Overturning Chevron is a ‘game changer’ for the business of chemistry

In chemistry, a chain reaction is a rapid sequence of events in which the products of one reaction become the reactants of another. Subtle changes in the basic setup can have drastic effects.

US courts of law can be similar. Take a New Jersey fishing company by the name of Loper Bright Enterprises, which in 2020 filed a lawsuit arguing that the National Marine Fisheries Service could not force it to pay for monitors that would accompany crews on trips and watch for overfishing. Lower courts sided with the agency. Their rulings relied on the Chevron deference doctrine, named for a 1984 case that directed courts to defer to an agency’s interpretation when the law is ambiguous.

The US Supreme Court undid all that last week when it sided with Loper Bright, overturning the Chevron doctrine in a ruling with implications far beyond the health of fisheries. The high court’s decision has already set off chain reactions that will change the workings of any industry that interacts with federal regulators, including drug and medical device developers, chemical manufacturers, water suppliers, and energy producers.

“I think that the Loper Bright decision is definitely going to scramble the omelet at most agencies,” says Gordon Todd, cochair of the regulatory litigation practice group at the law firm Sidley Austin. “The extent to which it does so is very much an open question.”

The Chevron doctrine stems from Chevron USA Inc. v. Natural Resources Defense Council. At issue was whether a regulation issued by the US Environmental Protection Agency used the term “stationary source” in a way consistent with the Clean Air Act. Chevron claimed that it did; environmental advocates argued that it did not. The high court sided with Chevron, accepting the EPA’s interpretation and creating a precedent that led judges to defer to regulatory agencies’ reasonable reading of unclear laws in numerous cases.

The Supreme Court’s June 28 ruling overturns that 40-year-old legal precedent. The ruling makes it harder for federal agencies to defend regulations that end up in court. It also creates opportunities for companies to challenge rules that are unfavorable to their bottom line.

In the absence of Chevron, judges now have sole responsibility to decide what Congress intended when parties differ and statutes are unclear. Legal experts expect a flurry of litigation in areas including regulating chemicals, controlling greenhouse gas emissions, and approving controversial drugs.

“There’s certainly the potential for more aggressive and heavy-handed judicial oversight of agency decisions,” says Robert Sussman, principal at Sussman and Associates, who served as senior policy counsel to the EPA under the Barack Obama administration. But agencies will still play a role in influencing how courts interpret laws, particularly when “an agency’s interpretation is based on its specialized expertise and its understanding of science or technology,” he says.

Even so, some courts are not particularly interested in listening to federal agencies or sympathetic to the need of agencies to make complicated statutes fit together, Sussman says. “For courts that don’t have any respect for agencies and are inclined to run roughshod over them, this decision by the Supreme Court is going to give them a green light.”

Targeting the EPA

Sussman worries in particular about the future of the EPA’s risk evaluation rule, which governs how the agency reviews the safety of high-priority marketed chemicals under the Toxic Substances Control Act (TSCA). The EPA revised the rule in May, formalizing what it calls a whole chemical approach, in which the agency makes one risk determination that considers all uses of a chemical rather than separate determinations for each use.

“Issues like the whole chemical approach, they are legal issues, but they’re also issues that are scientific, or at least rely on an expert knowledge of risk assessment and risk management,” Sussman says. “I worry that some courts are going to say, ‘Well, we don’t really care what the agency says about that, so we’re going our own way.’”

The first wave of litigation over the EPA’s recent risk evaluations for a handful of high-priority chemicals, including asbestos and methylene chloride, has already hit. The Supreme Court ruling could have significant implications for many of those pending lawsuits, says Thomas Brugato, an attorney in the environmental group at the law firm Covington.

Another area of legal dispute is whether the EPA should assume that workers are wearing personal protective equipment appropriately when it considers risks under TSCA. The agency currently assumes they are not.

“That’s important because if you assume workers are using PPE, then the risks are presumably going to be materially lower to them from these chemical exposures,” Brugato says. The courts will now have to confront these legal issues “without giving Chevron deference to the agency on these questions.”

Recent litigation over the EPA’s limits for six per- and polyfluoroalkyl substances (PFAS) in drinking water could also be affected by the Supreme Court ruling. “It’s a fine needle to thread between what is a purely scientific determination and what is a statutory interpretation,” says Tim Whitehouse, executive director of the advocacy group Public Employees for Environmental Responsibility and former senior attorney at the EPA. “Those lines are not always clear.”

When developing drinking-water standards, the EPA considers whether a contaminant “may have adverse health effects.” That is not a very clear legal standard, Whitehouse says. The EPA has to interpret that standard and decide how to apply it, he says. “A court could look at that as a legal interpretation issue, or it could look at it as a purely scientific determination.”

With the Chevron doctrine now gone, Whitehouse predicts “a period of uncertainty, where all of EPA actions are under very close scrutiny in the courts in ways that they weren’t before.”

Climate change impact

The demise of the Chevron doctrine will hinder US response to climate change and the country’s transition to cleaner energy sources, says Bill Yearsley, CEO of the sustainable cement maker Terra CO₂.

