Environmental Law & Policy Annual Review: May 31, 2017

Every year, the Environmental Law Institute and Vanderbilt Law School pick the year’s top academic articles to be presented, along with scholarly commentary at a public conference in Washington, D.C. This year’s conference is tomorrow, May 31, and I’m delighted to say that my recent empirical study, which compared companies warnings to regulators about the economic impact of regulation with their simultaneous reassurances to their investors, was selected for presentation.

It is free to register and attend the conference and, for those of you not in DC, it will also be broadcast by Webinar. Here is the information from the organizers:

March 31, 2017 Conference:

The Environmental Law & Policy Annual Review will host a conference in Washington, D.C., featuring a discussion about several of the articles selected for publication this year. The conference will take place on March 31, 2017, from 10:00 am to 2:30 pm, at the Environmental Law Institute:

1730 M Street NW
Suite 700
Washington, DC 20036

The event is free and open to the public, but registration is required.

The event will also be broadcast as a webinar, for which you may register here.

Conference & Prize Announcement: Third Annual Sustainability Conference of American Legal Educators, May 12 in Phoenix

Troy Rule, Faculty Director of the Program on Law and Sustainability at Arizona State University’s Sandra Day O’Connor College of Law asks me to pass on the following conference & prize announcement:

The Program on Law and Sustainability at the Sandra Day O’Connor College of Law is pleased to announce the Third Annual Sustainability Conference of American Legal Educators, to be held on May 12, 2017 at the Beus Center for Law and Society, new home of the Sandra Day O’Connor College of Law in Phoenix, Arizona.

This innovative annual conference is a national event for legal academics researching in environmental sustainability-related areas. The conference offers a unique forum for panels and presentations falling within one or more broad subject matter areas pertaining to environmental sustainability, including but not limited to:

  • Climate Change
  • Energy Law
  • Water Law and Policy
  • Environmental Law and Sustainability
  • Sustainability Policy and Natural Resources Law
  • Land Use and Zoning Law
  • Sustainable Development
  • Disaster Law

Carol Rose will be this year’s keynote speaker.

In connection with the conference, there’s also a $10,000 prize contest for recent sustainability-related law journal articles that are already written!  Entrants must merely send five offprints of their article and a cover letter to the address in the Call for Entries.  

See more info here: https://conferences.asucollegeoflaw.com/sustainabilityconference2017/morrison-prize-contest/



TransCanada Sues U.S. Government For Rejecting Keystone Pipeline

Courtesy of the <a href="https://www.aer.ca/about-aer/media-centre/photos">Alberta Energy Regulator</a>

Courtesy of the Alberta Energy Regulator

On Wednesday, TransCanada filed a complaint against the United States in a federal district court in Houston alleging that the President’s rejection of the Keystone XL pipeline was invalid and unconstitutional because it was not authorized by Congress. If successful, this claim would allow construction of the pipeline.

On the same day, TransCanada filed a notice of intent to submit a claim to arbitration under the North American Free Trade Agreement (NAFTA). Even if successful, this claim would not allow construction of the pipeline, but could entitle TransCanada to money damages from the United States. The company is asking for $15 billion in damages.

Like most private lawsuits against the government, these lawsuits face long odds, but both raise important and novel legal issues that will be difficult to decide. TransCanada’s constitutional claim could change the way that the United States approves international oil pipelines. And TransCanada’s NAFTA claim could endanger the United States’ long winning-streak in NAFTA arbitrations.

TransCanada’s Constitutional Claim

The most unexpected part of TransCanada’s legal salvo was the lawsuit that it filed asking a U.S. district court to rule that President Obama’s rejection of the Keystone XL pipeline was unconstitutional. TransCanada notes that Congress has never passed a statute that gives the President authority to reject international oil pipelines and says that, without such a law, the President had no authority for his unilateral rejection of the pipeline.

