EPA Repeals Endangerment Finding; Compliance Carbon Markets Likely to Face Limited Headline Risk

Key Takeaways

• On February 12, 2026, the U.S. Environmental Protection Agency (EPA) finalized a rule rescinding the 2009 Endangerment Finding under Section 202(a) of the Clean Air Act. As of Feb 13th, the finalized rule language is not yet published.
• The Endangerment Finding was a key underpinning for federal climate policy, affirming that six greenhouse gases are a danger to human health. That finding has now been repealed.
• Accordingly, Federal GHG emission standards for vehicles and engines, including off-cycle credit mechanisms, are now repealed. On the flip side, this change potentially gives states more leeway to regulate these emissions.
• We expect this repeal to begin a long legal process that could end up in the Supreme Court, which has so far declined to consider challenges to the endangerment finding.
• In addition to the direct impact on emissions regulations, some also expect this repeal to open the door for challenges to state-level regulation of greenhouse gases. EPA’s announcement coincides with an expected legal action against state cap-and-trade markets, and we see some headline risk to CCA and WCA pricing. However, as cCarbon has noted in the past, programs like California and Washington’s cap and invest operate under their respective state laws, which have been well defended in the past, meaning that federal action would be an uphill battle.

What’s Happened?

• The U.S. Environmental Protection Agency (EPA) has finalized a rule rescinding the 2009 Endangerment Finding under Section 202(a) of the Clean Air Act. The Endangerment Finding was the key underpinning for much subsequent federal climate legislation, basis its affirmation that six greenhouse gases are a danger to human health. That affirmation has now been repealed.
• The withdrawal of the Endangerment Finding removes the structural legal basis for federal oversight of GHG emissions from vehicles, power plants, and other stationary sources, representing a major contraction of federal climate authority.
• California officials have formally opposed the rule. The California Air Resources Board (CARB) has highlighted that the action is inconsistent with scientific consensus and administrative obligations. Governor Gavin Newsom has signalled that California will pursue legal action.

Who Does It Concern?

• Transportation sector stakeholders, particularly automakers and fuel suppliers, given that federal tailpipe standards derive directly from the Endangerment Finding.
• Coal and natural gas power generators, who’s federal GHG compliance obligations are materially affected.
• State regulators and covered entities under California’s Cap-and-Trade Program, Washington’s Climate Commitment Act, and the Regional Greenhouse Gas Initiative.

Automakers in the Storm

• The EPA finding will likely have the largest and swiftest implication for US automakers. While official statements of support for EPA’s move have been seen from several of the largest American OEMs, under the surface one can expect a very messy situation. Certainty on the status of EPA’s repeal will take some time in the courts, and many will also wonder if this decision will last through the next federal administration. On top of this, US auto exports to the EU, Australia and other nations with vehicle emissions regulations will mean that US producers will be pulled in two directions at once. And finally, consumer attitudes towards EVs continue to warm, at least in some key geographies, making OEM decision-making even more complex.
• That all being said, it is likely that the near to medium term implications point to less focus on ZEV production and innovation by the US auto industry, with downstream effects on ZEV availability, affordability and overall uptake.

Possible Carbon Market Implications?

• The federal rule rescission does not change state carbon programs, and compliance obligations under state law will continue.
• Litigation may create short-term market risks, but we believe that the risk is largely headline risk.
• Latest pricing suggests very marginal dips in front prices for various carbon allowances. WCA front prices were down 9 cents, CCAs were down 7 cents, and RGAs were down 8 cents – a big difference from the April 7th, 2025, executive action where prices fell much more significantly (Eg: CCA prices went below the floor during the EO.

Figure 1: Front Prices of RGGI; WCA & WCI; Data Source: cCarbon info (WCA = Washington Carbon Allowance, CCA = California Carbon Allowance, RGA = RGGI Allowance)

What’s Next?

• California and other states likely to file legal challenges against repeal.
•  Some lawsuits against state programs likely in the coming weeks and months.
• Possibly more state-level regulation for emissions for transportation and power generation.

References

• U.S. Environmental Protection Agency: Final Rule rescinding the 2009 Endangerment Finding
• California Air Resources Board: Public response
• Governor of California. (2026, February 12) – CA Governor’s Press release