The Supreme Court held 7-2 in Diamond Alternative Energy v. Environmental Protection Agency that fuel producers have standing to challenge the Environmental Protection Agency (EPA)'s approval of California's vehicle emission regulations. Justice Kavanaugh authored the majority opinion. Justices Sotomayor and Jackson filed separate dissents.
As summarized in Dykema's May edition, the dispute arose from the EPA's 2022 decision to reinstate California's waiver under the Clean Air Act, which allows the state to set more stringent vehicle emission standards. California's regulations require automakers to increase production of low-emission vehicles and reduce gas-powered vehicle output. Several fuel producers sued, alleging that the EPA lacked authority to approve California's rules and arguing that the resulting decrease in demand for liquid fuels caused them economic harm.
The Court agreed that the fuel producers have standing to sue, holding that even if they are not directly regulated by California's rules, the "commonsense economic realities" of the regulatory impact establish an injury. The Court found that the only disputed element—redressability—was satisfied because revoking the EPA's approval would likely lead automakers to produce more gas-powered vehicles, thereby increasing fuel demand. The Court pointed to the producers' declarations of past harm from similar regulations, as well as California's own concession that repealing the rules would likely increase the sales of gas-powered cars.
The majority also noted the inconsistency in the EPA's and California's argument: they defended the regulations while simultaneously downplaying their real-world impact. The Court emphasized that although plaintiffs must provide some evidence of predictable market reactions, they are not required to foresee the future with "political clairvoyance," metaphorically referring to the difficulty courts face in predicting the exact economic and political consequences of their decisions, particularly in dynamic and heavily regulated markets. Nor must plaintiffs rely on declarations from other regulated entities with conflicting interests.
Justice Sotomayor dissented on procedural grounds, arguing that the Court should have remanded the case to the D.C. Circuit. She noted that the D.C. Circuit indicated that the subject California's regulations would not apply beyond model year 2025 vehicles and therefore questioned the continuing harm to fuel producers. Her position is that a remand could have clarified whether the harm extended beyond that date.
Justice Jackson dissented on mootness grounds, asserting that the EPA was likely to rescind California's waiver soon, eliminating any live controversy. She criticized the Court for what she described as a "herculean effort" to find standing and cautioned that the decision could reinforce perceptions that the Court is "overly sympathetic" to corporate interests.
- Standing for Indirectly Affected Plaintiffs:The Court's reasoning allows parties affected by downstream market impacts—not just direct regulation—to establish standing, potentially broadening who can challenge agency actions.
- Clarified Evidentiary Threshold: The Court confirmed that plaintiffs need only show a plausible and predictable market response—not hard proof or third-party declarations—to establish redressability.
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