The Obama Administration appeared prepared to abandon a major portion of its initial greenhouse gas regulatory scheme in oral argument before the Supreme Court today. Solicitor General Donald Verrilli, defending a series of EPA rules, sought to preserve regulations reaching large industrial sources by offering up a more aggressive gambit by the agency that could potentially reach millions of smaller businesses, apartment buildings, and schools.

The problem, as EPA itself has conceded, is that EPA’s regulatory approach renders the Clean Air Act’s Prevention of Significant Deterioration program “unrecognizable” to the Congress that enacted it. That’s because GHGs are emitted in far greater quantities than traditional pollutants and PSD requirements are based on the quantities of emissions, with facilities emitting more than either 100 or 250 tons per year of any applicable pollutant being subject to an expensive pollution-control regime. For GHGs, those tonnage triggers would transform the PSD program from one aimed at only the nation’s largest sources of emissions. For that reason, after deciding to use PSD to regulate GHGs, EPA then issued a “tailoring rule” to avoid the absurd result by discarding the numerical thresholds that are specified in the law and adopting new ones thousands of times larger.

That decision was under heavy scrutiny at oral argument. Businesses challenging the rule, represented by Peter Keisler, argued that the PSD program is structured to address local air quality concerns and therefore does not extend to emissions of carbon dioxide. PSD’s triggers, monitoring requirements, requirement for local air-quality analysis, and administration by 90 separate state and local permitting authorities all demonstrate that Congress did not intend the statute to address anything like GHG, Keisler argued. So while the statute does apply to “any air pollutant,” that term cannot be interpreted to reach pollutants that cause these other statutory requirements to fail

As a fallback position, Keisler suggested that the Court might distinguish between PSD triggering—that is, whether a given facility is subject to PSD at all—and the requirements that a facility faces once it is required to obtain a permit. Under this view, GHG emissions could not trigger PSD requirements—because triggering is what forced EPA to scrap the statute’s numerical thresholds—but if a facility is subject to PSD due to other emissions, it would then have to control its GHG emissions.

Without endorsing this approach, the Solicitor General acknowledged that it would allow EPA to reach 83 percent of emissions, versus 86 percent under the more aggressive approach, without compromising its administration of the Clean Air Act or requiring it to rewrite the statute.

The Court was also receptive, with Justices Breyer and Sotomayor—seen as friendly to the agency’s position—questioning why it staked out a far more difficult position for so little benefit.

At bottom, the case comes down to the division of power between Congress and the executive branch. As Justice Scalia forcefully explained, Congress sought to withdraw all discretion from EPA as to which facilities would be subject to PSD requirements, while giving it some discretion, in the capacious term “pollutant,” to determine which types of emissions would be regulated. Justice Breyer, on the other hand, argued with equal force that agencies should have the power to make exceptions to avoid absurd or even inefficient results that would otherwise be mandated by statutory text—but even he seemed troubled by EPA’s view that the statute’s use of the term “pollutant” necessarily obligated it to regulate GHGs.

Justice Kagan, for her part, tooks issue with Justice Scalia’s view that the term “pollutant” might be subject to any interpretation that excludes GHGs—despite that EPA itself has adopted a number of different definitions of the term in different programs.

The fundamental problem with the EPA’s position, though, is one that Justice Kagan identified: its solution here gives it nearly infinite discretion to do as it pleases by altering the terms of statutory law to meet its regulatory priorities. The Chief Justice, in turn, questioned whether any “intelligible principle” from Congress guides the agency when it sets its own agenda, and the limits on its own discretion, in this fashion.

The best indication of the agency’s overreaching may be the Solicitor General’s concession that the program would work, just about as well, if the Court strikes down its centerpiece, EPA’s tailoring. That the Administration’s lawyers see this as a sensible compromise only reflects the extent to which the Obama Administration, and its EPA in particular, have stretched the bounds of agency authority in the face of a lack of authorization or express limitations by Congress.

Playing fast and loose with the law has consequences. It’s anyone’s guess whether the Court will accept the proffered compromise, which still does great violence to the textual requirements of the Clean Air Act—particularly PSD’s focus on local air quality. And according to the Solicitor General, there may be no need: EPA, he said, could issue similar regulations under a different Clean Air Program, but didn’t want to because it would be more burdensome and time-consuming for the agency. That point might carry greater weight if EPA hadn’t instead attempted a massive power-grab and then spent the next four years defending actions that may well be struck down as contrary to law.

Disclosure: The author represented the State of Texas, a challenger in this case, before the D.C. Circuit.