Prospective Grandfathering: Anticipating the Energy Transition Problem

Abstract

Legal change has the potential to disrupt settled expectations and property rights. The Takings Clause provides protection from the most significant costs by requiring compensation following a change in the law, but threats of takings claims can discourage policymakers from adopting sound laws and policies. If specific legal changes can be anticipated far enough in advance, are there tactics available to reduce the risk of takings claims and blunt their political force in the future? We identify innovative tools that preserve regulatory flexibility so that legal changes can avoid takings liability, and we do so specifically in the context of natural gas and the acute threat of climate change. Natural gas poses a particular challenge to policymakers today. Rapid and widespread proliferation of natural gas is essential if we are to make major 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 reduce the risk of catastrophic climate change. 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. We argue that developing a record that constrains the reasonable expectations of investments in natural gas will help to 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 de-carbonization of our energy supply. These new tools offer promise beyond natural gas, however, and provide a new way of addressing anticipated legal change.