The U.S. Supreme Court has ruled that fuel producers have legal standing to challenge the Environmental Protection Agency’s (EPA) approval of California’s vehicle emissions regulations, which mandate increased production of electric vehicles. The decision hinges on “commonsense economic principles” to establish that the regulations cause measurable harm to fuel manufacturers, and that invalidating the rules would likely redress that harm.
The case, Diamond Alternative Energy, LLC v. Environmental Protection Agency, centered on whether indirect economic injuries—such as reduced demand for gasoline due to electric vehicle mandates—can justify legal standing under Article III of the Constitution. The Court held that if the regulations were overturned, automakers would likely produce more gasoline-powered vehicles, thereby increasing demand for liquid fuels. This causal chain, grounded in predictable market behavior, satisfies the redressability requirement for standing.
Justice Brett Kavanaugh, writing for the majority, emphasized that courts may rely on basic economic reasoning when assessing how third parties—like automakers—would respond to regulatory changes. The Court noted that California itself had acknowledged the regulations would significantly reduce gasoline demand and harm fuel providers. Additionally, some automakers predicted competitors would shift back to internal combustion engines if the mandates were lifted, reinforcing the likelihood of redress.
The ruling lowers the evidentiary burden for businesses indirectly affected by regulations. Plaintiffs no longer need expert testimony to prove standing; instead, a logical sequence of economic events suffices. The Court rejected the D.C. Circuit’s stricter requirement for direct evidence of third-party behavior, stating that the government cannot shield regulations from legal scrutiny by claiming peripheral entities are mere bystanders.
Justice Sonia Sotomayor dissented, arguing the Court should have remanded the case due to a timing error in the lower court’s analysis. Justice Ketanji Brown Jackson expressed concern that the Court applies standing rules unevenly, favoring corporate interests over individual rights. She questioned the majority’s reliance on “commonsense” reasoning, suggesting it risks judicial overreach, especially in cases that may soon become moot.
The decision leaves unresolved whether vacatur—complete cancellation of a regulation under the Administrative Procedure Act (APA)—is a lawful remedy. The Court assumed its validity without ruling definitively, noting that fuel producers can only obtain meaningful relief if the rule is vacated, as they are not directly regulated. This issue parallels debates over “universal injunctions,” which some justices view as exceeding judicial authority.
Another open question is whether entities further removed from regulation—such as suppliers to affected industries—can claim standing. The Court suggested a hot dog vendor might sue if stadiums banned hot dog sales, but did not clarify where the line should be drawn for more distant economic links.
The ruling reinforces that parties harmed by upstream or downstream regulatory effects can pursue legal challenges using rational economic inference, even without direct regulation. However, it also highlights the need for careful record development, as “common sense” may not always be uniformly interpreted across courts.
— news from JD Supra
— News Original —
Supreme Court Rules That Commonsense Economic Principles Can Establish Standing
Executive Summary
What’s new: The Supreme Court ruled that fuel producers have standing to challenge California’s EPA-approved regulations requiring automakers to produce more electric vehicles because “commonsense economic principles” show the regulations caused harm to the fuel producers that could be redressed by invalidating the regulations. But the decision leaves open the question whether vacatur is a valid remedy under the APA.
Why it matters: This decision makes it easier for businesses indirectly affected by regulations to challenge them, reducing the need for expert or other evidence to prove standing.
What to do next: The decision leaves unresolved the limits of standing for entities further removed from direct regulation. It does suggest, however, that an entity further removed from a regulation can bolster its claim for standing with evidence in the record of a regulation’s impact on the entity.
__________
In Diamond Alternative Energy, LLC v. Environmental Protection Agency, the Supreme Court held that fuel producers have standing to sue the Environmental Protection Agency for approving California regulations that would require automakers to manufacture more electric vehicles and fewer gasoline-powered vehicles than they would under ordinary market conditions. In particular, the Court held that the fuel producers showed redressability, because if the regulations are invalidated, automakers will likely manufacture and sell more gasoline-powered cars, thus increasing demand for liquid fuel.