Congress has never provided a legal framework for regulating oil pipelines that cross the United States’ international borders. By contrast, there are laws that establish a process for the President to decide on international natural gas pipelines and electricity transmission.

In the absence of Congressional authorization, President Lyndon Baines Johnson simply issued an executive order in 1968, Executive Order 11423, that established a process for issuing permits to proposed oil pipelines that “would serve the national interest.” Then in 2004, President George W. Bush issued a new unilateral order, Executive Order 13337 that expedited review of border crossings. Both executive orders delegate decisions on these cross-border permits to the U.S. Secretary of State.

On November 6, the current Secretary of State, John Kerry rejected the Keystone XL pipeline after seven years of review. The official U.S. Record of Decision stuck by the State Department’s controversial previous conclusion that the pipeline would improve U.S. energy security, benefit the economy, and would be unlikely to increase greenhouse gas emissions in Canada. (It also suggested that the pipeline might even decrease greenhouse gas emissions in the United States by moving oil transport from railroads to pipelines, making oil transport more efficient.) But the U.S. concluded that the pipeline was ultimately not in the national interest because it could undercut the nation’s leadership in climate talks because the pipeline was “perceived as enabling further [greenhouse gas] emissions globally.”

TransCanada’s key argument is that, in the absence of any law, the President does not have unilateral authority to reject an international oil pipeline based on this kind of consideration. Although Presidents have claimed power to decide whether a pipeline is in the national interest since President Johnson in 1968, TransCanada argues that this power has never been fully tested because the President has never rejected an international pipeline.

This creates something of a puzzle: if Congress has never passed a law governing international oil pipelines and the President does not have authority to reject an oil pipeline, then who may, in fact, regulate pipeline border crossings?

One possible answer is that international oil pipelines are primarily regulated by the states, just like domestic oil pipelines. The U.S., unlike Canada, primarily relies on state-by-state regulation for interstate oil pipelines. That is, if no law has been enacted governing international oil pipelines, then the only laws that govern them are the same ones that govern domestic oil pipelines.

President Obama’s administration will raise several counterarguments. First, it will argue that the President has inherent and unilateral constitutional authority to control the nation’s borders, so he must have some kind of ability to control international border crossings. Second, if Congress has not established any criteria for the President to use in this decision, then he is free to create his own criteria. Third, President Johnson established this process almost fifty years ago and it has been frequently used to approve pipelines so Congress has, with the passage of time, acquiesced to this process. Fourth, federal district courts have upheld the President’s unilateral decision to approve international pipelines.*

TransCanada will respond that, whatever power the President has, it does not allow him to reject a pipeline based solely on international perceptions that are inconsistent with the government’s own environmental analysis. TransCanada’s complaint also argues that, far from acquiescing in the President’s unilateral authority to reject international pipelines, recent Congresses have repeatedly sought to constrain the President’s authority, citing Congress’s frequent attempts to approve the Keystone XL pipeline. Finally, TransCanada will point to federal court decisions and executive branch opinions from nearly a century ago, which concluded that in the absence of Congressional authorization the President had, at most, limited authority to control border-crossing facilities. Though old, these opinions may remain relevant in the unusual situation where, as with oil pipelines, Congress has not established a process for permitting border crossings.

The continuing saga of the Keystone XL drama overlaid with a tangle of old and new precedents and conflicting constitutional powers will make TransCanada’s U.S. lawsuit a case to watch. If a Republican is elected President this coming November, then the issue will likely be moot because the Republican contenders say they would reverse President Obama’s decision on the pipeline. But if not, then the U.S. courts will have to resolve the thorny issues raised by TransCanada.

TransCanada’s NAFTA Claim

TransCanada’s other action, its notice of intent to submit a claim to NAFTA arbitration, alleges that the U.S. discriminated against Keystone XL’s Canadian investors, violating its obligations to afford them national and most-favored-nation treatment under Article 1102 and Article 1103 of NAFTA. TransCanada also argues that by delaying a decision on the pipeline for seven years, and then denying it, the U.S. government destroyed the value of its investment, expropriating its property in violation of NAFTA Articles 1110 and 1105.

