Judge Cain’s Injunction Concerning Social Cost of Carbon Is Reasonable

By Devin Watkins of CEI.

"Jonathan Adler’s recent article on a preliminary injunction by Judge James D. Cain makes it sound like it’s crazy, but I’m afraid that Adler has misconstrued the opinion. Judge Cain’s opinion is based on five key holdings:

1. The Interagency Working Group (IWG) on the Social Cost of Greenhouse Gases is an agency that has been tasked with deciding how much harm CO₂ causes.
2. The so-called “interim” social cost of carbon estimates it issued are actually final agency actions.
3. The states have standing because they are directly forced to use those figures and they are currently being used to restrict leases from which states get money.
4. This final agency action was a legislative rule, and therefore it was done without following the Administrative Procedure Act’s (APA) notice and comment requirements and contrary to prior agency actions, which did go through a notice and comment process.
5. Even assuming the APA procedures had been followed, the global harms calculations that the IWG used were in conflict with the harms the statutes considered relevant.

So, the first problem with Adler’s post, as I see it, is the title is wrong. Nothing in Judge Cain’s opinion or order prohibits the agencies from accounting for domestic costs of climate change. In fact, it insists on the agencies doing so using a 3 percent and 7 percent discount rate. (The discount rate is how much less valuable a dollar is in the future than a dollar today.)

The IWG is an agency because it acts independently of the president under authority delegated by him. It does more than make recommendations to the president, who then issues executive orders based on those recommendations. The judgment of the IWG is made binding on the Environmental Protection Agency (EPA) and other agencies in their cost-benefit analysis, causing such IWG evaluations to have legal effect.

In my opinion, Cain is right, and Adler is wrong, in that that these “interim” values were in fact a final agency action for three reasons:

1. The federal government told states that if they wish to use their sovereign authority to regulate their own citizens, they must use the agency’s numbers on harm from carbon dioxide (CO₂) in state implementation plans submitted to the EPA. If states believe these “interim” SCC numbers are incorrect and submit different numbers, the EPA will issue a federal implementation plan instead. That is not a “proposed” estimate of CO₂ harm lacking legal effect; that is directly regulating states in the exercise of their sovereign authority under threat of federal preemption if they don’t go along with it. (See e.g., New Jersey v. EPA, 989 F.3d 1038, 1046 (D.C. Cir. 2021.) “EPA’s actions injure states when those actions necessitate changes to state laws and make ‘the states’ task of devising an adequate SIP’ ‘more difficult and onerous.’”)
2. The Bureau of Land Management and the Department of the Interior are currently using the “interim” SCC values to reduce how many leases are issued for oil and gas production. States earn royalty payments from the production that occurs due to these sales, so the states are directly harmed financially by the reduction of issued leases.
3. Several agencies have issued final agency rules based upon the “interim” values (the EPA’s phase down of hydrofluorocarbons).

Non-final actions do not yet have legal effect, yet these “interim” IWG values are causing direct legal effect and as such are a final agency action. The final agency action doesn’t need to directly harm the plaintiffs by itself; it just needs to cause particularized harm that is imminent, and in this case, that harm is already occurring. These harms are ongoing harms against the states, and this injunction can prevent those harms from continuing to occur. As such, the states have standing. The states could have sued over each and every action taken based on the IWG’s numbers, but they are not required to file dozens of lawsuits that all stem from the same fundamental final agency action just because further agency actions will be taken.

Adler correctly notes that the presidency is not an agency, but he incorrectly implied that Judge Cain treated the presidency as an agency. Judge Cain explicitly did not issue the injunction to President Biden at all. If you read footnote 1 of Judge Cain’s order, it says where he orders “defendants,” it is “[w]ith the exception of President Biden as he is not an agency under the Administrative Procedures Act.” Nothing that Judge Cain did restrained President Biden directly in any way. Rather, the judge’s orders were to the agencies bound by the APA under the president.

Judge Cain determined the IWG’s interim values were legislative rules (not a mere policy statements) because they dictate specific numerical values for use across all decision making affecting private parties [Catholic Health Initiatives v. Sebelius, 617 F.3d 490, 495 (D.C. Cir. 2010)], and that such values “remove agency discretion.” [Texas v. EEOC, 933 F.3d 433, 442 (5th Cir. 2019) “[I]f a statement denies the [agency] discretion in the area of its coverage[,] then the statement is binding, and creates rights or obligations.”] The other agencies could not use CO2 harms other than the specific values determined by the IWG, thus removing agency discretion which would form the basis for if leases were granted, rulemakings occurred, or federal implementation plans preempted state authority. As the Fifth Circuit held in Texas v. EEOC:

Put differently, “where agency action withdraws an entity’s previously-held discretion, that action alters the legal regime, binds the entity, and thus qualifies as final agency action.” That withdrawal of discretion distinguishes a policy statement—which leaves the agency “the discretion and the authority to change its position … in any specific case” and “does not seek to impose or elaborate or interpret a legal norm”—from a final agency action.

Id. The IWG was not merely recommending that EPA or other agencies consider using such values, but the other agencies were, under executive order, required to use such values for CO2 harms.

Finally, Judge Cain evaluated the legal correctness of the IWG’s decision to consider international harms under the statutes that the IWG’s was purporting to act:

1. The Energy and Policy Conservation Act’s EPCA’s requirement that “consider the need for national energy and water Conservation” 42 U.S.C. § 6295(o)(2)(B)(i) or EPCA’s concern with “the need of the United States to conserve energy,” 49 U.S.C. § 32902(f)(b).
2. The Clean Air Act’s goal to “protect and enhance the quality of the Nation’s air resources” 42 U.S.C. 7401(b)(1).
3. The National Environmental Policy Act’s requirement that agencies to “assure for all Americans safe, healthful, productive, and esthetically and culturally pleasing surroundings,” U.S.C. § 4331(b)(2).
4. Mineral Leasing Act requirement “public welfare” of the United States and “the protection of the interests of the United States.” 30 U.S.C. § 187.

Judge Cain accepted the state’s interpretation of the statutes under which the IWG were purporting to act focused on the harms to the United States, not foreign nations. As such, including those harms in the IWG’s calculations was contrary to Congress’s intent in the statute to consider only domestic harms.

But even assuming the statutes were silent on considering international harms, which they are not, such a consideration of extraterritorial harms is a major question one that Congress, not regulators, should decide. There is, after all, a presumption against extraterritoriality. This is why Judge Cain finds EO 13990 contrary to law, because the statutes only consider domestic harms and the EO requires consideration of other harms. And, even if the statutes were silent, the President cannot unilaterally decide such a major question.

The President’s executive order is not itself a legislative rule, but it ordered the IWG to issue such a final agency rule contrary to Congress’ intent in the statutes to not consider such international harms. And the court is enjoining the government’s continued reliance upon that final rule of the IWG.

Contrary to Adler’s post, Judge Cain’s opinion does not prohibit the Biden administration from “changing course” where such actions are within the agency’s statutory authority, such as by changing which discount rates are considered. But if such changes occur to eliminate or change final agency actions taken with notice and comment (such as Circular A-4 which went through notice and comment under the OMB), the new action must at least also go through notice and comment to do so. The IWG did not go through notice and comment and so cannot be used to contradict Circular A-4. Additionally, the global harms part of the EO and the IWG’s work is contrary to statute and cannot be used by any of the defendant agencies.

Someone can reasonably disagree with Judge Cain’s statutory interpretation. But it is far from the crazy opinion that Adler makes it out to be."