In reaching that conclusion, the Court emphasized that when the possibility of redressability turns on the actions of third parties, courts may rely on commonsense economic principles to predict what those third parties are likely to do if the court grants the requested relief. That inquiry includes consideration of how actors will behave at various points along the chain of production.
The June 20, 2025, ruling is an important victory for businesses that, while not themselves directly regulated, nevertheless suffer economic injuries from, and may wish to challenge regulation up or downstream of their position in the marketplace. At the same time, the ruling contains reminders about the importance of nonetheless developing record evidence. It also leaves unanswered questions about the scope of vacatur under the Administrative Procedure Act (APA).
Background
The Clean Air Act requires the Environmental Protection Agency (EPA) to set emissions standards for certain air pollutants from new motor vehicles. 42 U.S.C. §§ 7521(a)(1). To promote uniformity in those standards, the Clean Air Act generally preempts state standards “relating to the control of emissions from new motor vehicles.” Id. § 7543(a). But there is one important exception: Subject to EPA approval, California may adopt more stringent emissions standards under certain limited circumstances, id. § 7543(b)(1)(B), and other states may choose to adopt California’s stricter emissions standards instead of hewing to the EPA’s standards, id. § 7507.
Since 2005, California has attempted to use its unique position to address global climate change by limiting greenhouse-gas emissions and encouraging the production of more electric vehicles, with mixed success. As presidential administrations have changed, so too have the EPA’s views. Under Republican administrations, the EPA has found that California’s authority to set its own emissions standards is limited to addressing local or regional pollution — and that it does not extend to combatting global climate change. But under Democratic administrations, the EPA has allowed California’s regulations to take effect.
History and Facts of Diamond Alternative Energy
This case involves California’s 2012 request for EPA approval of regulations that would require automakers to (1) limit the average greenhouse-gas emissions of new vehicles sold in California, and (2) manufacture a certain percentage of electric vehicles. Under President Obama, the EPA allowed California’s regulations to take effect in 2013. But during President Trump’s first term, the EPA rescinded approval in 2019. During President Biden’s administration, the EPA reinstated approval of California’s regulations in 2022. To date, 17 States and the District of Columbia have adopted California’s emissions standards, accounting for about 40% of the American market for new cars.
After the EPA reinstated approval of California’s regulations in 2022, several fuel producers sued the EPA in the D.C. Circuit, arguing that the EPA lacked authority under the Clean Air Act to approve the regulations because California’s emissions standards target not local pollution, as authorized, but rather global warming. These fuel producers manufacture and sell liquid automobile fuels, including gasoline, diesel, and ethanol.
To support standing, the fuel producers argued that California’s regulations depress demand for their fuel because they require the manufacture and sale of vehicles that use less (or no) liquid fuel. Thus, the manufacturers argued, invalidation of the EPA’s approval of California’s regulations would redress their injury, at least in part, because car manufacturers would once again produce and sell more gas-powered vehicles.
California intervened in the litigation to defend its regulations, emphasizing their importance to “meeting California’s emissions-control goals.” For example, California argued that, without the regulations, it expected fewer electric vehicles to be produced and sold, meaning there would instead be more gasoline-powered vehicles that would in turn produce higher greenhouse gas emissions. After the D.C. Circuit granted California’s motion to intervene, however, California argued that the fuel producers lacked Article III standing because, it claimed, consumer demand for electric vehicles was “surging,” and vehicle manufacturers would not “make more gasoline powered vehicles” even if a court were to invalidate the regulations.
The D.C. Circuit agreed with California and held that the fuel producers lacked standing. That court reasoned that “redressability depended on how third-party automakers would act in the absence of California’s fleet-wide emissions standards and electric-vehicle mandate.” Since the fuel producers failed to demonstrate that the automakers would produce more gasoline-powered vehicles if the regulations were invalidated, the court concluded that the fuel producers lacked evidence of redressability to support Article III standing.
Majority Opinion
In an opinion authored by Justice Brett Kavanaugh, the Supreme Court reversed the D.C. Circuit’s decision, concluding that the fuel producers have standing to challenge the EPA’s approval of California’s regulations.