NAFTA claims are decided by three independent arbitrators. These arbitrators are not bound by the decisions of the arbitrators that decided previous claims. Thus, it is very difficult to predict whether a NAFTA claim will be successful.

If past cases are any indication, a Canadian company like TransCanada begins at a serious disadvantage. The United States has never lost a NAFTA decision to a foreign investor. And arbitrators have sometimes gone to great lengths to avoid a finding of discrimination. In one case, California passed a law that, it admitted, used “narrowly crafted language intended to prevent approval of a specific mining project” owned by Canadian investors. But the NAFTA panel for that case held that the law was not discriminatory because, in theory, that narrowly crafted language could apply in the future if another company proposed a similar project.

On the other hand, the extraordinary facts of the Keystone XL review process could end the United States’s NAFTA winning streak. First, throughout the seven-year review, President Obama repeatedly responded to complaints from pipeline supporters by admonishing them to remember “this is Canadian oil, this isn’t U.S. oil.” And the President’s administration was, at the same time, moving to expedite domestic oil pipelines. Second, after repeatedly delaying the decision on Keystone XL and repeated environmental impact studies, the U.S. denied the permit on the basis of a perception that was not supported by the seven years of analysis it had done. It will be difficult to explain why it took seven years to analyze the pipeline if, in the end, the government chose to ignore that analysis.

Finally, TransCanada’s lawsuits may operate in tandem because one relevant set of laws that Congress has passed concerning international energy trade is the set of laws approving and implementing NAFTA. In U.S. court TransCanada will argue that even if Congress has not prescribed a specific process for international oil pipelines, it has, at least ruled out any discriminatory or arbitrary treatment of Canadian investors in those pipelines. One of the chief challenges for U.S. lawyers will be to explain why the federal government should impose a uniquely lengthy and unpredictable process on Canadian oil pipelines while expediting domestic oil pipelines.

Regardless of the outcome, TransCanada’s Keystone XL challenges set the stage for potential blockbuster decisions that will have a lasting impact on energy, constitutional, and trade law.


You can see more legal documents & analysis related to the Keystone XL pipeline and other North American oil pipelines at Oil Transport Tracker (Shortcut link: http://j.mp/OilTransportTracker).



*Full disclosure: Before my academic career, I worked in private practice and represented TransCanada in two of these earlier cases. 

St. Gallen International Energy Forum – January 28-29, 2016

Lisa Schwarz, Research Fellow at the University of St. Gallen, asks me to pass on the following announcement:

Screen Shot 2015-11-28 at 9.06.11 AMThe 2016 St.Gallen International Energy Forum IEF will be held on 28-29 January 2016 with a roster of distinguished speakers and up-to-date topics. The 8th iteration will prove, once more, to be of utmost relevance and quality – both in regard to the invited speakers as well as to the questions covered. Topics will include inter alia: the Energy Union, energy law at the intersection with competition law, an industry panel with in-house counsel, the future of the energy market structure, as as well as an open discussion on the most current and burning topics. We will welcome more than 20 speakers and presiders – from practice, academia and the EU institutions – from both sides of the Atlantic to present and discuss the hot potatoes of the field.

Date: 28th and 29th of January 2016

Location: St.Gallen, Switzerland

Programme: http://www.sg-ief.ch/schedule/

Flyer: http://www.sg-ief.ch/flyer

Chair: Prof. Dr. Dr. h.c. Carl Baudenbacher

Registration is possible on our website http://www.sg-ief.ch/conference-registration/

Please refer to the online flyer for a full list of our speakers and the topics covered.

If you have any questions, do not hesitate to contact us at contact@sg-ief.ch!

Alberta’s New Climate Plan: Can Alberta Be a Model for Texas?

