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September 7, 2018

Legal Update
Dylan Sanders

SJC upholds greenhouse gas emission limits on Massachusetts power plants

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The Supreme Judicial Court has rejected a challenge to regulations that impose annually declining limits on greenhouse gas emissions for power plants located in Massachusetts. The decision, in New England Power Generators Association, Inc. v. Department of Environmental Protection, upholds Department of Environmental Protection regulations that require in-state fossil-fueled power plants to reduce their carbon dioxide emissions annually, and require MassDEP to adopt additional regulations to continue reducing emissions after 2020.  The decision reflects a continued willingness by the SJC to support significant legislative and regulatory efforts to address the impacts of climate change under the state’s Global Warming Solutions Act (GWSA). Said the SJC, the GWSA “is designed to go well beyond business as usual in terms of reducing emissions: to upend, rather than to uphold, the status quo.”

Kain and the Cap Regulations

The regulations at issue in NEPG are among those enacted in response to the SJC’s 2016 decision, Kain v. Department of Environmental Protection. Kain held that § 3(d) of the GWSA required MassDEP to adopt mandatory, declining annual limits on greenhouse gas emissions for multiple sources or categories of sources of emissions, and that MassDEP had failed to adopt such limits by the statutory deadline of January 1, 2012. (Full disclosure: Sugarman Rogers represented the four teenage plaintiffs in Kain, who successfully challenged MassDEP’s failure to adopt declining annual limits on GHG emissions.)

In response to the Kain decision, and pursuant to § 3(d) of the GWSA, MassDEP enacted six sets of regulations governing greenhouse gas emissions for various sources, including building heating, transportation, and electricity production, which are the sectors that contribute by volume the most greenhouse gas emissions from Massachusetts sources.  The regulations applicable to electricity production included (1) so-called “Cap Regulation,” mandating annual declining carbon dioxide emissions from in-state power plants, and (2) clean energy standard, or “CES regulation,” requiring that retail suppliers of electricity to Massachusetts consumers increase annually the amount of electricity purchased from non-fossil fuel burning sources (e.g., wind, solar, and hydropower).

The Regional Grid & RGGI

Massachusetts consumers receive their electric power through a regional electrical grid. Power consumed in Massachusetts is not necessarily produced by plants located in Massachusetts, and power produced in Massachusetts serves the grid as a whole.

Since 2008, Massachusetts has participated with other New England states and New York in a regional market-based initiative to cap and reduce carbon dioxide emissions from power plants in the participating states known as the Regional Greenhouse Gas Initiative, or “RGGI.” (RGGI has now expanded to include the mid-Atlantic states of Delaware and Maryland; Virginia is poised to join by the end of 2018, with New Jersey likely to rejoin as well this year.) Under the RGGI regulatory scheme, participating states set an annual cap on carbon dioxide emissions and require power plants to have an allowance for each ton of carbon dioxide they emit. The overall cap – i.e., the total of all C02 ­allowances – declines at a rate set by the participating states. The allowances, which are tradeable, are sold at auctions, with the proceeds being used by the participating states to invest, among other things, clean energy and energy efficiency initiatives.

The Challenge to the Cap Regulations

The Cap Regulation was enacted pursuant to GWSA § 3(d), which the SJC held in Kain required MassDEP to promulgate declining annual emission limits for multiple sources of greenhouse gas emissions. Notably, Kain did not say which sources MassDEP must or could regulate under § 3(d), nor did Kain restrict which sources MassDEP could regulate.

When MassDEP enacted the Cap Regulation, an association of private electric suppliers to the regional grid brought suit, joined by several operators of power plants located in Massachusetts as well as an organization of Massachusetts municipal-owned electricity suppliers. They argued that § 3(d) of the GWSA did not authorize MassDEP to adopt regulations requiring declining carbon dioxide emissions for Massachusetts power plants, because the electric sector is separately regulated under the GWSA by § 3(c), a section of the statute that specifically deals with power production and which recognizes the regional nature of the electrical grid serving Massachusetts. Section 3(c) of the GWSA provides that “[e]missions levels and limits associated with the electric sector shall be established … based on consumption and purchases of electricity from the regional electric grid, taking into account the regional greenhouse gas initiative.”

The Decision

But the SJC rejected the contention that § 3(c) of the GWSA signaled a legislative intent to exclude Massachusetts power plants from MassDEP’s authority – indeed, its obligation – under § 3(d) to adopt declining annual limits for sources of greenhouse gas emissions.  Section 3(c), the court said, merely required MassDEP to take certain steps specific to the electric sector in establishing such limits; it did not exclude the sector from § 3(d) altogether:

The Cap Regulation properly takes into account the specific considerations of the electric sector identified in section § 3(c), while including this large emitter of greenhouse gases in the ambitious emissions reduction regime of § 3(d), which is central to accomplishing the act’s overarching purpose. The two statutory provisions work together and complement each other. They are not mutually exclusive.

After finding that the Cap Regulation satisfies the requirements of § 3(c) as well as § 3(d), the court concluded the regulation did not exceed MassDEP’s authority.

The plaintiffs also argued that the Cap Regulation was inconsistent with the purpose of the GWSA, in so far as a regulation that require annually declining emissions from Massachusetts power plants could result in an increase in emissions being produced by power plants located outside of Massachusetts and serving the regional grid. This unintended consequence, in which suppliers shift the electricity they are purchasing from in-state to out of state plants not subject to the Cap Regulation, is known as “leakage.”  The SJC, however, found multiple reasons to reject this argument. For one thing, the court said that any alleged leakage that would be extremely modest, if it occurred at all.  For another, the court found that, at the time the Legislature enacted the GWSA, including § 3(d), the Legislature was well aware of the potential for leakage and chose to enact § 3(d) in any event. The court also was persuaded by the argument made by MassDEP and the Executive Office of Environmental Affairs that the CES Regulation – i.e., the requirement that retail suppliers of electricity purchase increasing amounts of clean energy – would complement the Cap Regulation and work to offset or mitigate any leakage.

Finally, in a very important coda to the central issue in the case, the SJC rejected plaintiffs’ argument that MassDEP’s authority to enact regulations under § 3(d) expires on December 31, 2020. Section 16 of the GWSA provides that any regulations enacted under §(d) “shall expire on December 31, 2020.”  The court held that this provision did not limit MassDEP’s authority after 2020 to enact regulations requiring annual declining limits on emissions; Section 16 merely meant that the regulations that MassDEP was required to enact by January 1, 2012 (and has now enacted), expire on December 31, 2020, and give way to new regulations designed to ensure the state can meet the next interim limit for emissions. Indeed, the SJC went out of its way to say that under Kain and the GWSA MassDEP had a non-discretionary duty to enact such post-2020 regulations. Said the court, MassDEP’s “authority and obligation to promulgate new regulations under §3 (d) after December 31, 2020, is undisturbed” (emphasis supplied).

Takeaway

The decision in NEPG further extends the reach of the GWSA and Kain. And it signals to both the regulated community and the regulators, and to the public at large, that the SJC takes the threats of climate change to Massachusetts, and the Commonwealth’s obligation under the GWSA, with the utmost seriousness. There has been some uncertainty over what happens if the Commonwealth is not on pace, or falls off the pace, to meet the interim emission reductions required by the GWSA and the final statewide limit for 2050. The SJC has signaled there should be no such uncertainty.  In the penultimate sentence of the decision, the court declares that, “§ 3(d) remains in effect after December 31, 2020, and  . . . [MassDEP] shall promulgate new regulations to ensure that the interim and 2050 statewide limits will be met” (emphasis supplied).

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