Which Sovereign Merits Judicial Deference When State & Federal Governments Conflict under the Clean Air Act’s Cooperative Federalism Arrangement?

by William Yeatman on March 18, 2014

in Blog, Features

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What is the proper scope of review when an Article III court adjudicates a federalism dispute under the Clean Air Act? Is a court supposed to review the reasonableness of the state’s determinations? Or is it supposed to review the reasonableness of the EPA’s review of the reasonableness of the state’s determination? Simply put, to which sovereign should courts defer?

In light of the Obama administration’s aggressive oversight of Clean Air Act programs operated by the States, this is a hugely consequential question, with billions of dollars at stake. Yet there exists little statutory direction and conflicting case law to guide lower courts in their review of State-Federal disagreements pursuant to the Clean Air Act. On January 29, the State of Oklahoma petitioned the Supreme Court to revisit this matter, and clarify which sovereign warrants ascendant respect from reviewing courts.

Below, in the first of a two part series, I explore how the cooperative federalism regulatory regime established by the Clean Air Act confuses judicial deference to agency decision-making. Ultimately, I urge the Supreme Court to grant Oklahoma’s cert petition, in order to cut through the uncertainty and establish unequivocally the boundaries of authority between the State and Federal Governments under the Clean Air Act.

In the second part of the series, I will make the case that States, and not the EPA, are the proper recipients of the court’s respect.

Cooperative Federalism Conundrum: Delegation Can Be Split; Deference Can’t

Deference to reasoned agency decision-making is an essential principle of judicial review. Because Congress delegated its regulatory authority to executive agencies and not to Article III courts, the latter has no grounds to second guess the former. Congress cannot legislate every single regulatory outcome, accounting for all contingencies. Such a task is as futile as planning an economy. Because it is impossible to legislate all aspects of a regulatory regime, Congress crafts enabling statutes with general language that confers to administrative agencies broad power. Inherent to this indeterminate congressional grant to administrative agencies is the latitude to render reasonable determinations, even if a reviewing court preferred a different conclusion, given the facts at hand.

There are also practical justifications that militate in favor of deference. Agencies possess expertise and political accountability; the judicial branch of government does not. As a general matter, deference accorded an agency’s factual findings and discretionary choices is greater than that given to an agency’s statutory constructions, although the latter will not be overturned if reasonable. Tellingly, the default standard of review established by the Administrative Procedure Act would overturn an agency’s action only if it was “arbitrary and capricious.” This is a narrow standard that rarely upsets agency determinations.

If a congressional delegation of authority to the executive branch of government justifies an Article III Court’s respect for agency decision-making, then how is judicial deference affected when Congress splits its grant of power between State and Federal Governments?

The Clean Air Act, for example, is a “cooperative federalism” arrangement, which establishes a State-Federal partnership to improve the nation’s air quality. Because both sovereigns carry a congressional grant of authority, both possess legitimate claims to judicial deference. Complicating matters further, the State, in exercising its share of congressionally delegated authority pursuant to the Clean Air Act, funds its own implementing agency, which establishes its own administrative code. As a result, each sovereign that is responsible for executing the Clean Air Act can claim a congressional delegation, agency expertise, and political accountability—i.e., all the trappings of deference. So what happens when State and Federal Governments, in the course of implementing their respective delegations of authority, disagree on factual findings, with billions of dollars in compliance costs at stake? To which sovereign should the courts defer?

It’s a tricky question, and much depends on the answer. For starters, the principle of deference to agency fact findings, discretionary determinations, and statutory interpretations is a powerful shield for agency decisions running the gauntlet of judicial review. Whichever sovereign carries this defense is much more likely than not to win the day when a court reviews a federalism conflict pursuant to the Clean Air Act.

Indeed, choosing to which sovereign merits respect is a zero-sum game. Unlike a Congressional delegation of authority, deference cannot be split. The Supreme Court (“the Court”) repeatedly has recognized that often there are two or more possible reasonable determinations given the facts at hand, and that reviewing courts should never substitute their own reasonable conclusions for that of the agency. See, e.g., Marsh v. Oregon Natural Resources Council, 490 US 360 (1989), 376-7, Arkansas v. Oklahoma, 503 US 91 (1992), 113, Chevron v. NRDC, 467 US 837, 844. Accordingly, both state and federal agencies could render reasonable, yet different decisions on the same matter. In the case of such a federalism dispute, a reviewing court is in no position to split the difference. It must choose which sovereign merits respect, and which doesn’t.