Screen Shot 2015-11-26 at 12.36.50 PM

Courtesy of the Alberta Energy Regulator

On Monday, Premier Rachel Notley announced Alberta’s new climate plan, which is supported by a detailed report from a panel of experts. The centerpiece of the plan is a $30/tonne price on carbon emissions in Alberta that is implemented through a modified tax dubbed a “carbon competitiveness regulation.” The plan also includes more targeted measures aimed at phasing out coal power, boosting renewable power, lowering methane emissions, and capping emissions from the oil sands.

The most important question about Alberta’s regulation is whether it will encourage other jurisdictions to follow suit. Alberta’s carbon emissions are just under 1% of the global total so it cannot do much to slow climate change by itself. But if Alberta can make stringent carbon regulations work in an energy-producing economy, it could stand as an important example for other energy producing jurisdictions.

As a result, Alberta’s plan may be the most important climate announcement of the year. To achieve the world’s climate goals, major energy producers around the world will have to lower their carbon emissions. But Texas and North Dakota or, for that matter, Russia and Saudi Arabia, aren’t looking to California or Europe for inspiration on climate policy. They will, however, be watching to see whether Alberta’s plan works out.

Alberta’s Announced Carbon Policy

Under the new plan, Alberta’s carbon price will rise to $20/tonne in 2017 and $30/tonne in 2018 and it will apply to anyone that burns or sells fossil fuels. The carbon tax’s design—known as the “carbon competitiveness regulation”—is more complex than its headline numbers suggest. Large industrial facilities, such as the oil sands, will receive credits from the government toward compliance and the companies that produce the least carbon-per-barrel will have more credits than they need to comply. These companies can then sell their excess credits to less-efficient companies who will snap up any credits sold at less than the headline carbon price. So even after 2018, companies may sometimes pay a bit less than $30/tonne of emissions and they will receive a substantial subsidy for their production, which will limit the net impact of the policy on industry.

On the other hand, the baseline carbon price is intended to rise over time slightly faster than inflation “as long as similar prices exist in peer and competitor jurisdictions.” About 90% of Alberta’s exports go to the United States, where there is no carbon price. So this may mean that the price will stay at $30/tonne until the U.S. takes similar action on climate.

Alberta’s proposed climate plan has other elements but the government has not yet revealed exactly how they will work. First, the province will take steps beyond the carbon price to make sure that coal-power is phased out by 2030. Alberta is targeting coal because it emits more carbon and air pollution than Alberta’s other sources of electricity. At the same time, Alberta will provide extra funding for renewable power through a “clean power call” that pays extra for sources like solar power and wind power.

Alberta also aims to cut methane emissions from the oil and gas sector 40% by 2030. The panel proposes to start cutting methane by providing offset credits to companies that find ways to reduce their emissions; these credits may be a cheaper way to comply with the carbon competitiveness regulation. After five years, the government would begin to mandate reductions to ensure that the oil and gas sector meets the 40% target by 2030.

Finally, Premier Notley also announced that carbon emissions from the oil sands would have a special 100 megatonne annual cap. (This policy is not contained in the panel’s recommendations to the government.) Right now, the oil sands emits about 70 megatonnes of carbon per year so it might eventually bump up against this cap if production continues to expand without efficiency improvements. But given lower oil prices and slower projected growth of the oil sands, emissions will probably not approach this cap for a decade, particularly because the cap includes exemptions for co-generation and crude processing. Ultimately, this supposed cap may be helpful rhetorically but it’s hard to say whether future governments would stick by it if it ever threatened to have real economic consequences.

The Big Question: Will Alberta’s Carbon Plan Encourage Action Elsewhere?

Unilateral climate regulations such as Alberta’s plan are politically challenging because they impose costs without providing any immediately obvious benefit. Clean air and clean water rules impose costs but provide citizens with the benefit of clean air and clean water. Climate change, on the other hand, is caused by global emissions so Alberta’s climate regulation will only provide tangible benefits if it encourages other provinces and countries to follow suit.

