With the Demise of Chevron, an Uncertain Energy Regulatory Environment Awaits

On June 28, the U.S. Supreme Court, in a pair of cases (Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Dep’t of Commerce), overruled a long-standing doctrine of federal judicial deference to expert agency decision-making known as Chevron deference. 

With the loss of Chevron, robust federal rulemaking and statutory interpretation may be imperiled. By removing a critical tool in federal agencies’ statutory interpretation toolbox, the Court undermines the ability of agencies to respond to new and changing circumstances, particularly in areas where technology and markets outrun congressional lawmaking ability. This could particularly affect IRS interpretations and guidance for how to implement the myriad number of tax credits provided for in the Inflation Reduction Act (IRA). It could also halt ongoing efforts by the U.S. Environmental Protection Agency (EPA) to regulate greenhouse gases from electric generators and by the FERC to respond to changes in the nation’s electricity grids stemming from the energy transition.

Since 1984, Chevron has been a tool that federal administrative agencies relied upon in defending regulatory rulemaking where the enabling statute that Congress passed was ambiguous. Chevron helped courts determine whether an agency had the authority to do something, and the courts implemented this tool in a two- step fashion. First, the court would ask if the congressional statute spoke clearly to the issue. If yes, then the enquiry ended with whatever Congress had said. If the language was ambiguous, however, the court would decide whether the agency’s interpretation was reasonable based on the construction of the statute. If so, then the agency’s interpretation would stand, and a court could not read in their preferred reading of the statutory ambiguity. Additionally, Chevron deference encouraged federal agencies to engage in notice-and-comment rulemaking, which provides the public an opportunity to weigh in on proposed rules that the agency was considering. If an agency went through this process, courts were much more likely to be deferential to their interpretation of statutory ambiguity given that they had solicited comments from the public and may have incorporated those into the final rule. 

Loss of Chevron Deference and the Possible Effects of Loper Bright 

Overruling Chevron is likely to have little impact on cases that reach the U.S. Supreme Court given that the Court has not relied on the doctrine for almost 15 years and has instead relied on such doctrines as the Major Questions doctrine to recently overturn EPA GHG rulemaking. However, a 2022 study of federal appeals courts found that lower courts applied Chevron to 85 percent of cases in which an agency interpretation was at issue in 2020–2021, and that the once they determined that the statue was ambiguous, they sided with the agency 77 percent of the time. Without Chevron, it is likely that industry challengers to federal rulemaking will prevail at a much higher rate than in the past. This may create a large degree of regulatory uncertainty as different federal circuits interpret the same rule in different ways and contrary to the agency’s preferred interpretation. Large, regulated entities may come to regret this decision (it was named after the oil conglomerate, after all), if they now must contend with varying interpretations of the same federal rules. Appealing to the U.S. Supreme Court is not likely to provide much relief given their limited docket and the breath of federal rulemaking. 

In Loper Bright, the Court suggested that Chevron deference be replaced with a persuasive, but not presumptive, standard of deference called Skidmore deference. This type of deference requires only that the court review agency decision-making against the weight of their judgment in that particular case, such that it is consistent with earlier interpretations. The Court notes that “such interpretations constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance consistent with the Administrative Procedure Act (APA).” Relying on the APA, the majority notes that Congress always intended for the courts to have the last word on questions of legal interpretation of statutory ambiguity. Agency interpretation can be helpful, particularly agency interpretation that is contemporaneous with the enactment of the legislation; but it no longer has the authority it once did. This may be particularly important for agencies’ interpretations of ambiguities in the IRA and other recent climate legislation. 

Much of what Congress puts down into statutory text is ambiguous, either intentionally or unintentionally so. Consider, for example, the definition of “qualified clean hydrogen” in the IRA. The Act says that “‘qualified clean hydrogen’ means hydrogen which is produced through a process that results in a lifecycle greenhouse gas emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen.” While this definition may seem clear on the surface, it requires the IRS to interpret the statutory text to effectuate the intent of Congress. They must answer whether “lifecycle greenhouse gas emissions rate” should include emissions from low carbon energy resources that are already on the grid, like existing hydro or nuclear power, or whether the intent was to incentivize new clean energy development and not result in fuel-shifting toward existing resources which could end up increasing overall economy-wide emissions. The IRS, in its final guidance, after a notice-and-comment period, ultimately decided to require clean hydrogen to meet an additionality requirement, given that the intent of the IRA was to increase low-carbon energy. Now, without Chevron deference a litigant can challenge any one of the IRS’s tax interpretations as inconsistent with the IRA. The IRS will have to demonstrate not only that its interpretation is a reasonable one given the language of the statute, but that it is the best one.  

Or consider the Federal Energy Regulatory Commission. Anyone who has spent any amount of time dealing with FERC rulemaking can appreciate the complexity and expertise required on the part of agency regulators in interpreting often sparse congressional language and effectuating that into rules that market participants can act upon. FERC is currently relying upon its rather ambiguous grant of authority from the 1920 Federal Power Act (FPA) to craft rules on everything from generator interconnection requests to long-term transmission planning and how distributed resources can participate in wholesale markets. These questions were unfathomable when the original FPA was passed and thus FERC has had to rely on broad grants of authority and its ability to make interpretations of the statute, including such terms as “just and reasonable.” While the FPA has been amended many times since 1920, the speed of the energy transition is likely to out-pace the ability of Congress to adapt and continue to amend congressional statues in an unambiguous way that passes judicial muster. In fact, on the day the Loper Bright opinion was announced, FERC Commissioner Mark Christie stated that with Chevron gone FERC Order 1920’s “most important legal lifeline...was pulled away.., and the final rule’s chances of surviving court challenge just shrank to slim to none.” This legal uncertainty is likely to undermine Independent System Operator compliance filings and result in wildly different filings in regard to Order 1920 which was meant to spur long-term transmission planning. 

Throwing out Chevron will result in courts taking a much more skeptical approach to agency interpretation, particularly for recent interpretations of long-passed statutes, like the Clean Air Act or the FPA. This may not bode well for ambitious EPA greenhouse gas emissions standards for electric generators. It may also result in less seesawing between administrations when they decide to change directions on agency policy, given that there is now less deference to why an agency has decided to adopt an interpretation of a statute completely contrary to how it had long been interpreting a statute. This may result in more stable policymaking over subsequent administrations as flipflopping policies is now given less, if any, deference. 

The Court ends by noting that by overturning Chevron they “do not call into question prior cases that relied on the Chevron framework… Mere reliance on Chevron cannot constitute justification for overruling” those past holdings and cases. The Court does note that those cases may be challenged as wrongly decided if they relied too heavily on Chevron deference. Any case that was decided on Chevron still stands, but the Court is inviting litigants to challenge those holdings under the assumption that they rest on bad precedent. This could open a significant amount of litigation challenging past federal rulemaking, as well as any pending cases before the courts. 

Finally, federal regulatory agencies are likely to be much more cautious in their interpretive methods when they craft regulations that rely on ambiguous congressional statutory language. Any draft rules that are currently being finalized may be delayed as the agencies wrestle with this opinion and attempt to insulate their proposed rules from potential legal challenges. 

The administrative apparatus is not the nimblest policymaking body, but its reliance on agency expertise and a deliberative process of public engagement typically results in better outcomes than those crafted by either the legislative or judicial branches. Without the tools of judicial deference to agency expertise, the future of federal regulatory policy is now more uncertain than ever.