States' Rights Battle Erupts over Environmental Protection

Author

Tim Mohin
May 09, 2025

What’s in this week’s newsletter:

  • House votes to block California’s ban on gas-powered cars

  • Trump Administration sues states for climate policies, states sue back

  • Sustainability reporting is universal and growing in the US despite the headwinds

  • Scientific groups to issue the National Climate Assessment after US scientists dismissed 

  • EPA’s Energy Star Program, which has saved consumers $500 billion, will be eliminated

  • Investors are driving financial institutions to improve their climate commitments

  • EU’s securities regulator releases draft ESG ratings regulation

The fight brewing between the Trump administration and US states over environmental policies boiled over this week. It started with an executive order (EO) last month and has now escalated to Congress and the courts.  

House Republicans, joined by more than 35 Democrats, voted to block California’s ban on new gas-powered cars being sold in the state after 2035. The ban, to be phased in from 2026 and now replicated by 11 other states, was intended to gradually reduce the number of gas-powered cars allowed to be sold in the state.

Allow me a quick sidebar here as this issue is personal. In my early career, I worked on US air policy and was a part of the EPA team that negotiated the 1990 Clean Air Act Amendments (notably, under a Republican Administration). California’s right to establish more stringent clear air standards stems from the severe life threatening smog in the 1940s -1960s which spurred Earth Day and the 1970 Clean Air Act. The state’s leadership in air policy is well established in law, regulation, and practice - so much so that Section 177 of the Clean Air Act allows other states to adopt either the federal standard or California’s, but not create their own. For more than half a century, California’s leadership in clean air has saved countless lives in the state, the nation and - by developing new cleaner technologies - the entire world. 

California state leaders challenged the legality of the Congressional vote and vowed to fight back. Governor Gavin Newsom said in a statement, “Republicans are hellbent on making California smoggy again. Clean air didn’t used to be political.” 

This week, the Justice Department invoked Trump’s EO and sued Vermont and New York for their “superfunds,” which were created to hold oil and gas companies financially accountable for climate adaptation costs. In tandem, 24 Republican-led states joined another lawsuit against Vermont’s superfund. 

The Executive Order titled “Protecting American Energy From State Overreach” was originally considered more of a way to pressure states, but these new lawsuits challenge state sovereignty enshrined in the 10th Amendment. Meghan Greenfield, a former Justice Department environmental lawyer, said, “I don’t think that we expected an offensive effort against the states,” and referring to the Hawaii and Michigan suit, this is “a level of aggression we haven’t seen in this space before.”

States are fighting back: Attorneys General (AG) from 17 Democratic-led states and Washington, D.C., - led by New York AG Letitia James - sued the Trump administration for blocking wind energy projects. The lawsuit claims the Federal block on new wind projects threatens a burgeoning sector creating thousands of jobs, and that Federal funds have already been allocated to wind energy - a source that makes up 10% of the US energy mix. Another lawsuit, led by Washington, Colorado, and California, sued the Administration for withholding funds for EV charging infrastructure. 

US Sustainability Reporting Not Slowing Down

In the face of so much backlash, you would expect a slowdown in corporate sustainability reporting and action. But a recent Reuters report on “The state of Sustainability Reporting by United States business in 2025” would suggest otherwise: Some of the main takeaways include:

  • 99 of the largest 100 U.S. companies surveyed issued sustainability disclosures, 88% of those had third-party assurance, and 80% reported supply chain emissions (Scope 3) from suppliers.

  • Smaller businesses are part of the trend, with 90% of the Russell 1000 issuing sustainability reports. In another survey, 27% of 16,000 small and medium enterprises (SMEs) issued sustainability reports, and 53% said they will conduct some sort of disclosure in the next year. 

  • The value proposition is a driver, with 68% of SMEs seeing a positive return on sustainability investments. 

  • However, the backlash is still showing up, 61% of large companies predict the backlash will get worse before it gets better, and ‘green-hushing’ is rising, with a 26% drop in sustainability terms in press releases.

Filling The Scientific Void

Last week, we shared that 400 authors of a critical US climate report were dismissed. Two major scientific societies, the American Meteorological Society (AMS) and the American Geophysical Union (AGU), have announced they will pick up the slack and release findings similar to the National Climate Assessment. 

The groups claim they will release 29 peer-reviewed articles that will cover the contents of the 6th National Climate Assessment. In a joint announcement, the groups said: “This effort aims to sustain the momentum of the sixth National Climate Assessment, the authors and staff of which were dismissed earlier this week by the Trump administration, almost a year into the process.”

Aiming to benefit from the dismissal of US scientists, the EU pledged over 500 million Euros to attract US brain power to Europe. 

No More Energy Star Program

A highly popular program that has saved US households more than $500 billion in energy costs since it started in 1992 is the next to get axed by the Environmental Protection Agency. The Energy STAR program is a certification and labeling system that helps consumers identify energy-efficient appliances. 

Despite only costing $32 million and saving US consumers $40 billion per year, in a recent EPA meeting Paul Gunning, the director of the E.P.A. Office of Atmospheric Protection told employees, “The Energy Star program and all the other climate work, outside of what’s required by statute, is being deprioritized and eliminated.”

Investors Driving Climate Action

ESMA Rules for ESG Ratings Providers

The European Securities and Markets Authority (ESMA) released a draft consultation paper for Regulatory Technical Standards (RTS) for its ESG ratings regulations. The draft sets out ESMA’s rules for ESG ratings providers and is meant to bring more transparency and consistency, as well as reduce conflicts of interest. The consultation period will be open until June 20, before a final report is released for adoption in October 2025.

The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer. 

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