What Actually Happened in Chevron, by Richard J. Pierce, Jr.

by Guest Blogger — Tuesday, Jan. 23, 2018

Over the last few years, the debate over the Supreme Court’s 1984 opinion in NRDC v. Chevron has morphed from a debate among academics to a near hysterical debate among politicians and pundits who have never read the Court’s opinion and know nothing about the dispute that led to the Court’s opinion. In an effort to bring this debate back to reality, I will provide a brief description of the dispute and its resolution by EPA, the D.C. Circuit and the Supreme Court.

The dispute focused on two related questions. First, what is the appropriate interpretation of the term “stationary source” in the Clean Air Act, i.e., does it refer to each individual piece of combustion equipment that emits a pollutant, or does it refer to an entire plant site. Every institution that addressed that issue began by acknowledging that the term was ambiguous and could support either interpretation.

Second, when can EPA allow a state to apply the “bubble concept” in implementing the provisions of Part D of the Clean Air Act, the part of the Act that requires a firm to obtain a permit from a state agency before it can construct or modify a new source of a pollutant. The bubble concept allows a firm to treat an entire plant site as a source for purposes of determining whether the firm is required to obtain a permit to make changes in the combustion equipment at a plant site. Under the bubble concept a firm can replace old combustion equipment with new combustion equipment without first obtaining a permit if the net effect of the changes in combustion equipment does not result in an increase in emissions from the plant.

Those two questions are inextricably intertwined. A firm can rely on the bubble concept if but only if EPA and the state in which the plant is located interprets source to refer to an entire plant site.

Before EPA issued the rule that was subject to the dispute that led to the Chevron decision, it had allowed states to use the plant site interpretation of source in implementing the new source permitting system in any “PSD” area, i.e., an area that already complies with ambient air standards. Thirty-eight states chose to use the plant site interpretation. By contrast, EPA required states to use the individual combustion equipment interpretation in implementing the permitting system in any non-attainment area. Thus, a firm could apply the bubble concept in a PSD region if the state in which a facility was located chose to use the plant site interpretation, but a state could not allow a firm to apply the bubble concept to a facility located in a non-attainment area.

The D.C. Circuit had previously issued opinions in which it upheld both EPA’s decision to allow states to use the plant site interpretation in PSD areas and its decision to require states to use the individual combustion equipment definition in non-attainment areas. In separate opinions, the court had reasoned that it made sense to allow states and firms to use the bubble concept when an area is already in compliance with ambient air standards and EPA’s task is to avoid any increase in emissions, and that it made sense for EPA to forbid states and firms from using the bubble concept in non-attainment areas where EPA’s task is to reduce emissions.

At this point, a Presidential election intervened. The economy had not performed well during the Carter Administration. The U.S. experienced high inflation coupled with low economic growth. Ronald Reagan campaigned against President Carter’s re-election by emphasizing the poor economic conditions and attributing them to excessive federal regulation. He promised that, if elected, he would reduce the scope of federal regulation and restore to states some of the regulatory discretion that the Carter Administration had taken from them.

After his election, President Reagan appointed Anne Gorsuch to be Administrator of EPA. Gorsuch shared Reagan’s view that the economy would improve if the federal government reduced its regulatory role and gave states more discretion to adopt regulatory approaches that would allow the economy to grow.

Gorsuch identified allowing states greater discretion to apply the bubble concept to new source permitting as a particularly important way of making regulation of air quality more compatible with economic growth. Everyone recognized that: (1) unusually low levels of investment in capital assets was among the major causes of the disappointing performance of the economy; (2) the cost and delay attendant to applying for a new source permit was one of the causes of the low level of investment in capital assets; and, (3) application of the bubble concept to the permitting system had the effect of reducing its adverse effects on investment by allowing firms to make large investments in replacement of old combustion equipment with new combustion equipment without first obtaining a permit. That was why EPA had decided to allow states to use the bubble concept in permitting decisions in PSD areas.