The purpose of this post is to explore the proper allocation of judicial deference to agency decision-making when a court reviews a dispute between State and Federal Governments pursuant to the cooperative federalism regulatory arrangement established by the Clean Air Act. As a guide, this post will deal with an ongoing cooperative federalism controversy between many States and the Federal Government, over the Clean Air Act’s (“the Act”) visibility improvement program, known as Regional Haze. Indeed, there are numerous federalism conflicts over the Regional Haze program now pending before various federal circuit courts, with billions of dollars in compliance costs hanging in the balance.* Fundamentally, these disputes concern which sovereign merits deference.

For now, the controlling case on these Regional Haze disputes is a July 29th decision by a divided panel of the 10th Circuit Court of Appeals, Oklahoma, et al. v. EPA, et al., 723 F. 3d 1201 (2013). Regarding a factual dispute between Oklahoma and EPA, the court deferred to the federal agency, and cut out the State.

As I argue below, the 10th Circuit’s decision conflicts with the Supreme Court’s guidance in Alaska Department of Environmental Conservation v. EPA,  540 US 461 (2004), on the appropriate standard of review a court should adopt when adjudicating a State-Federal conflict pursuant to the Clean Air Act. Admittedly, however, the Supreme Court’s ADEC decision suffers from severe contradictions, and it was this confusion that facilitated the 10th Circuit’s decision.

The Supreme Court now has a chance to revisit and clarify this federalism issue, as the State of Oklahoma on January 29th filed a petition for writ of certiorari seeking review of the 10th Circuit’s decision. The Court would be wise to avail itself of this opportunity to overturn the 10th Circuit’s decision and clear the confusion its ADEC decision has wrought by affirming that the States are the proper recipient of judicial deference when they exercise their congressional delegation of authority under the Clean Air Act.

The Clean Air Act’s Especially Convoluted Cooperative Federalism Scheme

The Clean Air Amendments of 1970 (“the Act”) establish a “partnership” to improve air quality, one whereby “[t]he state proposes” and “the EPA disposes.” See Bethlehem Steel Corp. v. Gorsuch, 742 F. 2. 1028, 1036 (7th Cir. 1984).

For most of the Clean Air Act’s history, States and the EPA have worked well together. Since 2009, however, there has been a marked shift away from harmonious relations between these co-sovereigns. This transition from cooperative to combative federalism coincides with the administration of President Barack Obama, and is reflected by an increasing assertiveness by EPA over State decisions. Consider, for example, the precipitous increase in the number of federal takeovers of state regulatory programs, known as federal implementation plans, or “FIPs”. In the twelve years preceding President Obama, EPA promulgated 2 FIPs; in the five years since, the agency has imposed 53 FIPs.

Virtually all of EPA’s regulatory takeovers are being challenged by States in various federal courts. But because these federalism disputes are unprecedented and unforeseen by Congress when it crafted the Clean Air Act, there exists precious little statutory guidance as to how Article III courts should conduct judicial review when sovereigns conflict. The Act simply fails to address in any meaningful fashion the standard of review EPA should adopt in exercising its role overseeing regulatory actions taken by States that have EPA-approved air quality programs.

As such, a number of these legal challenges now before circuit panels pertain to novel yet crucial questions delineating the boundary of power between state and federal governments. Unfortunately for a court reviewing such a federalism dispute, the Clean Air Act establishes an especially convoluted cooperative federalism structure.

For starters, the Congress delegated authority unevenly to the state and federal governments. A State that is in non-attainment of a national health standard has less authority (relative to the EPA) than does a State in attainment of that standard.(Compare Clean Air Act Part C and Part D). Similarly, States have greater authority exercising aesthetic regulations than they do for public health regulations.

