New, Modified, and Reconstructed Fossil Fuel-Fired Electric Generating Units; Emission Guidelines for Greenhouse Gas Emissions from Existing Fossil Fuel-Fired Electric Generating Units; and Repeal of the Affordable Clean Energy Rule.” The EPA’s Clean Air Act Section 111 rules, which became effective on July 8, 2024, essentially set emission guidelines for existing coal-fired and oil/gas-fired steam-generating units and revisions to the New Source Performance Standards (NSPS) for GHG emissions from new and reconstructed fossil fuel-fired stationary combustion turbines and steam generating units undergoing significant modifications.

A key sticking point for the power industry is that the rules emphasize CCS as the best system of emission reduction (BSER), mandating 90% CCS for existing coal units operating beyond 2039 and new baseload combustion turbines. Compliance dates for coal units extend to January 2032, with exemptions for units ceasing operation by then.

The rule also applies stringent standards to new gas turbines operating above a 40% capacity factor and moves up the CCS compliance deadline to 2032. New baseload units also need to comply with phased standards, with an initial “phase one” standard based on efficient design and operation of combined cycle turbines and a “phase two” standard based on 90% capture of carbon dioxide (CO₂).

Broad Coalition Challenges EPA Carbon Rules

On May 9, upon publication of the rule, 24 states filed challenges to the rule:  West Virginia, Indiana, Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, and Wyoming. Seven industry groups filed separate challenges: National Rural Electric Cooperative Association (NRECA), National Mining Association, Electric Generators for a Sensible Transition, Midwest Ozone Group, Edison Electric Institute (EEI), NACCO Natural Resources Corporation, and Appalachian Region Independent Power Producers Association.

At least one mining company—Westmoreland Mining Holdings LLC—and four power companies joined the challenges. These include Oklahoma Gas and Electric Company, Idaho Power Company, Rainbow Energy Center, and Montana-Dakota Utilities Co. Petitioners additionally include three labor unions: United Mine Workers of America, International Brotherhood of Electrical Workers, and International Brotherhood of Boilermakers.

In their May 9 petitions for review, the states argued that the final rule “exceeds the agency’s statutory authority” and is otherwise “arbitrary, capricious, an abuse of discretion, and not in accordance with law.” However, contentions have since absorbed the Supreme Court’s 5–4 decision in Ohio v. EPA on June 27, which stayed enforcement of the EPA’s final “Good Neighbor Plan.” The Good Neighbor Rule, another recently finalized EPA rule, sought to ensure that the nearly two dozen “upwind” states will incrementally tamp down their annual emissions of nitrogen oxides (NO_x)—an ozone-precursor pollutant—during ozone seasons that run from May through September. As POWER  reported, the EPA’s regulatory impact analysis affiliated with the final Good Neighbor Rule projected it could result in an additional 14 GW of coal retirements nationwide.

In a July 2 letter to the D.C. Circuit, the 24 states advised the D.C. Circuit of “additional authority” based on the Supreme Court’s ruling in Ohio v. EPA, stressing that the decision underscored that the states have “primary responsibility for implementing the Clean Air Act’s provisions.”

The Supreme Court “stressed that the States take the lead—so EPA generally cannot ‘question the wisdom’ of the States’ choices. The Court also recognized how the States suffer some weighty harms when EPA unlawfully overreaches—EPA ‘necessarily impairs [the States’] sovereign interests in regulating their own industries and citizens’ while also forcing them to incur ‘nonrecoverable’ and immense compliance costs,” the letter says. “So too here. The States and others have detailed exactly why EPA has trampled state authority and set impossible-to-meet standards in this carbon rule. Yet EPA has offered no reasoned response.”

At least 26 states—Arizona, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, Wisconsin, California, Virginia, South Carolina, New Hampshire—and the cities of Denver, Boulder, Chicago, and New York, as well as the California Air Resources Board and the District of Columbia sent a joint response to that letter on July 8. The entities argued that Ohio v. EPA had “zero relevance” to the Carbon Pollution Standards challenge.

