Katelyn McGruder

Associate Editor

Loyola University Chicago School of Law, JD 2026

 

The United States finds itself at a regulatory crossroads when it comes to environmental policy. The current administration’s efforts to block state climate regulations through executive action stand in stark contrast to the growing movement of state governments implementing stringent greenhouse gas reporting requirements. This divergence creates a complex compliance landscape where businesses must simultaneously adapt to federal deregulation while meeting expanding state-level environmental mandates. This tension between federal and state approaches to climate regulation presents both challenges and opportunities for corporate compliance programs. As federal agencies scale back environmental oversight, progressive states are filling the regulatory void with ambitious climate policies that often exceed previous federal standards. This blog examines this emerging dichotomy, explores its implications for business operations, and provides strategic guidance for maintaining compliance in this evolving landscape.

The growing divide between federal and state climate regulations

The Trump administration’s recent executive order seeking to preempt state climate laws represents the latest salvo in an ongoing battle over environmental regulation. This order specifically targets state vehicle emissions standards and energy regulations, framing them as burdensome to businesses and the economy. However, this federal action faces significant legal hurdles, particularly given California’s longstanding authority under the Clean Air Act to set its own emissions standards.

The courts will likely have the final say on whether federal authority can override state environmental protections. This creates substantial uncertainty for businesses that must make compliance decisions amid pending litigation. The outcome could reshape the regulatory landscape for years to come, making it imperative for companies to closely monitor these legal developments.

Meanwhile, state governments are demonstrating remarkable initiative in climate policy formation. Motivated by public demand, economic opportunity, and climate risk mitigation, numerous states have moved forward with aggressive environmental agendas. California, New York, and several Northeastern states have implemented comprehensive climate action plans that include strict emissions reporting requirements, renewable energy mandates, and carbon pricing mechanisms.

The expansion of state-level emissions reporting mandates

As federal environmental oversight diminishes, state governments are assuming greater responsibility for climate regulation. This shift has manifested most clearly in the proliferation of state-mandated greenhouse gas reporting requirements. California’s Climate Corporate Accountability Act represents one of the most far-reaching examples, requiring large corporations to disclose not just their direct emissions, but also those throughout their supply chains.

New York’s Climate Leadership and Community Protection Act establishes similarly rigorous standards, setting binding emissions reduction targets coupled with stringent corporate disclosure rules. Washington state’s Clean Energy Transformation Act combines ambitious clean energy goals with robust emissions reporting requirements. These state-level initiatives are creating a new paradigm of environmental transparency that businesses cannot afford to ignore.

The implications of these reporting mandates extend far beyond simple compliance. Companies face increasing pressure from investors, consumers, and business partners to demonstrate environmental responsibility. Failure to meet these expectations can result in tangible financial consequences, including lost business opportunities, difficulty attracting investment, and challenges in talent recruitment.

The enduring importance of compliance in a deregulatory environment

Despite the current federal approach to deregulation, maintaining strong environmental compliance programs remains critically important for several reasons. State attorneys general in environmentally progressive jurisdictions have demonstrated their willingness to aggressively enforce climate regulations. The threat of litigation from both regulators and shareholders continues to loom large for companies that neglect their compliance obligations.

The business case for proactive environmental compliance has never been stronger. Consumers increasingly make purchasing decisions based on corporate sustainability performance. Investment firms managing trillions of dollars in assets have incorporated environmental criteria into their decision-making processes. Top talent, particularly among younger generations, shows clear preference for employers with strong environmental credentials.

Forward-looking companies recognize that today’s compliance investments will position them for success regardless of future policy shifts. Should federal climate regulations return in subsequent administrations, organizations with established compliance infrastructure will adapt more easily than those that abandoned environmental oversight during periods of deregulation.

Strategies for effective compliance in a divided regulatory landscape

Navigating this complex regulatory environment requires a strategic approach. Companies must maintain vigilance in tracking both federal and state policy developments, recognizing that state-level requirements may change more frequently than federal regulations. Implementing comprehensive emissions tracking systems has become essential, not just for compliance purposes but also for meeting growing stakeholder expectations.

Engaging in policy development processes can help shape sensible regulations while demonstrating corporate leadership. Businesses could find value in participating in industry working groups or providing input during public comment periods. These efforts can help create more workable regulatory frameworks while positioning companies as constructive partners in environmental protection.

Perhaps most importantly, organizations should view environmental compliance not just as a legal obligation, but as a strategic opportunity. Companies that excel in sustainability reporting often find it enhances their brand reputation, strengthens customer loyalty, and improves access to capital. In an era of increasing environmental awareness, strong compliance performance can become a significant competitive differentiator.

Building resilience in an uncertain regulatory future

The current divergence between federal and state climate policies presents both challenges and opportunities for American businesses. While the federal government pursues deregulation, state governments are raising the bar for environmental accountability. This dynamic creates a complex compliance landscape that requires careful navigation.

Organizations that take a proactive approach to environmental compliance will be best positioned to succeed in this environment. By investing in robust emissions tracking systems, staying engaged in policy developments, and aligning compliance with broader business strategy, companies can turn regulatory challenges into competitive advantages.

The businesses that thrive in this new era will be those that recognize environmental compliance as an integral part of long-term success rather than just a response to regulatory mandates. As the policy landscape continues to evolve, this strategic approach to compliance will separate industry leaders from those struggling to adapt.