The Supreme Court recently heard oral argument in Diamond Alternative Energy, LLC v. Environmental Protection Agency (No. 24-7), a case examining whether economic harm stemming from market forces influenced by environmental regulation can support Article III standing. At issue is California's authority to enforce its own emission standards, through a waiver granted by the U.S. Environmental Protection Agency (EPA) under Section 209 of the Clean Air Act (CAA).
Section 209 of the CAA generally prohibits states from adopting their own motor-vehicle emission standards. However, it authorizes the EPA to grant California a waiver if the state demonstrates a need for such standards due to "compelling and extraordinary conditions." For decades, California has received waivers to implement more stringent vehicle emissions rules, including its Advanced Clean Cars program, which mandates increasingly aggressive zero-emission vehicle (ZEV) targets. Although the grant of the waiver has been implemented and revoked in the past, this case takes aim at the most recent re-implementation of the waiver.
Previous administrations have alternately granted and rescinded these waivers, but the current case concerns the EPA's 2022 reinstatement of the waiver. That decision prompted a challenge from a coalition of liquid fuel producers and trade associations (the Gas Entities), who argue that California's ZEV requirements will reduce demand for gasoline and diesel, thereby harming their economic interests.
The Gas Entities filed suit to block the waiver, asserting that the resulting market shift away from liquid fuels constitutes a concrete injury. In response, California and aligned state and local governments intervened, arguing that the plaintiffs lacked Article III standing. They contended that the alleged harm was too speculative because the ongoing transition to electric vehicles (EVs) is being driven by independent market trends and manufacturer decisions, not by the waiver alone.
The DC Circuit Court of Appeals agreed, holding that the Gas Entities failed to demonstrate standing. The court ruled that "unsupported assumptions regarding the future actions of third-party market participants" could not establish the required injury-in-fact causation under Article III.
The Supreme Court agreed to hear the case to resolve the standing question. The Gas Entities argue that the waiver causes them direct economic harm by curtailing demand for their products, and that this harm is traceable to the EPA's action. They also contend that their injury is redressable—revoking the waiver would remove a legal barrier to fuel sales, potentially stabilizing or increasing market demand.
California and its supporters maintain that the ZEV market's growth is not attributable solely to the waiver. They argue that manufacturers have committed to expanding EV production independent of regulatory mandates, and that any prediction of altered manufacturer behavior based on the waiver's status is too speculative to support standing.
During oral argument on April 23, 2025, several Justices expressed skepticism about the Gas Entities' standing theory. Justice Jackson pressed counsel on how the alleged economic injury differed from speculative harms previously found insufficient under Article III precedent. Justices Alito, Sotomayor, Kagan, and Barrett appeared wary of establishing a broad rule on redressability, emphasizing that such determinations are inherently fact-specific. Justice Thomas inquired whether California's regulations were in fact designed to reduce fuel consumption—a key link in the Gas Entities' theory of harm. And Justice Kavanaugh questioned whether the EPA's failure to challenge standing signaled its acceptance of the plaintiffs' position.
A decision is expected later this term. The ruling could have significant implications for all regulated industries seeking to challenge environmental policies based on indirect economic effects, as well as for the broader doctrine of Article III standing in cases involving complex market dynamics.
Stay tuned for Dykema's analysis of the Supreme Court's forthcoming decision.
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