ESG Investing

Supreme Court Ruling Clips EPA’s Wings but Boosts Carbon Capture Technology

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The Environmental Protection Agency (EPA) has sought to establish and enforce US pollution standards since 1970, in that time navigating many debates and challenges to its power and policies. A major victory for those in opposition came on June 30: the US Supreme Court, by a 6-3 vote, altered the ability of the EPA to regulate carbon dioxide emissions from the electric utility industry.

Although the ruling represents a fresh roadblock to President Joe Biden’s goal of halving greenhouse gas emissions by 2030, it does give proponents of carbon capture technology a boost. Here’s how.

Piecemeal Pursuit of Emissions Targets

In this summer’s Supreme Court decision, the majority of justices said that the EPA was not granted the authority to broadly regulate the power industry’s carbon emissions in the Clean Air Act, passed in 1970. The ruling forbids such wide-ranging initiatives as a national cap-and-trade program, arguing that this falls under Congressional responsibilities.

The EPA may nonetheless regulate emissions at the plant level, but only narrowly and by standards based on available options at individual power plants. This could include improving efficiency measures, for example, as well as restricting pollutants such as soot, mercury, and nitrous oxides at coal-burning power plants. Carbon capture technology could play a key role in this.

In the EPA’s new reality, individual power plants may work to improve their coal-burning efficiency, change their fuel-source mix, and capture the carbon they produce.

Carbon Capture Opportunities

According to EPA data, electric generation accounts for 25% of the nation’s greenhouse gas emissions, trailing behind only the transportation sector (27%). To effectively reduce utility sector emissions, the Columbia Climate School concluded that the entire industry must actively convert to renewable energy sources alongside energy efficiency efforts by large power consumers.

Absent that—in the EPA’s new reality—individual power plants may work to improve their coal-burning efficiency, change their fuel-source mix, and capture the carbon they produce before it’s released into the atmosphere.

Of those three options, carbon capture technology holds the most promise for materially reducing carbon emissions. However, it has had little traction in the utility industry, largely due to the expense involved in retrofitting existing coal-burning plants. For example, the first US coal-plant carbon capture and storage project, opened in 2017 at an NRG Energy facility near Houston, shut down in August 2020 due largely to economic factors.

S&P Global counts six carbon capture and sequestration projects in the design phase at US-based coal plants; however, none are in production. Some relief may come from the recently signed Inflation Reduction Act, which includes per-ton tax credits for carbon buried by factories or removed from the air. However, oil and gas producers are the most likely to benefit in the near term, as they direct captured carbon dioxide into active drilling sites to enhance output.

Concerns Grow That Limits Won’t Stop at EPA

Seemingly every Supreme Court ruling is parsed for clues into how the underlying thinking may play out in other matters. In the wake of the June 30 EPA decision, many anticipate a rising anti-regulatory tide, with the US Securities and Exchange Commission’s nascent ESG and climate disclosure rules among the top targets.

Conversely, Congress could be emboldened by the apparent restoration of some of its responsibilities and keep passing legislation such as the landmark Inflation Reduction Act, which designated $369 billion for carbon-cutting actions. As always, the path government action on climate change and congressional regulation takes will largely depend on the outcome of elections this year and in 2024 as well as the support of impact investors.

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