“This case concerns a different program to establish technology-based standards for sources that contribute to public-health endangerment,” the entities wrote. “EPA must determine the ‘best system of emission reduction’ for sources and ‘the degree of emission limitation achievable through the application of that system.’ In the challenged Rule, EPA did so and reached reasonable, well-explained judgments.”

Power Industry: CCS Not Adequately Demonstrated

Industry petitioners, meanwhile, focused their arguments on the EPA’s GHG rules’ standards of performance based on its application of CCS technology. “Petitioners are likely to succeed on the merits of their challenges to the CCS-based provisions for new base load stationary combustion turbine units and existing coal-fired units,” EEI, Oklahoma Gas and Electric, and Idaho Power Co. said in their May 24-filed petitions for review.

Without a stay, power companies—which have already decreased their carbon emissions 36% below 2005 levels—would suffer “imminent” and “irreparable” harm, the entities said.

“To comply with the Final Rules’ deadlines, companies must spend millions of dollars and make irreversible choices among compliance options. And these significant costs cannot be recovered for utilities or their customers if the CCS provisions of the Rules ultimately are vacated. The public interest and equities also favor a stay given the absence of harm to EPA or the public from a stay during litigation and, conversely, the serious harm that utilities face if forced to immediately divert resources to CCS from other planned clean generation projects.”

As a key part of their argument, the power group detailed how the EPA’s reliance on CCS as the BSER is flawed. “CCS is not ‘adequately demonstrated’ as required by the Clean Air Act, and EPA has not shown that all three elements of CCS—capture, transport, and storage of CO₂—can be deployed nationwide by 2032, let alone such that standards based on 90% carbon capture are ‘achievable,’” the power groups said.

And while the EPA sought to outline examples of working CCS projects, the EPA’s examples merely “show that CCS is an emerging technology.” To fulfill the law’s adequate demonstration requirement, “EPA must demonstrate that all three components can function at scale, at required efficiency levels, for all units to which the requirements would apply,” the group underscored. 

The group, in addition, pointed out that “many barriers” remain for successful CCS deployment at existing generating units. Retrofitting existing sources is “prohibitively difficult, given space constraints and other associated technical challenges” while pipeline infrastructure remains insufficient, and there is no federal regime for pipeline permitting or eminent domain authority to ensure timely availability. The group also criticized the EPA’s estimations that there will be sufficient space to sequester CO₂, noting this is based on “[a]nalyses of the potential availability of geologic sequestration capacity in the U.S.,” not on actual development of this capacity at scale.

Finally, while the EPA described a few “industrial applications” of CCS to support its claim of adequate demonstration, those examples aren’t supportive of a full-scale CCS demonstration in the power sector, the group noted. While the Searles Valley Minerals/Argus Cogeneration Plant captures about 270,000 metric tons of CO₂ annually, it does not transport or store the captured CO₂. The Shute Creek Facility and the Great Plains Synfuels Plant, achieve only partial CO₂ capture and are not electric generating units. The Quest steam methane reformer facility in Alberta, which captures 80% of its CO₂ in produced syngas, tailors its capture methods to its industry and fails to render instructive “efficiency metrics” for power plants.

The group said existing examples of CCS at electric generating units—Boundary Dam 3 in Saskatchewan, Plant Barry in Alabama, and Petra Nova in Texas—are also inadequate.

As SaskPower told the EPA in an August 2023 comment, the project is not capturing 90% of emissions, and the CCS facility operated at full nameplate capacity for a few days shortly after it was commissioned. “To ensure a higher level of overall equipment reliability and process efficiency, SaskPower has optimized the CO₂ capture rate at a target of 65 to 70% of total Boundary Dam Unit 3 emissions on an ongoing basis.”

Petra Nova was, meanwhile, designed to capture 90% of 37% of the flue gas produced by a single unit—which amounts to a total capture of 33% of its larger facility’s total CO₂ emissions, the group said in its petition. Southern Co.’s Plant Barry, the EPA’s only example of a project capable of achieving 90% carbon capture from a coal-fired power plant, operates a fully integrated 25 MWe CCS project. But, again, “that CCS project is a demonstration project that captures just a fraction of the CO₂ output of one unit, not the entire plant,” the group said.

