Court Cites “Major Questions” Doctrine when Striking Down Biden “Social Cost of Carbon” Efforts
The “major questions" doctrine provides that for “major policy question[s] of great economic or political importance, Congress must either: (i) expressly and specifically decide the major policy question itself and delegate to the agency the authority to regulate and enforce; or (ii) expressly and specifically delegate to the agency the authority to both decide the major policy question and to regulate and enforce.” As we noted in our last post touching on the “major questions” doctrine, we expect that the “major questions” doctrine may be a focus of other cases on the docket this year including a pending case involving U.S. Environmental Protection Agency greenhouse gas regulations.
Recently, the “major questions” doctrine was used to enjoin the Biden Administration’s efforts to consider the “social cost of carbon” as part of other regulatory proceedings. According to the Brookings Institute, “The social cost of carbon is an estimate of the economic costs, or damages, of emitting one additional ton of carbon dioxide into the atmosphere, and thus the benefits of reducing emissions. The estimate informs billions of dollars of policy and investment decisions in the United States and abroad.”
The Administrative Predicate to “Social Cost of Carbon” Regulation
Some background first: The government uses various economic tools to estimate the cost and benefits of governmental action and has done so through something known as Circular A-4 for decades. The cost-and-benefit calculation tools are long-standing and often prove contentious when used to value the costs and benefits of proposed government actions. Key precedent in this area include the Clinton Administration’s 1993 Executive Order instructing agencies to “assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating” [when] deciding whether and how to regulate.”
President Clinton’s Executive Order was implemented under the George W. Bush Administration’s Circular A-4, which compelled agencies to measure and report the “benefits and costs of Federal regulatory actions” using a standard set of metrics. Relevant here, Circular A-4 instructs agencies to use both a 3 and 7 percent discount rate when conducting regulatory analyses and to consider domestic, and not global, costs and benefits.
Direct assessment of the “social cost of carbon” began with an Obama Administration working group on social cost of carbon in 2009. While the Obama Administration purported to follow guidance contained in Circular A-4, it rejected the use of both 3 and 7 percent discount rates as well as consideration of only domestic effects based on the global impact of carbon dioxide emissions. (See here.) After the Trump Administration halted these efforts, the Biden Administration reinstated them through issuing its Executive Order.
The Louisiana v. Biden Decision
The Biden Administration’s reinstatement of “social cost of carbon” efforts was challenged by 10 states that pursued litigation in the Western District of Louisiana. In the recent Louisiana v. Biden decision, a district judge granted the states’ preliminary injunction request. In the case, the judge precludes use of the “social cost of carbon” estimates contained in the Biden Administration Executive Order on the grounds that the rule did not undergo notice-and-comment procedures provided under the federal Administrative Procedure Act and otherwise was at odds with existing law.
The Louisiana v. Biden decision is quite dense. We will focus here on its discussion of the “major questions” doctrine, and more specifically, three questions: (1) what questions are “major”; (2) what the Court posited that the Biden Administration could have done differently; and (3) what is next for “social cost of carbon” regulations?
What questions are “major”? “Major” policies are those which are “enormous and transformative” and which impose new obligations of “vast economic and political significance.” While the Western District of Louisiana never provides a clear definition of what policies were “major,” it accepts for its analysis here that this “social cost of carbon” policy ― estimated by the states challenging it to cost between $447 billion and $561 billion in 2020 dollars ― is “major.”
What did the Court say the Biden Administration needed to do to promulgate “social cost of carbon” regulations? The Court’s decision is somewhat equivocal on this point, positing that some parts of the “social cost of carbon” policy can happen through rulemaking consistent with the requirements of the federal Administrative Procedure Act; other parts might require statutory changes from Congress.
In the Court’s view, “social cost of carbon” metrics require authorization from Congress. Here, the Plaintiff States noted that most of the key environmental statutes only allow regulation of national impacts, and that, by taking into account global impact, the cost/benefit was misstated and overstated. The court agreed, and noted that considering “global” effects might require statutory changes.
Separately, Biden’s “social cost of carbon” rules dictated numerical values to be used for all policy determinations in contrast with earlier cost/benefit requirements discussed above. In the Court’s view, numerical policy changes must to be made through notice-and-comment rulemakings subject to the federal Administrative Procedure Act. Further supporting this, the Court noted that some aspects of the “social cost of carbon” policy contradicted previous notice-and-comment determinations under the federal National Environmental Policy Act statute, which can only be altered through notice-and-comment rulemakings.
What happens next? The Court’s decision here is on a preliminary injunction and the Biden Administration has indicated that it will try to appeal. Whether appealed or not, the decision is expressly not final and, the case will presumably continue in federal courts for some time. Assuming future court decisions are consistent with this decision, the Biden Administration might be forced either to drop the pursuit of “social cost of carbon” regulation or regulate it through use of notice and comment rulemaking and/or seeking additional authority from Congress.
We will keep an eye out for future developments in this area.