The Court began by explaining that the “‘irreducible constitutional minimum of standing contains three elements’: injury in fact, causation, and redressability” (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). Here, there was no real dispute that the fuel producers showed injury in fact or causation. The regulations likely caused monetary loss to the fuel producers by decreasing demand for gasoline and other liquid fuels. The only question was whether the fuel producers had shown redressability. As to that element, the Court concluded that, if the EPA’s approval of California’s regulations were invalidated, it would likely redress “at least some of the fuel producers’ monetary injuries,” because it would likely “result in more revenue for the fuel producers from additional sales of gasoline and other liquid fuels.”
The Court described this case as presenting the “familiar circumstances where government regulation of a business may be likely to cause injuries to other linked businesses.” In other words, “when the government regulates (or under-regulates) a business, the regulation (or lack thereof) may cause downstream or upstream economic injuries to others in the chain.” See FDA v. Alliance for Hippocratic Medicine, 602 U.S. 367, 379 (2024). In those circumstances, the Court held, it is appropriate to consider “commonsense economic principles” when analyzing the predictability of third-party behavior for the purpose of redressability. And here, those commonsense economic principles supported finding that invalidating California’s regulations would likely redress the fuel producers’ injury. Following that relief, manufacturers would likely produce more gasoline-powered automobiles, leading, in turn, to greater sales of liquid fuels.
The Court observed that record evidence supported that commonsense conclusion. California estimated that its regulations would produce “substantial reductions in demand for gasoline,” and recognized that “fuel providers would likely be most adversely affected by the regulations due to the resulting substantial reductions in demand for gasoline.” And automakers who have invested heavily in electric vehicles and who intervened on the side of the EPA and California predicted that, “absent California’s regulations, other automakers would seek a competitive advantage over them by selling fewer electric vehicles and more gasoline-powered vehicles.” Thus, the “totality of record evidence” “make[s] it sufficiently predictable that invalidating California’s regulations would likely redress the fuel producers’ injury.”
Importantly, the Court clarified that the fuel producers did not need to introduce expert evidence to show redressability — all they needed to show was “a predictable chain of events.” The upshot, in the Court’s words, is that “[t]he government generally may not target a business or industry through stringent and allegedly unlawful regulation, and then evade the resulting lawsuits by claiming that the targets of its regulation should be locked out of court as unaffected bystanders.”
Dissenting Opinions
Justice Sonia Sotomayor dissented, arguing that the Court should not have granted certiorari to begin with. She suggested that the D.C. Circuit’s standing analysis relied on a misunderstanding about the duration of California’s regulations. Thus, in her view, the Court should “simply have vacated the case and remanded it to the D.C. Circuit to reconsider its redressability analysis” with the corrected timing in mind.
Justice Ketanji Brown Jackson dissented, too, arguing that the Court has not applied its standing precedents “evenhandedly,” and that its failure to do so “erodes public trust in the impartiality of judicial decisionmaking.” In particular, Justice Jackson reasoned that the Court is more lenient with “moneyed interests” as opposed to “ordinary citizens.” The majority responded to this critique by citing standing cases over the last few years that, it said, disprove her argument, such as a case where the Court found that an inmate on death row had standing to challenge the prosecutor’s refusal to provide DNA testing, see Reed v. Goertz, 598 U.S. 230, 234 (2023), and a case where the Court found that several medical associations lacked standing to challenge the Food and Drug Administration’s approval of mifepristone, see FDA v. Alliance for Hippocratic Medicine, 602 U.S. 367, 374 (2024).
Justice Jackson further asserted that this case did not warrant the Court’s attention because it “will soon be moot” because the EPA under the Trump administration is likely to change its position and revoke approval of California’s regulations anyway. Justice Jackson criticized the majority for stretching to find redressability in this case, and questioned what the majority of justices called “commonsense.”
Implications and Open Questions
The Court’s decision is important because it clarifies what unregulated entities must show to establish standing to challenge agency regulations that cause them economic harm. Specifically, the decision makes clear that courts may rely on commonsense economic principles about how rational actors will behave in the marketplace in order to predict the consequences of requested relief. Thus, unregulated entities who suffer economic injuries from the regulation of linked businesses can use commonsense inferences to establish redressability, and they do not need to present expert evidence to that effect.
