Supreme Court overturns Chevron deference: Potential impacts on the oil and gas industry
BILL PALMER, Cority
The U.S. Supreme Court's recent decision to overturn the 40-year-old Chevron deference doctrine marks a significant shift in administrative law that could have far-reaching implications for highly regulated industries, including the oil and gas sector. In Loper Bright Enterprises v. Raimondo, June 2024, the Supreme Court ruled that courts should no longer automatically defer to federal agencies' (like the Securities and Exchange Commission, Fig. 1) interpretation of ambiguous statutes, reasoning that this gave undue and unchecked power to administrative agencies. This ruling fundamentally alters how courts will interpret ambiguous statutes and agency regulations, moving forward.
What was Chevron deference?
“Chevron Deference” was a doctrine of judicial deference given to administrative action. In short, the doctrine created a legal test to determine when courts should defer to a federal agency’s interpretation of ambiguous law created by Congress, Fig. 2. The doctrine held that judicial deference is appropriate where an interpretation by the agency is considered reasonable, provided that Congress had not specifically addressed the issue in question. This principle, established in 1984 in Chevron U.S.A. v Natural Resources Defense Council, Inc., has been applied in over 18,000 judicial opinions, and has helped shape the regulatory landscape across the United States.
The new landscape
Now that Chevron Deference has been overturned, courts will no longer automatically defer to agency interpretations of ambiguous statutes across multiple areas of law. Instead, judges will have greater authority to apply the legal test as to whether an agency’s interpretation of law is permitted, and/or reasonable. This change may increase litigation cases, as industry stakeholders challenge regulatory decision-making, potentially causing delays in the implementation of new agencies’ regulations and programs, and leading to an extended period of legal uncertainty.
Implications for the oil and gas industry
As a heavy-regulated industry that has been significantly shaped by Chevron Deference, oil and gas may see extensive impacts from this ruling. Here are some key areas that could be affected by the overturning of Chevron:
- Methane emissions regulations. The U.S. Environmental Protection Agency's (EPA) regulations on methane emissions from natural gas operations may face a higher degree of judicial scrutiny. Courts may now be more willing to overturn these regulations, if they find that the EPA has overstepped its statutory authority with respect to curbing methane emissions as a means to tackle climate change. A reduction in regulatory authority could lead to unpredictable compliance costs for oil and gas companies. Without stringent federal regulations, companies might not be required to invest as heavily in methane capture technology or monitoring equipment. The absence of strong federal guidelines may result in individual states imposing their own regulations. This could create a complex patchwork of rules that companies must navigate, potentially increasing operational complexities and costs.
- Permitting processes. The use of Nationwide Permit 12 (NWP12) by the U.S. Army Corps of Engineers for streamlining pipeline permitting across waterways could face challenges, as well. The courts may now be more critical of the Corps' interpretations and use of this permit. If NWP12 is limited or revoked, companies might have to seek individual permits for each crossing, significantly extending project timelines and increasing costs. A more stringent review process could open the door for environmental groups to challenge permits more effectively, potentially leading to project delays or cancellations.
- Federal Energy Regulatory Commission (FERC) decisions. FERC's approval processes for natural gas pipelines may be subject to closer examination. This could potentially limit FERC's discretion in approving or denying pipeline projects. Greater judicial scrutiny could create uncertainty for investors, possibly leading to reduced capital flow into new infrastructure projects. Companies might benefit from clearer guidelines, if courts define the limits of FERC's authority more precisely, which would help with compliance and planning.
- Title V permits. The interpretation and implementation of Title V permits under the Clean Air Act could be affected. Agencies may need to provide more robust justifications for their interpretations of permit requirements. Companies may need to adapt their operations to meet newly clarified or reinterpreted permit requirements, potentially incurring additional costs. Stricter interpretations could drive innovations in emission reductions, possibly improving the industry's overall environmental footprint.
- Air quality standards. The EPA's authority to set and enforce air quality standards may face increased scrutiny, potentially affecting how the oil and gas industry manages emissions and compliance. Reduced regulatory burdens could lower operating costs, giving domestic companies a competitive edge in international markets. Weaker air quality standards might lead to public health issues, which could result in negative publicity and pressure from community stakeholders.
- National Environmental Policy Act (NEPA) reviews. The scope and depth of environmental impact assessments for oil and gas projects could be subject to reinterpretation, which could potentially alter project timelines and requirements. A narrower interpretation of NEPA requirements could accelerate project approvals, benefiting companies eager to bring projects online quickly. Conversely, reduced assessments might increase the risk of legal challenges from environmental groups, leading to potential delays and added costs.
