Last week the U.S. Supreme Court announced that it would hear arguments on an important environmental case. The lawsuit concerns the propriety of new EPA regulations that NFIB and other industry groups contend were illegally adopted. Specifically the Supreme Court will consider whether EPA has authority to begin regulating Greenhouse Gas (GHG) emissions from buildings, and other standing structures, under the Clean Air Act (CAA).
Congress has Always Balked at Greenhouse Gas Regulation
The Clean Air Act was enacted in 1963—long before the modern public debate over climate change and its causes. Over the years, Congress enacted various changes, building a complicated regime for controlling and limiting air pollution. But, the CAA was never intended to address global warming.
In enacting the CAA, Congress was not thinking about GHG emissions. To be sure, Congress has always, time-and-again, balked at proposals to regulate GHGs. Indeed, for years the environmental movement has lobbied Congress to enact GHG regulations, but proponents have been unsuccessful in convincing Congress that the benefits of regulation outweigh the severe impact that regulation will have on the nation’s economy.
For example, Congress refused to approve a treaty that would have bound the United States to reduce GHG emissions. And in President Obama’s first term, Congressional leaders tried—but failed—to enact a national cap-and-trade regulation to reduce GHGs. The reality is that Congress has long been divided on the issue of climate change and proposals for GHG regulation.
Why does it Matter to Small Business?
Given that Congress has yet to enact legislation to address climate change, the environmental movement has looked for ways to impose GHG regulations without going through Congress. For one, environmental groups have—unsuccessfully—advanced numerous lawsuits against energy companies, asking the courts to impose GHG emission limitations on America’s largest energy producers. But the Obama Administration has taken a more direct approach in authorizing the EPA to begin regulating GHG emissions under the Clean Air Act.
Of course NFIB has consistently opposed all attempts to regulate GHGs because of the economic impact that such regulation would have on the small business community. For one, small businesses subject to GHG regulations would be directly burdened with costly mandates to either scale back operations, or to utilize more expensive “green” technologies. But, indirectly small businesses would also suffer when the costs of regulation are passed on in the form of higher energy costs, or higher costs for goods and services.
For these reasons NFIB has pushed back against attempts to begin regulating GHGs through the back-door. For example in AEP v. Connecticut, NFIB Small Business Legal Center filed an amicus brief arguing that courts should not impose GHG regulation without Congress acting. And when EPA decided to begin regulating GHGs, NFIB joined with a coalition of other business organizations to fight back in court because GHG regulations under the CAA would mean costly new permitting requirements for new facilities, as well as other indirect costs to the small business community.
So what did EPA do exactly?
During the Bush Administration, environmentalists began pushing EPA to regulate GHG emissions from vehicles. EPA was reluctant, but the Supreme Court ultimately said that a provision of the Clean Air Act required EPA to promulgate regulations to reduce GHG emissions from vehicles if EPA determines that GHGs pose a threat to human health and welfare. Accordingly, EPA was charged with evaluating the effects of GHG emissions.
Fast forward to 2009 and EPA, under the Obama Administration, was singing a different tune. The agency was no longer reluctant to begin regulating, but was apparently intent on unveiling GHG regulations. Accordingly, EPA began promulgating regulation of GHG emissions from motor vehicles upon determining that GHGs contribute to global warming—and therefore endanger human health.
This is where things get interesting. At that point EPA argued that it could also begin regulating GHGs from “stationary sources” (i.e. buildings and other standing facilities). This is because other provisions of the CAA provide that regulation is required of emissions from stationary sources once EPA determines such emissions pose a threat to human health. Thus EPA has long taken the position that regulation of a gas, under provisions dealing with emissions from motor vehicles, triggers regulation under provisions dealing with “stationary sources.”
Why is this Controversial?
On first blush EPA’s position sounds reasonable enough. But the agency’s justification for regulation of GHG emissions from stationary sources is highly questionable upon closer examination. The problem for EPA is that it admits that regulation of GHGs would lead to absurd results. But, instead of recognizing that this prevents EPA from regulating GHGs, EPA choose to essentially rewrite the Clean Air Act to advance its policy objectives—apparently on the assumption that it maintains discretion to disregard what the law actually says in the name of environmental regulation.
As written the provisions dealing with regulation of emissions from stationary sources provide that EPA must impose emission restrictions on any stationary source emitting over 250 tons of carbon dioxide per year once EPA determines that a specific gas is subject to regulation under that provision. But EPA recognizes that it would be absurd to impose GHG regulations on all buildings, and standing structures emitting 250 tons of GHGs annually, because that would require EPA to impose draconian permitting restrictions on almost every newly constructed building in the country—including ordinary homes and very small businesses. As Case Western Reserve Professor Jonathan Adler explains, this would “cause the EPA’s existing program to explode.” Or in EPA’s words, regulation in accordance with the plain language of the law, would cause “[s]tate permitting authorities [to] be paralyzed by enormous numbers of  permit applications… [which] would vastly exceed the current administrative resources of the permitting authorities.”
So recognizing that it would be absurd to regulate GHG emissions in accordance with the actual language of the law, EPA decided to rewrite the law. EPA chose to disregard the textual requirement that it must regulate all stationary sources emitting 250 tons or more, and instead said it was going to adopt a special rule (the so called “tailoring rule”)—in the interest of administrative efficiency—to regulate fewer stationary sources. And while this might sound like a boon to the regulated community in a sense, the interesting twist is that the “tailoring rule” is predicated on an admission that regulation of GHGs, in accordance with the plain language, would amount to an absurd result.
In other words, EPA admits that it would be absurd to interpret the Clean Air Act as authorizing regulation of GHGs because of how severely it would then be required to regulate. So it rewrote the Act in order to justify regulating GHGs at a level it views as more reasonable. But, as we argued in our lawsuit, EPA should have stopped to ask whether it would be more appropriate to avoid the absurd result by interpreting the contested provision as foreclosing GHG regulation in the first place.
Is something greater at stake?
A basic rule of statutory interpretation holds that we should reject an interpretation that would lead to absurd results. So given that EPA recognized that its interpretation—allowing regulation of GHG emissions—was absurd, it should have adopted a different interpretation in order to avoid that result. Instead EPA chose to adopt the admittedly absurd interpretation and to then rewrite other provisions in order to somewhat mitigate the absurdity. But, only Congress can rewrite a statute. This is text book law.
This matters a great deal, even beyond the context of this specific (hot-button) issue. Indeed, if EPA gets away with interpreting the Clean Air Act in an admittedly absurd manner—by rewriting other provisions of the law, in order to serve its policy objectives—the agency will essentially have carte-blanch authority to implement any sort of regulation it might think appropriate. If this approach to rulemaking is allowed, any agency can take a general charge to regulate on a specific subject and manipulate it into a de facto authorization to regulate things Congress never intended.
Without doubt we would agree that the Executive branch should generally have discretion to regulate in less noxious ways—or to, prudently, hold off on implementation of draconian regulations that would hurt small business (see e.g. delay of the employer mandate). But, there is a real problem if an agency seeks to regulate on a subject that Congress never authorized regulation for—much less on a subject that the agency recognizes would be absurd to regulate in accordance with plain language of the statute Congress enacted. An agency cannot embrace an absurd interpretation in order to justify regulation of something Congress did not intend for the agency to regulate—even if the agency “graciously” provides that it will seek to minimize such absurd results by ignoring the language of the law. This sort of boot-strapping rationale would allow agencies to make law—essentially writing Congress out of the equation.
For more commentary, check out Jonathan Adler’s post on Volokh Conspiracy.