Premier Notley also implied that the new climate plan will have an indirect benefit by improving Alberta’s reputation in the U.S, and thus reducing foreign resistance to pipelines carrying Canadian crude such as the Keystone XL pipeline. This is a long-shot. Opposition to the Keystone pipeline was never conditional on the stringency of Alberta’s regulation. As I explain in this presentation, most U.S. opposition to the Keystone pipeline came from groups that are opposed to all new fossil-fuel infrastructure. Many Canadians favor both stronger climate regulation and better access to markets for Canadian crude; it would be pleasant to think that accomplishing one goal would lead to the other, but there is little evidence for this comforting theory.

So the success of Alberta’s carbon policy will be determined by whether it convinces other countries that its stringent carbon policy is workable in a major energy-producing economy. Like any carbon price, Alberta’s will encourage everyone in the province to burn less fuel by raising the price of electricity, natural gas, and gasoline. It will raise the average household’s cost of heat, power, and transport by about $500 a year.

Despite its costs, economists say this kind of carbon tax is the cheapest way to reliably lower carbon emissions because all carbon reduction policies have costs. But if you were a political leader in Texas or North Dakota or Russia would you follow suit? Would you be willing to impose these costs on your local economy to address a global problem like climate change?

There’s reason for hope: after all, governments raise taxes on their own businesses all the time. Carbon taxes may not be any more politically dangerous than other broad-based taxes such as a sales tax. And a carbon tax probably does less harm to the economy than common taxes such as those on corporate income. So countries or provinces can actually help both the planet and their economy by adopting a carbon tax and using the money to lower distortionary taxes like the corporate income tax. When a carbon tax is only used to replace other taxes, that’s called a “revenue-neutral” carbon tax, and it is what British Columbia has been using since 2008.

Alberta, however, chose not to take this route. Instead, Premier Notley said the government would “reinvest” much of the new revenue in green infrastructure, renewable energy, and efficiency programs. Alberta will rebate some of the costs of the program to low and middle-income consumers, but it is not yet clear how it will do this. So far, there is no indication that the government will use the revenue to reduce distortionary taxes.

Oddly, during the announcement, Premier Notley claimed that the new carbon tax would be revenue-neutral, because all the revenue will be “recycled back into the Alberta economy”—apparently she meant that the government will spend all the revenue it takes in. But that’s not what “revenue-neutral” means, and it is dangerous to call such a tax “revenue neutral.” Conservatives often point to British Columbia’s tax as an example of how climate regulation can be consistent with the small government principles that often drive policy in energy producing jurisdictions. These advocates of revenue neutral carbon taxes won’t get very far if “revenue neutral” becomes a euphemism for higher taxes and higher spending.

Alberta’s new climate policy will be one of the most carefully watched experiments in climate policy and it could change perceptions of what is possible in a major energy exporter. Much will depend on its success.

1st Annual Event of the UK Energy Law and Policy Association

Dr. Raphael Heffron, Lecturer in Law at the University of Leeds and Co-Chair of the UK Energy Law and Policy Association, asks me to pass on the following announcement about this week’s 1st Annual Event of the UK Energy Law and Policy Association:

Screen Shot 2015-09-06 at 9.06.32 AMThe study and practice of energy law is increasing in the UK and internationally. The UK has long been a place for leadership in energy law research and practice. The Centre for Energy, Petroleum and Mineral Law and Policy at the University of Dundee is one of the world’s oldest centres for research in the area. It has a very successful graduate education program with students from across the world and a well-developed alumni network. More recently, a number of other energy law centres have been established in the universities of Aberdeen and Queen Mary. In terms of legal practice, the majority of medium to large law firms now have specific energy divisions and in addition, it is now included as an area of practice when recruiting trainees.

