NOTE: The Supreme Court overturned the Chevron deference in a 6-3 decision announced June 28. This piece was originally posted May 28.

By the current session’s end, the U.S. Supreme Court is expected to strike down what’s known as the “Chevron deference.” The legal doctrine, established by Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., the high court’s 1984 decision involving U.S.-based oil giant Chevron, gives deference to regulatory agencies in interpreting and enforcing statutes when vague or ambiguous, which is often the case. The current court’s anticipated decision would instantly remake the U.S. regulatory landscape, a momentous upheaval that could affect firms, agencies and individuals awash in the election-year flood of political news and contingencies. The Chevron deference works in two steps: First, judges determine whether a federal law governing an administrative agency directly addresses an issue at hand or if it is too ambiguous. Then, if the law is found to be too ambiguous, courts give the federal agency and its experts the benefit of the doubt by deferring to the agency’s interpretation of the statute, so long as the court sees that interpretation as reasonable.

The doctrine is being challenged in two cases that went before the court in January; decisions on those cases are expected in the next month. The question is whether the Supreme Court will decide to eliminate – as widely expected – or narrow Chevron and significantly reduce the power federal agencies have in carrying out the government’s regulatory oversight. What would such a decision mean for businesses?

Eliminating Chevron would certainly have profound implications. As a practical matter, it is hard to see how courts and judges could deliver the scientific and technical expertise provided by millions of trained experts working in federal agencies – expertise needed to run the government’s day-to-day operations in areas ranging from drug safety to securities to airplanes.

Retired Justice John Paul Stevens, Chevron’s author, wrote in the 1984 decision that judges “are not experts in the field, and are not part of either political branch of Government. … In contrast, an agency to which Congress has delegated policymaking responsibilities may, within the limits of that delegation, properly rely upon the incumbent administration’s views of wise policy to inform its judgments.” The court decided, in other words, that in a world where Congress is not able to legislate for every hypothetical situation, executive branch agencies are better equipped than federal judges and courts to apply the statutes they were assigned to implement, and that these agencies are held accountable through presidential elections.

Change Could Produce Chaos

Chevron critics would counter that this deference is precisely the problem. Deference, critics claim, gives bureaucrats and administrators free rein to make sweeping policy changes with each new administration – often to advance specific policy agendas – yielding too much power to the executive branch at a time when Congress is prone to partisan gridlock. Business advocates challenging Chevron cite agencies’ ability to change basic rules on a whim, making it difficult for private entities to plan. These critics contend that courts should have the authority to check regulatory agencies and retain the final say on how a law is interpreted, effectively tipping the balance of power from the executive to the judicial branch.

A world without Chevron would in fact be far less predictable than the status quo, putting businesses in a state of low-grade, persistent uncertainty. It is difficult to imagine that Congress would make the time or retain the requisite expertise to ask the right questions and produce the knowledge for, say, a bill to regulate artificial intelligence, and then to pass legislation that leaves no ambiguity. Federal statutes will inevitably require interpretation. In lieu of Chevron, ambiguities would be resolved by various courts and judges around the country, creating conflicting rules as different courts reach different conclusions. In other words, regulatory chaos.

Given Chevron’s central role in allowing agencies to do their jobs, overturning Chevron would reverberate through the whole federal government. The effects would have a particularly high impact in the realms of new and emerging technologies, such as artificial intelligence and cryptocurrency, where regulators often need to apply decades-old statutes to entirely new industries. If courts were to become the ultimate arbitrators of statute interpretation, advances in healthcare and medical innovation may be stifled, especially those pertaining to polarized cultural issues. Environmental regulation would be upended, as it often relies on long-standing statutes from the 1960s and ’70s that need to be adapted to new scientific knowledge and address today’s challenges.

A 2022 case that questioned the federal government’s authority in limiting greenhouse gas emissions from power plants turned out to be a harbinger of what is to come. The Supreme Court ruled that regulators must have clear congressional authorization to actually regulate – a ruling that ignored the Chevron precedent without overturning it. Tossing out Chevron would call into question regulatory authority across the board, meaning that even well-established industries would find themselves in legal limbo.

The Power of the ‘Stroke of the Pen’

So much attention and debate tends to focus on new laws – think the Affordable Care Act or Dodd-Frank Act – yet the ways in which a law is interpreted, enforced and litigated is, arguably, just as important as its drafting. Thus Chevron’s crucial importance. But while it is tempting to point at regulators for abrupt and chaotic – or seemingly capricious and even incoherent – changes to regulatory policies, such actions can also come from the legislative branch, known as “stroke-of-the-pen” risk. It is unsurprising that with lobbying dollars flooding Capitol Hill, regulators find themselves exposed to political whims. Chevron or no Chevron, the influence of entrenched interests is not going away anytime soon.

How can businesses mitigate such regulatory risks and uncertainty? How do such risks vary across industries and around business cycles? These are questions we are examining in detail as part of the 2024 Kenan Institute Grand Challenge. Stay tuned!

This article is part of our Grand Challenge series on business resilience.

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