Opinion

Low-carbon electricity is on the rise in the US, regardless of Supreme Court decision

The Obama administration’s attempt to regulate power sector emissions has been ruled illegal, constraining future policy. Renewables are set to grow anyway

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"Presidents come and go, but the Supreme Court goes on forever.” William Howard Taft, the only person ever to have been both president and Chief Justice of the US, was very clear about his views on the relative status of the two positions. President Joe Biden will understand the sentiment this week, as he reflects on how the Supreme Court has constrained his freedom to set climate policy.

The Supreme Court last week handed down its decision in the case known as West Virginia v. EPA, ruling that the regulations set out by the Obama administration to limit carbon dioxide emissions from electricity generation were illegal. The decision will prevent the Biden administration launching its own set of rules along similar lines, meaning that future regulations will have to be more limited in their scope.

The judgment does not rule out the possibility of carbon dioxide regulation altogether, but it does take one set of instruments out of the administration’s toolkit. The practical effect is likely to be that over the coming decade, as over the past decade, it will be market forces, corporate strategies and state policies that shape the US power sector, rather than anything coming from the federal government.

The case just decided by the Supreme Court was unusual, in that it related to a set of regulations from the Environmental Protection Agency that never came into effect, and would never have come into effect. The Clean Power Plan launched by President Barack Obama in 2015 set limits for the carbon dioxide intensity of states’ power generation sectors in 2030. The states were supposed to draw up their own plans for how to meet those goals, for example by shifting their power generation mix away from coal and towards lower-carbon sources. But the rules were challenged in the courts, and the Supreme Court issued a stay on the implementation of the plan in 2016. President Donald Trump moved to scrap the proposed regulations altogether in 2019, and the Biden administration said it would not try to revive them.

However, the Trump administration’s proposal to repeal and replace the Clean Power Plan, known as the Affordable Clean Energy Rule, was also challenged in court, and in 2021 the District of Columbia Court of Appeals struck it down. It is this complex legal position that the Supreme Court has now resolved.

US power companies and other businesses were divided on the issue. The case against the Obama administration’s rules was brought by West Virginia and 18 other states, while New York and 20 other states joined the case to defend them. Supporters of West Virginia’s petition included Westmoreland Mining, North American Coal Corporation, and Basin Electric Power Cooperative, as well as groups such as the National Mining Association and America’s Power, which represents the industries involved in producing electricity from coal.

On the other side, the Clean Power Plan was supported by some power companies, including Consolidated Edison, Exelon, and National Grid USA, as well as other businesses including the tech groups Apple, Amazon and Meta. The Edison Electric Institute, the national association of US investor-owned power companies, also argued in favour of the EPA’s right to set rules limiting greenhouse gas emissions, arguing that “the alternative could be the chaotic world of regulation by injunctive fiat”.

As Wood Mackenzie’s Elyse Steiner explained back in February, the case had potentially “monumental” implications for US policy. The Supreme Court could have decided to reject the government’s authority to regulate greenhouse gas emissions altogether. In the event, its decision was more modest: by a 6-3 vote, the justices decided to strike down the specific form that the Clean Power Plan had taken, without taking any view one way or the other on the general principle of regulating greenhouse gases.

The ruling was based on a principle known as the “major questions doctrine”, which sets limits on how much freedom US government agencies have to interpret the legal authority they have been granted by Congress. The majority held that the EPA had gone too far when it issued regulations that aimed at a radical reshaping of the US power sector, shifting generation away from coal and towards natural gas and renewables. The majority opinion summed it up this way:

“Capping carbon dioxide emissions at a level that will force a nationwide transition away from the use of coal to generate electricity may be a sensible ‘solution to the crisis of the day’… But it is not plausible that Congress gave EPA the authority to adopt on its own such a regulatory scheme in Section 111(d) [of the 1970 Clean Air Act]. A decision of such magnitude and consequence rests with Congress itself, or an agency acting pursuant to a clear delegation from that representative body.”

The vote fell on partisan lines: the six justices appointed by Republican presidents formed the majority opinion, while the three appointed by Democratic presidents dissented. The minority opinion, written by associate justice Elena Kagan, described the court’s decision to limit the authority of the EPA as “troubling”. She wrote:

“Whatever else this Court may know about, it does not have a clue about how to address climate change. And let’s say the obvious: The stakes here are high. Yet the Court today prevents congressionally authorized agency action to curb power plants’ carbon dioxide emissions. The Court appoints itself — instead of Congress or the expert agency — the decisionmaker on climate policy. I cannot think of many things more frightening.”

The result is that although the EPA will still be able to make climate-related regulations, its job will be more complicated. There will be more court cases ahead as the government and businesses test out the limits of the rules that the Supreme Court might allow. And for the Biden administration’s hopes of setting the US on course to achieve steep reductions in emissions, it means passing legislation in Congress is even more important.

Lisa Jacobson, president of the Business Council for Sustainable Energy, described the ruling as “an urgent call to Congress to enact national policies to address climate change”. She added: “An essential first step is to enact the climate and clean energy tax provisions pending under budget reconciliation proposals.”

