Michael Burger and Jessica Wentz

Last week, the Office of Information and Regulatory Affairs (OIRA) published final guidance on implementing President Trump’s Executive Order on Reducing Regulation and Controlling Regulatory Costs, which directs all agencies to control regulatory costs by: (1) ensuring that the “incremental costs” of all new regulations that are finalized this year, including repealed regulations, are no greater than zero, and (2) identifying two regulations to repeal for every new regulation that is proposed.  As we previously wrote, that order conflicts with existing legal mandates and undermines congressional authority. (See  here and here.)  In particular, the order places federal agencies in an untenable position by directing them to make decisions about whether to issue or repeal regulations based on factors that fall outside of the scope of the statutes they are implementing. As noted by the Supreme Court, regulatory decisions cannot rest on “reasoning divorced from the statutory text.”

The guidance issued last week solidifies and reinforces the fundamental legal problems with the original order. With respect to the 2-for-1 directive, the guidance clarifies that agencies should do more than simply identify two regulations for potential repeal for every one regulation issued – rather, it specifies that agencies must actually issue two “deregulatory actions” for each “regulatory action” undertaken. With respect to the zero-incremental-costs directive, the guidance confirms that regulatory benefits such as public health benefits and energy efficiency savings should not be accounted for when measuring the “incremental costs” of regulatory actions.

At the same time, the guidance recognizes that agencies “should continue to comply with all applicable laws and requirements” when issuing, revising, and rescinding regulations, and that these laws will affect the scope of costs and benefits that should be considered during the rulemaking process. Agencies typically need to weigh both costs and benefits during rulemakings, and agency action may be considered arbitrary and capricious if the agency does not conduct a balanced cost-benefit analysis. As noted by the Ninth Circuit Court of Appeals in Center for Biological Diversity v. National Highway Traffic Safety Administration (NHTSA) (2008), an agency “cannot put a thumb on the scale by undervaluing the benefits and overvaluing the costs” of regulatory action.

In some cases, agencies are outright prohibited from considering costs when issuing regulations. For example, the Environmental Protection Agency (EPA) can only consider scientific evidence about the effects of air pollutants on public health and welfare when establishing National Ambient Air Quality Standards (NAAQS) under the Clean Air Act. Indeed, the Supreme Court has held that the Act does not authorize EPA to consider the costs of attaining the NAAQS when setting the standard (Whitman v. American Trucking Associations (2001)), let alone the overall incremental costs of EPA’s regulations in that year.

While the guidance recognizes that agencies need to comply with other applicable laws, it fails to explain how agencies can reconcile pre-existing legal mandates that establish relevant considerations for rulemakings with the new mandate to ensure that the incremental costs of regulations are no greater than zero and to repeal two regulations for every one regulation that is issued.

Consider the following scenario: the Clean Air Act requires EPA to promulgate performance standards for stationary sources of air pollutants that endanger public health and welfare. These performance standards should reflect the “best system of emissions reduction” (BSER) available for that pollutant and source category, taking into account the costs of implementing that system. Pursuant to this directive, EPA determines that performance standards are needed for a particular source category and establishes standards based on the factors set forth in the statute. EPA also conducts a cost-benefit analysis and determines that the public health benefits of these standards will far outweigh any regulatory costs, and it is therefore in the public interest to issue this rule.

Trump’s executive order and the implementing guidance would require EPA to identify two other regulations to rescind and to somehow ensure that the incremental costs of this rule and any other rules issued that year are offset by cost savings accrued from deregulatory actions. If EPA follows these directives, it would likely be violating the terms of the statutes it implements in at least two respects. The first violation could occur in the context of the rule being issued. There is no language in the Clean Air Act authorizing EPA to account for overall regulatory costs or the availability of regulations to rescind when deciding whether to promulgate performance standards for stationary sources. If it withholds action, or sets standards in relation to the incremental costs, it will likely be out of compliance with its statutory mandate. The second violation could occur in the context of the rules being rescinded (the “deregulatory actions”). It would in some if not many or all instances be unlawful for EPA to repeal existing environmental protections for the purpose of implementing the order. The notion of “incremental costs,” divorced from a comparative analysis with regulatory benefits and from other statutory purposes, has no basis in the law.

The approach taken in the executive order and accompanying guidance departs from the well-established practice of cost-benefit analysis in rulemakings. Somewhat confusingly, the guidance directs agencies to refer to the Office of Management and Budget (OMB) Circular A-4 and Executive Order 12866 to clarify concepts related to the calculation of costs and cost savings. Both of those documents emphasize the importance of quantifying benefits alongside costs when conducting rulemaking.  For example, Executive Order 12866 states that:

In deciding whether and how to regulate, agencies should assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating. Costs and benefits shall be understood to include both quantifiable measures (to the fullest extent that these can be usefully estimated) and qualitative measures of costs and benefits that are difficult to quantify, but nevertheless essential to consider. Further, in choosing among alternative regulatory approaches, agencies should select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity), unless a statute requires another regulatory approach.

OMB Circular A-4 also recognizes that the weighing of both costs and benefits is essential to sound rulemaking, and that any regulatory analysis that excludes key costs or benefits would be “misleading.” Neither document recognizes any circumstance where it would be appropriate to only consider costs when making regulatory decisions.

The Natural Resources Defense Council, Public Citizen, and the Communications Workers of America have filed a lawsuit seeking to block implementation of the order. Their complaint alleges that the order “exceeds presidential authority and usurps Congress’s legislative authority” for much the same reasons as highlighted above.  (They also cite several examples of rulemakings that are currently underway where the executive order would require agencies to consider factors that fall outside of the scope of the statutes they are implementing.) On Monday, the Department of Justice filed a motion to dismiss the lawsuit, asserting, among other things, that the order does not usurp congressional authority because it instructs agencies to implement its directives “to the extent permitted by law.” The Department of Justice thus conceded that, where a statute bars an agency from considering the factors outlined in the order during a rulemaking process, the agency must adhere to the statutory directive.

Notably, this interpretation could render the executive order without effect in many circumstances, making it a true paper tiger. Consider again the example of EPA: the statutes EPA administers do not typically (if ever) authorize EPA to withhold regulatory action or rescind environmental protections based on the factors enumerated in the executive order. In other words, these statutes do not permit EPA to implement the executive order to any extent. The same could be said for many other agencies: since the factors that they can consider in rulemaking processes are enumerated by statute, there is no room for them to implement this executive order.

Even with the Department of Justice advancing this interpretation, the executive order and implementing guidance could have a very real chilling effect on agency action. For example, the guidance identifies a very narrow list of regulatory actions that might be exempt from the executive order’s requirements, noting that “statutorily or judicially required” actions – specifically, actions that are necessary “in order to comply with an imminent statutory or judicial deadline” – would be temporarily exempt from the requirements. However, the guidance also notes that agencies “will be required to offset any such… regulatory actions as soon as practicable thereafter.” The guidance also states that, in situations where the law prohibits consideration of costs in rulemakings, agencies will nonetheless “generally be required to offset the costs of such regulatory actions.” More generally, the guidance states that questions about whether the mandates apply to particular rulemakings will need to be resolved on a case-by-case basis. This will no doubt lead to further delays in the promulgation of regulations that are needed to implement statutory directives and protect public health and welfare.

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