The repeal of a landmark finding underpinning federal greenhouse gas (GHG) regulations by President Donald Trump's administration will have limited immediate impact on state and regional carbon markets.
The US Environmental Protection Agency (EPA) on 12 February repealed its "endangerment finding", which determined that emissions such as CO2 pose a risk to public health and welfare and served as the legal basis for federal GHG regulations. EPA focused its action on vehicle standards, but the repeal also undermines the agency's authority to regulate GHG emissions from power plants, industrial sources and the oil sector.
The 2009 finding established EPA's obligation to regulate GHG emissions from motor vehicles under the Clean Air Act, later supporting regulation of stationary sources.
But the repeal "doesn't have a lot of short-term impact since it blocks EPA from doing things that it's not doing", said Michael Gerrard of Columbia University's Sabin Center for Climate Change Law.
Business as usual
The ability of states to regulate stationary source emissions, including through carbon markets, is unaffected. The California, Washington and Regional Greenhouse Gas Initiative (RGGI) markets shrugged off the repeal last week, viewing it as already priced-in after months of signals from EPA and expectations of minimal impact on state authority.
Argus last assessed California Carbon Allowances (CCAs) for December 2026 delivery at $29.64/metric tonne (t) and Washington Carbon Allowances (WCAs) at $73.20/t on 13 February. Any declines last week reflected broader market factors rather than the repeal, sources said.
RGGI prices were similarly unaffected, influenced more by weaker power demand and the program's upcoming March auction. Argus last assessed RGGI December 2026 allowances at $22.89/short ton (st).
The muted market response contrasts with sharper declines following Trump's April 2025 executive order threatening legal action against state climate programs. CCA, WCA and RGGI allowances tumbled by 4.3–13.8pc on 9 April 2025 before recovering. More recently, a January note from consultancy Alpha Inception warning of "imminent action" against state markets pushed CCA and RGGI prices down by 2.6–5.9pc, although no such action has yet materialized.
Market participants now view the repeal as either the administration's final step before going after state markets or effectively a distraction from any such action as the government deals with anticipated lawsuits against the repeal.
The once and future policy
Future federal climate rules could face steeper hurdles. EPA has launched separate proceedings to reverse endangerment determinations applying to stationary sources, which would further limit its authority, said Dan Farber, a law professor at the University of California, Berkeley.
In addition, California may find it even more difficult to regulate vehicle GHG emissions. The Clean Air Act allows California to set its own rules, subject to EPA waivers, which other states could follow. The EPA under Trump last year rescinded waivers for California's mandate for 100pc zero-emission new vehicle sales by 2035 and zero-emission truck requirements set during the administration of former president Joe Biden.
EPA in the repeal said that federal pre-emption of state vehicle standards applies regardless of whether it issues new requirements. But without federal backing, California may be unable to justify its standards, said Eric Groten, an attorney at Vinson & Elkins. "I suspect that disconnect will ultimately lead California to the inability to prescribe tighter tailpipe limits," he said.
But EPA's action would likely galvanize states to strengthen their own climate policies. "I think that will put some more pressure on states to follow through on their climate pledges and show that they're not being pushed around," Farber said.
Give me one reason
The repeal immediately drew legal threats from states including California and Massachusetts, as well as environmental advocacy groups.
The US Court of Appeals for the DC Circuit will hear any initial challenges, which must be filed within 60 days of the repeal's publication in the Federal Register, expected on 18 February.
The administration will likely try to move the case quickly to the US Supreme Court before the end of Trump's term, Gerrard said.
The conservative-majority Supreme Court's appetite for the case is unclear. Its 2007 ruling in Massachusetts v. EPA prompted the original endangerment finding, and the court declined to hear subsequent challenges to the finding. The court could uphold the repeal without overturning the 2007 decision, which would prevent EPA from regulating GHG emissions until a future administration issued a new finding, Gerrard said.
But the latest EPA action along with years of reversals between administrations may spur Congress to provide more explicit GHG authority for the agency.
"We've just been playing ping pong on a lot of this stuff," Farber said. "We need a more solid legal foundation than just administrative action."
