Diamond Alternative Energy LLC v. Environmental Protection Agency

LII note: The U.S Supreme Court has now decided Diamond Alternative Energy LLC v. Environmental Protection Agency

Issues

If a regulation doesn’t affect a party directly but only predictably, can that party still satisfy the redressability requirement for standing and bring a lawsuit?

Oral argument:
April 23, 2025
Court below:
United States Court of Appeals for the D.C. Circuit

This case asks the Court to determine whether fuel producers, like Diamond Alternative Energy, have standing to sue the EPA for its decision to allow California to impose stricter emissions standards than those in the federal Clean Air Act. Diamond argues that, while the decision affects only car manufacturers directly, and fuel producers only indirectly, the decision’s negative consequences for conventional fuel producers are so predictable that they should be able to sue to block the decision. Petitioners further argue that not allowing those who are indirectly regulated to sue would leave them dependent on third parties who may not share their interests and give the government an incentive to impose burdensome regulations. The Environmental Protection Agency, on the other hand, contends that allowing this type of standing would undermine the purpose of the Court’s standing requirements, which is to ensure that the Court resolves real, not hypothetical disputes and that a favorable court decision for a plaintiff remedies the harm they allege. This case touches on important questions about how regulations affect a variety of parties and who can bring suit when they believe the government has harmed them.

Questions as Framed for the Court by the Parties

Whether a party may establish the redressability component of Article III standing by relying on the coercive and predictable effects of regulation on third parties.

Facts

The Clean Air Act (“CAA”) gives the Environmental Protection Agency (“EPA”) the authority to promulgate federal emissions standards for new automobiles which preempt any conflicting state regulations because of 42 U.S.C. § 7543(a) , also known as Section 209(a). However, the CAA also gives the EPA the ability to waive the application of Section 209(a)’s preemption of state regulations if certain requirements are met. Nonetheless, Section 209(a) specifically states that the EPA shall not grant a waiver if it is convinced that a “State does not need such State Standards to meet compelling and extraordinary conditions.” This is known as the “compelling and extraordinary conditions” requirement of Section 209(a).

In 2012, California applied for a waiver of Section 209(a) from the EPA in order to promulgate a new set of regulations which were called “the Advanced Clean Car Program.” The proposed Californian regulations included a Low Emission Vehicle Program (“LEV”), which sought to reduce carbon dioxide emissions by thirty-four percent, and a Zero-Emission Vehicles Program (“ZEV”), which required about fifteen percent of future cars manufactured in California to be electric by 2025.

The EPA initially granted the waiver in 2013; but, in 2018 after a change in the administration, the agency issued a notice of proposed rulemaking to withdraw the portions of the waiver that covered the aforementioned regulations for three main reasons. First, the EPA believed that the waiver conflicted with a decision by the National Highway Traffic Safety Administration (“NHTSA”) stating that greenhouse gas regulations were preempted by the Energy Policy and Conservation Act (“ECPA”). Second, the EPA decided that it would interpret Section 209(a) differently by evaluating whether each standard in question, rather than the program as a whole (“whole program approach”), would meet the “compelling and extraordinary conditions” requirement of Section 209(a). Finally, the EPA found that California did not meet the “compelling and extraordinary conditions” requirement because it could not show a “particularized nexus between greenhouse gas emissions and California’s air pollution problems.” Nonetheless, in 2022, the EPA decided to reinstate its 2013 waiver.

There were two groups that legally challenged the EPA’s 2022 decision. The first group was composed of seventeen states (“State Petitioners”), and the second group consisted of entities that produced or sold liquid fuels, the raw materials used to produce such fuels, and associations that some of these entities belonged to (“Fuel Petitioners”). Both groups argued that the CAA did not authorize the EPA to grant the federal preemption waiver to California but for different reasons. The State Petitioners argued that the EPA’s waiver reinstatement decision was invalid because: (1) the federal ECPA preempted California’s regulations and (2) only granting the waiver to California would be unconstitutional because it would be an instance of the federal government failing to treat the sovereign authority of each state equally. The Fuel Petitioners contended that the EPA’s decision exceeded the agency’s statutory authority under the CAA. The United States Court of Appeals for the District of Columbia rejected the State Petitioners’ preemption argument and the Fuel Petitioners’ statutory argument for lack of standing . The Appellate Court also rejected the State Petitioners’ constitutional argument because the equal sovereignty principle does not pose a limit on Congress’s power to regulate interstate commerce.

Diamond Alternative Energy, LLC (“Diamond”) petitioned the Supreme Court of the United States to hear the case on July 2, 2024, and the Supreme Court granted certiorari on December 13, 2024, on the question of standing only.

