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.

Last week we examined the potential implications of the June Supreme Court ruling in Loper Bright Enterprises v. Raimondo, which overturned Chevron deference, a 40-year precedent that had previously allowed courts to defer to federal regulatory agencies for the interpretation of vague or unclear regulations. The Loper Bright decision effectively shifts the responsibility for interpreting ambiguous regulations from agency experts to the unelected federal judiciary

Loper Bright holds particular significance for the energy industry due to the complex and evolving nature of energy regulations. This week, we'll explore both some of the broader energy and climate-related regulations as well as some specific renewable energy-related regulations that are now vulnerable to rollback, significant modification or extreme delays due to increased judicial review:

1. Power Plant Emissions Regulations

Background: The EPA's authority to regulate greenhouse gas emissions from power plants has been a contentious issue, with the Clean Power Plan and Affordable Clean Energy rule both being challenged and ultimately vacated. 

Chevron Deference Role: The EPA's authority to regulate greenhouse gas emissions under the Clean Air Act was initially upheld because courts deferred to the agency's expertise.

Vulnerability: Without Chevron deference, the EPA's ongoing efforts to craft new regulations for power plant emissions could face significant challenges, potentially requiring more explicit congressional authorization.

2. Mercury and Air Toxics Standards (MATS)

Background: MATS set limits on mercury and other toxic emissions from coal and oil-fired power plants.

Chevron Deference Role: The EPA's interpretation of its authority to regulate hazardous air pollutants was upheld by deferring to the agency’s expertise.

Vulnerability: Challenges could arise regarding the EPA's justification for these standards, potentially leading to their weakening or removal.

3. Endangerment Finding for Greenhouse Gases

Background: The EPA’s 2009 Endangerment Finding concluded that greenhouse gasses threaten public health and welfare, providing the basis for regulating GHGs under the Clean Air Act.

Chevron Deference Role: Courts deferred to the EPA’s scientific assessment and expertise in making this determination.

Vulnerability: The finding itself, as well as regulations based on it, could face new legal challenges questioning the EPA's interpretations and conclusions.

4. National Ambient Air Quality Standards (NAAQS)

Background: The EPA sets NAAQS for six criteria pollutants under the Clean Air Act to protect public health and welfare.

Chevron Deference Role: Courts have deferred to the EPA's scientific judgment in setting these standards.

Vulnerability: Without Chevron deference, the EPA's methodology and interpretation of "requisite to protect public health" could face increased scrutiny.

5. Methane Emissions Regulations

Background: The EPA has established regulations to reduce methane emissions from the oil and gas industry, including requirements for leak detection and repair.

Chevron Deference Role: The agency's interpretation of its authority to regulate methane emissions under the Clean Air Act was upheld through Chevron deference.

Vulnerability: These regulations could be contested more effectively, potentially leading to their rollback or relaxation.

What specific regulations related to renewable energy are at risk?

1. Renewable Fuel Standard (RFS)

Context: The RFS mandates that a certain volume of renewable fuel, such as ethanol or biodiesel, be blended into the transportation fuel supply. The EPA administers this program and sets annual renewable volume obligations (RVOs).

Chevron Deference Role: Courts have deferred to the EPA's expertise in setting RVOs and interpreting the statutory requirements for implementing the RFS program.

Vulnerability: Challenges to the EPA’s methodology for setting RVOs could increase, with courts potentially requiring clearer statutory guidance on the agency's authority to adjust these volumes based on economic and environmental factors.

2. FERC Orders on Energy Storage and Distributed Energy Resources (DERs)

Context: FERC has issued several orders aimed at integrating energy storage and distributed energy resources into the wholesale electricity markets (e.g., FERC Order 841 and Order 2222).

Chevron Deference Role: Courts have generally deferred to FERC's interpretation of its authority under the Federal Power Act to regulate these emerging technologies and their participation in wholesale markets.

Vulnerability: These orders, which expand the role of renewables and storage in energy markets, could face heightened judicial scrutiny. Courts might question FERC's authority to issue such orders without explicit congressional approval.

3. Offshore Wind Development Regulations

Context: The Bureau of Ocean Energy Management (BOEM) regulates offshore wind leasing and development. Several U.S. East Coast projects are currently under review.

Chevron Deference Role: Courts have generally deferred to BOEM's expertise in interpreting and applying the Outer Continental Shelf Lands Act for offshore wind leasing and permitting processes.

Vulnerability: Challenges to BOEM’s leasing and permitting processes could increase, with courts potentially requiring more detailed legislative directives to support the agency's actions.

4. Tax Incentives and Subsidies for Renewable Energy Projects

Context: The Internal Revenue Service (IRS) and the Department of the Treasury implement various tax incentives, such as the Investment Tax Credit (ITC) and the Production Tax Credit (PTC), to support renewable energy projects.

Chevron Deference Role: Courts have typically deferred to the IRS and Treasury Department's interpretations of tax code provisions related to these incentives, including definitions of qualifying technologies and calculation methods.

Vulnerability: These incentives rely on interpretations of the Internal Revenue Code that could be challenged more frequently, leading to potential uncertainties in the availability and application of these tax benefits.

5. FERC Order 1000

Context: This order reforms the transmission planning and cost allocation requirements for public utility transmission providers.

Chevron Deference Role: FERC's authority to implement this order was upheld based on its interpretation of the Federal Power Act.

Vulnerability: Challenges could arise regarding FERC's authority to mandate regional transmission planning and cost allocation methods.

So, what’s next?

The overturning of Chevron deference introduces significant uncertainty into the regulatory landscape for energy and climate policy. There are a host of other climate and clean energy regulations at risk, beyond the ten listed here, such as CAFE targets, regional haze rules, and energy efficiency standards.  

In the short term, we can expect:

1. Increased litigation challenging existing regulations
2. Slower implementation of new regulations as agencies seek to bulletproof their rules against legal challenges
3. Potential legislative efforts to clarify agency authority in key areas
4. A shift in regulatory strategy towards more conservative interpretations of statutory authority

Long-term impacts may include:

1. A patchwork of conflicting court decisions across different jurisdictions
2. Pressure on Congress to pass more detailed and specific legislation
3. Increased importance of state-level regulations in areas where federal authority is successfully challenged

Loper Bright suggests that legal teams themselves will need better access to technical subject-matter expertise, both human- and technologically driven, to build stronger cases. The courts themselves may ask for more amicus briefs from technical experts to help them understand complex issues. There could be a push to either train judges on technical issues, or establish new courts that are specialized to allow for judicial appointments of experts as Administrative Law Judges (ALJs).

From a business perspective, corporate money spent on regulatory strategy may have to shift from lobbying to influencing court decisions directly through litigation. Businesses with that technical subject-matter expertise (again, both human- and technologically driven) in-house will have an advantage.

It’s very probable that the net impact here is greater business uncertainty as different courts come to different (potentially contradictory) conclusions. Loper Bright could also create other new challenges: many international agreements depend on US agencies to interpret and apply them - this could setback global efforts to harmonize carbon emissions regulations, AI safety, etc. 

Those of us in the knowledge business know that regulatory uncertainty creates an even more heightened need for information. Quality and velocity become even more imperative. If you’d like to start future-proofing your business with an information platform built specifically to help improve access to energy transition information and data, you know where to find us.

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