President Donald Trump has lobbed many legal and policy grenades toward climate and clean energy programs less than a year into his return to office, with some yet to inflict their intended damage.
The legal threats he made earlier this year have so far not directly hit state climate policies, while the administration's efforts to slash regulations and incentives for renewable energy development have resulted in considerable uncertainty that may not be resolved for months or years.
US carbon markets continue to wait for potential court battles with the Trump administration that have not materialized since his 8 April executive order, which threatened state climate and energy policies that he believes interfere with domestic energy production.
While the order singled out California's cap-and-trade initiative, the administration has thus far paid little attention to the program. The threat of legal action initially roiled the state's market, driving California Carbon Allowances (CCAs) for December delivery to $26.74/metric tonne (t) on 9 April, a nearly 9pc day-over-day loss that put them just above the program's auction price floor of $25.87/t.
Instead, the US Justice Department so far has focused on Michigan and Hawaii's plans to sue oil, natural gas and coal companies to recover climate change-related costs, alongside New York and Vermont's "climate superfund" laws, which assign a fee to fossil fuel companies for climate-related damages from greenhouse gas (GHG) emissions.
This may be part of a strategy by the administration.
The early cases demonstrate a focus on achieving "big wins", using one-time litigation to stop state actions that would hit the fossil fuel industry hard, according to Matthew Dobbins, a partner at Vinson & Elkins and member of the law firm's environment and natural resources team in Houston.
Federal officials may also be waiting to see whether the US Supreme Court accepts a petition against Washington state's "cap-and-invest" program.
The "end game may be to take down state cap-and-trade programs but right now what is driving the strategy is, 'Let's get some clear legal wins that will ultimately support that,'" Dobbins said.
Outside of the courts, the administration has focused on deregulation. In one of the biggest steps to date, US Environmental Protection Agency (EPA) administrator Lee Zeldin recently proposed rescinding the agency's 2009 GHG emissions endangerment finding, as well as related tailpipe emission standards for cars and trucks.
The finding underpins many of EPA's GHG regulations, but a successful repeal would have legal impacts as well, according to Zach Pilchen, senior counsel for Holland & Knight on the firm's public policy and regulation group, who formerly served in the EPA's Office of General Counsel.
"It could have varying degrees of consequences for the lawsuits brought by states and local governments and also for lawsuits challenging state laws that seek damages for past greenhouse gas emissions," Pilchen said.
When the first Trump administration unsuccessfully sued California to sever the link between its cap-and-trade program and Quebec's, it pointed to the US Supreme Court's 2007 decision in Massachusetts v. EPA as a limit on states establishing agreements to regulate GHG emissions. The court said the agency had the authority to regulate GHGs upon making an endangerment determination.
But the death of the endangerment finding could make it more challenging for the administration to continue with similar arguments, depending on the final outcome of a repeal. It could leave the US without clear federal authority to regulate GHGs, effectively kicking the job to the states.
This in turn could undercut the intent of the executive order.
"I think the administration may be overly optimistic that they're not going to find themselves between a rock and a hard place explaining both those positions in these various cases," Dobbins said.
But a repeal will take until sometime next year for the administration to complete and it most certainly will be challenged in court by environmentalists and some states, leaving a legal fog in the interim. An expedited process would allow the US DC Circuit Court of Appeals to issue a decision in late 2026. The Supreme Court could then potentially hear and decide an appeal by mid-2027, according to Pilchin.
More immediate ambiguities
For renewable energy developers, Trump's legal threats, which could affect state policies such as renewable portfolio (RPS) standards, are not yet a big concern. They have taken a backseat to a litany of other factors, including other administration policies that may need several months to clarify.
Many developers are focused on more-immediate financial concerns, such as ensuring that the power price their projects can get is enough to ensure their financial viability. State policies that have helped project economics are further down their list.
"Number five or six is 'Is there an RPS target there?'" said Tom Harper, a partner at consultant Baringa specializing in power and renewables. "Because they always think, if there's not, I can sell to corporates, provided that corporates are willing to pay maybe $20-$40 more [per MWh], depending on the region."
But the sector is dealing with uncertainties rooted in a separate Trump order, which, in conjunction with the recently passed federal budget package, has summoned fresh instability to the industry.
The bill eliminated key tax incentives for all wind and solar projects not in service by 2027, with the caveat that those that begin construction within 12 months can still claim "safe harbor" protections.
Broadly, safe harbor allows onshore wind and solar farms to lock in tax incentives as long as they come online within four years or, in the case of offshore wind, 10 years. Typically, those rules kick in when a developer has incurred 5pc of a system's overall cost.
The president on 7 July told the US Treasury Department to restrict "broad safe harbors" to projects of which a "substantial portion" has been built. That differs from the traditional approach, which calls for "significant" physical work, according to Lauren Collins and Jenny Speck, partners at Vinson & Elkins who specialize in the tax matters related to renewable energy development.
"What's the difference between 'substantial' and 'significant'?" Collins said. "I don't know. We'll find out."
It is not clear what Trump has in mind. Changes could include requiring developers to begin physical construction instead of using a cost-based metric. Alternately, Treasury could set a higher cost threshold or retain the 5pc level while tacking on new requirements, she said.
While developers could challenge the order to Treasury, doing so would take time, a resource many do not always have. A coalition of industry groups or states throwing their collective weight behind a challenge or negotiating directly with the administration could find more success. But at the end of the day, these issues could take years to adjudicate.
"I think you would have a hard time with the timing, how long it would take, considering all the other stakeholders that would be involved wanting to see your investment through," Speck said.
The budget bill also restricts the availability of credits for projects that receive "material assistance" from a "foreign entity of concern", creating another pressure point for developers. It is a thorny issue that legal experts are still untangling and one that requires "a lot more guidance" from federal regulators.
"These rules are incredibly draconian. They're going to cause a lot of administrative burden for taxpayers," Collins said. "How are [investors] going to get comfortable investing in a project with these types of restrictions and the potential to lose the credit that they've invested on?"
It could be "a years-long process under the best of circumstances" for Treasury to issue guidance, which could result in key information arriving just as the tax credit deadlines kick in, according to Collins.
Developers could push ahead in markets where the dynamics broadly favor new projects, such as the grids overseen by the PJM Interconnection, the Midcontinent Independent System Operator and Electric Reliability Council of Texas, according to Harper. But in other regions, the loss of the federal incentives will jeopardize projects, which only emphasizes a need for quickly resolving the ambiguities.
In the meantime, the broader uncertainties looming over state climate programs will likely remain, with the Trump administration potentially biding its time before tackling them directly.