Analysis

THE “PREDICTABLE EFFECTS” OF REGULATION

Diamond argues that the EPA’s decision to grant California a waiver to set standards designed to reduce the use of liquid fuels will cost them money––establishing a “pocketbook injury” for standing purposes. Diamond claims that the Court has repeatedly held that parties that are adversely affected, but not directly regulated, have standing to sue. Diamond contends that this is particularly true when the party that is not directly regulated is nevertheless the target of the regulation––which Diamond claims it is. Diamond asserts that Supreme Court precedents hold that when the plaintiff alleges a pocketbook injury, the redressability component of standing is satisfied if a victory would save the plaintiff money. Diamond contends that EPA’s waiver makes it harder for customers to use their products, so setting aside the waiver would result in redress. Diamond also claims that the Court has previously indicated that removing a coercive regulation establishes redressability. Diamond argues that when a plaintiff seeks to strike down a coercive government regulation, a court will find no mismatch between the injury (the regulation’s dampening effect on market demand for the product) and the remedy (removing the constraint). Diamond asserts that this is consistent with the purpose of the redressability requirement: to prevent parties from challenging laws that have nothing to do with their injuries.

Diamond claims that California’s standards force manufacturers to make vehicles that use less of Diamond’s primary product. Diamond argues that even though California regulates it indirectly, these standards deprive them of an opportunity to fully compete in the marketplace and removing the standard would redress this adverse effect. Diamond asserts that plaintiffs do not need to show that it is certain that a favorable decision will redress their injuries; only that it is likely. Diamond contends that California’s stricter standards are designed to reduce the number of conventional fuel vehicles produced and that the state would not bother implementing the standards if they did not achieve this purpose. Diamond thus argues that without the standards, car manufacturers producing more conventional fuel cars is not speculative but a matter of basic economic principles. Diamond asserts that car manufacturers have reacted to previous California emissions standards by selling fewer conventional fuel vehicles. Diamond claims that the D.C. Circuit’s reasoning would force plaintiffs to provide affidavits from the directly regulated party promising to act in a particular way.

The EPA argues that it is insufficient for standing to show that vacating the waiver will remove a legal impediment to the sale of Diamond’s products. Instead, EPA claims that Diamond is required to show that removing the waiver is likely to lead to increased sales of vehicles that use liquid fuel. The EPA contends that the Supreme Court has rejected theories of standing that rely on estimation or guesswork, and that Diamond’s theory of standing would require courts to guess what independent third parties will do. EPA argues that Diamond cannot merely allege that the agency’s decision will influence the third party’s actions––they must provide evidence that those effects will occur. EPA claims that, in previous cases where the Court found standing requirements satisfied based on a third party’s actions, the record showed clear evidence that the third party departed from longstanding practice due to the regulation.

EPA contends that there is no such practice by the car manufacturers in this case. EPA also argues that the Court has previously found a redressable injury when the government interferes with a plaintiff’s business relationship with a third party. But EPA notes that here, unlike in prior cases, the regulation does not target the relationship between liquid fuel manufacturers and car manufacturers––it targets the relationship between car manufacturers and consumers. EPA asserts that courts typically focus on the practical effect of the defendant’s actions on the plaintiff, and not merely whether the action imposes a legal impediment on the plaintiff. EPA contends that Diamond’s argument that the D.C. Circuit’s reasoning leaves indirectly regulated parties too dependent on directly regulated parties is incorrect. EPA asserts that plaintiffs like Diamond could also use evidence from economists or other experts to show that the market effects were predictable. EPA argues that Diamond’s dependence on manufacturers’ plans for standing is consistent with the purposes of standing doctrine. EPA claims that the redressability requirement of standing ensures that even litigants injured by a decision cannot bring suit if a favorable decision would not remedy the harm. EPA counters Diamond’s use of California’s claims about the purpose of the fuel standards by noting that these statements were about the original waiver granted in 2013, which is no longer relevant. EPA argues that Diamond must show that the 2022 renewal of the waiver caused them redressable harm, not the original. EPA contends that, given the contrary record evidence from manufacturers, Diamond is wrong to claim that its theory of standing is a matter of basic economic principles. EPA argues that Diamond’s allegation of a pocketbook injury is inapplicable here, because even a decision in its favor would not force anyone to pay Diamond any money. EPA also claims that the plaintiff must show that its harm is redressable at the time of filing––not that it will suffer harm at some point during the litigation.

