Clean energy journalism for a cooler tomorrow

Supreme Court ruling threatens clean energy tax credits and much more

Clean energy advocates are girding for a flood of lawsuits challenging tax-credit policy, EPA climate regulations, and FERC’s new transmission rule.
By Jeff St. John

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Matt H. Wade

The U.S. Supreme Court’s decision last week to overturn the 40-year-old legal precedent known as the Chevron doctrine” will have far-reaching consequences across the federal government. It opens the door to legal challenges for thousands of rules on environment, health care, consumer safety, worker protections, and more — including the Biden administration’s whole of government” push to combat climate change.

Clean energy and environmental groups are now girding for a flood of lawsuits aiming to dismantle federal regulations that limit greenhouse gas emissions and air and water pollution from fossil-fueled power plants, oil and gas pipelines, and cars and trucks. Those challenges may not halt the transition to cleaner energy, these groups say — but they could well make its progress far more uncertain, and potentially more costly. 

Friday’s 63 ruling by the court’s conservative majority overturned the so-called Chevron deference doctrine, in place since a 1984 Supreme Court decision in Chevron U.S.A. v. Natural Resources Defense Council, which determined that judges should defer to federal agencies’ interpretations of ambiguously worded dictates of laws passed by Congress. Polluting industries and right-wing advocacy groups have made overturning Chevron a key goal of their anti-regulatory agenda.

Now that they’ve succeeded, I bet you dollars to doughnuts we’ll see a tsunami of litigation challenging every regulation that comes down the pike,” said Devon Ombres, senior director of courts and legal policy at the Center for American Progress, a progressive think tank. This court has decided that it, and not Congress, and not public agencies, is the chief policymaker in the country — even though they say they are not.” 

Well-funded industry and conservative groups already plotting lawsuits against federal agencies are likely to hold a considerable advantage in a federal court system with a large number of conservative judges appointed during the Trump administration, Ombres said. We are seeing a reversion to a pre–New Deal standard of the law, in the sense that the court will almost unerringly side with corporate interests over public interests.”

The Chevron deference has been cited in scores of Supreme Court decisions, many of them unanimous, and in thousands of lower court decisions,” Sean Donahue, a partner at Donahue, Goldberg & Herzog representing the Environmental Defense Fund, said during a Friday media briefing.

The Supreme Court’s scuttling of Chevron has now turned laws and regulations that have been settled for decades into a minefield for potential legal challenges, with uncertain but highly fraught potential outcomes for almost every part of the federal administrative apparatus, Donahue said. He predicted a massive effort by parties that are subject to regulation for their pollution or for many other areas of regulation to challenge long-established policies.” 

Can EPA emissions regulations survive? 

It’s not clear how those legal challenges might play out against the landmark greenhouse gas emissions restrictions and clean energy incentives set in place by the 2022 Inflation Reduction Act. As part of that law, Democrats in Congress amended the 1970 Clean Air Act to specifically identify carbon dioxide produced by burning fossil fuels as an air pollutant.

This statutory backstop could bolster the legal durability of Environmental Protection Agency rules tackling the country’s most significant sources of greenhouse gas emissions. Those include the EPA’s regulation of methane flaring and leaking from oil and gas operations, its emissions standards for light-duty and heavy-duty vehicles, and its power plant emissions standards issued in April, which were designed to replace an Obama administration power plant rule overturned by the Supreme Court in 2022

The EPA has stopped overtly relying on Chevron” in preparation for the precedent being overturned, David Doniger, senior attorney and strategist of the Natural Resources Defense Council’s climate and clean energy program, said during the media briefing. Instead, in recent years, the EPA is laying out why it thinks its interpretation of the rules is correct, the best reading of these rules. It won’t be as simple for opponents to say, Aha, EPA relied on Chevron.”

Doniger, who represented NRDC in the 1984 Chevron case, also highlighted that Friday’s decision, written by Chief Justice John Roberts, does include language calling on courts to make use of federal agency expertise and findings of fact. To the extent these current rules are more firmly grounded on what EPA says is their best reading of the law, and on expertise, and in fact-finding on scientific and technical matters, we think they are still quite defensible.”

But it’s far from certain that this language will hold sway when federal judges rule on lawsuits looking to weaken EPA’s authority. Already, the EPA’s power-plant and vehicle-emissions rules are being challenged by Republican state attorneys general and industry groups.

It’s clear that opponents of these policies intend to make use of the Supreme Court’s decision to advance their litigation. West Virginia is one of dozens of states whose Republican attorneys general have joined in lawsuits challenging EPA’s rules on vehicle emissions, power plant emissions, and a recently issued transmission planning rule from the Federal Energy Regulatory Commission (FERC). In a Friday statement, West Virginia Attorney General Patrick Morrisey, a Republican who led a 27-state coalition asking the court to overrule the Chevron doctrine, wrote that agencies shouldn’t be permitted to take advantage of statutory silence or ambiguity to extend their powers beyond what Congress intended.” 

