SCOTUS overturns Chevron deference doctrine: What does it mean for the energy sector?

On June 28, 2024, the Supreme Court decision in Loper Bright Enterprises v. Raimondo case overturned the Chevron deference doctrine, a 1984 rule that directed lower courts to defer to agencies' "reasonable" interpretation of "ambiguous" federal laws. The Chevron deference doctrine presumes that Congress delegates authority to the governing agency to interpret federal statutes and that agencies are better suited than courts to make policy judgments given their expertise. 

The 6-3 decision to overturn the Chevron deference doctrine has implications for the energy industry, such as: 

• Increased legal challenges: States and corporate entities now have a stronger legal basis to challenge federal environmental regulations. Since courts will not necessarily defer to agency interpretations, challenges can focus on whether the regulation itself aligns with the underlying law. 
• Slower regulatory process: Knowing regulations may face more legal scrutiny, agencies may be more cautious in developing new rules. This could lead to a slower pace of rulemaking in the energy sector. 
• Shifting power: The decision removes some power from federal agencies and places it with the courts. This could make it harder for agencies to consider factors like climate change or conservation when evaluating permits or leases for oil and gas projects. 
• Uncertain impact on existing regulations: While the ruling does not automatically overturn existing regulations established under Chevron deference, it could influence how courts oversee future challenges to those regulations. 
• Increased emphasis on state regulations: States may look to fill the void left by weaker federal agency authority by enacting their own regulations in areas that lack sufficient oversight. This could lead to a patchwork of state regulations with varying standards and requirements. 

Overall, the overturning of Chevron deference creates a more uncertain regulatory landscape for the energy industry. Specifically, the loss of the Chevron deference makes the following climate and energy regulations more vulnerable to legal challenges:  

• FERC's PURPA Solar Decision & Transmission Authority (Order 1920): The first energy case (EEI et al. v. FERC et al.) vacated by the overturning of the Chevron deference is the D.C. Circuit ruling upholding FERC’s decision to grant a Montana solar and battery facility Qualifying Facility status under the Public Utility Regulatory Policies Act (PURPA). PURPA allows qualifying generating facilities the right to interconnect to the grid and requires utilities to purchase energy and capacity at “avoided cost.” Renewable developers operating in regulated markets rely on PURPA as a backstop to secure financing and build new projects. 

In addition, the recently approved transmission order may be subject to new legal risks, as the courts previously deferred to FERC under the Chevron doctrine, upholding FERC's jurisdiction over transmission planning and cost allocation. 

• SEC's Climate-Related Disclosures Rule: Pending in the 8th Circuit, the SEC will need to demonstrate a strong basis in existing securities laws to justify the new disclosure requirements. Without the Chevron deference, the court may be more likely to strike down the rule if they believe the SEC is exceeding its authority. 
• EPA's Power Plant Rules and Light and Heavy-Duty Vehicle Emissions Standards: Numerous stakeholders have challenged these regulations at the D.C. Circuit Court of Appeals. While these rules are threatened, the EPA has moved away from relying heavily on Chevron deference, given prior legal challenges to EPA's exercise of their authority to regulate greenhouse gas emissions under the Clean Air Act. 

The outcome for specific regulations will depend on how courts interpret the relevant environmental laws in the absence of Chevron deference. To learn more about how this Supreme Court decision may impact your energy and decarbonization strategy or to talk to a Trio policy expert, please contact Shannon Holzer at shannon.holzer@trioadvisory.com. 

Background:  

Chevron deference doctrine is a principle in U.S. law that gives weight to a federal agency's interpretation of a law that the agency enforces. It is based on the 1984 Supreme Court case Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., a case dealing with the U.S. EPA’s interpretation of the term "stationary source" under the Clean Air Act. 

The key premise is that courts should defer to an agency's interpretation of a law if the law is ambiguous, and the agency's interpretation is reasonable. The court reviews the law and the agency's interpretation in a two-step process: 

1. Is the law clear? If the law clearly addresses the issue, the court enforces that meaning, regardless of the agency's interpretation. 
2. Is the agency's interpretation reasonable? If the law is ambiguous, the court defers to the agency's interpretation if it is a reasonable way to understand the law. This deference reflects the idea that government agencies often possess specialized knowledge and experience in applying complex laws.