On September 4, 2018, the Massachusetts Supreme Judicial Court (SJC) issued an opinion in New England Power Generators Association v. Department of Environmental Protection (Case number SJC-12477; --- N.E.3d ---, 2018 WL 4224463) that upholds the “Cap Regulation” (310 Code Mass. Regs. § 7.74), which imposes declining limits on carbon dioxide (CO2) emissions from fossil-fuel fired power plants in Massachusetts. The Cap Regulation was challenged by the New England Power Generators, who argued that: (1) the regulation exceeded statutory authority, (2) the regulation would actually cause an increase in electricity sector greenhouse gas (GHG) emissions, and (3) the regulation would impose limits well beyond the year 2020 and a “sunset provision” in the underlying law bars post-2020 regulation. The SJC rejected each of these arguments and affirmed the validity of the Cap Regulation.

The Cap Regulation

The Cap Regulation was adopted in 2017 by the Massachusetts Executive Office of Environmental Affairs and the Massachusetts Department of Environmental Protection (MassDEP), pursuant to the Massachusetts Global Warming Solutions Act (St. 2008, c. 298). The Global Warming Solutions Act (GWSA) imposes certain statewide GHG emissions targets and requires MassDEP to establish declining annual aggregate emission limits for sources or categories of sources that emit GHGs. Prior to 2017, Massachusetts relied primarily on its participation in the Regional Greenhouse Gas Initiative (RGGI), along with certain other programs, to achieve GHG emissions targets and meet its obligation to establish annual aggregate emission limits on the power generation sector, as established by the GWSA.

That changed dramatically in early 2016, when the SJC issued its opinion in Kain v. DEP (474 Mass. 278), a case that was brought by a coalition of citizens groups and individuals alleging that MassDEP had not issued the GHG reduction rules that were mandated by the GWSA. The Kain decision concluded that the agency had in fact not met its statutory obligations and compelled MassDEP to adopt regulations that “impose a limit on [GHG] emissions that may be released, limit the aggregate emissions released from each group of regulated sources or categories of sources, set emission limits for each year, and set limits that decline on an annual basis.” As a result of that decision, MassDEP proposed and adopted several GHG reduction rules, including the Cap Regulation.

The Cap Regulation requires fossil-fuel fired power plants in Massachusetts to lower GHG emissions by nearly 80% by 2050 (as compared to a 2018 baseline). To help accomplish this, the Cap Regulation establishes a market-based trading program, with emissions allowances allocated in 2018 and auctions beginning in 2019. Currently, there are 21 fossil-fuel fired power plants in Massachusetts subject to the Cap Regulation. While MassDEP believes that the Cap Regulation will “compliment” RGGI and not impose significant new economic impacts, it will nonetheless impose significant new compliance obligations on fossil-fuel fired power plants in Massachusetts.

The Lawsuit

On September 11, 2017—shortly after the adoption of the Cap Regulation—the New England Power Generators Association and other plaintiffs filed a lawsuit in Massachusetts Superior Court challenging the Cap Regulation. The Plaintiffs’ main argument was that MassDEP acted unlawfully when it promulgated the Cap Regulation because, according to the Plaintiffs, the GWSA was not intended to encompass the electric generating sector.

Although the Plaintiffs filed their case in Superior Court, single justice of the SJC transferred the case, following which the case was reported to the SJC for direct consideration. Then, on February 9, 2018, the single justice sent the case to the full SJC for adjudication on the merits. Briefing concluded in early 2018, with the Conservation Law Foundation filing an amicus brief in support of the Cap Regulation.

The Decision

The SJC considered—and rejected—all three arguments offered by the Plaintiffs in opposition to the Cap Regulation.

First, the SJC rejected Plaintiffs’ argument that the GWSA does not authorize the MassDEP to regulate electricity generators under the Cap Regulation. This argument hinged on the interpretation of GWSA Section 3(c), which regulates the electricity sector, and Section 3(d), which broadly commands the MassDEP to impose declining GHG caps on “sources or categories of sources” that emit GHGs. The SJC disagreed that the express regulation of Section 3(c) precluded the MassDEP from also regulating the electric sector under Section 3(d). In reaching this conclusion, the SJC relied heavily on its prior decision in Kain, which interpreted the GWSA as requiring further regulation of GHGs and specifically noted that the Regional Greenhouse Gas Initiative (which is referenced by Section 3(c)) is, alone, insufficient to achieve statutorily-mandated GHG emission reduction goals. In doing so, the SJC concluded that the GWSA “is designed to go well beyond the business as usual in terms of reducing emissions: to upend, rather than to uphold, the status quo. The electric sector is no exception.” Working from that premise, the SJC next examined the MassDEP’s application of the GSWA when adopting the Cap Regulation.