Internationally, there are long established networks of energy law scholars and practitioners. Notably, in the US there is the Energy Bar Association (established in 1946) and in Australia there is AMPLA – The Resources and Energy Law Association (established in 1976). Recognising the need for a formal network of scholars and practitioners, Professor Cameron (University of Dundee), Professor Angus Johnston (University of Oxford) and Dr. Raphael Heffron (Queen Mary University of London) established a new UK Energy Law and Policy Association earlier this year in April 2015. The principal aim of the Association is to promote excellence in research, practice and administration of energy law and policy in the UK and internationally.

A key activity of the Association is to run an annual event that will focus on key legal issues facing the energy sector in the UK. Our first annual event will take place on the 10th and 11th of September 2015. The themes for this first event are on “Energy Disputes in Europe” and “Energy Law in the EU: A Fourth Energy Package or an Energy Union”. This two day event will take place in Oxford and for further details please look at the following link: http://energylaw.org.uk/events/annual-event/

We have been encouraged by the support we have received so far and this evidenced by the strong line-up of speakers that we have for the September conference, our first annual event. We have speakers from many of the leading law firms and barristers’ chambers in addition to speakers from the European Commission, the Energy Secretariat and more than several energy firms. We encourage non-law energy researchers to get in touch with us, whether it is for collaborative research, practice based projects or should they want to develop their own particular expertise on energy law and policy related issues.

We already have developed a number of key partnerships while we grow over the first three years – and are particularly thankful to the three universities mentioned earlier, DWF, King and Spalding, CMS Cameron McKenna and Oxera.

Finally, please do have a look through our website – http://energylaw.org.uk/ – and please do get in touch as we are very keen to engage with the wider academic and commercial energy community.

Call for Papers: Journal of Energy & Natural Resources Law

Prof. Don Smith, Editor of the Journal of Energy & Natural Resources Law, asks me to pass on the following announcement:

Screen Shot 2015-07-02 at 1.13.26 PMThe Journal of Energy & Natural Resources Law, the journal of the Section on Energy, Environment, Natural Resources and Infrastructure Law, will publish a special issue early next year about the IBA’s seminal report “Achieving Justice and Human Rights in an age of Climate Disruption.”

In commenting about the report Professor John Knox has said, “On the basis of a comprehensive review of the relevant domestic and international law, this report suggests concrete steps towards achieving climate justice that are both far-reaching and eminently sensible. Its analysis and recommendations should be read by everyone involved in climate policy.”

Similarly Michael Gerrard, an expert in climate change law, has called the report “ground-breaking” adding that it “draws on the weaknesses inherent in current domestic and international law to identify opportunities for reform by governments, UN bodies, the WTO, human rights tribunals, courts, corporations and individuals to reduce greenhouse gas emissions and provide justice to those most affected by climate change.”

The report is an important addition to the existing recommendations and literature about climate change. The special issue will assess the report’s observations and recommendations.

Anyone interested in writing an article (in the range of 10,000 to 15,000 words) or a commentary (in the range of 2,500 to 5,000 words) about the report is encouraged to contact me at dcsmith@law.du.edu with questions or a proposal for submission.  Or if you know of people I should contact, please let me know that as well.

There is a great deal of interest around the world in the fact that an IBA task force wrote this report.  The significance of the world’s premier professional legal organisation taking this on is not lost on anyone to whom I speak.

Many thanks in advance for your ideas.  All the best,


Supreme Court: EPA Should Have Considered Cost When Deciding Whether Mercury Limits For Power Plants Were Appropriate

Screen Shot 2015-06-29 at 9.19.29 PMToday the United States Supreme Court held that the Environmental Protection Agency (EPA) improperly refused to consider costs when determining whether it was “appropriate and necessary” to regulate mercury emissions from power plants under the Clean Air Act. Ultimately, EPA may be able to keep the same rules after going back and explaining why the cost of the regulations is justified in the circumstances. But the decision is an important victory for advocates of cost-benefit analysis and those who think environmental agencies should pay more attention to the costs of regulation.

