The end of June saw the Supreme Court of the United States hand down a number of controversial opinions, including one that severely limits the Environmental Protection Agency’s ability to curb fossil fuel emissions.
The case, West Virginia v. EPA, was brought about by a coalition of 28 states with Republican attorney generals and hundreds of companies – first against the Obama administration’s Clean Power Plan in 2015, and then against the Trump administration’s pared down version of said plan (the Affordable Clean Energy rule) in 2019.
After moving through the federal court system, the Supreme Court ultimately ruled: “It is not plausible that Congress gave EPA the authority to adopt on its own [regulatory measures not explicitly mentioned in the Clean Air Act]. A decision of such magnitude and consequence rests with Congress itself”.
Of course, with the Senate in an even 50-50 split, the filibuster standing strong and the midterm elections leaning increasingly towards a Republican sweep, such regulatory decisions being passed by Congress are unlikely. Indeed, the Democrats’ Build Back Better bill, containing a number of energy and environmental measures, has been sitting in the Senate since November 2021.
Who’s driving the transition?
The implications of the ruling for investors in North American energy infrastructure could include a reduced risk profile for fossil fuel-producing assets, given there is less chance of increased regulatory oversight. However, this is set to vary widely by location – while the federal government will most likely not be able to pass sweeping regulatory reform, measures can be directed by state legislative assemblies.
For instance, New York Attorney General Letitia James said in a statement: “Despite this setback, my office will continue to be a champion for our environment, our future, and the health of New Yorkers. We will work to end our nation’s reliance on fossil-fuel power plants that pollute our environment, and move towards clean, renewable, and affordable electricity”.
Additionally, as law firm Paul Hastings noted, the ruling doesn’t “formally close the door to the EPA fostering the energy transformation via the Clean Air Act”, given the Supreme Court’s ruling only refers to the Act’s Section 111(d) and what it does not authorise. Section 111(d) of the Clean Air Act authorises the EPA to regulate emissions of non-hazardous air pollutants from stationary sources, such as power plants.
Will this then encourage fossil fuel investments to be made in states with looser regulatory regimes? According to Chris Carr, chair of the environment and energy practice at Paul Hastings, it’s possible. He doesn’t, however, foresee a major shift in the trend towards clean and renewable energy investments.
“The market realities, I think, are going to continue to exert considerable pressure on investors and companies to continue to try to increase the percentage of non-fossil generating assets in the portfolio,” he told Infrastructure Investor. “I think that investors and companies will compare regulatory environments, but I have a hard time seeing an appreciable reversal of the trends we’ve seen over the last five to 10 years.”