“We need to act fast and we need to act now. Overturning the Chevron doctrine will undoubtedly slow the pace of regulatory change and the adoption of technologies hinged on renewable energy,” Yearsley says. “This will likely take shape in the form of slowing down the introduction of new emission reduction standards and delaying the enforcement of existing ones.”

For example, West Virginia filed suit against the EPA in late May to challenge the agency’s CO₂ emission caps for power plants, which were finalized in April. Joined by several other Republican-led states and industry groups, West Virginia advanced an argument centered on the meaning of a handful of terms in the Clean Air Act, such as what it means to “demonstrate” the feasibility of carbon capture and storage (CCS) on coal and natural gas power plants.

The EPA cites as proof of feasibility the existence of pilot- and demonstration-scale CCS units that pull CO₂ out of combustion flue gas streams. West Virginia says those noncommercial units aren’t sufficient proof. If the Chevron doctrine were in force, the agency’s interpretation would likely be upheld.

The impact of last week’s ruling may not be as abrupt as it seems, however. The legal community has been preparing for the downfall of the Chevron doctrine since the Supreme Court enshrined the “major questions doctrine” in a 2022 decision blocking certain CO₂ regulations the EPA had also based on the Clean Air Act, says Kevin Poloncarz, an environmental attorney at Covington & Burling.

In that decision, the court gave itself permission to override the Chevron doctrine if it decided the question at hand was important enough. As a result, Poloncarz says, often-targeted agencies such as the EPA have been writing regulations in the assumption that they can’t rely on the courts to treat them as experts on the laws they’re charged with executing.

Similarly, Poloncarz says, policies based on tax credits may be safe because relevant legislation explicitly affords the US Treasury Department more deference on tax collection rules. That greater deference insulates most policy support for clean hydrogen, renewable energy, and biofuels that stems from the American Innovation and Manufacturing Act and the Inflation Reduction Act, both of which passed in 2022.

Even if parts of the federal effort to fight climate change are in the clear for now, the ruling is a major blow to President Joe Biden’s strategy of using executive powers to circumvent a gridlocked Congress.

“This will make it harder for the Biden administration to pursue its ‘whole of government approach’ to addressing climate change,” says Jeff Holmstead, an attorney and former administrator of the EPA’s Office of Air and Radiation under George W. Bush, who sees the ruling as a good thing. “There are political appointees in virtually every federal agency—including agencies that have nothing to do with the environment—who are trying to find ambiguities in statutory language that would allow them to pursue their preferred policies.”

Life sciences implications

Pharmaceutical and medical device makers rely on a host of federal agencies to determine how they go about designing clinical trials, filing new drug applications, and negotiating prices. For those firms, overturning Chevron creates something the industry hates: uncertainty.

“I do worry about this revocation of a longstanding law to create more ambiguity in the system,” says John Maraganore, former CEO of Alnylam Pharmaceuticals and now a consultant to biotechnology firms. “Obviously we’ll need to see how that plays out over time, but I’m sure there are important regulatory scientists at the FDA [Food and Drug Administration] who are now wondering, or questioning, whether specific guidelines or rulemaking processes are bound to be challenged in the courts, instead of being accepted as regulation.”

Legal experts point to a couple of rules they expect to be litigated soon. One is a rule that was recently changed to require that most diagnostics be regulated as medical devices; previously, the FDA inspected and certified the labs making the tests instead of looking at the tests themselves. Another is a rule that gives extended patent exclusivity to certain drugs for rare diseases. That rule has already been subject to recent litigation; overturning Chevron opens the door to additional challenges.

Andrew London, a partner at the law firm Foley Hoag whose practice focuses on health-care regulation, is also watching the Inflation Reduction Act’s drug price negotiation measures, which have so far been implemented via informal guidance.

Industry watchers worry that the effect on innovation could be chilling if pharmaceutical companies—and, more to the point, their investors—don’t have a clear sense of whether guidelines from the FDA, the US Department of Health and Human Services (HHS), or the Centers for Medicare and Medicaid Services can be relied on.

“Reliability is always a good thing,” London says. “That’s what supports the investment. That’s what turns a good idea into a commercial product.”

As in the realm of environmental regulation, knotty scientific questions have come up in drug litigation before. In her dissenting opinion, Justice Elena Kagan cites Teva Pharmaceuticals USA Inc. v. US Food and Drug Administration, which raised the question of when an α-amino acid polymer qualified as a protein, such that the FDA would regulate it as a biological product. “I don’t know many judges who would feel confident resolving that issue,” Kagan writes. “First question: What even is an alpha amino acid polymer?”

Time will tell if judges truly decide to make that kind of call. Michael Varrone, a former senior lawyer for the FDA and HHS who now practices at Sidley Austin, expects that the more technical the question, the more likely a court would be to defer to the regulating agency’s guidance. But with Chevron gone, he points out, “it doesn’t have to.”

“For those of us that practice in the space of agency regulations and advising clients on disputes with the government, it’s a game changer,” Todd says. “It’s really going to shape how these parties interact with the government.”