President Trump Targets State Laws That Burden Energy Production

In recent years, various Democrat-led states—such as California, New York, Vermont, Washington, Colorado, Illinois and Maryland—enacted or are considering laws to address climate change and quantify and/or limit GHG emissions.  The Executive Order takes aim at such recent state actions. The Executive Order specifically identifies New York and Vermont’s recent “climate superfund” laws, which attempt to collect billions of dollars from fossil fuel producers for GHG emissions to pay for climate change-related infrastructure projects and other climate-related expenses, and describes them as “extortion laws.”  The Executive Order also admonishes the State of California, which has long been at the forefront of GHG and climate change regulation, for “punish[ing] carbon use by adopting impossible” cap-and-trade standards and pursing “radical requirements.” California launched a cap-and-trade program in 2013, and was later followed by Washington and Oregon. More recently, in 2023, California enacted two climate-related disclosure laws, which require that certain companies publicly disclose their GHG emissions and prepare climate risk reports, although those laws are subject to ongoing legal challenge. These climate disclosure laws have served as the blueprint for other similar laws that are being considered by legislatures in other Democrat-led states, such as the climate-related disclosure law proposed by the Colorado legislature in January 2025, which would require certain entities to publicly disclose their annual GHG emissions.

President Trump previously pursued a more targeted legal challenge to the California cap-and-trade program during his first term, attacking California’s linkage of its program with the provincial government of Quebec, Canada, as impermissibly intruding upon the President’s authority to conduct foreign affairs and other related grounds. Now, the second Trump Administration appears ready to take more direct action against state cap-and-trade programs. The Executive Order notably does not specifically refer to the other major California climate program, the California Low Carbon Fuel Standard. Similar programs have been enacted in Oregon and Washington, and New Mexico has a similar program under development. The Ninth Circuit has rejected legal challenges to these programs which were based on allegations that the program violated the dormant commerce clause and other grounds, which could factor into any future federal challenges to these types of laws. The Executive Order discusses the Trump Administration’s priority to support domestic biofuel production, and as discussed in a previous Client Alert, there are cautious signals from the current Administration that could continue to support demand for and production of renewable fuels. So, the Trump Administration may be less inclined to directly address those programs.

The Executive Order implicates important questions about federalism. Given the breadth and interconnectedness of U.S. states’ commercial activities, some of these laws have significant long-arm reaches and may serve as de facto national standards for climate-related matters, particularly as the U.S. Securities and Exchange Commission climate-related disclosure rule is effectively dead.² In similar contexts, others have argued that executive actions have unlawfully infringed on state authority, wrongfully impaired the states’ ability to leverage their historic “police powers” to regulate conduct within their own borders, and improperly impaired the states’ abilities to act as “laboratories of democracy.” It is likely that we will see similar arguments to this Executive Order.

Another aspect of this argument involves the Trump Administration’s focus on energy production and generation. States have long held authority to regulate purely intrastate affairs, which includes the siting and generation of electricity, the production or oil and natural gas, and the mining of coal and other energy resources. With respect to the generation of electricity, this authority stems from Public Utilities Commission of Rhode Island v. Attleboro Steam and Electric Company, in which the Supreme Court defined division of federal and state authority over electricity regulation. The authority of states over electricity generation did not change with the passage of the Federal Power Act of 1935 (FPA). In the FPA, Congress reiterated the states’ jurisdiction over generation of electric energy, while giving more clarity to the Federal Government’s role in regulating interstate sales of electricity. For nearly 100 years, it has been within the authority of the states’ Public Utilities Commissions (PUC) to regulate electric production and generation.³

Similarly, states regulate oil and gas production within their boundaries on state-owned and privately-owned land, including the issuance of drilling permits and the intrastate transportation of these products by pipeline. Each major oil and gas producing state has an agency responsible for regulating upstream production activities.  The federal government regulates oil and gas production in offshore federal waters and on federal land.  A similar division between state and federal regulations exists with respect to the mining of coal and other energy resources.

In Section 2, the Executive Order requires the Attorney General to “identify all State and local laws […] burdening the identification, development, siting, production, or use of domestic energy resources that may be unconstitutional, preempted by Federal law, or otherwise unenforceable” (emphasis added). Section 2 continues by instructing the Attorney General to take appropriate action to stop enforcement of such State and local laws. However, the list emphasized above wades into authority historically held by the states and calls upon the Attorney General to end enforcement of laws that the Attorney General may not have authority to end. We expect that states will challenge any such actions taken by the Attorney General.

Conversely, supporters of the Trump Administration will likely argue that the Executive Order is an appropriate response to state laws that have significant effects outside the borders of that state. Of course, this argument will sound familiar to those who remember the Obama-era Clean Power Plan.  As Justice Gorsuch explained in his concurring opinion in West Virginia v. EPA striking down that federal executive action: “When [the Executive Branch] claims the power to regulate vast swaths of American life, it not only risks intruding on Congress’s power, it also risks intruding on powers reserved to the States.” The extent to which states should be permitted to set laws on climate-related matters that may have regional or national implications is already subject to litigation in a variety of forums. We expect that the Department of Justice may file new lawsuits challenging state laws with “extraterritorial” implications or seek to intervene in existing litigation implicating such issues.  Additionally, the Department of Justice could file new lawsuits targeting state laws deemed “unconstitutional” “preempted by Federal Law,” or “otherwise unenforceable,” which may not implicate the Federalism issues discussed above. The law governing these disputes is complex and continues to evolve.

Even with the Trump Administration’s attempts to curb climate-related legal reporting requirements and other climate change-related activities—at both the federal and state level—international climate-related requirements continue to push ahead, albeit on likely protracted timelines and, for some, narrower in scope. Most notably, the European Union’s (“EU”) Corporate Sustainability Reporting Directive (“CSRD”) is already in effect, although the EU has recently proposed an “Omnibus Package” in an attempt to streamline the CSRD.

Takeaways

Although this Executive Order adds to (1) the current uncertainty related to state climate and ESG-related laws and to (2) state authority over oil and gas drilling, the mining of coal and other energy resources and electric power generation within their borders, companies should continue preparing to comply with such laws and abide by state agency decisions even where they may conflict with the Executive Order on these issues pending the outcome of almost certain legal challenges by the Attorney General to current and pending state regulations.

We will continue monitoring developments in this space. Please reach out to your Vinson & Elkins team to discuss these matters and their implications for your business.

¹ For more information, please see the following Articles published by Vinson & Elkins L.L.P.:
New Administration: Key Energy Issues Tied to Executive Orders (published Jan. 29, 2025);
President Trump’s Executive Orders: Rethinking NEPA Regulations and CEQ’s Role in Federal Environmental Reviews (published Feb. 14. 2025):
Unleashing American Energy Signing Event: Executive Orders (published Apr. 9, 2025).

² On March 27, 2025, the U.S. Securities and Exchange Commission announced it would end its defense of the March 2022 climate-related disclosure rule. For more information, see Federal Climate Change Disclosures No More | Insights | Vinson & Elkins LLP.

³ Citizens Action Coalition of Indiana, Inc. v. FERC, No. 23-1046 (D.C. Cir. 2025)(“the States retain authority to choose their preferred mix of energy generation resources. CenterPoint’s new gas-fired units, and the decision whether to build them, are thus wholly beyond FERC’s jurisdiction. FERC cannot define the purpose of a project so broadly that it usurps the policy choices Congress left to the States”).