An appeals court on Tuesday vacated the Trump administration’s primary environmental regulation for electric utilities, sending it back to the Environmental Protection Agency and accusing the agency of “fundamentally” misunderstanding the law.

The court directed EPA to start over with a new plan to regulate greenhouse emissions under federal law. The agency is required to regulate air pollutants, including greenhouse gases, though the incoming Biden administration had said it would strengthen domestic carbon regulations on the books even before Tuesday’s ruling.

Issued unanimously by a three-judge panel on the U.S. Court of Appeals for the District of Columbia Circuit, the ruling is a blow to President Donald Trump on his final full day in office and provides President-elect Joe Biden a legal mandate to draft a new rule to tackle domestic greenhouse gas emissions from the power sector.

EPA did not follow the law in writing the rule in August 2018, the judges wrote, adding that the agency’s rule, called the Affordable Clean Energy, or ACE, rule, relied on a “mistaken reading” of the Clean Air Act.

‘Misconceived the law’

“Because the ACE Rule rests squarely on the erroneous legal premise that the statutory text expressly foreclosed consideration of measures other than those that apply at and to the individual source, we conclude that the EPA fundamentally ‘has misconceived the law,’ such that its conclusion ‘may not stand,’” the court ruled.

The judges directed EPA to “consider the question afresh in light of the ambiguity we see.”

The Trump-era rule was drafted as a replacement for the principal domestic climate regulation of the Obama administration — a regulatory system called the Clean Power Plan, which never went into force after the Supreme Court stayed it in 2016.

“We are disappointed that the panel majority rejected EPA’s well-supported repeal of the Clean Power Plan and its regulation of GHGs from coal-fired power plants in the Affordable Clean Energy Rule,” said Molly Block, an agency spokesperson. “The decision risks injecting more uncertainty at a time when the nation needs regulatory stability,” Block said. “EPA is reviewing the decision and will explore all available litigation options.”

A coalition of dozens of Democratic attorneys general, environmental groups and health organizations, including the American Lung Association, filed the lawsuit in opposition to the rule after it was finalized last year.

Howard Learner, executive director of the Environmental Law & Policy Center, said the ruling removed a barrier to regulating domestic air pollution the Trump administration erected.

“This comprehensive court decision clears away the legal underbrush from the Trump administration’s obstructionism,” said Learner, whose group sued to block the rule.

Richard Revesz, director of the Institute for Policy Integrity at New York University’s law school, a non-partisan group, said EPA’s legal theory has been “unsupportable” and called the erstwhile ACE regulation the Trump administration’s top environmental policy.

“It’s fitting that, on the Trump administration’s last full day in office, the D.C. Circuit forcefully struck down the signature item of its environmental agenda, which has brought enormous harm to the health of the American people, to the environment, and to the competitiveness of our economy,” said Revesz, who wrote a friend-of-the-court brief on the case.

Clear path

With the ACE rule vacated, Michael Regan, Biden’s nominee to be EPA administrator, will be able to shepherd a new domestic carbon regulation rather than being forced to rescind the Trump-era regulation through a public rulemaking period.

The court ruling also likely eliminates the need for congressional Democrats to use the Congressional Review Act to rescind the rule. Once they control both chambers of Congress, Democrats are expected to use the CRA to nullify regulations the Trump administration issued since last spring.

While the Trump administration rolled back or weakened more than 100 environmental and energy regulations from the Obama era, and many of those moves have remained in effect, its attempt to rewrite domestic power regulations was one of its most sweeping changes.

As the first set of carbon-emission standards for power plants, the Clean Power Plan would have cut emissions from that sector by an estimated 35 percent by 2030, from 2005 levels.

While EPA Administrator Andrew Wheeler said the ACE regulation would have lowered emissions by 33 percent over the same time period, most of those gains would have happened without a federal policy from the agency, according to EPA’s own internal projections.

Emissions reductions, from a 2005 baseline, were projected to reach 32 percent by 2030, EPA researchers said in figures released in the ACE rule process.

EPA’s case to back up its ACE rule was based on a narrow reading of federal law that critics said would have allowed for the extension of coal-fired power plants.

The Senate confirmed one of the judges on the case, Justin R. Walker, a protégé of Senate Majority Leader Mitch McConnell, R-Ky., to his post in June.

Walker concurred in part and dissented in part, writing that EPA was “required to repeal” the Obama-era rule but replaced it in the wrong manner.