Limbo Rock - Supreme Court Ruling Introduces New Regulatory Uncertainty to the Energy Sector

In its landmark West Virginia v. EPA decision, the Supreme Court on Thursday scaled back the powers of the Environmental Protection Agency — and, it would seem, other federal administrative agencies — to implement regulations that extend beyond what Congress specifically directed in its authorizing legislation, in this case the Clean Air Act. The ruling didn’t go as far as throwing out the long-standing deference of courts to federal agencies’ interpretations when it comes to acting under statutory law where there’s any ambiguity — the so-called “Chevron Deference” doctrine. But it does impose a threshold roadblock to the use of the doctrine, based on the “Major Question” doctrine. Yep, we have a duel of the doctrines here. The end result here is to hamstring the EPA and the Biden administration from reinstating emissions-limiting rules similar to the ones the Obama EPA put forth a few years ago in the “Clean Power Plan,” at least not without legislative approval. Most of the oil and gas industry and a lot of the power industry are likely to welcome the check on this particular regulatory authority, and certainly most of the oil and gas industry welcomes some restraint on the EPA in general. However, the broader implications of the ruling could make life more difficult in the near-term for industries like oil and gas that rely on a stable, or at least semi-predictable, regulatory environment for making long-term plans. In today’s RBN blog, we explain what was at stake in this case and what the decision could mean for the oil and gas industry.

In a term stacked high with blockbuster decisions, it’s tough to stand out, but when it comes to a thud-factor, the West Virginia suit against the EPA was right up there. That’s because it gets to the heart of the executive branch of the federal government’s authority to shape regulatory policies. As noted, this was the clash of two doctrines, Chevron Deference and Major Question. What are they? Chevron Deference, established in 1984, pretty much says that if the law empowering an agency doesn’t explicitly say not to do something to meet the goals of the statue, the agency can do it (as opposed to meaning “deference to Chevron, much to Chevron’s chagrin). The Major Question doctrine, established 10 years later in 1994, says that if the issue is a big deal with a lot of economic or social impact, the agency cannot do something that is explicitly authorized under the empowering legislation. The way the Supreme Court sees it, the Major Question doctrine comes first — in essence, if something isn’t seen as big a deal, then the Chevron Doctrine takes over. 

The petitioners in the case — West Virginia, and North Dakota, along with two coal companies — asked the court to decide whether a particular provision in the Clean Air Act (CAA), Section 7411(d), which addresses standards of performance for existing stationary sources of air pollution, constitutionally gives blanket authority to the EPA to issue major rules on what kind of generators can run, without any limits on what it can require. Simply put, the petitioners questioned the scope of the EPA’s powers to force changes in generation mix in the name of greenhouse gas reduction. 

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