This entry of Machine Readable is by Sharon Reishus, an independent strategic advisor in the North American energy sector and one of Halcyon's formal advisors. Previously, Ms. Reishus was a senior research director at IHS CERA (formerly Cambridge Energy Research Associates), Chairman of the Maine Public Utilities Commission, and in her early career as an intelligence analyst, served as a Presidential briefer in The White House Situation Room.

As we’ve written before, accelerating the energy transition (changing our energy sources) and decarbonization (changing our industrial processes and business models) more broadly is an information problem, a capital deployment problem, a geographic problem, and a physical infrastructure problem. But it also is very much a policy problem as well.

Depending on where you sit within the energy industry, understanding forthcoming policy and regulation at a local, state and federal level can be anywhere from “just enough to be annoying” to your full-time job. Sometimes it’s a full team’s job, and sometimes it’s multiple teams’ jobs. 

Not only is the language of these policies dense and tough to parse, but tracking the rulemaking processes can be opaque and inconsistent from one jurisdiction to another. Those who make their living following these rules rely heavily on established precedent to provide clarity and grounding while navigating an ever-changing landscape. 

That’s why the June Supreme Court ruling in Loper Bright Enterprises v. Raimondo was such a seismic event in regulatory circles: it overturned Chevron deference, a 40-year precedent (established in the 1984 Supreme Court ruling in Chevron U.S.A. v. Natural Resources Defense Council) that had previously allowed courts to defer to federal regulatory agencies, like the EPA and FDA, for the interpretation of vague or unclear regulations. This is the first of a two-part series examining the recent Supreme Court ruling on Chevron deference. In this installment, we'll explore the broader implications of this decision. 

While this ruling will affect regulatory processes across many sectors, it holds particular significance for the energy industry due to the complex and evolving nature of energy regulations. We'll explore these energy-specific implications in depth in part two of this series (sign up here to make sure you don’t miss it). 

The Loper Bright decision effectively shifts the responsibility for interpreting ambiguous regulations from agency experts to the unelected federal judiciary. As a result, Congress will now need to draft laws and regulations with greater precision and clarity. While this ruling is new, its implications are expected to be far-reaching, affecting a wide range of federal agencies and having a direct impact on daily life in America and globally.

The reversal of Chevron deference represents a seismic shift in how regulations are interpreted and applied across all industries. This change could lead to increased judicial scrutiny of agency decisions, potentially slowing the regulatory process and creating uncertainty in areas ranging from environmental protection to financial services. 

Some early potential implications include:

1. Increased Judicial Review and Uncertainty

Stricter Scrutiny: Courts will have more authority to review and interpret statutes directly, rather than deferring to agencies like the EPA or DOE. This could lead to different interpretations of regulations aimed at addressing climate change and renewable energy policy. 

Potential for Inconsistent Outcomes: As there is a range of perspectives across the federal judiciary, different courts might interpret statutes in various ways. This could lead to different regulatory outcomes across jurisdictions, potentially creating uncertainty for businesses and investors in the renewable energy sector.

2. Legislative Challenges

Need for Specific Legislation: Congress will need to draft more detailed and specific laws to minimize ambiguities and ensure regulatory actions can withstand judicial scrutiny. This could present challenges in a politically divided environment.

Potential Legislative Gridlock: Achieving consensus on detailed and precise legislation may be challenging, which could affect the timeline for passing new laws related to renewable energy and climate change.

3. Administrative Burden on Agencies

Increased Justification Requirements: Agencies will need to provide more comprehensive justifications for their regulations to withstand potential judicial scrutiny, which could slow down the rule-making process.

More Litigation: There may be an increase in legal challenges to agency rules, leading to higher litigation costs and administrative burdens for agencies like the EPA and DOE.

4. Impact on Innovation and Investment

Regulatory Uncertainty: The increased judicial review and potential for inconsistent interpretations could create a more volatile regulatory environment, making it harder for renewable energy companies to plan for the long term.

Hindered Innovation: Companies might be less willing to invest in new renewable energy technologies or projects if they face an uncertain regulatory landscape.

Investment Caution: Investors could be more cautious, potentially leading to higher financing costs for renewable energy projects due to perceived regulatory risks.

5. Potential Rollbacks of Existing Regulations

Existing Regulations at Risk: Regulations that were previously upheld under Chevron deference could be challenged and potentially rolled back, leading to setbacks in efforts to combat climate change and promote renewable energy.

6. Environmental and Public Health Impacts

Delays in Climate Action: Slower implementation of climate change regulations could delay critical actions needed to reduce greenhouse gas emissions and mitigate the impacts of climate change.

Public Health Risks: Rollbacks or delays in environmental regulations could lead to increased pollution and associated public health risks.

In the month since the reversal of Chevron deference, no state government has started to reverse course on previous renewable energy regulations, however some states had already made significant changes to their approach toward climate change legislation prior to the Chevon reversal. 

Arizona and Tennessee eliminated similar deference standards in 2018 and 2022, respectively. Florida amended Article V of its constitution in 2018 to prohibit judges from deferring to state agencies.

These state-level actions suggest a trend that could accelerate following the Supreme Court’s decision. If states continue to follow this trend, it might lead to a patchwork of regulations where some states might slow down or even roll back their climate initiatives, citing the need for clearer legislative mandates from their legislatures. 

How could this ruling affect the energy transition? Check back next week for part two of this series, which will examine some of the specific regulations that have become vulnerable to rollback, significant modification or extreme delays due to increased judicial review.

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