Cooperative federalism under the Clean Air Act is further complicated by the states’ establishment of parallel legal and administrative structures in the execution of their delegated powers. States, for example, enact enabling statutes authorizing their own air quality agencies, which codify their own regulations, but only after public notice and comment. That reviewing courts have disagreed whether the state or federal version of the Clean Air Act is ascendant is a testament to the confusion wrought by cooperative federalism. See Whose SIP Is It Anyway? State-Federal Conflict in Clean Air Act Enforcement, 18 Wm. & Mary J. Envtl. L. 245. Also, state agencies keep large, professional staffs, funded overwhelmingly by state taxpayers. According to the Environmental Council of States, states typically finance 80% of their delegated federal environmental programs. Thus states boast expertise independent of the EPA. This is important, insofar as reviewing courts have before cited an agency’s expertise as a practical consideration that militates in favor deference, especially on factual determinations.

These factors—the Act’s uneven boundaries of authority between sovereigns, duplicate state-federal implementing regimes, and parallel expertise—conspire to complicate a reviewing court’s already difficult job of discerning the authorities delegated by Congress, and, by extension, identifying which sovereign merits deference.

The Supreme Court’s Conflicted ADEC Guidance

Ten years ago, in Alaska Department of Environmental Conservation v. EPA, 540 US 461 (2004) (“ADEC”), the Supreme Court provided conflicted guidance to lower courts on how to review a federalism dispute under the Clean Air Act.

At issue in ADEC was a State-Federal disagreement over the EPA’s blocking of an air quality permit issued by Alaska to a remote mining operation. Alaska argued that because it issued the permit pursuant to its EPA-approved regulatory program, it was the sole delegated authority to grant permits, and, therefore, EPA had no oversight powers. By a close 5-4 decision, the Supreme Court disagreed, finding that “[Clean Air] Act confers…checking authority on EPA” over states exercising their delegated authority. Id. at 469.

Crucially, however, the majority opinion went to great lengths to respect the Congress’s partial delegation of authority to the states, notwithstanding EPA’s legitimate oversight role. Noting that the statute grants “considerable leeway” to states functioning as the “permitting authority” with “initial responsibility,” the Court explained that EPA may “step in” only when a state’s determination “is not based on a reasoned analysis” or “arbitrary.” Id. at 490-1. The Court directed reviewing courts that the “underlying question” they were to resolve is “[w]hether [the State’s] determination was reasonable.” Id. at 494. Strangely, the ADEC decision clarified that “the production and persuasion burdens remain with EPA.” Id.**

So, the Court found that the Clean Air Act authorizes EPA to check a state decision rendered pursuant a federally-approved, state-administered air quality program. The majority, however, stressed that the Clean Air Act limits EPA’s authority to checking only “unreasonable” decisions by the States. The 5-4 decision posits that the “underlying question” is whether the State (not the EPA) acted “arbitrarily.” Moreover, the EPA, despite being the defendant, bore the burden of proof, an arrangement which the Court has subsequently affirmed to be “extremely rare.” See Schaffer v. Weast, 546 US 49 (2005) at 57. Seemingly, then, the ADEC majority accorded States all the trappings of deference. Based on these directions, a lower court easily could assume that it should defer to the State’s factual findings, policy decisions, and interpretations of ambiguous statutory text when sovereigns disagree.

Alas, the ADEC decision quickly contradicted itself. The language described above, which was solicitous of the States, was situated in the third section of the majority opinion. In section three, the Court addressed a legal question: Whether the Clean Air Act authorized EPA to review a state’s exercise of its delegated authority under the Act. Upon answering that question in the affirmative, the Court then set about, in the very next section of the opinion (section four), to determine if the Agency’s exercise of this legal authority–i.e., rejecting the state’s determination–was reasonable. And in so doing, the Court extended to EPA’s review role the “familiar, default standard…and ask[ed] whether the Agency’s action was “arbitrary, capricious….” As explained above, the “arbitrary and capricious” standard is narrow, and highly deferential to agency decision-making. Based on this direction, a lower court easily could assume that it should defer to the EPA’s factual findings, policy decisions, and interpretations of ambiguous statutory text when sovereigns disagree.

Clearly, the ADEC majority is sending mixed signals, which is perhaps unsurprising given that it was a close, 5-4 decision. Section three of the majority opinion appears to direct lower courts that they should defer to the States in a federalism dispute. Yet the very next section of the same majority opinion indicates that courts should defer to the federal government when it exercises its oversight role.

At face value, the ADEC decision makes no sense. What gives?

