How Chevron’s fall could remake the energy sector

By Niina H. Farah, Lesley Clark | 07/01/2024 06:46 AM EDT

The Supreme Court ruling could affect federal rules on everything from power plant emissions to electric vehicles.

The Supreme Court building is seen, Wednesday, June 26, 2024.

The Supreme Court building is seen Wednesday. The Supreme Court on Friday tossed out the Chevron doctrine, which had directed courts to defer to agencies' "reasonable" interpretations of ambiguous laws. Alex Brandon/AP

The Supreme Court’s decision Friday to give judges more authority over federal agencies creates new hurdles for the Biden administration as it seeks to promote low-carbon energy and address climate change.

Forty years after the justices first decided Chevron v. NRDC, the high court opted to upend legal doctrine directing courts to defer to agencies’ interpretations of ambiguous laws, as long as the decisions were “reasonable.” Now, courts could have more say in interpreting rules on everything from EPA’s latest effort to curb power plant emissions to the Federal Energy Regulatory Commission’s orders on transmission lines.

“Where agencies appear to be carrying out sweeping and adventurous regulatory efforts to address our most pressing issues, that sort of effort is going to be immediately called into question,” said Joel Eisen, a law professor at the University of Richmond.


The 6-3 decision written by Chief Justice John Roberts came after the court had curbed agency deference in a series of recent rulings, even as the Chevron doctrine continued to be applied in lower courts.

Friday’s decision affected two cases — Loper Bright v. Raimondo and Relentless v. Commerce — and could have wide-ranging implications for a host of energy and environmental rulemakings.

Along with affecting EPA’s power plant rules and FERC orders, the decision could also make it more difficult for the administration to defend its efforts to reduce climate-warming pollution from cars and trucks. It could complicate the already embattled Securities and Exchange Commission’s effort to force public companies to disclose more information about their climate risks.

“In the short run, we expect a significant increase in regulatory litigation, including challenges to existing regulations, ongoing rulemakings and existing precedents,” said Gordon Todd, who co-chairs the regulatory litigation practice group at the firm Sidley Austin.

Sean Donahue, a partner at Donahue, Goldberg & Herzog, said the ruling will create a “cottage industry — more than that, a mansion industry of attacking well-settled policies.”

Legal observers suggested the Chevron rollback also could provide ammunition to Republicans who have targeted rules crafted under President Joe Biden’s massive climate initiative, the Inflation Reduction Act.

In a statement, Vice President Kamala Harris assailed the justices for “reversing a critical precedent that has been on the books for four decades” and accused the court of siding with special interests.

White House press secretary Karine Jean-Pierre said the administration was reviewing the ruling to ensure it could “continue to deploy the extraordinary expertise of the federal workforce to keep Americans safe.”

ESG, oil and gas

The decision comes as a swath of Biden-era initiatives to tackle climate change are being challenged by industry groups and Republican attorneys general. Those include EPA’s rules finalized in April to cut carbon emissions from power plants as well as regulations to bolster electric vehicles.

Michael Drysdale, an attorney specializing in environmental law at Dorsey & Whitney, noted that many regulations were already “square pegs in a round hole” because they rely on the Clean Air Act — which was last revised in 1990, well before greenhouse gases were considered pollutants.

“The fact that the Act wasn’t written with [greenhouse gases] in mind means there’s a lot of areas of ambiguity,” Drysdale said. “There’s a lot of range now for a court to say that ‘I don’t think your interpretation is the best one.’“

Drysdale said Loper Bright “shifts the lever toward ease of a court rejecting the agency’s interpretation.”

With climate change, the Biden administration has enlisted nearly every agency to release rules and Loper Bright “reshapes the legal prospects for the Biden administration’s whole-of-government approach” to the issue, said Kenneth Markowitz, who co-chairs global climate change practice at Akin Gump Strauss Hauer & Feld.

Indeed, one of the first effects of the Supreme Court will likely be on a pending case before the 5th U.S. Circuit Court of Appeals challenging a Department of Labor rule involving investment income.

The Western Energy Alliance — a Denver-based oil and gas organization — and a coalition of Republican attorneys general are challenging the rule’s elevation of environmental, social and governance (ESG) factors in returns for retirees and workers.

The rule, drafted under the Employee Retirement Income Security Act (ERISA), is being challenged as another way to limit financing for oil and gas projects.

Chevron last year played a key role in upholding the rule when Judge Matthew Kacsmaryk of the U.S. District Court for the Northern District of Texas rejected a Republican-led challenge.

