Samuel B. Boxerman Jim Wedeking March 13 2017 Challenge to two-for-one executive order may affect environmental regulations Sidley Austin LLP | Environment & Climate Change - USA Samuel B. Boxerman, Jim Wedeking Environment & Climate Change Federal court challengeWhat regulations are subject to the order?What is a 'significant regulation'?How will the cost of existing regulations be calculated?How does the order interact with statutory law?How long will the order remain in effect?On January 30 2017 President Donald Trump issued Executive Order 13771 on Reducing Regulation and Controlling Regulatory Costs, requiring executive branch agencies to repeal two rules for every one issued. The order also directs that all new agency regulations promulgated during fiscal year 2017 should not impose a net increase in costs.Federal court challengeTwo environmental groups and a union have challenged the order in a federal court, contending that:the repeal of any regulation for cost reasons would be arbitrary;the order directs agencies to violate numerous health, safety and environmental statutes; andthe order violates the Constitution.Public Citizen, Inc v Trump,(1) filed February 8 2017, is a facial attack, claiming that under no circumstances could any federal agency ever comply with the order.The plaintiffs' complaint includes hypothetical examples of how the order might be applied to proposed regulations. The plaintiffs then argue that the order prohibits agencies from accounting for the benefits of regulations, and that it would require agencies to violate authorising statutes, the Administrative Procedure Act and the Constitution.The order has not been applied to any specific regulation, which makes it difficult to gauge how the order will work in practice, despite the Office of Management and Budget issuing an interim guidance document.(2) However, the language of both the order and the interim guidance is suggestive of what regulated industries may expect.What regulations are subject to the order?Only new significant regulations by executive branch agencies require an agency to identify two regulations to offset costs by repeal. The order does not apply to independent agencies such as the Federal Energy Regulatory Commission, but the Office of Management and Budget encourages voluntary compliance with the order. There are several other exemptions, including regulations which:must be issued by statute or judicial order;affect only other government agencies;affect only agency management and organisation; andrelate to the military, national security or foreign affairs.The director of the Office of Management and Budget may also grant waivers on a case-by-case basis for new regulations relating to critical health, safety or financial matters. However, the matters which may be considered 'critical' are not defined.What is a 'significant regulation'?A 'significant regulation' has long been defined as a generally applicable regulation that imposes annual costs of $100 million or more, or otherwise imposes a material adverse effect on the economy, competition, jobs or state, local or tribal governments.(3) Examples include:the Clean Power Plan;the sulphur dioxide National Ambient Air Quality Standard review; andthe proposed Comprehensive Environmental Response, Compensation and Liability Act financial responsibility requirements for hard rock mining facilities.Significant regulations can also include those that raise novel legal or policy issues, even if they do not impose significant costs. For instance, the Environmental Protection Agency's (EPA) Clean Water Act general permit for point source discharges from the application of pesticides was deemed to be a significant regulation, despite having an estimated annual cost of $10 million.(4)How will the cost of existing regulations be calculated?In determining the cost of any regulation identified for repeal in conjunction with a new significant regulation, the interim guidance directs agencies to calculate opportunity costs in accordance with Office of Management and Budget Circular A-4. However, calculating opportunity costs could be contentious, as an estimate must be made of "the net benefit" that money spent to comply with a regulation "would have provided in the absence of the requirement".(5) In other words, agencies must estimate the value of investments never made. This will require new analyses of existing rules and agencies may not rely on the regulatory impact analysis of any rule that is a candidate for repeal. This will bring further scrutiny to how agencies calculate the costs of both new and existing rules. Judicial review of agency cost calculations may become more common, adding further impetus to consider the outcome of Murray Energy Corp v EPA,(6) involving challenges to the EPA's estimated cost of hazardous air pollutant regulations for coal and oil-fired electric utility steam generating units.(7)How does the order interact with statutory law?Executive orders cannot contradict or modify federal statutes. The order's language seems to adhere to this rule, containing eight statements in seven sub-sections indicating that agencies must comply with the order's requirements unless otherwise required by law, or words to that effect. Given that significant regulations may be promulgated under statutes that do not expressly allow for the consideration of costs, such as the Clean Air Act National Ambient Air Quality Standards, it is not yet understood how the order would apply to regulations issued under some statutes.How long will the order remain in effect?Section 2 of the order, establishing a requirement to identify two regulations to be repealed for every new significant regulation promulgated, explicitly applies only to fiscal year 2017, which ends on September 30 2017. However, Sections 3(a) and 3(d) establish a regulatory budgeting programme that requires the Office of Management and Budget to allocate to agencies a total amount of incremental costs that will be allowed for issuing regulations in fiscal year 2018 and beyond. The Office of Management and Budget will issue a new guidance memorandum to agencies for those years. It is not yet clear whether the 'two-for-one' repeal requirements will continue to apply in later fiscal years.For further information on this topic please contact Samuel B Boxerman or Jim Wedeking at Sidley Austin LLP by telephone (+1 202 736 8000) or email ([email protected] or [email protected]). The Sidley Austin LLP website can be accessed at www.sidley.com.Endnotes(1) Case No 17-cv-00253 (DDC).(2) See memorandum from Dominic J Mancini, acting administrator, Office of Information and Regulatory Affairs, "Interim Guidance Implement Section 2 of the Executive Order of January 30, 2017, Titled 'Reducing Regulation and Controlling Regulatory Costs'" (February 2 2017).(3) Executive Order 12866, 58 Fed Reg 51,735, 51,738 (October 4 1993).(4) 76 Fed Reg 68,750, 68,756 (November 7 2011).(5) Office of Management and Budget, Circular A-4, "Regulatory Analysis" at 19 (September 17 2003).(6) Case 16-1127 (DC Cir).(7) 81 Fed Reg 24,420 (April 25 2016) (cost calculation on remand from Michigan v EPA, 135 S Ct 2699 (2015)).