HARM DEPENDING ON A THIRD-PARTY’S ACTIONS

Diamond contends that indirectly regulated parties can satisfy standing requirements if directly regulated parties’ actions in response to the regulation are reasonably predictable. Diamond claims that if the third parties’ behavior is predictable, the plaintiff can simply rely on commonsense inferences rather than evidence of that behavior in the record. Diamond argues that the adverse effects of the EPA’s waiver on it are apparent. Diamond asserts that the D.C. Circuit’s reasoning would make it nearly impossible for indirectly regulated parties to challenge a government action. Diamond claims that the D.C. Circuit’s reasoning forces indirectly regulated parties to rely on the actions of directly regulated parties to create standing, even though their interests may not align. Diamond maintains that directly regulated parties may suffer less harm from a particular regulation than indirectly regulated parties and may be unwilling to risk negative publicity by challenging the regulation. Diamond contends that in industries like auto manufacturing, which require substantial lead time to comply with regulations, manufacturers will likely prefer to cooperate with the government rather than sue in exchange for certainty about future regulations. Diamond also argues that the D.C. Circuit’s reasoning incentivizes agencies to target industries with crippling regulations if they do so indirectly.

EPA claims that evidence shows that car manufacturers are increasing their production of electric vehicles to meet sustainability goals and in response to growing consumer demand, not because of regulation. EPA contends that the lower court found that manufacturers are already selling more low-emission vehicles than California’s standards require. EPA notes that several manufacturers intervened in the case to explain that they had already made substantial investments in electric cars. EPA asserts that Diamond could not identify any manufacturer that said they would alter their plans if the waiver were struck down. EPA argues that since courts are not policymakers or auto industry experts, the D.C. Circuit correctly deferred to manufacturers’ stated intentions, particularly given that Diamond did not provide evidence in the record to support the alternative view. EPA maintains that none of Diamond’s policy arguments are relevant if the core requirements for standing are unmet.

Discussion

RELATION TO THE JUDICIAL SYSTEM

In support of Diamond, Foothill Church and Cedar Park Assembly of God of Kirkland, Washington (“Foothill Church”) argues that the D.C. Circuit’s view of redressability would negatively affect the judicial system because it would allow for states to create regulatory models that would avoid judicial accountability. The Two Hundred For Homeownership , in support of Diamond, also contends that the D.C. Circuit’s decision would be harmful to the judicial system because it would allow for courts to create obstacles to avoid reaching difficult questions, which could be detrimental to groups who need judicial review. The American Petroleum Institute, also in support of Diamond, further highlights that the D.C. Circuit’s requirements of redressability would impose unnecessary burdens on litigants by requiring them to spend significant resources to fill the court record with information that is unnecessary. Furthermore, in support of Diamond, the Chamber of Commerce also believes that the D.C. Circuit’s decision will undermine the judicial system because it will insulate many types of agency action from judicial scrutiny, and it will allow agencies “to manipulate federal-court jurisdiction to insulate themselves from any meaningful judicial review.”

In support of EPA, Professor F. Andrew Hessick (“Hessick”) argues that Diamond’s view of redressability is improper since it would result in courts violating separation of powers principles. In making this argument, Hessick points out that if a court were to issue a judgment on a case that does not remedy a plaintiff’s injury, it would be making its own policy judgments rather than performing the traditional judicial function of remedying injuries. Hessick believes that this would allow federal courts to decide issues that they should not be authorized to. Professor Heather Elliott (“Elliott”), in support of the EPA, asserts that the D.C. Circuit’s redressability requirement is necessary because it prevents unelected judges from questioning decisions that were made by the other elected branches of the government. In furthering this argument, Elliott claims that redressability is an important part of the judicial process because it prevents people from taking power out of the hands of the political branches of the government.

IMPACT ON OTHER PARTIES

Foothill Church, in support of Diamond, argues that the D.C. Circuit’s redressability requirement would harm religious organizations who are vulnerable for three main reasons: (1) they cannot handle the increase in litigation costs as well as other groups, (2) they are especially affected by First Amendment harms, and (3) directly regulated parties are unlikely to participate in litigation that affects these groups. In support of Diamond, the Texas Royalty Council also argues that ordinary businesses will be harmed by the D.C. Circuit’s redressability standard because it will prevent them from challenging agency decisions that affect their markets.

State Respondents assert that the D.C. Circuit’s redressability requirement would not adversely affect third parties because it does not limit the types of proof that a plaintiff can use to establish redressability. State Respondents point out that Diamond could have used sources beyond “affidavits from automakers,” such as facts from public databases, news articles, securities and court filings and government reports in order to show how they would have been affected by the decision. Furthermore, State Respondents also highlight that the D.C. Circuit’s decision does not “create artificially high evidentiary barriers” or “obstruct suits by unregulated plaintiffs who are adversely affected by an agency’s regulation of others” because it simply ensures that plaintiffs are the ones who are adversely affected and would benefit from a decision.

Conclusion

Written by: Brian Kam and Michael Spivey

Edited by: Tedrick Au

Additional Resources