Implications of the Supreme Court Tariff decision

My first PhD publication was a co-authored white paper with Columbia Law School on the constitutional validity of the Regional Greenhouse Gas Initiative in light of the dormant commerce clause of the constitution. In other words, I’ve written guidance on constitutional law as it pertains to energy and emissions, and I actually have a somewhat practiced understanding of constitutional law in regards to energy. The Supreme Court’s cancellation of Trump’s tariffs decision on February 20th 2026 has important direct and indirect implications for clean energy broadly.

Direct financial markets implications for all energy

The largest immediate and direct implications of the tariff decision are in project capital cost (total installed cost of a plant or equipment) and cost of capital (the interest rate applied to the total installed cost)

It wasn’t just the direct additional cost of tariffs – this is also about predictability

Trump used the “International Emergency Economic Powers Act” to create the tariffs. While most of the traditional uses of the “economic emergency powers act” remain intact, the Supreme Court just set the precedent that novel uses of the act will not be permitted. This guidance will be used by lower-level courts to more rapidly shoot down novel uses by this administration and to prevent appeals by the current administration.

Reducing unpredictable events helps investments in infrastructure by reducing cost of capital

The most important outcome is that the US just moved closer to our historic predictability in investment markets that make doing business here easier than many other countries.

US infrastructure is investible from a credit market perspective because the predictability of policy makes risks well understood. The current administration has wrecked a lot of that in a chase of a “deal:” by keeping trade partners off balance and not knowing what is coming next, the current administration sought to extract more value.

The direct outcome is that risk is lower and more projects will be able to get funding at a lower interest rate as a result.

Yes, but there are other tariff options, though limited

There are other tariffs Trump can use – but those are limited to 15%, and expire after 150 days without congressional re-approval.

Uncertainty still exists, and 15% is enough to ruin a project, but just wait 150 days for the tariff to expire.

Supply chains restored

High tariffs caused havoc in supply chains. Energy tends to be a very narrow margin industry – and a change in supply chain cost will bring most potential projects into unprofitability. The removal of arbitrarily high tariffs will restore supply chains and supply chain reliability.

Yes, but there was some movement out of Chinese manufacturing

Supply chains have diversified some. The supply chain distortions ended complacency around geopolitical risk at many companies – with a direct result of companies finally looking at diversifying their supply chains. Many companies looked to manufacturing in Mexico, and Mexico put tariffs on China to prevent China from using Mexico as a back door to avoid tariffs.

The broader implications for clean energy are just as important

Supreme Court demonstrates they will push against Trump

The 6-3 decision across party lines is a strong rebuke of the policies of the current administration to take novel interpretations of existing authorizations. The courts have already suspended the “presumption of regularity” – the idea that the Department of Justice is acting properly in court when prosecuting or defending for the current administration. This verdict provides further precedence for lower courts to push against novel interpretations of existing laws and the current Department of Justice’s theatrics to defend these novel interpretations.

The biggest implication for clean energy: California’s canceled waiver looks like it could be restored

I’ve been waiting for this ruling specifically because it would be a signal the Supreme Court’s view of California’s case regarding their defense of their ability to set their own vehicle emissions standards.

The history of California’s waiver

The EPA authorization act in 1967 was signed by Richard Nixon (note: not a liberal) and the update in 1990 was signed by George H.W. Bush (note: also not a liberal[1]) expanded it to cover acid rain and toxic emissions. The original authorization provided California a waiver to create its own emissions standards to address its particularly bad air pollution issues caused by its unique geography. The act also authorized other states to follow California’s EPA standards – and 17 states accounting for 40% of passenger vehicle purchases sign on. This makes California the de-facto decider of many fuel efficiency designs in the US since a manufacturer will not set up separate production lines for CA-following vs US-EPA-following states.

California’s vehicle emissions EPA waiver is a high-value target for Project 2025

A major goal of Project 2025 was to end this waiver and use the court precedence to further prevent states from enacting any clean energy goals. In other words, the goal of Project 2025 is to cancel state-level ability to pursue clean energy and environmental goals, and the successful nullification of California’s vehicle emissions waiver would set precedent to move forward with this goal.

In Trump’s first weeks in office, he signed a Congressional Review Act resolution to nullify California’s EPA waiver. Both the Government Accountability Office and the Senate Parliamentarian said these waivers are not subject to the Congressional Review Act. California has taken the case to court, and the Supreme Court will be reviewing it.

The tariffs decision provides insight into the decision on the California EPA waiver

The Supreme Court decision on tariffs indicates that the justices favor more strict interpretations of established laws – and that novel interpretations will be quashed. Given that the Government Accountability Office and the Senate Parliamentarian both advised that California’s EPA waiver is not subject to the Congressional Review Act, it is likely that a strict reading of the original statute will result in the nullification to be overturned. In other words – California will likely get their waiver back if the court continues on strict interpretations of authorizing statutes.

Industry sees the Project 2025 goal as a black swan event

In a closing note – the Project 2025 path to closing out state mandates on clean energy is seen as extremely unlikely to happen, but the consequences would be end the clean energy industry. Without state-level air pollution controls and renewable portfolio standards, a federal government hostile to clean energy could gut the industry with no guardrails provided by state guidelines. In this scenario, the total cost of most clean energy projects including the fully loaded costs for providing power to the grid for 99.9% uptime would render them commercially unviable. Projects would become too high risk, the interest rates on the projects too expensive, and most projects become commercially unviable. Companies strictly in clean energy in the US would largely fold, and diversified companies would close their US clean energy practices and plans.

To reiterate – this is seen as unlikely. It would require some event like the California EPA Waiver cancellation being upheld, and then a path to use that as precedent to cancel more states rights. The logical leap there is pretty staggering, and the recent court ruling on tariffs furthers the view that the first step of this Project 2025 goal is extremely unlikely to happen.

[1] Remember when there was broad bipartisan support for both clean air and for science?