Unraveling Climate Authority: The EPA’s Endangerment Reversal
In a bold move outlined last week, the US Environmental Protection Agency (EPA) is poised to release a proposal for public comment to repeal the 2009 Endangerment Finding, which has been the backbone of federal climate regulation for years. By recognizing greenhouse gases (GHGs) as pollutants that endanger public health and welfare, this finding granted the EPA authority to regulate emissions from vehicles, power plants, and industries under regulations such as the Clean Air Act (CAA). Without the finding in place, the EPA claims it lacks authority to regulate carbon emissions from vehicles, power plants, and industry.
Rather than disputing the science behind climate change, Lee Zeldin, the Trump-appointed EPA Administrator, is reportedly raising the finding as a legal challenge. The agency asserts that the CAA does not authorize greenhouse gas regulations based on climate impact. Note that the CAA was originally designed to protect against poor air quality caused by toxic and criteria pollutants, and evolved to encompass GHGs following the 2007 landmark Supreme Court decision in Massachusetts v. EPA. This approach aims to undo emissions standards by arguing that the EPA’s finding overstepped legal authority by imposing costs on Americans.
The draft proposal “Greenhouse Gas Endangerment Finding and Motor Vehicle Reconsideration Rule” is currently under interagency review at the White House Office of Management and Budget, and is expected to be released for public comment before formal adoption. It is anticipated that this will face court battles if finalized.
Following the Endangerment Finding reconsideration, the EPA announced plans to remove greenhouse gas emissions standards for light, medium, and heavy-duty vehicles and engines. These changes specifically target vehicle emissions, framed as part of a broader deregulatory agenda that includes revisiting more than 30 major climate and pollution rules, all tied to unwinding reliance on the Endangerment Finding.
Impact on State-Level Carbon Markets
State-level carbon markets, such as California's or Washington’s Cap‑and‑Invest programs, are grounded in state legislation, not the federal CAA. That means those programs remain legally intact even if the EPA repeals the federal endangerment finding. This specific federal move does not invalidate state Cap-and-Invest or Cap-and-Trade laws, and does not remove the ability of states to operate their programs.
Still unknown is the ultimate impact of President Trump’s April Executive Order on State Overreach that targets states’ climate programs. The Attorney General's “report to the President detailing actions taken and additional recommendations to protect American energy pursuant to the Order…” was due early June, with no details available to the public.
Meanwhile, the Trump Administration has seen California’s GHG CAA vehicle waivers disapproved via the Congressional Review Act and has filed lawsuits against New York, Vermont, Hawaii, and Michigan to prevent those states from taking action against GHG emitters. The One Big Beautiful Bill curtailed federal support for renewables and electric vehicles, while preserving incentives for biofuels and carbon capture. States await direct action from the Trump administration. Meanwhile, the Regional Greenhouse Gas Initiative (RGGI) Cap-and-Trade has completed its program review process, and states will implement the revisions based on their individual process. Allowance prices in RGGI and in Washington remain robust, based on supply and demand dynamics. In California/WCI, allowance prices are trading well below 2024 highs and just above the 2025 auction floor price, as the regulatory program review has been put on hold to focus on efforts in the California Legislature to extend the program. The California Legislative session ends on 12 September. Once lawmakers weigh in, regulators in California and Quebec are expected to proceed with a formal rulemaking to tighten program supply, with Quebec also having workshopped options for changing its offsets program. Washington
Revoking the Endangerment Finding and repealing GHG standards for vehicles would represent a fundamental reset of the federal climate toolkit and could have indirect impacts on carbon markets. Repealing the endangerment finding could unravel decades of climate protections, such as vehicle emission rules, which are already being dismantled, power plant limits, and industrial GHG restrictions. All of these policies, in turn, influence the valuation and demand for carbon credits in regulated carbon markets. For instance, the potential increase in emissions from reduced ZEV adoption and reduced uptake of renewables could create long-term bullish factors for the compliance carbon markets. The RGGI program review has dealt with lower expected renewable power generation and higher expected loads by reinforcing its cost containment provisions. Another review will kick off no later than 2028. The Washington Legislature also amended the Cap-and-Invest program in 2025 to enhance cost containment, as the program hopes to link to the wider WCI market as soon as possible.
ClearBlue will continue to monitor these developments and will provide updates as needed.