Chevron Doctrine Overturned - US Climate Policy Threatened

Video: What the Chevron Doctrine's overturning means for green policy/investments.

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Transcript

The United States Supreme Court just overturned the 40-year-old Chevron deference, also known as the Chevron doctrine. In this video, we’ll talk about what this means, and especially how it affects climate policy and potential investments in green industries.

So the Chevron doctrine was a previous ruling in Chevron vs the Natural Resources Defence Council. The precedent stated that courts should defer to a government agency’s interpretation of the law when its wording was vague in specific circumstances. This allowed government agencies to wield an increasing level of power as their interpretation of laws was, of course, subjective.

The ruling required an agency’s interpretation to be “rational or reasonable,” but again, that’s pretty subjective depending on who is involved in the case.

At the same time, ending the Chevron doctrine provides more power to the interpretations of judges, who can vary wildly among political lines and objectives with how they think about laws in the United States. So there are certainly two sides to this story, and it could lead to chaos across the justice and legal systems.

Thanks to this decision, a variety of policies dedicated to combating climate change could be under threat.

Back in April, the EPA implemented its first federal mandate to cut CO2 emissions from power plants. Coal plants would have to start capturing the majority of their carbon emissions by 2032. Natural gas plants reaching at least 40% of their annual energy generation capacity would have to do the same.

This was expected to reduce carbon emissions from power plants by 75% relative to 2005 levels by 2035, and now that legislation will be under threat by legal challenges because of Chevron being overwritten.

Another ongoing legal challenge is between Republican states and the SEC. The government was attempting to implement new climate-risk disclosures starting in 2026, which would force large companies to disclose their climate action plans, greenhouse gas emissions, and the potential financial impacts of severe weather events.

Those are just two of the various ongoing court cases that could significantly impede any progress on combating climate change in the United States.

The problem is that the EPA and SEC were broadening the interpretations of the Clean Air Act and other older laws that weren’t originally written to include the climate action they need to take today. Worst case scenario, congress could enshrine these actions into law, but that depends on the results of elections taking place in November.

The saving grace for the EPA was that the Inflation Reduction Act specifically targeted carbon dioxide emissions, which wasn’t previously mentioned in the Clean Air Act. So that is another aspect that could defend their actions on reducing emissions from cars, power plants, and other initiatives.

But that safeguard is under threat with the potential for a red wave come November, where Trump and Republicans could win the presidency, senate, and house… especially, if Biden’s popularity continues to decline.

If they were to sweep the electoral race, then it’s certainly plausible that the Inflation Reduction Act could get repealed entirely, or at the very least it would be changed dramatically.

While plenty of red states have been beneficiaries of that funding, it could get repealed anyway because that’s how politics goes, baby.

So what’s most at risk if Republicans regain full control of Congress?

In particular, the tax credits related to electric vehicles and manufacturing under sections 30D and 45X. Trump has already vowed to get rid of any potential electric vehicle mandates or tax credits on Day One of his administration. So we know he’ll go after that.

Otherwise, it’s a guessing game of what might remain, and what might get tossed out, assuming he doesn’t just get rid of the entire Act.

Some additional propositions that might be under threat include $900 fee on methane emissions over certain thresholds, the exercise tax on crude oil and petroleum products, and the various tax credits included for other investments in green technologies.

How does all of this impact green investments?

Well, it’s likely that a Trump administration would hurt industries like electric vehicles, hydrogen, and carbon capture the most. Capital-intensive sectors that rely on these tax credits to reach economic viability. Even without actually doing anything, a shift in electoral power could lead businesses to fear that changes would come. So this could stifle new green investments regardless of what is changed about the IRA.

There are plenty of publications arguing that much of what is included in the Inflation Reduction Act is actually incredibly popular, and it wouldn’t be wise for Trump to get rid of the funding efforts and tax credits.

Republican districts have been the largest beneficiaries of investments made after the IRA was enacted into law. According to Bloomberg, 80 Republican districts in 30 states have received those funds. Of the 51 clean technology projects in the country that topped the $1 billion dollar mark… 43 were in red districts.

So will that be enough to maintain the IRA? Who knows. But this is something to watch closely if any investments you make are reliant on the funding coming from the bill.

Of course, this could take years to play out, but the results of the ensuing legal action on the EPA, DOE, and other organizations over climate policy could shift how many companies feel inclined to make green investments. So while I remain bullish on the long-term prospects of green investing and the trend to combat climate change, this could put a damper on progress to a certain degree.