Section 112 of the Clean Air Act directs EPA to regulate hazardous air pollutants from power plants if it finds “regulation is appropriate and necessary.” 42 U.S.C. §7412. EPA said that regulation was “appropriate and necessary” even without considering costs because 1) power plant emissions posed risks to human health and the environment that were not eliminated by other provisions of the Clean Air Act and 2) there were controls available to reduce those dangerous emissions. So there was no need for EPA to consider costs to make its initial decision to regulate, but it promised to consider costs when adopting the actual final regulations for power plants.

Although EPA said it ignored costs when it made its initial decision to regulate, it still estimated the costs and benefits of the final rules that it adopted. EPA estimated that its rules would cost power plants $9.6 billion dollars a year. EPA couldn’t estimate all the possible benefits of limiting mercury emissions, but the little it could quantify came to about $5 million a year—less than 0.1% of the cost of the rule. On the other hand, EPA said that cleaning up mercury would have massive side benefits: it would lower sulfur dioxide emissions and these reductions would be worth between $37 and $90 billion per year. So these ancillary benefits far outweighed the costs of EPA’s rule, but if you didn’t count them, EPA’s rule imposed costs far in excess of its benefits.

Justice Scalia, writing for a 5-4 majority, held that EPA must consider the costs of regulation before making its initial decision to regulate, reasoning that “No regulation is ‘appropriate’ if it does significantly more harm than good.” The four dissenters conceded that, generally speaking, “an agency must take costs into account in some manner before imposing significant regulatory burdens” but agreed with EPA’s argument that the agency could consider those costs later when adopting regulations for specific source categories.

The Supreme Court’s decision may not have much impact on mercury regulation. Power utilities are already complying with the mercury rules that the court struck down in this case. And the case will now go back to the appellate court, which could decide to leave the rules in place while the agency rethinks whether these rules are “appropriate and necessary” factoring in the costs that they impose. EPA already determined that the benefits of the rules far outweighed their costs if you consider ancillary benefits, so it will probably reach the same decision. On the other hand, the Court’s decision raises very important questions for the future.

First: Can agencies consider ancillary benefits? At oral argument, some justices seemed to suspect it was inappropriate to consider the benefits associated with pollutants other than mercury. After all, if the other pollutants are the problem, why not adopt regulations aimed at the other pollutants? On the other hand, it has long been standard practice for agencies to consider ancillary or “co-benefits” of reducing pollutants other than the main target of regulation. If an agency is going to consider all the important costs of a regulation, why shouldn’t it consider all the important benefits? In some ways, the mercury rule may just be an outlier case because EPA estimated that the co-benefits of reducing sulfur dioxide were 10,000 times greater than the direct benefits of reducing mercury itself. But over half of the benefits of EPA’s Clean Power Plan come from co-benefits in reducing pollution other than greenhouse gases, so the question does have wider importance.

Second: How much cost-benefit analysis will the Court require for other regulations? Today’s decision may be seen as part of a trend that is making cost-benefit analysis a kind of default background principle for agency decision-making. Just fourteen years ago, Justice Scalia wrote an opinion for eight justices, holding that EPA could not consider the cost of regulation when the Clean Air Act demanded a standard at the level “requisite to protect the public health.” In that case, Justice Scalia explained that EPA could consider costs later when it implemented the standard. Last year, the Court held that EPA could consider the cost of emissions controls when it decided whether a State “contributed significantly” to air pollution in another state; Justice Scalia dissented. Now, the Court holds that EPA must consider the cost of regulation when it determines whether regulation is “appropriate and necessary.” Justice Scalia writes the opinion, and all justices agree that EPA must consider costs at some stage. Observing this trend, litigants will feel increasingly bold to demand that EPA consider the costs at each stage of adopting new environmental regulations.

Encouraging Energy Companies to Inform Their Investors About Risks They Face From Climate Regulation

Screen Shot 2015-04-23 at 5.00.29 PMMy recent study compared what oil companies told two audiences—regulators and investors—about how new environmental rules would affect them. It showed that the companies told the two audiences two very different stories: companies warned the Environmental Protection Agency (EPA) that the rules would be unworkable but securities disclosures reassured investors that the rules would be manageable.