On closer inspection, it is possible to discern a thread of logic behind the ADEC majority’s reasoning. To begin with, the Court had no statutory options other than the “familiar, default” arbitrary and capricious standard of review for agency actions. Indeed, the Court has found that other two possible standards available under the Administrative Procedure Act—de novo and substantial evidence—are inappropriate for review of informal rulemakings. See Citizens to Preserve Overton Park, Inc., v. Volpe, 401 US 402 (1971), at 414-5.

More importantly, the Court exercised its own advice, and conducted a searching review on its own in order to answer the “underlying question” whether Alaska’s decision (rather than the EPA’s) was “reasonable.” Critically, the Court’s analysis was not influenced by the agency’s. The Court decided for itself that Alaska acted “arbitrarily.” See ADEC 540 US 461 (2004), at 498-501. And based on this conclusion, the Court found that EPA had not acted unreasonably when it vetoed the state’s plan.

In practice, then, the Court appeared to accord ascendant deference to the States, despite its conflicted reasoning. But it’s impossible to know for sure, due to the fact that the ADEC majority doesn’t even bother to acknowledge the fact that its directions contradict.

Not surprisingly, the Court’s ADEC opinion has engendered confusion in lower courts. When a party before a reviewing court prefers the state’s interpretation or execution of the Clean Air Act, it cites ADEC Section 3. And when a party prefers the EPA’s interpretation/execution of the Act, it cites Section 4. See, e.g., Arizona’s & EPA’s briefs in Arizona v. EPA., No. 13-70366 (9th Cir., filed Jan. 31, 2013); U.S. EPA, et al., v. Duke Energy Corporation, –F. Supp. 2– (M.D.N.C. 2013), (“In support of their arguments, both parties cite the Supreme Court’s decision in [ADEC].”)

Unfortunately for the States, lower courts have ignored completely ADEC’s state-friendly guidance. In two enforcement cases, district courts flatly stated that when State and Federal Governments disagree on whose interpretation of implementing regulations is ascendant, the Federal Government prevails. U.S. EPA, et al., v. Duke Energy Corporation, –F. Supp. 2– (M.D.N.C. 2013); U.S. EPA, et al. v. Alabama Power Company, 372 F. Supp. 2d 1283, at 1291 (U.S.D.C. AL-northern district) (“…if the decision at hand comes down solely to whose interpretation controls, EPA’s or [the State’s], EPA prevails.”).

Elsewhere, in non-federalism disputes, lower courts have cited section 4 of the ADEC decision (i.e., the EPA-friendly section) in granting arbitrary and capricious deference to federal agencies. See, e.g., Davis v. Pension Ben. Guar. Corp, 815 F. Supp. 2d 283 (D.D.C. 2011), at 288 FN2; Natural Resources Defense Council, Inc. v. U.S. EPA, 638 F. 3d 1183 (9th Cir. 2011), at 1191

I’ve not been able to locate an instance whereby a reviewing court relied on the ADEC Section 3 and its state-friendly language.

EPA’s Aggressive Regional Haze Oversight: A Chance for the Supreme Court to Clarify ADEC

The Supreme Court now has an opportunity to clarify its conflicted reasoning in ADEC, as a long simmering Clean Air Act conflict between States and EPA is now ripe for the Court’s review.

At issue is a Clean Air Act regulation known as Regional Haze. Its purpose is to improve visibility at national parks and federal wilderness areas. (See Clean Air Act §169 A/B). Because it is an aesthetic regulation—and not a public health regulation—Congress delegated an unusually high degree of authority to the States relative to the EPA. For public health regulations, EPA establishes national standards, and then States create implementing plans to achieve these standards. (See, generally, Clean Air Act §§108-110). The Regional Haze program is different. Instead of the EPA, it is the States to which Congress delegated the authority to establish visibility standards, in the form of “Reasonable Progress” towards a national goal of pristine air by 2064. (See 40 CFR §51.308(d)(1)). In addition, the statute in unequivocal terms delegates to the State the responsibility to determine the “best available” emissions controls to achieve this goal. (See Clean Air Act §169(A)(b)(2)(A)). Thus, for Regional Haze, States both establish and implement visibility regulations. There are no other regulatory regimes in the Clean Air Act that accord States these prerogatives. Simply put, the Regional Haze program grants States greater power than any other provision of the Clean Air Act.