“Predictable” versus “speculative” inferences. One open question, however, is how courts will draw the line between “predictable” and “speculative” inferences for potential plaintiffs that may be further attenuated from the regulated entity in question. For example, the Court suggested that a hot dog manufacturer would be able to sue if the government banned hot dog sales in stadiums, because the stadium regulation would adversely affect hot dog sales. But what about the hot-dog bun manufacturers? The condiment manufacturers? The company that makes the hot-dog sized disposable trays?
It is unclear to what extent courts will accept “common sense” in the place of record development, particularly where the questions become more speculative. Although the Court said expert evidence may not be necessary given common sense, the Court’s reliance on record evidence, and disagreement with the D.C. Circuit, are good reminders, to borrow Voltaire’s old saw, that common sense may not be so common.
Common sense was arguably clear in Diamond Alternative Energy: California’s about-face on the effect of its regulations underscored the obviousness of predictable economic results. In seeking to intervene before arguing that the producers lacked standing, California had itself emphasized those results — so much so that the Court’s response was reminiscent of the distaste it has expressed in other cases when a litigant “speaks out of both sides of its mouth.” Bittner v. United States, 598 U.S. 85, 97 n.5 (2023). Most cases, in contrast, are unlikely to involve clear support for standing by the party opposing standing — and the Court’s ruling is a good reminder about the strategic and credibility concerns with making such contradictory (but not alternative) arguments.
Validity of vacatur. Another open question concerns the continued validity of the fuel producers’ requested relief: vacatur of the regulations under the APA. The APA permits courts to “set aside” agency action, 5 U.S.C. § 706(2), but there is an ongoing academic debate about whether that language permits courts to vacate agency action. The Court in Diamond Alternative Energy avoided wading into that debate, instead adopting the lower courts’ interpretation without endorsing it. In a footnote, the Court explained that “[u]nder D.C. Circuit precedent, setting aside EPA’s approval would mean that California may not enforce its greenhouse-gas emissions limits and electric-vehicle mandate for new vehicle fleets” — i.e., the court would vacate the EPA’s approval of the regulations.
That remedy, however, looks similar to so-called “universal injunctions,” which the Court in Trump v. Casa held “likely exceed the equitable authority that Congress has granted to federal courts.” Vacatur, like the universal injunction, enables a court to grant relief that is not tailored to the parties before it. The question thus remains whether vacatur is likewise unlawful.
As it turns out, the answer to that question is probably outcome-determinative here, because the fuel producers can obtain relief in this case only if the APA authorizes vacatur of the regulations. That’s because the fuel producers are not themselves a regulated entity — the automakers are. So an injunction barring enforcement of California’s regulations against the fuel producers would not afford the fuel producers relief because they aren’t regulated by California’s rules in the first place.
Instead, the fuel producers “can obtain meaningful relief only if the APA authorizes vacatur of the agency rule, thereby remedying the adverse downstream effects of the rule on the unregulated plaintiff” — here, the fuel producers. See Corner Post, Inc. v. Board of Governors of the Federal Reserve System, 603 U.S. 799, 826 (2024) (Kavanaugh, J., concurring). (See our September 2024 article “Supreme Court Decisions Curtail Regulatory Agencies’ Powers, Making It Easier To Challenge Rules.”) Indeed, the fuel producers recognized as much—counsel for the fuel producers admitted at oral argument that vacatur was the only way to redress their injury. Nevertheless, the Court assumed that vacatur is a lawful remedy and avoided wading into that thorny question here.
The “object” of a regulation. Somewhat relatedly, the Court left open the question of whether the fuel producers could be considered the “object” of the California regulations, because the regulations “explicitly seek to restrict the use of gasoline and other liquid fuels in automobiles,” even though they don’t regulate the fuel producers directly.
Whether a party is the “object” of a regulation matters because the Court has long held that, “[w]hen a plaintiff is the ‘object’ of a government regulation, there should ‘ordinarily’ be ‘little question’ that the regulation causes injury to the plaintiff and that invalidating the regulation would redress the plaintiff’s injuries” (quoting Lujan, 504 U.S. at 461). Because the fuel producers demonstrated standing through common sense inferences and record evidence, however, there was no need for the Court to resolve that question in this case.