To give EPA industry’s honest view on whether rules are manageable, I suggested that companies should file excerpts from their securities disclosures with their comments.

But what if the comments to EPA are accurate—companies really are terrified about new regulations—and they’re just not telling their investors? After all, shareholder groups and proxy advisory firms have complained that energy companies are ignoring Securities and Exchange Commission (SEC) guidance on disclosing risks from climate regulation.

In a new post at Columbia Law School’s blog on corporations and capital markets, I explain how industry’s comments to regulators can be used to encourage companies to inform their investors of real risks that they face from regulation. Here’s the end of the post:

Investors should use company comments to identify risks that companies may be minimizing in their 10-K disclosures. And the SEC should insist that companies tell investors about any risks that they are stressing to regulators. …

In the meantime, corporate counsel should get ahead of regulators and investors by aligning comments and securities disclosures. When a company’s comments and 10-K disclosures are revealed to be inconsistent, it has put itself in a lose-lose situation. Regulators will discount the company’s pessimistic comments. But if a new rule does harm the company, investors will have evidence to support a Rule 10b-5 lawsuit. Although it is harder to sue a company for “soft” information or predictions about the future, in this case company comments would support an inference that the company did not even believe its own assurances. See Omnicare v. Laborers Dist. Council Constr. Ind. Pension Fund, 575 U.S. _ (2015) (slip op. at 6-9). And few companies would relish the prospect of having to prove in court that their dire warnings to EPA were entirely insincere.

Proactive companies could even bolster their credibility by voluntarily filing excerpts from their securities disclosures along with their comments. If they did so, regulators might be more inclined to take their concerns seriously in crafting final rules.

Thus, aligning corporate comments with corporate securities disclosures would not only improve the information available to regulators; it would also protect companies from liability and enhance industry’s credibility in notice-and-comment rulemaking.

Supreme Court Leaves Room for State Regulation of Natural Gas Sales

Yesterday, the U.S. Supreme Court held that the federal Natural Gas Act does not preempt the field of state antitrust regulation of natural gas prices, which means states can apply their own policies to natural gas sales as long as those policies do not conflict with federal law.

Vanderbilt’s Jim Rossi has just posted an analysis of the case at SCOTUSblog. As he notes, U.S. courts have been struggling with how to draw a line between state and federal authority in both electricity and natural gas markets.

Under both the Natural Gas Act and the Federal Power Act, the federal government has authority over wholesale energy sales, while the states retain authority over retail sales of natural gas and electricity. As a result, the Supreme Court’s decision on the Natural Gas Act may have important implications for electricity markets as well. And it is another important precedent in the courts’ struggles to balance state’s traditional authority over their own energy markets with increasingly integrated interstate energy markets.

Professor Rossi writes:

According to the majority opinion, written by Justice Stephen Breyer and joined by five other Justices, the [Natural Gas Act] “was drawn with meticulous regard for the continued exercise of state power, not to handicap it or dilute it in any way.” Under Section 1(b) of the [Natural Gas Act], wholesale transactions fall squarely – and even exclusively — within the jurisdiction of federal regulators. For nearly seventy years, the Court has acknowledged the sharp clarity of this federal-state division of authority over wholesale and retail sales, sometimes even calling it a jurisdictional “bright line.”

… The difficult question this case presented was what to do when a practice affects both types of sales.

… Notwithstanding (somewhat confusing) language in the opinion that purports to place this matter on the state “side” of any dividing line, the majority questioned whether the [Natural Gas Act] contains any sharp dividing line at all: “Petitioners and the dissent argue that there is, or should be, a clear division between areas of state and federal authority in natural gas regulation. But that Platonic ideal does not describe the natural gas regulatory world.”

Here is Professor Rossi’s full post and here is the Supreme Court’s opinion.

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