Doniger warned that arguments like these may find favor among some of the highly partisan federal judges appointed during the Trump administration. You may now have random judges in, say, Amarillo, Texas” — the home of the U.S. District Court for the Northern District of Texas, where Trump-appointed Judge Matthew Kacsmaryk has issued a series of rulings undermining abortion, immigration, and LGBTQ rightsdeciding all kinds of national policy questions.” 

In a Friday statement, White House press secretary Karine Jean-Pierre blasted the court’s decision as an effort by Republican-backed special interests” to block common-sense rules that keep us safe, protect our health and environment, safeguard our financial system, and support American consumers and workers.”

Doniger agreed that this decision shows yet again that the current court majority is on a rampage designed to make it harder for our government to protect us.” The end goal, he argued, is to weaken our government’s capacity to meet the real problems the world is throwing at us — big things like Covid or the next pandemic and climate change, or other forms of pollution.” 

Potential challenges to clean energy tax credits introduce uncertainty” for investors

Similar challenges could threaten other key aspects of the Inflation Reduction Act, legal experts said. That includes the tax credits that form the bulk of the law’s hundreds of billions of dollars of federal support for clean energy and carbon-cutting investments, which are administered via rules set by the U.S. Treasury Department’s Internal Revenue Service. 

Some of these tax credits, such as those for wind and solar power, have existed for decades but were modified by the law. Others were newly created by the law and require new Treasury Department rulemakings to implement. Industry groups and environmental advocates have argued fiercely over how many of these should be interpreted, such as the tax credits for clean hydrogen production.

The disputes center on how to interpret the language of the laws delegating authority to the Treasury Department to establish tax-credit rules. Under the new legal regime that is to emerge from Friday’s Supreme Court decision, those Treasury Department rulemaking decisions may be more likely to be overturned by federal judges years down the road. 

That introduces a heightened level of uncertainty among clean energy project developers and their financial backers, said Jeremy McDiarmid, managing director and general counsel of Advanced Energy United, a clean energy industry trade group. And as a matter of general principle, uncertainty is not a friend to efficient market activity,” he said.

I think you’re going to see creative litigants experiment and challenge the boundaries,” McDiarmid added. In the very near term, there’s likely to be some additional risk for clean energy developers because of the uncertainty that’s going to happen as the aftershocks of this decision are felt across the federal court system. There’s going to be a period of sorting out what it really means. That uncertainty creates risk for developers who rely on federal agencies — and it could very well hurt individual consumers if the court decides, for example, that tax credits are no longer permissible.” 

That uncertainty will persist for the years it will take for new legal challenges to make their way through the federal court system, Donahue said. I think it will be a case-by-case determination of whether, under this new review regime, there’s enough evidence that Congress intended to delegate authority to make policy.” 

FERC’s major transmission rule under threat

Similar uncertainty now holds sway over another key facet guiding U.S. clean energy development: the authority of the Federal Energy Regulatory Commission. In May, FERC issued Order 1920, which requires utilities and transmission system operators to change how they plan and allocate costs for multibillion-dollar grid expansions. Those expansions are necessary to unclog bottlenecks preventing hundreds of gigawatts of clean energy projects from being brought online. 

In a Monday statement, FERC Chair Willie Phillips declared that the Supreme Court’s Chevron decision does not threaten Order 1920. Indeed, our authority to regulate regional transmission planning and cost allocation is essential to the Commission’s ability to ensure that customers have access to reliable, affordable supplies of electricity — our most fundamental statutory responsibility,” he wrote. 

But in a Friday statement, FERC Commissioner Mark Christie, a Republican who voted against Democrats Phillips and outgoing FERC Commissioner Allison Clements on Order 1920, wrote that the court’s decision represents an opening for legal challenges from state utility regulators and industry groups. The most important legal lifeline that Order No. 1920 needed was pulled away today, and the final rule’s chances of surviving court challenges just shrank to slim to none.” 

It’s possible that the Supreme Court’s overturning of Chevron might alter the course of the legal challenges against FERC Order 1920, said Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School. In a 2014 decision, the U.S. Court of Appeals for the District of Columbia Circuit cited the Chevron doctrine in affirming FERC Order 1000, a regional transmission planning rule, and rejecting arguments from utility groups and state utility regulators that FERC lacked the authority to implement the rule. 

Now, parties challenging FERC’s new transmission planning order could try to bring the case to another circuit and argue that FERC has no authority to issue any planning rule,” he said. 

Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.