Prospective Grandfathering: Anticipating the Energy Transition Problem

By Christopher Serkin & Michael P. Vandenbergh. Full text here.

Legal change has the potential to disrupt settled expectations and property rights. The Takings Clause protects some expectations by requiring compensation for the most significant costs of changes in the law. However, threats of takings claims and related claims of unfairness in political debates can discourage policymakers from adopting sound laws and policies. If specific legal changes can be anticipated far enough in advance, are tactics available to reduce the risk of takings claims and blunt their political force in the future? We explore this question in the context of natural gas. Rapid and widespread proliferation of natural gas is essential to near-term progress in reducing carbon emissions, but natural gas is often referred to as a bridge fuel because we will eventually have to pivot away from fossil-fuel-based electric generation to achieve climate goals. Without timely intervention, investments in natural gas infrastructure today may result in vested property rights that the Takings Clause may then protect against significant regulatory changes and that will serve as the basis of claims that regulators are acting unfairly.

We propose innovative tools that preserve flexibility so that necessary legal changes can defang takings claims in both public debates and legal actions. We argue that public and private actors can develop a record of the anticipated need for future regulations that will constrain the reasonable expectations of natural gas investments and will preserve regulatory flexibility in the future. More aggressively, we also propose prospective grandfathering as a regulatory innovation. Announcing but delaying the adoption of new regulations, combined with accelerated cost recovery for utilities, should immunize future governments from takings claims if, and when, climate change compels movement away from natural gas as part of the decarbonization of our energy supply. These new tools offer promise beyond natural gas and provide a new way of addressing anticipated legal change.