By Charlotte Jenkins and Emily Tucker, Capstone Energy Analysts

Since taking office, the Trump administration has scrubbed mentions of climate change from federal agency websites, resulting in absent reports and missing data. To satisfy the underlying goal of a Trump day-one executive order, the administration and Environmental Protection Agency (EPA) will likely need to go further and double down on the notion that greenhouse gases (GHGs) do not pose a danger to public health by causing climate change or via other effects. In an executive order titled “Unleashing American Energy,” Trump called for the EPA to submit recommendations on the legality and continuing applicability of the Administrator’s findings on the “Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act [CAA]” by February 19^th. What the EPA and any other agencies ultimately recommend could set the Trump administration on a path resulting in the federal government’s inability to govern climate change by regulating GHG emissions.

The finding referenced is the endangerment finding, which emerged from the 2007 Supreme Court decision in Massachusetts v. EPA. The Court ruled that GHGs are considered air pollutants under the CAA and that the EPA must regulate GHGs under the CAA if they pose risks to human health or welfare. This paved the way for the Obama administration EPA in 2009 to issue a legal finding supported by a review of scientific evidence – known as the endangerment finding – determining that six GHGs (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride) constitute the “air pollution” that threatens both public health and welfare under Section 202(a) of the CAA. To weaken or reverse the finding, the EPA would likely need to prepare a report negating the science behind the original finding and argue that the GHGs do not threaten human health or welfare. While there are other legal arguments that the EPA could employ instead of this route, many have previously been unsuccessful.

We believe that reversing or undermining the endangerment finding could handicap the federal government’s ability to regulate GHGs, reversing over a decade of environmental policy and precedent, and plunging companies and industries that have adapted to the current regulatory environment into enormous risk and uncertainty. This is because, in the 14 years since the determination, agencies in Democratic and Republican administrations have utilized regulatory structures spanning industries that rely on the endangerment finding and CAA as their underpinning authority.

We believe that reversing or undermining the endangerment finding could handicap the federal government’s ability to regulate GHGs, reversing over a decade of environmental policy and precedent, and plunging companies and industries that have adapted to the current regulatory environment into enormous risk and uncertainty.

In the automotive sector, reversal would upend the regulatory structure for vehicle emissions standards across vehicle classes that regulate GHGs such as carbon dioxide, throwing the established system into chaos and requiring novel policy and regulatory structures from Democrats who may secede Trump and look to restore regulation of these GHGs. Shortly after the endangerment finding was released, the Obama EPA used it to finalize novel auto emissions standards. The emissions standards for light-duty vehicles beginning in model year 2027, for example, rely on section 202(a). Reverting to emissions standards that do not regulate GHGs would upend decades of planning on the part of the transportation industry and create significant uncertainty across a number of industries.

There would be similar tumult for large swaths of the power sector. In the power sector, reversal would impact the new source performance standards for greenhouse gas emissions from fossil fuel-fired power plants, also known as the power plant carbon emissions rule. This rule is authorized by section 111 of the Clean Air Act, which directs the EPA to regulate categories of stationary sources of air emissions that cause or significantly contribute to the endangerment of public health or welfare. In a 2022 filing before the Supreme Court, the Edison Electric Institute, a trade association for investor-owned utilities, argued that reversing the endangerment finding and undermining EPA’s authority to regulate greenhouse gas emissions under the Clean Air Act would revive federal common law lawsuits against GHG emitters and resultantly eat up utility funds that are needed for critical utility infrastructure. This could apply to both power plants and other GHG emitters, demonstrating the possibility of unintended negative consequences across multiple industries.

In the automotive sector, reversal would upend the regulatory structure for vehicle emissions standards across vehicle classes that regulate GHGs such as carbon dioxide, throwing the established system into chaos.

However, many other regulations impacting the power sector would not be affected by changes to the endangerment finding since they do not regulate greenhouse gas emissions. Rules that would be unaffected include power plant effluent limitation guidelines, the mercury and air toxics standard, coal combustion residuals disposal regulations, implementation of national ambient air quality standards for criteria air pollutants like ozone or particulate matter, and the cross-state air pollution rule (also known as the Good Neighbor Rule).

In part because of the high stakes, it remains to be seen whether Trump will pursue reversing the finding and, if he chooses to, whether he will succeed. In his first term, Trump did not pursue overturning the finding and instead chose to weaken rules that rely on the finding individually. However, the second Trump administration has pursued policy changes that were not undertaken in the previous administration. Revisiting the endangerment finding was included in Project 2025, and the inclusion of the endangerment finding in an early executive order demonstrates interest.

We expect that there will be legal headwinds if the Trump administration chooses to pursue overturning the endangerment finding because of the magnitude of the action and the previous legal support the finding has enjoyed. The drawn-out process would necessitate formal rulemaking involving proposing a rule, taking public comment, and finalizing a rule. Typically, this process at EPA can take up to two years. We expect that litigation would immediately be filed against any rule, setting up a likely challenge in the DC Circuit Court of Appeals, where the endangerment finding was previously upheld in 2012.

Further complicating the administration’s legal path forward is that – anticipating and looking to block such a challenge from a Republican administration – Democrats in the 2022 Inflation Reduction Act (IRA) codified the policy that greenhouse gases should be regulated as air pollutants under the CAA, as had been held under the endangerment finding. Beyond EPA’s 2009 regulatory decision, this statutory language could serve as an additional legal backstop. That being said, we expect that the Trump administration views the current conservative makeup and anti-regulatory leanings of the Supreme Court as a tailwind, and the possibility that the endangerment finding winds up before the current bench makes this an enticing opportunity to execute a long-held conservative goal and reverse significant legal precedent.

It is evident that both companies and investors alike should be paying attention to this possibility of a sea change in law and policy impacting the energy sector. Capstone will be closely monitoring the fast-moving dynamics around this issue for our clients.

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Read more from Capstone’s Energy team:

Sustainability in the Crosshairs: Republicans’ Energy Strategy Targets Renewables
Power Moves: How Trump’s Agenda Will Shape a Fossil Fuel Revival
Shifting Gears in Environmental Policy: Federal Slowdown, State Action