Belcher: How Overturning the Chevron Deference Will Impact Energy Regs

The recent landmark decision by the U.S. Supreme Court (SCOTUS) in Loper Bright Enterprises v. Raimondo (Loper) could have profound impacts on future and current rules and regulations in the United States, including those related to the energy industry.

The 6-3 decision overturned the 1984 Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. (Chevron) decision, which created the so-called Chevron Deference that guided the way courts deferred to federal regulatory agencies in decision-making.

 The new ruling has effectively changed the role that courts play in interpreting the intent of federal statutes, thus reducing the authority federal agencies play in interpreting regulations, increasing the role that courts play in that interpretation and putting greater pressure on Congress to be more prescriptive in writing legislation that will involve rulemakings.

Chevron Deference was based on a belief that federal agencies consisted of experts more qualified than judges to determine how federal regulations should be implemented and how federal statutes should be interpreted. Many legal scholars felt that Chevron Deference gave too much authority to the unelected bureaucrats who might have their own agendas about how to administer federal regulations. Energy companies were often critical of the authority that federal bureaucrats had over these decisions that are so consequential to the industry. 

Chevron deference has been enormously impactful in terms of its overall effects on federal regulation. According to the Mobius Risk Group, there have been approximately 18,000 legal citations of Chevron since the original 1984 ruling. Circuit courts have applied it in 77% of agency interpretation cases, and have ruled in favor of federal agencies 71% of the time. It has been estimated that regulatory burdens and investment distortion resulting from Chevron have reduced U.S. GDP at an estimated annual rate of 0.8%, erasing approximately $4 trillion from the economy between 1980 and 2012.

The SCOTUS majority ruled that Chevron Deference was unsupported by the text of Article III of the U.S. Constitution (which establishes and empowers the judicial branch of government) and by Section 706 of the 1946 Administrative Procedures Act, which states that “the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of any administrative action.” In offering his opinion, Chief Justice John Roberts stated that “Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.”

This dramatic shift will change the role that federal agencies play in setting policy and will have major implications for the oil and gas industry, which, for the most part applauded the decision because it creates more opportunities for industry to challenge regulatory actions. However, the decision also creates more uncertainty and potentially more chaos in the short term. Some of the broader consequences of the decision include:

• It will require federal agencies, stakeholders and policymakers to adjust and readjust their expectations over time about what may be reasonable or possible to accomplish through the agency regulatory process;
• It will weaken certainty and confidence in long-established agency rulemakings that have been held up for decades and grounded in statute;
• It will open up litigation and legal challenges to decades of agency rulemakings, increasing uncertainty about current regulations;
• It has the potential to shift the balance of power and resources within the federal government away from the Executive Branch and toward Congress and the Judicial Branch;
• It will impact competitive federal funding programs where federal grant-making agencies are required to focus their grant implementation to align with congressional intent; and
• In the context of federal grant activity, it will create future questions over discrepancies between authorizing legislation and the corresponding Notices of Funding Opportunity.   

For the oil and gas industry, the decision will strengthen the ability to challenge federal rulemakings and decisions like federal oil and gas leasing and permitting, application of air and water regulations such as the methane rule, Endangered Species Act designations, application of the National Environmental Policy Act (NEPA) and requirements for disclosure of emissions and climate risks. The decision will likely result in years of litigation over current federal regulations.

It is believed that the decision could give courts more say in a variety of ongoing issues impacting the energy industry, such as the Environmental Protection Agency’s (EPA) efforts to curb methane emissions from oil and gas operations, EPA’s efforts to lower power plant emissions and the Federal Energy Regulatory Commission orders on pipelines and transmission lines.

Environmental organizations are expressing fear that the decision will have a negative impact on the environment and climate change by creating uncertainty about the validity of a host of environmental regulations. President Biden’s climate policies are clearly at risk, including initiatives that were established and funded under the Inflation Reduction Act (IRA). Republicans may use the opinion to challenge IRA programs, which could actually hurt oil and gas companies that are pursuing investments in carbon capture and storage, hydrogen, and other decarbonization programs and technologies. It might also put at risk the notion that greenhouse gas emissions can be considered pollutants under the Clean Air Act.

Challenges are also likely to be waged against ESG-related policies and rulemakings such as the Department of Labor rule that permits fiduciaries of retirement plans to consider environmental, social and governance considerations in investment decisions. That rule has been described as a way to thwart investments in the oil and gas industry.

Another issue is the impact that it could have on global trade and U.S. products in overseas markets. As climate considerations such as a carbon index become more ingrained with trade policy, e.g., the European Union’s Carbon Boader Adjustment Mechanism and the EU Methane Regulation, uncertainty over U.S. regulations and perceived weakening of U.S. climate policy could impact U.S. products, such as crude oil, natural gas and refined products, via the application of trade tariffs and other penalties.

Following the release of the SCOTUS opinion, White House Press Secretary Karine Jean-Pierre said that “[w]hile this decision undermines the ability of federal agencies to use their expertise as Congress intended to make government work for the people, the Biden-Harris Administration will not relent in our efforts to protect and serve every American.”

As the U.S. presidential election approaches and the Biden administration faces numerous challenges, the decision to overturn Chevron Deference serves to highlight the difficulties the administration has faced in moving forth its agenda.

For the Democratic base, it further adds to the frustration being felt by its inability to deliver on many promises. For Republicans who are hopeful for November victories in the presidential, House and Senate races, it sets up the opportunity to undo many of Biden’s policies and create new ones in a second Trump administration.

For the oil and gas industry, it creates a new landscape for shaping future federal regulations and challenging existing regulations, some of which have been in place since Chevron Deference was established in the 1980s.