Respect for Chevron is dead, and US climate action hangs in the balance

In a landmark ruling, the U.S. Supreme Court overturned the long-standing “Chevron deference” rule in its decision Loper Bright Enterprises v. Raimondo. The ruling was not specifically about energy or climate policy. But its implications for U.S. decarbonization are profound.

The ruling creates profound complications for the Joe Biden administration’s energy and climate agenda. But it also underscores their implications for the upcoming presidential election.

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Death of respect

The groundbreaking 1984 ruling in the case Chevron USA, Inc. v. Natural Resources Defense Council focused on the prerogative of federal agencies to interpret existing—and potentially decades-old—federal laws. Under the precedent established as “Chevron deference,” agencies were given broad latitude to interpret federal laws if they were unclear or ambiguous on a particular issue. Chevron deference has proven valuable to administrations of all political persuasions for forty years.

The end of deference marks a monumental shift in regulatory authority, moving away from agencies and their technical experts — who are now entitled to only “deferential treatment” — and toward hundreds of federal judges sitting across the country.

Judges are empowered to arbitrate if and when a statute is ambiguous. In doing so, they determine whether an agency’s interpretation of authority—as expressed in the agency’s regulations—is valid. This result creates a more complex legal system surrounding any regulatory intervention, potentially creating a patchwork of interpretations across the ninety-four U.S. circuits.

This development has implications for any future administration. Regardless of the outcome of the November election, both candidates must confront the new realities of enacting their energy and climate visions without respect for Chevron.

Rejecting the net zero rule?

For the Biden administration, the ruling undermines its sweeping regulatory efforts to decarbonize the entire economy. Already, key agencies like the Environmental Protection Agency (EPA) and the Securities and Exchange Commission likely anticipated that this court could end its deference to Chevron by adjusting its recently finalized rules accordingly.

But the Biden administration’s signature regulations could now be challenged in whole or in part for straying too far from the letter of their fundamental rights. If so, any federal judge could rule against this perceived overextension of the agency’s statutory authority.

The fate of the EPA’s regulation of fossil-fuel power plants will be a litmus test. Finalized last April, it is expected to be widely debated and ultimately reach the Supreme Court. Democratic leaders anticipated this by reaffirming in the Inflation Reduction Act (IRA) of 2022 that greenhouse gases, including carbon dioxide, are air pollutants, giving the EPA explicit authority to regulate them.

However, this amendment to the act does not necessarily shield the EPA from scrutiny over how it regulates the newly designated air pollutant — for example, by encouraging changes in the mix of energy production, implementing regulations at the power plant level that were not explicitly set forth in the original Clean Air Act, or, most recently, by mandating the implementation of carbon capture.

A series of recent Supreme Court rulings, from West Virginia vs. EPA and the suspension of the “good neighbor rule” to extend the deadline for challenging federal regulations suggests that the justices view the EPA’s authority as much more limited than the Biden administration.

Most importantly, Drifter The ruling has its own limitations. According to the majority opinion, it will not apply retroactively, meaning previously decided cases involving agency compliance cannot be reopened. Perhaps even more important, the ruling applies specifically to the federal government, not local, state or provincial governments.

Even if the EPA and other agencies find themselves limited to strictly interpreting their statutory authority, state regulations—including clean energy and renewable energy standards—cannot be challenged on that basis. On the contrary, state attorneys general could use the end of Chevron’s concessions as a new opportunity to litigate federal regulations that are inconsistent with their states’ climate and energy goals.

After November, the end of agency compliance could destabilize the Biden administration’s climate agenda in a reelection scenario. The IRA’s implementation is likely to be hampered by lawsuits, and agencies could see newly issued regulations and guidance — such as the controversial Section 45V hydrogen guidance — become fodder for litigation. The same could apply to federal permitting and siting procedures.

Federal agencies may find it less burdensome to simply issue broad, performance-based regulations that establish a universally applicable standard, such as for power plants. They could allow for a wide range of approaches to meeting a given standard, rather than prescriptive regulations mandating specific technologies or fuels. Programmatic approaches under major statutes such as the Endangered Species Act, the Clean Water Act, and others may also become a preferred way to simplify environmental reviews and preclude challenges.

