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DC Circuit Vacates Trump Administration’s Affordable Clean Energy Rule

On January 19, 2021 the United States Court of Appeals for the District of Columbia Circuit (the “DC Circuit”) vacated the Affordable Clean Energy Rule (the “ACE Rule”), a policy instituted by the Environmental Protection Agency (the “EPA”) on June 19, 2019 that weakened emissions standards for power plants and empowered states to set their own energy standards. The DC Circuit also remanded the question to the EPA to consider a new regulatory framework to replace the ACE Rule, allowing the Biden Administration to start fresh in implementing its own climate change agenda. 

In 2015, citing broad authority to strengthen environmental standards, the Obama Administration and the EPA enacted the Clean Power Plan (the “CPP”), an unprecedented policy that required individual states to design comprehensive strategies that would significantly reduce carbon dioxide emissions by 2030. Under the CPP, the EPA determined baseline emissions caps that were projected to cut carbon pollution by 32 percent by 2030. The CPP was, however, subsequently challenged in court by twenty-seven states, which asserted that the plan amounted to “double regulation” and that the EPA had exceeded its authority to restrict carbon emissions under Section 7411(d) of the Clean Air Act. The Supreme Court subsequently stayed enforcement of the CPP pending litigation in the DC Circuit, allowing states to abandon efforts to comply with the newly established standards.

Before a decision was issued on the enforceability of the CPP, the newly inaugurated Trump Administration scrapped all efforts to defend the regulation in court and sought to repeal and replace it entirely. The ACE Rule, proposed to replace the CPP, substantially narrowed the scope of emissions requirements, stating that the EPA could only require that power plants improve their physical structures and could not demand that these plants shift away from inefficient energy sources. Moreover, the ACE Rule scrapped the strict timelines imposed on states to submit reduction plans or take action to limit carbon pollution and only imposed an obligation on states to evaluate their applicable technology with no mandate to achieve any specified reduction in emissions.

In American Lung Association v. EPA, the DC Circuit rejected the interpretation of Section 7411(d) that the EPA relied on to repeal and replace the CPP. The legal fight over power plant emissions stems from the EPA’s differing interpretations of its power to regulate under the Clean Air Act (the “CAA”). The CAA grants the EPA the authority to dictate how to regulate harmful emissions from power plants. In accordance with Section 7411 of the CAA, the EPA promulgated two regulatory regimes, one for existing energy sources and one for new energy sources providing different processes for establishing new standard based on which regime the standards fell into. Under the regime for existing energy sources, the EPA followed a three-step process: (1) the EPA would determine the “best system of emission reduction”, (2) states would issue standards of performance for existing sources to comply with the guidelines, and (3) operators would implement measures to comply with the standards. The issue in this case arose at the first step. Under the CPP, the EPA established that the best system was one that improved the heat rate at energy facilities, prioritized generation from low-emitting plants, and provided quantitative guidelines for the states to follow. Under the Trump Administration, the EPA repealed the CPP, arguing that the language of Section 7411(d) was clear and unambiguous in constraining the EPA’s authority and that, when determining the best system of emission reduction, the agency could only consider emission-reduction measures that can be applied at and to a single stationary source. Under this interpretation, generation shifting policies, such as those proposed in the CPP, would be impermissible and render the CPP invalid.

In its decision, the DC Circuit held that the Trump Administration’s limited interpretation is incorrect; the Court found that nothing in Section 7411(d) supports the revised limited interpretation and that to agree with the EPA’s limited interpretation would require the EPA to “turn its back on major elements of the systems that the power sector is actually and successfully using the efficiently and cost-effectively achieve the greatest emission reductions.” Because the ACE Rule and the repeal of the CPP relied on a mistaken interpretation, the DC Circuit was bound by precedent to vacate the ACE Rule and remand to the EPA for further consideration, thereby granting the Biden Administration a blank slate to craft its own environmental policies.

The invalidation of the ACE Rule is a boon for the Biden Administration’s wide-ranging efforts to confront the growing issue of climate change. The EPA is now empowered to write new regulations from scratch, unburdened by previous administrations’ less ambitious or deregulatory approaches to reducing carbon pollution and mitigate the effects of climate change. Although the Supreme Court’s ongoing skepticism of such actions present possible barriers to the bolder policies this administration may propose, this decision by the DC Circuit permits federal agencies to have a renewed emphasis on sustainability and renewable energy. And further, with the Biden Administration’s professed focus on environmental actions and policies, it is likely that we will see a strong push to incentivize and encourage those engaged in clean energy and technology.

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Garrett Galvin is an attorney at Mintz who focuses his practice on corporate and securities law, contracts, mergers and acquisitions, debt and equity financing and general corporate matters. He represents clients across the energy and sustainability, life sciences, including biotechnology and pharmaceuticals, and technology industries.