Notably, the SCJ also afforded “substantial deference” to MassDEP’s interpretation of the GWSA. In doing so, the SJC re-affirmed the administrative deference standard set forth in Goldberg v. Board of Health of Granby, 444 Mass. 627 (2005) for the evaluation of agency regulatory actions, which directs courts to defer to agency interpretations of statutory obligations when (1) a statute does not speak directly to a question and (2) the interpretation offered by the agency “may be reconciled with the governing legislation.” This standard is arguably more deferential than federal Chevron deference, which generally requires agency interpretations to be “reasonable.”

Under Goldberg, and as the SJC affirmed in New England Power Generators, courts in Massachusetts engage in a two-step analysis when assessing an agency’s regulations. First, they evaluate whether the Legislature has spoken with certainty, and if so they “give effect to the Legislature’s intent.” Goldbergat 632-633. Second, if the Legislature has not spoken directly, the courts determine whether the agency’s interpretation may be reconciled with the legislation. In this second step, the courts will “afford substantial deference to agency expertise, and will uphold a challenged regulation unless a statute unambiguously bars the agency’s approach.”

Applying that standard, the SJC found in New England Power Generatorsthat the Legislature had spoken clearly in establishing MassDEP’s obligations, the Legislature had not adopted an implicit exclusion of the power sector from these requirements, and to the extent there was any ambiguity in the interplay between Section 3(c), which addresses the power generation sector, and Section 3(d), which requires MassDEP to enact declining annual aggregate emission limits, MassDEP’s interpretation of these provisions as complimentary and not exclusive was reasonable given the broad command of Section 3(d).

Second, the Plaintiffs also argued that the Cap Regulation was arbitrary and capricious as it may result in some emissions leakage to other states (suggesting that high-emitting power generation would simply move from Massachusetts to neighboring states). Plaintiffs argued that the resulting leakage would undermine both the Cap Regulation and the purpose of the GWSA. The SJC rejected this line of attack, agreeing with MassDEP’s assertion that the Cap Regulation will work in tandem with the new state Clean Energy Standard to both minimize leakage and incentivize zero-emitting energy development both in Massachusetts and neighboring states. Again, the SJC employed its substantial deference standard, deferring to the projections of future energy imports offered by MassDEP, Massachusetts Department of Energy Resources and their executive office.

Finally, the Plaintiffs argued that the “sunset” provision in the GWSA invalidates any emission limits beyond 2020 and that the Cap Regulation violates this provision because it would conflict with the statutory time limitation. The sunset provision requires the MassDEP to adopt GHG regulations pursuant to Section 3(d) which “shall take effect on January 1, 2013, and shall expire on December 31, 2020.” Interpreting that provision under the first step in its two-step statutory analysis, the SJC reasoned that the plain meaning of the statute required only previously-adopted regulations to expire as of December 31, 2020, and did nothing to prevent the adoption of future regulations by MassDEP. The SJC made short work of this argument, noting that the Plaintiffs’ position “would create an absurd result” as it would result in a statute that created “a long-term 2050 Statewide emissions goal without, after December 31, 2020, any tools to reach it.”

Key Take-Aways

The New England Power Generators decision affirms that MassDEP may regulate GHG emissions from power plants, beyond what RGGI or other laws already require. As a result, the Cap Regulation is alive and well and is authorized to coexist with the RGGI program. The SJC also solidified its interpretation of the GWSA under the Kain decision, creating a line of cases requiring or upholding the GHG reduction requirements in that statute, and confirming the SJC’s view of the GWSA as a statute designed to “upend, rather than to uphold, the status quo.”

The New England Power Generators decision also has broad implications beyond GHG emissions, given the SJC’s re-affirmation of the administrative deference doctrine in Massachusetts state court. This is a notable development, given the current debate regarding the continuation of Chevron-style deference at the federal level, and the likelihood that the U.S. Supreme Court will revisit that issue in the near term. Whatever happens to federal law, the SJC has signaled that deference is alive and well in Massachusetts state court.

Beveridge & Diamond’s Air and Climate Change practice group helps private and municipal clients navigate all aspects of compliance with Clean Air Act regulations for criteria pollutants, hazardous air pollutants, greenhouse gases, and permitting processes. For more information, please contact the authors.