Does West Virginia v. EPA Doom the SEC’s Climate Disclosure Rule?

The Supreme Court’s decision in West Virginia v. EPA undoubtedly constrains the Biden Administration’s efforts to reduce greenhouse gas emissions. While the decision does not curtail the EPA’s traditional air pollution control authorities, it does make it more difficult for the agency to repurpose draft provisions to address traditional air pollutants so as to limit greenhouse gases. The decision could constrain other agency efforts to foster climate mitigation as well.

One regulatory proposal sure to get additional scrutiny in the wake of WVA v. EPA is the Security and Exchange Commission’s proposal to “enhance and standardize climate-related disclosures for investors.” In today’s Wall Street Journalformer SEC Commissioner Paul Atkins and former OIRA Administrator Paul Ray make the case that the SEC’s proposal is likely to be struck down in the light of the WVA decision. According to Atkins and Ray, the SEC is seeking to repurpose pre-existing statutory authority to address a new concern outside of the SEC’s core expertise. In other words, it is seeking to pour new wine out of old bottles, and this is something the Court rejected in WVA (as well as in its decision invalidating the OSHA test-or-vax mandate).

From the Atkins and Ray op-ed:

The SEC proposal, like the Clean Power Plan, asserts a new understanding of an old statute to justify itself. In West Virginia the Court found a highly probative that the interpretation of the Clean Air Act on which the plan turned was at odds with the EPA’s longstanding interpretation of that statute. The SEC disclosure proposal also relies on a new interpretation of old statutes—the Securities Act and Securities Exchange Act—dating back to the 1930s. In nearly every case in which the SEC has used theses to demand disclosures in the past, it has claimed that it was doing so because the required statute information was material—that is, financially significant to the reasonable investor. But the commission does not even attempt to show that all its proposed climate disclosures are material. The Supreme Court is likely to be as skeptical of the SEC’s claim to have discovered new powers in an old statute as it was of the EPA’s.

The SEC proposal, like the Clean Power Plan, would also vastly expand the issuing agency’s regulatory authority. The Clean Air Act gave the EPA power to set emissions standards for particular plants based on the emission controls the plants can implement; the plan would have fundamentally changed that regulatory scheme by allowing the EPA to set limits for the grid as a whole, with little limit to the kind of changes the EPA could force plants to make. So, too, with the SEC’s proposal: By departing from the materiality standard, the commission would set itself up to compel whatever disclosures it likes, without any standards against which the need for disclosures may be measured.

Finally, the SEC proposal, like the Clean Power Plan, would adopt a measure that Congress has already considered and declined to enact. In the Clean Power Plan case, the court pointed out that Congress “consistently rejected” revisions to the Clean Air Act to require a cap-and-trade scheme, yet the EPA went ahead with one anyway. The SEC has taken the same approach in its proposed rules. Congress has already once rejected legislation that would have directed the commission to adopt new climate disclosure requirements. The SEC is plunging ahead anyway.

Atkins and Ray are not the first to raise concerns about the legality of the SEC’s proposal. Back in April — before WVA v. EPA was decided — Stanford law professor and former SEC Commissioner Joseph Grundfest raised similar concerns in a Bloomberg column:

Even if the commission’s final rules are entirely reasonable, and even if they gain broad support from investors and securities issuers, they will probably never fully take effect. Why? Because courts could easily conclude that the SEC lacks statutory authority to mandate greenhouse gas (GHG) disclosures. That authority might instead belong to the Environmental Protection Agency. . . .

Several commissioners are on record expressing profound concern over climate change’s economic and political consequences. They are, in my view, entirely correct about the climate threat. But the same commissioners can’t, with a straight face, now claim that climate change doesn’t have “vast economic and political significance.” Nor can they claim that Congress clearly authorized the SEC to mandate climate emissions disclosures. Those claims are even harder to assert when the Clean Air Act shows that Congress knew how to structure unambiguous climate-related delegations. Ignoring this foundational question of statutory authority is like trying to hide a herd of elephants in a vanishingly tiny mousehole and hoping that no one notices.

Unlike Atkins and Ray, Grundfest supports broader climate reporting. He is simply skeptical that the SEC has the statutory authority to take this step.

More broadly, WVA v. EPA and NFIB v. Dept. of Labor I suggest that the Court is likely to be skeptical of the Biden Administration’s “whole of government” approach to climate change insofar as it involves deploying statutory authority that was not enacted with climate change in mind. As I discussed here, the Court is wary of agencies repurposing existing statutory authority without congressional approval. This creates a serious obstacle for climate measures that are not authorized by Congress.

Reviewing courts are likely to carefully scrutinize Biden administration initiatives to ensure agencies are exercising the powers given by Congress for the purposes Congress gave them, and will be suspicious when agencies — whether the EPA, SEC, FERC, or any other — purports to Find new authority to address climate change in old statutes that were enacted with other problems in mind. It will be one thing for agencies to use their traditional authorities in ways that reduce greenhouse gas emissions as a co-benefit. It will be quite another when agencies make greenhouse gas reductions the reason for invoking this previously enacted authority.

Leave a Comment