“EPA’s remaining examples fare worse. CCS demonstration projects at the Warrior Run power plant in Maryland and the Shady Point power plant in Oklahoma capture 10% and 5% of facility-wide CO₂ emissions, respectively. Project Tundra in North Dakota and Project Diamond Vault  in Louisiana are still in development—not yet built, let alone operational—and thus provide no support for EPA’s position that CCS at 90% efficiency is adequately demonstrated today,” the group added.

D.C. Circuit Denies Motions for Stay 

In its three-page decision on Friday, the D.C. Circuit considered the petitioners’ dispute on the merits, along with their claim that the EPA acted “arbitrarily or capriciously in determining that carbon capture and other emission control technologies are adequately demonstrated, or that specific degrees of emission mitigation are achievable with those technologies.” However, it found that “petitioners have not shown they are likely to succeed on those claims given the record in this case.”

The court also said the case does not implicate a major question under West Virginia v. EPA, 142 S. Ct. 2587 (2022), a major Supreme Court decision that officially struck down the Obama-era Clean Power Plan and declined to grant the EPA the authority, under  Section 111(d) of the Clean Air Act, to set emission caps determined by what a system can achieve.

The Clean Power Plan, notably, identified a BSER that included both efficiency improvements for individual plants and “generation shifting”—from coal to gas and renewables. The D.C. Circuit on Friday said that West Virginia does not apply because, in its Carbon Pollution Standards, the “EPA has claimed only the power to ‘set emissions limits under Section 111 based on the application of measures that would reduce pollution by causing the regulated source to operate more cleanly[,]’ a type of conduct that falls well within EPA’s bailiwick.”

Regarding arguments about “irreparable harm,” the federal court noted, “actual compliance deadlines do not commence until 2030 or 2032—years after this case will be resolved.” While the first state deadline to submit their state implementation plans is May 2026, “the only consequence of failing to submit a state plan is the promulgation of a federal plan—which the States can replace with their own plans later.” A stay “will not help” long-term planning, the court decided, “because the risk remains that the distant deadlines in EPA’s rule will come back into force at the end of the case.”

The court granted the EPA’s suggestion that the case be “expedited as an alternative means of protecting all parties’ interests,” looking to ensure the case will be argued and considered within the court’s 2024 term.  Petitioners were given 14 days to propose formats and schedules for briefing the consolidated cases. The court emphasized the importance of joint submissions to avoid repetitious filings and streamline the review process.

Effort to Stay the GHG Rule Headed to Supreme Court

Despite the opposition, the EPA maintains that the Carbon Pollution Standards provide a predictable regulatory outlook and include measures to enhance flexibility. The agency has told POWER it engaged extensively during the rulemaking process with various stakeholders, including “balancing authorities, power companies, reliability experts, [the Federal Energy Regulatory Commission] and [the Department of Energy] as well as regulatory authorities responsible for reliability to understand their concerns and address them in the final rule. We expect this engagement will continue during implementation,” it said. 

Still, for now, the federal court’s ruling sets the stage for a significant legal battle that could decide the balance between federal authority and state rights in managing power plant emissions.

On Friday, notably, the court’s decision also granted motions for amicus curiae participation from the Chamber of Commerce, the Sierra Club, and the Environmental Defense Fund, allowing these groups to submit briefs supporting or opposing the EPA’s regulations.

So far, at least one petitioner has said it will continue the legal battle for a stay of the controversial rule. “We are disappointed by today’s court ruling and will imminently file an appeal with the Supreme Court,” said Jim Matheson, CEO of NRECA, a national trade association representing nearly 900 local electric cooperatives.

“EPA’s power plant rule is unlawful, unrealistic, and unachievable. It undermines electric reliability and poses immediate and grave consequences for an already stressed electric grid,” he said.

—Sonal Patel is a POWER senior editor (@sonalcpatel, @POWERmagazine).