It’s not such an obvious victory

Extensive media coverage of the topic Drifter The decision presented the outcome as an unambiguous gift to Donald Trump’s agenda, particularly in the energy and climate landscape. To some extent, that perspective is justified; the incoming Trump administration will use the ruling as justification to retreat from addressing environmental or climate challenges beyond the bare minimum required by current statutes.

But the agencies have long been criticized by stakeholders and environmental groups for hiding behind Chevron’s deference to weakly enforce environmental laws. The Trump administration, which seeks a say but can no longer rely on Chevron’s deference to protect, may find that such lawsuits have become more numerous and more destructive.

Moreover, not every congressional bill on energy and environmental issues is ambiguous. The Trump administration’s new attorney general would have a hard time arguing that the IRA’s methane fee could not or should not be enforced because the requirement is clearly spelled out in the law.

There are other, more subtle ways to undermine the IRA and other major Biden-era climate gains, should the Trump administration be determined to do so — namely, by doing as little as possible.

The 45V credits are instructive. If a particular Internal Revenue Service provision of this IRA section were challenged in court as being inconsistent with the letter of the original law, it could be struck down in post-Drifter a world in which agency obedience is no longer assumed. The Trump administration, empowered by this development, could simply refuse or delay issuing new guidance if it were not interested in supporting the emergence of a U.S. clean hydrogen industry.

This tactic would undermine investment certainty in large, expensive projects across technologies and fuel types while technically keeping IRAs on the books. But this approach assumes that federal courts will agree with sharply limited interpretations of ambiguity and will not rule against thin regulations or force the Trump administration to issue guidance whether it wants to or not.

If agency compliance is no longer axiomatic, a conservative administration risks similar resistance to interpreting the rules to suit ideological preferences and policy goals. In a post-compliance world, such an administration could face legal challenges, for example, in trying to extend the life of coal-fired power plants, just as a more liberal administration might face challenges in creative attempts to phase coal out of the U.S. energy mix.

An unstable mosaic lies ahead

Essentially, the end of Chevron’s deference marks a new era of volatility in the legal and regulatory landscape for U.S. energy and climate policy. Everyone from project developers and operators to investors and local stakeholders should prepare accordingly.

While federal judges are newly empowered to intervene, the Supreme Court can’t decide every potential dispute in the handful of cases it hears in a given year. As a result, each lawsuit will take years of litigation to reach that level — if at all — making the rulings of lower federal courts more important than ever. The courts’ opinions are likely to differ widely, making the location and timing of the lawsuit crucial to its outcome.

For project developers, this uncertainty adds to the already tortuous U.S. permitting landscape. Depending on which administration is in control after 2024, it is conceivable that environmental and social justice considerations in the context of projects will have less weight than they did in the case of Chevron’s deference. In the future, the agency may be less inclined to promote criteria or guidelines that would allow permit denials based on considerations that are not explicitly set forth in the applicable regulations. Constrained by their statutory bases, agencies may therefore be inclined to make decisions on leases and permits more quickly. However, with fewer creative mitigation tools authorized by their primary statutes, agencies may simply be inclined to issue denials more quickly.

Ultimately, however, the Supreme Court is likely the last port of call for any major future regulation, which means more uncertainty, circuitous timelines for judicial review, and windfalls tied to the winds of political change in the executive branch. This could favor a scenario in which climate action is largely blocked by the courts and Congress is unable to significantly amend or write new laws to clarify the federal government’s exact role in addressing the climate crisis.

This perspective and its consequences could exacerbate social tensions at a time of growing concern about the future of the global climate.

David L. Goldwyn is chairman of the Atlantic Council Energy Advisory Group and a senior extramural fellow at the Atlantic Council Global Energy Center and the Adrienne Arsht Latin America Center.

Andrea Clabough is a research fellow at the Atlantic Council Global Energy Center and a senior associate at Goldwyn Global Strategies, LLC.

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Photo: Corner of the U.S. Supreme Court Facade at Sunset. (Ian Hutchinson, Unsplash, Unsplash License, https://unsplash.com/license)