Michelle Bloodworth of America’s Power, representing coal-fired generators, urged the Biden administration to be cautious with any future emissions regulations. “We urge EPA to avoid issuing a replacement rule that causes more premature coal retirements, especially as officials are warning about the prospect of electricity shortages that threaten grid reliability in many parts of the country,” she said.

The great irony of the Clean Power Plan, which never took effect and has been ruled illegal for being too radical in its aims, is that since it was launched the US power sector has changed even more fundamentally than it envisaged. Coal-fired plants accounted for 33% of US power generation in 2015, but just 22% in 2021, with both natural gas and renewables having grown. The American Petroleum Institute pointed out that increased use of natural gas had contributed to a 24% drop in power sector carbon emissions since 2012, outpacing the targets in the Clean Power Plan. Low-cost gas and emissions reduction goals set by both power producers and consumers have driven change even in the absence of federal mandates.

Wood Mackenzie’s latest strategic planning outlook for power in North America suggests that even without aggressive federal climate policy, the industry will continue to move away from coal and towards renewables. We expect nearly $2.8 trillion in investment in power generation in North America by 2050, of which less than 5% will be in carbon-emitting sources. By 2040, coal-fired generation is expected to have gone from the power mix. Although relatively high North American natural gas prices are currently helping support coal plants, we expect those prices to drop back again by the middle of the decade. Zero-carbon sources are expected to provide 66% of US electricity by 2035, and 90% by 2050.

Renewables still face many challenges in the US, including short-term problems such as supply chain disruption and uncertainty over tax credits, and longer-term issues with the need for more long-distance transmission and long-duration storage. But the Supreme Court decision has not made a great difference to the outlook for the industry.

One of the arguments cited by the majority on the court for insisting that major questions should be decided by legislation in Congress rather than executive actions and regulations is that laws, once passed, will prove more durable. Executive actions and regulations can be changed each time a new president takes office. But even more than changes driven by legislation, it is changes driven by economics and the decisions taken by millions of producers and consumers that will have the most lasting impact on the power sector in the US and around the world.

In brief

Europe is bracing for further disruption to Russian gas supplies after Gazprom reduced flows the Nord Stream pipeline on 14th June, blaming an inability to complete compressor maintenance work due to Canadian sanctions. Since then, flows have been averaging 42% of the pipeline’s nominal capacity. The risk is growing that all Russian imports to the EU could be stopped. Wood Mackenzie analysts assessed the question “Can Europe get through the winter?”, looking at prospects for demand rationing and further price volatility.

Concerns about the outlook for Russian gas supplies drove European power prices to new record highs this week.

The German government is working on a possible support package for the energy group Uniper, and has drafted a law allowing it to take stakes in companies hit by the soaring cost of gas.

BYD of China has overtaken Tesla to become the world’s largest manufacturer of electric vehicles by volume, the Financial Times reported.

More cities in China have imposed lockdowns to fight the spread of Covid-19.

Other views

Bridget van Dorsten and Flor Lucia De la Cruz — Decoding the hydrogen rainbow

Simon Flowers — Why miners won’t invest in the metals supercycle

Søren Lassen — A new route to commercialisation for floating wind

Gavin Thompson — Changing the way Asia’s oil and gas companies raise capital

Sylvia Leyva Martinez and Michelle Davis — US solar: Biden’s Executive Order brings (some) relief

John Kemp — Oil market confronts US and EU policymakers with unpalatable choices

Quote of the week

“There may be some question about how much more the Saudis could pump out at this particular moment, but there’s no doubt we’re going to need a lot more Opec+ oil. The UK has strong and productive relations with Saudi Arabia, we need to make sure the whole of the West does as well, and we make that point to the Saudis. But that is the way forward, they need to produce more oil, no question.” — Boris Johnson, the UK prime minister, gave Parliament his assessment of the realities of the oil market outlook, highlighting his hopes for increased supply from Saudi Arabia.

Chart of the week

It is 70 years since BP launched its Statistical Review of World Energy, an invaluable source for global oil, gas, coal and power data, and to mark the anniversary the company has republished a couple of documents showing the history of the report. This chart shows estimates of global oil reserves from the first review, which included data for 1951. The total volume of proved reserves is massively different — today’s figure of about 1.7 trillion barrels is almost 20 times the estimate in the early 1950s — and new resource-holding countries have risen to prominence. Canada and Venezuela, which did not merit separate wedges in 1951, now have respectively about 10% and about 18% of global reserves, because of their heavy oil deposits. The US has dropped right back from 27% of global reserves in 1951 to 4% today, despite the transformation of its industry by the tight oil boom over the past 15 years. The Middle East, however, retains the pre-eminent position that it held 70 years ago: it accounted for 52% of global reserves in 1951, and still accounts for about 48% today.

Estimates of global oil reserves, 1951 – BP’s Statistical Review of World Energy