No, the SEC Can’t Regulate Climate Change

If Congress wanted to authorize that, it would have said so

By Donald Kochan.

"Justice Antonin Scalia cautioned more than 20 years ago that Congress doesn’t “hide elephants in mouseholes.” When Congress chooses not to pursue a certain policy or delegate a new authority, it isn’t inviting administrative agencies to step in and fill the empty space. But federal agencies are increasingly attempting to impose major climate regulations with no mandate from Congress.

In its June 2022 decision in West Virginia v. Environmental Protection Agency, the Supreme Court made clear that federal agencies may not assert “highly consequential power beyond what Congress could reasonably be understood to have granted.” The EPA couldn’t find a provision in the Clean Air Act in which Congress gave the agency sweeping authority to restructure the country’s mix of electricity generation with its Clean Power Plan. Under the so-called major-questions doctrine, an agency action of political and economic significance—such as regulating carbon emissions—requires clear congressional authorization. The EPA didn’t have it, so the Clean Power Plan had to go.

With its recently proposed climate change policies, the Securities and Exchange Commission is similarly trying to exercise authority it doesn’t have. In an April 2022 rulemaking, the SEC proposed a set of expansive and costly regulations that would require public companies registered with the SEC to publish information about “climate-related risks” in annual reports and audited financial statements if those risks are “reasonably likely to have a material impact” on a company’s “business, results of operations, or financial condition.” The SEC also proposed requiring disclosure of registrants’ direct greenhouse-gas emissions as well as those from its purchases of electricity and its supply-chain partners.

This isn’t mere “disclosure.” It’s a heavy regulatory burden designed to serve climate policy goals, and it goes beyond the SEC’s statutory authority.

Climate change involves some of the biggest and most complicated policy debates of our day. A financial regulator empowered by Congress only to police fraud and protect investors isn’t equipped to engage with the policy questions surrounding climate change. That’s a mousehole of authority. There’s no room in it for a climate elephant to hide.

West Virginia v. EPA clearly poses a problem for the SEC’s climate proposal—and the commission knows it. Chairman Gary Gensler acknowledged that the case is “significant and meaningful,” and former Commissioner Joseph Grundfest noted that the SEC “was thrown for a loop” by the high court’s ruling. Nevertheless, the commission seems determined to dictate broad-reaching climate rules. In January, the SEC asserted that its climate disclosure requirements will be promulgated as a final rule in April 2023.

West Virginia v. EPA should serve as a clear warning to the SEC and other federal agencies—including the National Aeronautics and Space Administration, the Defense Department and the General Services Administration—not to act outside their purviews. If Congress had wanted them to have such broad power, it would have given it to them.

Mr. Kochan is a professor and executive director of the Law and Economics Center at George Mason University’s Antonin Scalia Law School."