The D.C. Circuit Court of Appeals just threw a major wrench into the effort to protect the planet—and teed up another chance for the Supreme Court to take a bite out of the administrative state.

The D.C. Circuit Court of Appeals ruled this week that federal agencies and courts have been misinterpreting a major environmental law for the last half-century, casting doubt on whether a key White House agency can actually write binding regulations on environmental policy.

In an unsigned 2–1 decision, a three-judge panel concluded that the Council on Environmental Quality, or CEQ, had been issuing binding regulations in error since the late 1970s. It held that the National Environmental Policy Act of 1969, also known as NEPA, did not grant rulemaking authority to the agency—which it had nonetheless wielded since the Carter administration.

The panel sounded almost surprised that it had to reach this conclusion in the first place. “The separation of powers and statutory interpretation issue that CEQ’s regulations present is thus unremarkable,” it noted in its ruling. “What is quite remarkable is that this issue has remained largely undetected and undecided for so many years in so many cases.”

Tuesday’s ruling in Marin Audobon Society v. Federal Aviation Administration is a complicated one, and it will likely come under intense scrutiny on appeal. Even the panel majority acknowledged that it is somewhat at odds with the Supreme Court’s own rulings on the matter. (More on that later.) Nonetheless, its conclusions could have far-reaching implications for how the federal government writes new regulations—and how it considers environmental issues when doing so.

Congress enacted NEPA in 1969 after the environmentalist movement emerged as a major force in American politics. In its most basic form, NEPA created environmental guardrails for other federal agencies to follow when carrying out their duties. When those agencies wrote or rewrote federal regulations, for example, the law generally required them to assess the environmental impact of their changes along the way.

NEPA also established the Council on Environmental Quality, a White House council that coordinates with the rest of the executive branch on crafting environmental impact assessments and weighing their impact on policymaking. CEQ is led by a three-member commission whose members are appointed by the president and confirmed by the Senate, giving it an unusually strong imprimatur among White House organs.

Since the Jimmy Carter administration, CEQ has also been issuing regulations of its own that bind other federal agencies. These are not merely advisory opinions that it renders on behalf of the White House. To the contrary, they are submitted through the notice-and-comment process like other federal regulations and are published in the Federal Register. Courts have often used them to resolve legal disputes over an agency’s actions and answer questions about whether and when they comply with NEPA.

That framework was supposed to decide this case as well. A coalition of local environmental groups in the San Francisco Bay Area sued the FAA over its plans to allow tour flights over four national parks in the area. The FAA had argued that it did not need to conduct an environmental impact assessment under NEPA when authorizing a formal plan for the flights.

In theory, the dispute turned on whether the FAA was correct to argue that it had a “categorical exemption” from NEPA, or if the environmental groups were correct to argue that the plan did not fall into the exemption based on CEQ’s regulations. Neither the groups nor the agency itself had argued that the NEPA regulations at issue were invalid or that CEQ lacked the authority it had claimed for itself under the law.

The problem, according to the panel, is that NEPA does not grant CEQ the power to issue those regulations in the first place. The misconception apparently stemmed from an executive order issued by Jimmy Carter in 1977. After the Justice Department had previously told the Supreme Court that CEQ’s guidelines were nonbinding, Carter’s order stated that federal agencies had to “comply” with “regulations” issued by CEQ to the extent allowed by law, citing NEPA and other environmental laws.

After Carter’s order, CEQ issued a wave of mandatory regulations for other agencies to follow, sweeping aside their existing practices and procedures for complying with NEPA. Succeeding generations of lawyers and judges assumed that CEQ had the power to issue those regulations, apparently without looking much further into Carter’s executive order or the text of NEPA itself to locate the actual legal authority.

Complicating matters is that the Supreme Court itself has upheld these regulations from time to time, operating under the presumption that CEQ had the lawful authority to issue them. In one case, for example, the justices said outright that CEQ had been “established by NEPA with authority to issue regulations interpreting it.” Judges in the lower federal courts are bound by Supreme Court precedent at all times.

This time, however, the panel majority concluded it was not bound by this description or other stray remarks in the high court’s rulings over the years. “The statement appeared without any accompanying legal analysis,” the panel noted, quoting from past rulings. “We must obey ‘carefully considered language of the Supreme Court, even if technically dictum.’ But we are not bound by every stray remark on an issue the parties [in those cases] neither raised nor discussed in any meaningful way.” In other words, because the Supreme Court had never directly considered CEQ’s authority, the panel was not bound by its assumption that it existed.

Judge Sri Srinivasan, who dissented in part from the court’s ruling, criticized his colleagues for ruling on CEQ’s authority even though no party had asked for it. He pointed to a doctrine known as the party-presentation principle, which generally holds that judges are only supposed to decide legal questions that are raised by litigants and briefed and argued by them. “Time and again, we have refrained from questioning the CEQ’s authority to adopt binding NEPA regulations because the parties did not raise the challenge,” he noted, pointing to past D.C. Circuit cases where they had assumed CEQ’s authority was valid.

Srinivasan also criticized the majority for adopting a remedy that the environmental groups had not sought. Because the FAA had relied on CEQ regulations when adopting its current plan for air tours over the parks, the panel vacated the current plan and ordered it to start anew. Srinivasan noted that the D.C. Circuit’s usual practice is to avoid remedies that would paradoxically lead to lesser environmental protections than if the environmental groups hadn’t challenged it at all. “When confronted with similar circumstances, our court has repeatedly remanded to an agency without vacating a flawed but environmentally protective agency action,” he noted.

Where this ruling goes from here is unclear. The FAA could, in theory, appeal the ruling to be reviewed by the entire D.C. Circuit, where Democratic appointees hold a majority. (The two judges who ruled against CEQ’s authority were appointed by Republican presidents.) The environmental groups could also ask the entire D.C. Circuit to review the remedy itself. If the D.C. Circuit reverses the panel’s ruling, neither party may be interested in taking it any further to the Supreme Court.

But the justices may already be aware of the issue with CEQ’s rulemaking authority. Next month, the Supreme Court will hear oral arguments in Seven County Infrastructure Coalition v. Eagle County, Colorado, a NEPA case about when and how federal agencies must consider environmental impacts. None of the parties in that case questioned CEQ’s rulemaking authority. A group of conservative law professors filed a friend of the court brief in September that argued it might be invalid.

“As a component of the White House, there is no doubt that CEQ has authority to promulgate rules of administration to guide agencies in their implementation of NEPA’s procedural requirements,” the law professors told the justices. “But there is no basis for those rules’ being judicially enforceable, and the D.C. Circuit’s enforcement of them was another source of reversible error.” It would be stunning if the justices took the same blunt approach in that case as the D.C. Circuit did this week. But it would not be a surprise if at least one or more justices publicly called for a future case to be heard on the matter.

It is worth emphasizing here that overturning CEQ’s regulatory power would not eliminate NEPA or its environmental impact requirements for federal agencies. Instead, each federal agency would likely adopt its own practices and procedures for following the law, just as they did before Carter’s executive order in 1977. That could lead to greater regulatory confusion if different agencies take different approaches to the law’s requirements, especially in the short term. For a Supreme Court that has already taken major swings at the administrative state, throwing NEPA into chaos would be one of its most far-reaching moves yet.