In doing so, the Trump appointee invoked the doctrine, writing that the Labor Department’s interpretation of the rule is “supported by its prior rulemakings.”

Republican states that challenged the rule had argued that Chevron “should be limited or overruled,” and Kacsmaryk wrote that their objections were “well-taken.”

But, citing another case in a footnote, Kacsmaryk added he would continue to “apply Chevron in appropriate circumstances until and unless it is overruled by our highest Court.”

With Friday’s decision, “you’d have to guess whether he would uphold that rule,” said David Doniger, senior attorney at the Natural Resources Defense Council, of the conservative jurist.

“You’re looking at a freer hand for judges of all stripes,” Doniger said. “But the ones that worry us are the radical activist conservative judges who want to protect the polluters and the powerful.”

The decision by Kacsmaryk is now on appeal at the 5th Circuit.

Kathleen Sgamma, president of the Western Energy Alliance, said “that case is looking kind of like a slam dunk now” for her group and red states.

FERC challenges

At FERC, Republican attorneys general and other opponents are currently raising objections to the agency’s recent landmark rule on transmission, known as new Order 1920. That typically is a prerequisite to filing a lawsuit, if the commission does not respond to their concerns.

Issued in May, Order 1920 gave states a larger role in transmission planning and overhauled the way managers of U.S. power grids will plan and pay for electricity expansions.

The U.S. Court of Appeals for the District of Columbia Circuit cited Chevron in upholding FERC’s authority over transmission planning in a 2014 ruling, noted Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School. The court’s overturning of the doctrine thus could give ammunition to potential legal challengers of the agency.

“I suppose parties challenging Order No. 1920 will try to bring the case to another circuit and argue that FERC has no authority to issue any planning rule,” Peskoe said in an email. “Or if the case is in DC, maybe they’ll ask the Court to look at it again now that FERC can’t benefit from Chevron deference.”

Steve Spina, a partner at the firm Morgan Lewis, said there may not be a huge impact on FERC decisionmaking more broadly, particularly for decisions under the Federal Power Act where there is “fairly established jurisdiction” over power sales, transmission and interstate commerce.

“Within those standards, … there are a number of judicial doctrines that have been developed over the years that apply to the work that they do, that’s very specific to what FERC does,” Spina said.

Future rulemaking

Despite Chevron’s demise, a second Biden or Trump administration will still be able to go to court and try to convince judges that their interpretation of a statute is right, said Devin Watkins, an attorney at the Competitive Enterprise Institute, a conservative-leaning advocacy group.

“I think it’s still better for the country in the long run because whatever decision gets made, we’ll have a lot more stability in the law, and that kind of stability is better for the nation,” Watkins said.

The ruling also means agencies will have less flexibility to account for new circumstances, such as improved technology, said Harold Krent, a former Department of Justice staffer who recently served in the Office of Management and Budget under Biden.

“How much of a practical difference it will make is unclear, but once a court reaches a decision it’s ballgame over,” said Krent, a law professor at the Chicago-Kent College of Law.

He noted the initial Chevron case involved the agency updating its interpretation of a law because of new technology.

“There’s a benefit for that kind of updating, but agencies will no longer be able to do that,” he said. Instead, he said, agencies would have to wait for Congress to address the issue.

Krent said such permanence is likely to make agencies more cautious in rulemaking. But he said he doesn’t believe the reversal will cause as much upheaval as predicted, noting that federal agencies have seen only a modest uptick in rules upheld since Chevron.

“The agencies won some more cases, but not as many as you would have expected,” he said.

Previous cases that relied on Chevron will remain in place, Roberts wrote.

Eisen, of the University of Richmond, called it “heartening” that the court did not invalidate 40 years of decisions based on Chevron, or Chevron itself.

Still, it remains to be seen the extent to which such decisions will remain valid, said Todd.

More immediately, newly enacted directives that don’t have an implicit green light from Congress could be at particular risk.

Still, observers noted that federal agencies have been anticipating the court’s ruling for months and have been working to craft rules that do not rely on Chevron. The administration has also used as a guideline the court’s 2022 ruling in West Virginia v. EPA that put brakes on EPA’s ability to regulate the power system.

Agencies like EPA are going to be “more cautious, more timid” when it comes to writing regulations, said Sam Sankar, senior vice president of programs at Earthjustice. “They are going to be nervous that they are going to be second-guessed right out of the gate by conservative judges.”

This article also appears in Climatewire.