29 July 2022
In a 6-3 decision on June 30th, 2022, the United States Supreme Court ruled in favor of West Virginia in West Virginia v. Environmental Protection Agency (EPA), ruling to reduce the scope of the EPA’s regulatory abilities. This decision effectively limits the EPA’s capacity to set emissions standards and employ emissions reductions techniques, such as generation shifting, under the Clean Air Act. The decision was based on the “major questions” doctrine, which asserts that actions with profound political or economic impacts require explicit authorization by Congress. This doctrine has rarely been cited by the court and remains unclearly defined.
The decision will likely have wide ranging impacts on national legislation and sets a dangerous precedent, opening the door for the Court to continually restrict the regulatory power of the federal government. The use of the major decisions doctrine may continue to undermine federal legislation, leaving major regulatory responsibilities to the states.
With this ruling, the pressure to mitigate climate change increasingly falls on the states. In the absence of top-down federal mandates, states have the most agency within their government. State sovereignty offers the freedom to regulate within state borders and build on top of federal government standards, ensuring a diverse policy mix across the country. Some states, including Texas and West Virginia, have already passed ‘anti-ESG’ laws, challenging the direction of nation-wide sustainability efforts. In stark contrast, states including New York and Oregon have taken significant steps to incentivize the transition to renewable energy.
To date, twenty-one states, as well as the District of Columbia and Puerto Rico, have set 100% clean energy goals. Such measures can be taken through the Governor’s Office or the State Legislature. In the case of out-of-state energy procurement, state regulators can require the power generation to meet their state emission standards. They can also require “good neighbor” laws that reduce emissions that might cross state borders. Further, states can implement “regional haze” laws that mandate collaboration between the federal and state governments to improve visibility within national parks.
The West Virginia v. EPA decision has impacts for the private sector as well. In addition to managing regulatory risks, private sector actors are facing increasing demands to develop sustainable business models from their stakeholders. There is an increasingly strong business case to be made for the consideration of ESG; growth and sustainability are no longer thought to be mutually exclusive. Moreover, the decision will likely push the EPA to regulate emissions in alternative sectors, including the buildings sector.
In the absence of top-down regulation, what is the motivation for companies to embrace ESG?
In the commercial real estate sector, we see multiple interacting drivers that are influencing owners to take ESG seriously. Among these are a) pressure from institutional investors who are responding to broader social and generational changes; b) re-prioritization of risk management and asset management in response to the realization that the physical climate and transition to a net zero carbon economy creates new risk profiles; and c) tenants/occupants have their own ESG or sustainability commitments and they increasingly demand that landlords offer space that that can help them attain their goals.
At Longevity Partners, we are dedicated to ensuring our clients develop robust ESG strategies and remain prepared in the wake of any regulatory development. Get in touch with our team today at firstname.lastname@example.org to learn more about our business and the services we offer.