February 13, 2017 SIDLEY UPDATE Challenge to “Two-for-One” Executive Order Raises Questions About How the Order Will Affect Regulations On January 30, President Donald Trump issued Executive Order 13771 (EO), requiring executive branch agencies to repeal two rules for every one issued. Entitled “Reducing Regulation and Controlling Regulatory Costs,” the EO also directs that all new agency regulations promulgated during fiscal year 2017 should not impose a net increase in costs. Federal court challenge. Two environmental groups and a union have challenged the EO in federal court, contending that the repeal of any regulation for cost reasons would be arbitrary; that the EO directs agencies to violate numerous health, safety and environmental statutes; and that the EO violates the Constitution. See Public Citizen, Inc. v. Trump, Case No. 17-cv-00253 (D.D.C.) (filed Feb. 8, 2017). The suit is a facial attack, claiming that under no circumstances could any federal agency ever comply with the EO. The plaintiffs’ complaint includes hypothetical examples of how the EO might be applied to proposed regulations. Plaintiffs then argue that the EO prohibits agencies from accounting for the benefits of regulations and that it would require agencies to violate authorizing statutes, the Administrative Procedure Act and the Constitution. The EO has not been applied to any specific regulation, meaning that difficulty arises in gauging how the EO will work in practice despite the Office of Management & Budget (OMB) issuing an interim guidance document. See Memorandum from Dominic J. Mancini, Acting Admin., 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.’” (Feb. 2, 2017) (Interim Guidance). However, the language of both the EO and the Interim Guidance can provide some insight as to what regulated industries may expect. What regulations are subject to the EO? Only new significant regulations by executive branch agencies require an agency to identify two regulations to offset costs by repeal. The EO does not apply to independent agencies such as the Federal Energy Regulatory Commission, but OMB encourages voluntary compliance with the EO. There are several other exemptions, including regulations (1) required to be issued by statute or judicial order, (2) affecting only other government agencies, (3) affecting only agency management and organization and (4) relating to the military, national security or foreign affairs. The Director of OMB also may grant waivers on a case-by-case basis for new regulations related to critical health, safety or financial matters. What matters may be “critical,” however, is not defined. Attorney Advertising: For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Ave., New York, NY 10019, +1 212 839 5300; 1 S. Dearborn, Chicago, IL 60603, +1 312 853 7000; and 1501 K St., NW, Washington, DC 20005, +1 202 736 8000. Sidley Austin provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. SIDLEY UPDATE Page 2 What is a “significant regulation”? A “significant regulation” has long been defined in EO 12866, 58 Fed. Reg. 51,735, 51,738 (Oct. 4, 1993), as a generally applicable regulation that imposes annual costs of $100 million or more or otherwise imposes a material adverse affect on the economy, competition, jobs or state, local or tribal governments. Examples include the Clean Power Plan, the sulfur dioxide National Ambient Air Quality Standard review and proposed CERCLA financial responsibility requirements for hardrock 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, 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. 76 Fed. Reg. 68,750, 68,756 (Nov. 7, 2011). 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 OMB Circular A-4. Calculating opportunity costs, however, could be contentious, as one must make an estimate of “the net benefit” that money spent to comply with a regulation “would have provided in the absence of the requirement.” OMB, Circular A-4, “Regulatory Analysis” at 19 (Sept. 17, 2003). 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, Case No. 16-1127 (D.C. Cir.), involving challenges to EPA’s estimated cost of hazardous air pollutant regulations for coal- and oil-fired electric utility steam generating units. 81 Fed. Reg. 24,420 (Apr. 25, 2016) (cost calculation on remand from Michigan v. EPA, 135 S. Ct. 2699 (2015)). How does the EO interact with statutory law? Executive orders cannot contradict or modify federal statutes. The EO’s language seems to adhere to this rule, containing eight statements in seven subsections indicating that agencies must only comply with the EO’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 EO would apply to regulations issued under some statutes. How long will the EO remain in effect? Section 2 of the EO, establishing a requirement to identify two regulations to be repealed for every new significant regulation promulgated, explicitly applies to only FY 2017, which ends Sept. 30, 2017. However, Sections 3(a) and 3(d) establish a regulatory budgeting program requiring OMB to allocate to agencies a total amount of incremental costs that will be allowed for issuing regulations in FY 2018 and beyond. OMB will issue a new guidance memorandum to agencies for those years. Thus, it is not yet clear whether the “two-for-one” repeal requirements will continue to apply in later fiscal years. SIDLEY UPDATE Page 3 If you have any questions regarding this Sidley Update, please contact the Sidley lawyer with whom you usually work or Samuel B. Boxerman Jim Wedeking Partner Counsel [email protected] [email protected] +1 202 736 8547 +1 202 736 8281 Sidley Environmental Practice Our Environmental Practice consists of approximately 40 lawyers who concentrate on environmental and natural resources law. Established more than 35 years ago, our group is now one of the largest environmental practices in the United States, with extensive experience in all aspects of environmental and natural resources law. The depth and range of our practice and the frequency with which we address cutting-edge issues enable us to advise clients quickly and cost-effectively. For further information on our Environmental Practice, please contact David T. Buente (+1 202 736 8111, [email protected]), Robert M. Olian (+1 312 853 7208, [email protected]) or Judith M. Praitis (+1 213 896 6637, [email protected]). To receive Sidley Updates, please subscribe at www.sidley.com/subscribe. BEIJING ∙ BOSTON ∙ BRUSSELS ∙ CENTURY CITY ∙ CHICAGO ∙ DALLAS ∙ GENEVA ∙ HONG KONG ∙ HOUSTON ∙ LONDON ∙ LOS ANGELES ∙ MUNICH ∙ NEW YORK ∙ PALO ALTO ∙ SAN FRANCISCO ∙ SHANGHAI ∙ SINGAPORE ∙ SYDNEY ∙ TOKYO ∙ WASHINGTON, D.C. Sidley and Sidley Austin refer to Sidley Austin LLP and affiliated partnerships as explained at www.sidley.com/disclaimer. www.sidley.com .