Recent legal challenges in the post-Chevron era
The legal landscape will continue to be tested and reshaped in the aftermath of the SCOTUS ruling on Chevron deference. For example, the decision on Chevron deference may lead to more legal challenges on regulations administered by the U.S. Occupational Safety and Health Administration (OSHA). These challenges could potentially slow the introduction of new safety standards or repeal new standards that impact worker safety programs or inter-workplace dynamics, Fig. 3.
The American Society of Safety Professionals (ASSP) cites that one rule that may be impacted is OSHA’s recent Walkaround Rule (29 CFR 1903.8), which permits both employers and employees to select a “qualified representative” to join OSHA authorities during workplace inspections. This rule has been challenged recently by employer groups that argue the rule adds unnecessary complexity to the workplace inspection process.
In short, the impact of potential challenges to OSHA regulations in the oil and gas industry might have both positive and negative impacts, whether related to reducing regulatory burdens, or increased legal uncertainty and potential state-level regulatory complexity.
New climate disclosure rules issued by the U.S. Security and Exchange Commission (SEC) are also facing additional legal challenges in the wake of the Chevron decision, Fig. 4. Opponents argue that the SEC lacked the legislative authority to impose new regulations on financial-grade disclosure of climate data. The SEC, on the other hand, argues that Congress lawfully assigned the agency legislative authority to impose these rules, and their interpretation of regulatory provisions around financial disclosures, including climate data, should be upheld. Whether or not these climate disclosures will be upheld will have a significant impact on actions required by oil and gas companies regarding investments to curb climate-related emissions. It is worthwhile to note, however, that challenges to SEC administrative authority do not directly impact state-level climate disclosure rules, such as California’s SB253 and SB261 regulations.
Looking ahead
While the full impact of this ruling is yet to be seen, it's clear that the regulatory landscape for the oil and gas industry, and other heavily regulated sectors, is entering a period of change. Oil and gas firms should anticipate possible delays in new project approvals, as agencies and courts navigate the new legal landscape, and as new litigation may reshape how agencies seek to administer relevant EHS & Sustainability standards nationwide.
As the industry adapts to this new era of administrative law, close attention to regulatory developments and proactive engagement with policymakers will be extremely important. This ensures oil and gas companies can stay up to date with the changing landscape and adjust their EHS & Sustainability programs accordingly to maintain compliance while reducing operating costs.
Proactive engagement could take the form of active participation in industry associations that provide collective feedback to regulatory agencies, or directly participating in public comment periods for new regulations, to ensure that industry concerns are heard.
With the recent changes in regulations, oil and gas companies are facing more uncertainty than ever before. Software tools can help manage this complexity by offering tools that keep businesses updated on changing rules at federal, state and local levels. These systems automate the tracking of compliance obligations, help monitor important deadlines and reduce the risk of data loss that can negatively impact regulatory compliance or data security. By embracing technology, oil and gas companies can better adapt to these regulatory changes, stay compliant with legal requirements, and reduce operational risks in an uncertain legal environment. Investing in these solutions turns challenges into opportunities for innovation and efficiency, helping companies stay ahead during changing times.
References
- Ballotpedia, "Chevron deference," Ballotpedia.org/Chevron deference, 2024.
- Coglianese, Cary, "Chevron's Collapse," The Regulatory Review, June 19, 2023, www.theregreview.org/2023/06/19/coglianese-chevrons-collapse.
- Cwiklinksi, J., Chevron Deference,” Cornell Law School: Legal Information Institute, July 2024, Accessed at https://www.law.cornell.edu/wex/chevron_deference.
- Environmental Protection Agency, “Clean Air Act permitting," 2024, www.epa.gov/caa-permitting.
- Federal Energy Regulatory Commission, "Natural gas pipelines," FERC, 2024, www.ferc.gov/industries-data/natural-gas/natural-gas-pipelines.
- Koenig, Kevin, "Supreme Court overturns Chevron deference," The National Law Review, June21, 2023, www.natlawreview.com/article/supreme-court-overturns-chevron-deference.
- Lazarus, Richard J., "The (non) finality of Supreme Court opinions," Harvard Law Review, vol. 128, no. 2, pp. 540-625, 2014.
- SCOTUSblog, "Loper Bright Enterprises v. Raimondo." SCOTUSblog, 2024, www.scotusblog.com/case-files/cases/loper-bright-enterprises-v-raimondo/.
- U.S. Army Corps of Engineers, "Nationwide Permit 12," USACE, 2024, www.usace.army.mil/Missions/Civil-Wors/Regulatory-Program-and-Permits/Nationwide-Permits/.
