US Supreme Court decision on deference could impact oil, gas policies: experts

The US Supreme Court will soon decide whether to limit the discretion given to agency regulations, and a decision to scale back or do away with so-called Chevron deference could hinder agencies' ability to consider the climate and conservation impacts of oil and gas projects and leases, experts say.

Chevron deference could come up if agencies take final action on a range of controversial issues, including the Department of Energy's decision to pause approvals of LNG exports to consider issues like climate, and the Bureau of Land Management's proposal to lease land for conservation rather than a use like oil and gas extraction.

On the leasing issue, the BLM's proposed public lands rule (BLM-2023-0001) would create a new tool -- conservation leases -- to protect and restore land, a move that some critics say will leave less land available for oil and gas leasing.

If finalized, the rule could be challenged on whether the BLM has that authority to interpret the Federal Land Policy and Management Act to issue leases for the non-use of federal land, rather than the use of that land, Tina Van Bockern, a partner at Holland and Hart, said in an interview. "It really does turn on the statutory interpretation of FLPMA," she said.

Chevron deference also could come up if the LNG pause is finalized as a change to the US export framework, according to a commentary posted by the Center for Strategic and International studies.

For instance, If the DOE pause lasts beyond the November elections, a Democrat-controlled DOE could change the export framework to consider a range of policy objectives, the commentary said.

But the DOE would need to be very careful to avoid exceeding its existing authority under the Natural Gas Act, the commentary said. "This could be especially important in a post-Chevron deference judicial environment, in which the judicial branch is inclined to interpret such authorities very strictly," the commentary said.

The deference debate

The Supreme Court is mulling arguments heard Jan. 17 in a pair of cases asking the court to completely overturn or at least clarify Chevron, which was adopted in 1984.

Under Chevron, courts must first ask whether Congress has spoken clearly on the legal matter at issue. If a law is ambiguous, or Congress has intentionally left gaps for an agency to fill in, courts then give deference to an agency's statutory interpretation so long as it is reasonable.

In the case that established the doctrine, Chevron v. Natural Resources Defense Council, the Supreme Court found that the Environmental Protection Agency was reasonable in defining all the emitting devices in an industrial grouping as one stationary source of air pollution under the Clean Air Act.

Liberal members of the high court were skeptical that the Chevron doctrine needs to be revisited, but conservatives signaled an interest in narrowing the doctrine. A ruling is expected by June.

But the impact of a change in Chevron deference may be muted by the fact that agencies are already moving away from Chevron, and there are other doctrines besides Chevron that may be more relevant in challenging certain agency regulations.

For instance, if the Federal Energy Regulatory Commission hypothetically were to find that a natural gas project is needed under the NGA, but then reject it based on climate impacts, that would likely lead to a court challenge, said Anand Viswanathan, special counsel at Jenner and Block and former enforcement lawyer at FERC.

However, a case like that would likely fail on the major questions doctrine, rather than the Chevron doctrine, Viswanathan said. And It is unlikely that FERC would base a project rejection entirely on climate impact because FERC is aware that it would be subject to a healthy amount of litigation risk, he said.

The major questions doctrine requires Congress to give an agency clear authorization to take actions of national political or economic significance.

And it is up for debate whether Chevron is even an issue in each case. For instance, Louisiana Attorney General Liz Murrill says Chevron deference is not relevant to the LNG pause. "Chevron deference shouldn't matter with regard to the LNG pause. It's flatly unauthorized under the Natural Gas Act, so Chevron deference can't save it," Murrill said in a statement so S&P Global Commodity Insights.

Louisiana is one of 16 Republican-led states that have sued the Biden administration seeking to overturn the LNG pause.

Agencies already have been moving away from Chevron, noted Suedeen Kelly, Partner at Jenner & Block. "The Supreme Court hasn't been using or availing itself of the Chevron doctrine over the last couple of years, so agencies in their decision-making know that," she said.

Big picture impacts

Experts disagree on the impact from the potential death of the Chevron doctrine.

"If the Supreme Court turns lower court judges loose to interpret statutes in a way that injects their own policy purposes and they hide that by saying that's textualism, that would be, in my view, quite intellectually dishonest and produce some bad outcomes," said David Doniger, an attorney at the Natural Resources Defense Council who was involved in the original case that created the Chevron doctrine.

Any further shifts of authority from the agencies to the courts in areas like industrial regulation and pollution control is going to create a less functional regime, said Sanjay Narayan, an attorney with Sierra Club. "The courts, they are not set up to do it," he said. "They're not design to answer the questions that tend to come up in these areas," he said.

But another attorney argued that both agencies and courts will be just fine in a post-Chevron world, as long as the court makes clear what is a legal question and what is a policy question. Without Chevron, agencies would need to be more thoughtful in their regulations, and courts would still be constrained from getting adventurous and deciding policy, said Keith Coyle, an attorney at Babst Calland who works on pipeline safety cases. "The administration state will not grind to a halt," he said.