Under Gorsuch’s leadership EPA proposed to allow states to extend the bubble concept to permitting in non-attainment areas. EPA reasoned that such an extension would both allow increased investment in capital assets and reduce emissions, at least if it was coupled with the safeguards that EPA attached to application of the bubble concept in non-attainment areas.

EPA received 81 comments on its proposal. No one disagreed with EPA’s reasoning with respect to the desirable economic effects of the proposal, but some commenters opposed the proposal on the basis of the argument that allowing states to use the bubble concept in non-attainment areas would interfere with EPA’s goal of reducing emissions in those areas. Supporters of the proposal agreed with EPA’s reasoning that application of the bubble concept would reduce emissions because it would allow many firms to replace old combustion equipment with new combustion equipment that is almost invariably more efficient and less polluting. Opponents argued that EPA could reduce emissions more effectively in non-attainment areas by not allowing states to adopt the bubble concept, thereby encouraging states to refuse to issue permits for new or modified sources, defined as individual pieces of combustion equipment.

EPA issued its new rule that allowed states to use the bubble concept in non-attainment areas. It responded to the critical comments in detail and explained why it continued to believe that its decision to allow states to use the bubble concept in non-attainment areas would simultaneously further three goals: (1) improve the performance of the economy by increasing investment in capital assets; (2) reduce emissions in non-attainment areas by allowing firms to replace old, inefficient combustion equipment with new, more efficient and less polluting combustion equipment; and, (3) further the cooperative federalism model on which the Clean Air Act is based.

In an opinion written by then-Judge Ruth Ginsburg, a panel of the D.C. Circuit vacated the EPA rule. The panel concluded that the decision to allow states to adopt the bubble concept in non-attainment areas was inconsistent with the law of the circuit. The court interpreted its past opinions as holding that “the bubble concept . . . is mandatory for . . . programs designed merely to maintain existing air quality; it is inappropriate . . . in programs designed to improve the quality of the ambient air.”

That set the stage for Justice Steven’s opinion for a unanimous Supreme Court that reversed the D.C. Circuit and upheld the EPA rule. Justice Stevens did so by first agreeing with EPA and the D.C. Circuit that the statutory term “source” is ambiguous. He then announced and applied the famous Chevron test and upheld as permissible and reasonable EPA’s interpretation of the term.

Justice Stevens emphasized that the choice of which interpretation to adopt, and thus, the decision whether to extend or not extend the scope of the bubble concept, was a policy choice that was “more properly addressed to legislators or administrators than to judges.” Since the legislature had not addressed the issue, he upheld the Administrator’s interpretation because “the regulatory scheme is technical and complex, the agency considered the matter in a detailed and reasonable fashion, and the decision involves reconciling competing policies.”

It is easy to see how some judges and scholars can criticize Justice Steven’s relatively simple deferential approach to the question on the basis of his belief that it should be treated as an issue of policy to be resolved by an agency. Any scholar or judge can express and defend a preference for then-Judge Ginsburg’s more legalistic approach to the question on the basis of her belief that it should be treated as an issue of law or for then-Judge Breyer’s argument that the traditional Skidmore test provides both a more nuanced and a more definitive means of resolving such disputes.

It is hard to see how that interesting academic debate can be transformed into the kind of heated emotional debate that we hear in the Halls of Congress and read in books and editorials written by people who know nothing about the dispute that produced the Chevron opinion. The fate of the nation does not depend on whether the modern Supreme Court adopts Justice Steven’s approach, then-Judge Ginsburg’s approach, or then-Judge Breyer’s approach when Congress has not addressed a policy issue that some institution must resolve.

Richard J. Pierce, Jr. is the Lyle T. Alverson Professor of Law at George Washington University Law School.

Cite As: Author Name, Title, 36 Yale J. on Reg.: Notice & Comment (date), URL.

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