Globally, momentum for the energy transition continues to accelerate. Following the Paris Agreement and subsequent Glasgow Climate Accord, key mechanisms detailing global cooperation were (mostly) set in place to keep the dream of limiting global warming to 1.5 °C alive. Electric vehicle sales accelerated dramatically during COVID despite a general automotive slowdown, while 88% of new power generation added to the grid in 2021 came from wind or solar. While we can’t let off the gas just yet — as noted in the Glasgow Climate Pact, we still aren’t on track to 1.5 °C and need to call for updated national plans for reducing emissions — a combination of regulatory push and consumer pull toward net-zero created a wave of optimism.
This optimism still exists globally, but in the U.S., a Supreme Court ruling put limits on the U.S. EPA’s ability to regulate CO2 emissions. The Clean Air Act in the 1970s gave EPA broad power to regulate emissions though it didn’t specifically note CO2 as a pollutant to regulate at the time. While lawmakers then attempted to future-proof the bill for pollutants they weren’t aware of at the time, this ruling states that EPA can’t use section 111(d) of the Clean Air Act to set limits on CO2 emissions from existing power plants. The immediate aftermath isn’t as bad as initial hot takes on twitter suggested — EPA can set limits on CO2 emissions, as they are still considered dangerous air pollutants, but it can no longer enact sectoral limits on emissions from existing power plants using this specific section of the regulation.
In the immediate aftermath, very little will change; the Clean Power Plan from the Obama administration, which triggered the lawsuit, was repealed and replaced (with that replacement bill also later repealed), which means no actual regulations have changed today. However, it does severely restrict future regulations that the Biden administration was exploring. Clients should specifically watch for a few potential outcomes from this ruling:
- States will pass stricter decarbonization targets. When the Trump administration pulled out of the Paris Agreement, many cities and states rushed to sign onto the agreement. We also expect states to play a more active role in setting emissions regulations with the absence of a strong federal ability to do so. This will lead — to some extent — to the same types of lax emissions regulations most attractive to industry, which the Paris Agreement aimed to eliminate between countries.
- Other regulations will fall in the crosshairs. The specific legal tools cited by the Court (specifically the major questions doctrine) open the door for other regulations to be challenged in a similar way. Already, attorneys general have cited SEC rules requiring disclosure of greenhouse gas emissions and EPA’s ability to set tailpipe emissions as potential next targets.
- Congress can enact laws making this discussion irrelevant. This was true before the Court’s discussion and, more importantly, is still true after. Unfortunately though, while this is the simplest and most effective solution, it’s also one that hasn’t passed despite a democratic congress and presidency.
Ultimately this means very little for climate tech — at least today. The same global drivers accelerating the energy transition exist, even if one of the world’s largest emitters has restricted its ability to regulate its own emissions. Solar is still cheaper than any form of fossil fuel generation, consumers purchasing new cars are still second-guessing high gas prices and considering electric more than ever, and consumer awareness of the impacts of climate change are similarly high. No business should consider a change in strategy based on this announcement alone.
However, the more impactful question is “Will other, more impactful regulations be viewed in the same light by the Supreme Court, and can the U.S. Congress actually get itself organized enough to pass legislation implementing a broader CO2 reduction strategy?” In this environment of regulatory uncertainty, tech innovation becomes even more crucial. The driver for climate tech adoption isn’t regulatory, but instead is the ability to beat fossil fuels and other nonrenewable incumbent solutions with lower prices and better performance.