With the Chevron doctrine overturned, effects to the IRA still unknown

This summer, the U.S. Supreme Court overturned a 40-year-old precedent that said those with federal agency expertise should interpret ambiguous laws passed by Congress. By a 6-3 vote, Loper Bright Enterprises v. Raimondo reversed the determination of Chevron U.S.A. v. Natural Resources Defense Council, a 1984 case known as the “Chevron doctrine.” Loper Bright now allows federal district court judges to use their own judgement in place of subject matter experts at federal agencies.

A long-time goal of fossil fuel industries and anti-regulation advocates, overturning the Chevron doctrine will likely lead to challenges of many older laws under the Environmental Protection Agency’s dominion. Rules that limit greenhouse gas emissions and restrict fossil fuel power plant pollution could be under review, now that agencies like the EPA no longer have automatic deference.

Renewable energy supporters are questioning whether aspects of the Inflation Reduction Act may also soon be under review, but as with any Supreme Court ruling, “it’s clear as mud,” said Matt Petroski, partner at accounting firm Armanino.

“The Loper Bright case didn’t mean everything that has ever been written is now null and void. It’s just a different lens,” he said. “It’s sort of taking the thumb off the scale slightly of this pure deference to a governmental agency. That doesn’t mean there won’t be deference to the governmental agency. It doesn’t mean that the courts will automatically resolve every conflict.

“I think it changes a lot, but it might change nothing,” Petroski continued.

Since the IRA is a tax bill, there is less chance that entities could successfully take aspects to court, said Keith Martin, partner at law firm Norton Rose Fulbright.

“It’s very hard for anybody to bring a policy case against the IRS or Treasury about a statute,” he said. “[Loper Bright]’s greatest effect is probably on environmental regulations, because most of the ones dealing with climate change were adopted after big environmental statutes of the 1970s through 1990s, and those statutes were not written with climate change in mind, but the government is trying to adapt them to today’s world.”

Eli Hinckley, partner at law firm Baker Botts, agreed that some of the more ambiguous laws involving EPA regulations may be brought up again, but the IRA was written with a lot clearer language.

“[Loper Bright] specifically addressed the question of an agency providing regulation or rulemaking where there’s some ambiguity and no congressional authority to make those rules,” he said. “Most of the regulations that have come through IRA rulemaking are all very specific — ‘Treasury will make the appropriate regulations to put these rules out.’”

Hinckley did note one area of the IRA that could warrant a review: the new Clean Hydrogen Production Tax Credit (45V). The industry is still feeling its way around clean hydrogen, and Treasury’s dollars-per-kilogram tax offer might later be determined to be an inadequate equation. Through Loper Bright, a court could instead rule on how 45V would be interpreted.

“With the 45V credit for clean hydrogen, people may argue that there is an overstep in terms of the agency view of what those rules are supposed to be,” Hinckley said. “But I think broadly, [Loper Bright] empowers people to try the courts, rather than the agency, to solve it.”

Petroski also said that the newness of the IRA and renewable energy calculations in general could lead to legal arguments now that Chevron is overturned.

“When I first started diving into [the IRA], my head started spinning. I’m a tax professional, so I’m used to reading the code, I’m used to reading regulations. But it is super technical in green energy, understanding kilowatts and how that all breaks down,” he said. “There are some definitions that require some knowledge of a unit of measure. If Treasury in their regulations uses a definition from the EPA or some other expert within the government, [certain groups] may go after it, so [Loper Bright] could open that up. That’s not to say we’ll end up in a different place.”

The largest effect Loper Bright will have on the renewable energy industry, Hinckley said, is just the uncertainty of it all.

“There will be some challenges, and one of the things that causes concern is that people in investment don’t like uncertainty,” he said. “If you start to have challenges that look like they’re going to unwind how some of these rules operate, if you don’t have a clear line of sight or a safe harbor — money doesn’t go to work until you have certainty.”