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How A Supreme Court Climate Decision Could Materially Impact Financial Services


The Supreme Court's ruling in West Virginia v. EPA could reshape how federal agencies regulate industries from energy to health - to financial services.

Last week, the Supreme Court of the United States (SCOTUS) issued a bombshell ruling on the Environmental Protection Agency’s (EPA) Clean Power Plan (CPP). While the Obama-era CPP never went into effect, the state of West Virginia and other state attorneys general had challenged the EPA’s authority under the Clean Air Act to regulate power plant emissions. The case spent years winding its way through the legal system until last week’s landmark decision.


You’d be forgiven for thinking that the decision in this case would only concern powerplants and their emissions, but the majority decision in West Virginia v. EPA will likely have an impact on several other sectors of the economy, including financial services and financial technology.


Let’s take a look at what happened and what it means.


What Was West Virginia v. EPA About?

ProPublica has the simplest explanation of the question at the heart of West Virginia v. EPA. Basically, the nine justices were trying to determine whether, in the Clean Air Act, Congress actually gave the EPA the statutory authority to reduce power plant emissions in the sweeping manner the agency had proposed through the CPP.


In a 6-3 ruling, SCOTUS found federal lawmakers had not granted this power and, accordingly, that the EPA had exceeded its authority.


The decision relied on something called the “major questions doctrine.” As cited by the six SCOTUS justices who ruled in the majority, this doctrine would require that Congress explicitly define what power a federal agency has to regulate matters that have national significance. Or, as Southern Illinois University law Professor Patricia Ross McCubbin told ProPublica, “The major questions doctrine says, in simple terms, that if a federal agency is going to address the really big thorny questions of our day, that agency has to be able to point to some clear authority from Congress, in a statute, to address that big thorny question.”


University of Houston law professor Victor Flatt told ProPublica the West Virginia ruling is a departure from the standards SCOTUS had used in the past to determine similar questions. Previously, Flatt said, federal courts had held that “if Congress isn’t completely clear, we [the Supreme Court] will defer to the agency as long as Congress hasn’t said they cannot do certain things.” (Emphasis added.)


Obviously this ruling, and this doctrine, will affect more than the EPA. In fact, as McCubbin told ProPublica, because of the ruling, “every federal agency” is now focused on how the application of the major questions doctrine might affect both their existing regulations as well as their authority to issue new regulations in the future.


Broadly, What Are The Implications Of West Virginia v. Environmental Protection Agency?

Quite simply, this ruling could have a chilling effect on the current regulatory landscape. With the six-person majority intact for the next term — and for the foreseeable future — the Biden administration and independent regulatory agencies will have to carefully evaluate each prospective agency rulemaking that has to do with a “major question” of the day. That list could range from anything having to do with the economy – including digital assets, data privacy and antitrust matters – to regulations that concern the ongoing COVID-19 pandemic.


Republican lawmakers have made it clear that this case was not just about environmental or energy law. House Financial Services Committee Ranking Member Patrick McHenry said the West Virginia ruling is “a warning to the Biden administration — and the regulatory state in general — that they cannot circumvent lawmakers.” He warned, “This is especially true when it comes to determining the rules of the road for the digital asset ecosystem.”


Sen. Pat Toomey (R-Penn.), the lead Republican on the Senate Banking Committee, said the ruling is about the separation of powers. “The Supreme Court has sensibly ruled that the executive branch and its agencies, including financial regulators, cannot use creative, new interpretations of existing law to pretend they have legal authority to support sweeping policy changes that Congress never intended,” Sen. Toomey argued.


And then, as the Financial Times reported, Sen. Toomey issued a warning to one federal agency in particular: the U.S. Securities and Exchange Commission (SEC), which Sen. Toomey (and many Republicans) have argued is pursuing an aggressive policy agenda outside the bounds of its congressionally-authorized jurisdiction.


“The SEC should consider itself to have been put on notice,” Sen. Toomey said.


AXIOS concluded, “There are many ways for the conservative court to rein in federal agencies, and while there may not be a clear consensus on precisely which of those avenues to take at any given moment, one way or another, federal agencies exerting broad-based powers are already losing — and are almost certainly going to keep losing.”


What Issues Could West Virginia v. Environmental Protection Agency Impact?

According to lawyers at Beveridge and Diamond PC, the West Virginia ruling could impact efforts by the Federal Communications Commission to regulate internet service providers to impose net neutrality or efforts by the SEC to establish environmental, social, and governance (ESG) disclosure requirements. The ruling also could impact new capital markets and digital asset regulations from the SEC.


Other experts believe the decision could impact the Food and Drug Administration’s authority to combat the opioid crisis and rulemakings by the Centers for Disease Control and Prevention (CDC), Occupational Safety and Health Administration (OSHA), and the Centers for Medicare and Medicaid Services.


But we don’t need experts to tell us what issues could be on SCOTUS’ radar next — because one of the justices told us himself.


As the law firm Pillsbury Winthrop Shaw Pittman noted, in his concurring opinion, Justice Neil Gorsuch offered several examples of “major questions” cases: the FDA attempting to ban tobacco products, the Attorney General attempting to prosecute physicians who prescribed drugs for assisted suicide through the Controlled Substances Act, the CDC COVID-19 Eviction Moratorium, and the OSHA rule that required private employers to require their workforces to be vaccinated against COVID-19.


But there could be more.


As Forbes contributor Joshua Cohen pointed out, “The major questions doctrine is not fully defined or delineated, so it’s unclear which of the regulations would be a target of the doctrine.” In May, the nonpartisan Congressional Research Service made a similar statement. It said, “[T]he Supreme Court has not articulated the precise scope of the major questions doctrine, explained when an agency action will raise a question so significant that the doctrine applies, or expressly identified the doctrine by name as a basis for a decision.”


That ambiguity did not go away completely last week, although, according to the CATO Institute, Chief Justice John Roberts gave some guidance. “[A]n agency’s rule must be economically and politically significant to trigger the doctrine. Also, the rule would have to be based on an expansive interpretation of ambiguous statutory text,” CATO experts wrote. “Other red flags include whether the agency is doing something unprecedented, or if the agency is attempting to do something that Congress failed to do, or if the ‘nature’ of the law doesn’t comport with the agency’s claims to power. Still another red flag is when the agency is operating outside its expertise.”


Still, it will be up to the courts to decide whether the major questions doctrine applies to any agency on any issue.


Whatever happens, last week’s ruling already has federal regulators rethinking exactly how they should proceed on the “major questions” of today … and tomorrow. It also has policymakers in more regulation-friendly states debating how they might step in and act in the absence of federal agencies’ ability to do so.


In other words: it will take some time for the impact of West Virginia v. EPA to unfold, but the ruling is sure to have a far-reaching impact on state and federal rulemaking, on how federal lawmakers write future legislation, and how U.S. executive branch agencies interpret and implement the bills the U.S. president signs into law.

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