Despite the States’ ascendant authority under the Regional Haze provision, EPA since 2009 has taken over 11 visibility programs from the States. The plight of one of these States—Oklahoma—is indicative of EPA’s Regional Haze regime as practiced during the Obama administration. From 2008-2010, the Oklahoma Department of Environmental Quality (“Oklahoma DEQ” or “ODEQ”) executed its congressional delegation to improve visibility. As part of this responsibility, ODEQ was required to determine what constituted the “best available” retrofits to install on four coal-fired power plants operated by Oklahoma Gas & Electric, the State’s largest investor-owned utility. A key criterion for this discretionary determination is the estimation of compliance costs. To be precise, ODEQ estimated that a technology known as flue gas desulphurization (a.k.a., “scrubbers”) would cost $1.2 billion to install at the four power plants. On this basis, Oklahoma DEQ ruled out scrubbers as a Regional Haze requirement. EPA, on the other hand, estimated that scrubbers would cost $300 – $600 million. Based on this calculation, EPA rejected Oklahoma’s finding and imposed a federal plan that required scrubbers.

Oklahoma sought judicial review of EPA’s Regional Haze takeover before the 10th Circuit Court of Appeals. At issue in Oklahoma, et al. v. EPA, et al., 723 F. 3d 1201 (2013) was a state-federal dispute over a factual determination, the costs of sulfur dioxide “scrubbers” at four coal-fired power plants. This factual finding, in turn, serves as a factor that must be considered by the State in rendering a certain policy determination—i.e., choosing the “best available” retrofit to achieve the State’s Regional Haze goals.

Factual findings (like the cost of scrubbers) and discretionary determinations (like choosing the “best available” retrofit) are the kinds of decisions to which reviewing courts accord agencies substantial deference. In this vein, Oklahoma DEQ’s professional staff spent 1,000s of hours creating a Regional Haze plan,*** in accordance with state law and administrative code. Their efforts, moreover, were funded overwhelmingly by the Oklahoma taxpayers. Most importantly, ODEQ was operating pursuant to a unique grant of congressional authority, relative to EPA.

If the reader would recall the state-friendly language in Section 3 of the Supreme Court’s ADEC majority decision, the “underlying question” facing the 10th Circuit panel was whether Oklahoma’s cost estimate was “reasonable.” In light of the substantial deference normally given by courts to complex technical matters, like estimating the cost of sulfur scrubbers, it’s likely that Oklahoma would win its lawsuit, if the state received deference.

But that wasn’t the standard of review chosen by the 10th Circuit. Instead of deciding whether Oklahoma cost estimate was “reasonable,” the court decided whether EPA’s rejection of the state’s factual finding was reasonable. That is, the 10th Circuit wholly ignored the Supreme Court’s solicitude for the States in ADEC section 3, and instead relied solely on ADEC section 4. EPA received all the deference; Oklahoma received none. Even then, it was only by a closely divided decision that the court sided with EPA.

The 10th Circuit’s issued its divided decision on July 29, 2013. It has since become controlling precedent in a suite of State challenges to EPA Regional Haze takeovers.

On January 29, the State of Oklahoma filed a petition for writ of certiorari seeking review of a divided 10th Circuit panel decision. On February 6, a broad coalition of industry filed an amicus in support of the State. I understand that a group of States also filed an amicus, but I’ve not yet been able to locate it. The Federal Government’s response is due at the end of March. Thereafter, the Court will deliberate whether to take the case.

Here’s to hoping the Supreme Court grants the writ, and then proceeds to overturn the 10th Circuit’s decision. It is this author’s opinion that States merit deference in federalism disputes pursuant to the Clean Air Act, in general, and the Regional Haze provision in particular. At the very least, the Court should clarify its conflicted ADEC decision.

In a subsequent post, I will address the reasons why States are the proper recipient of judicial deference when sovereigns disagree on how to implement the Clean Air Act.

FN*: See, Utah v. United States Envtl. Prot. Agency et al., No. 13-9535 (10th Cir. Filed Mar. 21, 2013); Martinez et al. v. EPA., No. 11-9567 (10th Cir., filed Oct. 21, 2011) (New Mexico); Arizona v. EPA., No. 13-70366 (9th Cir., filed Jan. 31, 2013); Louisiana Dep’t of Env. Quality v. EPA, No. 12-60672 (5th Cir., filed September 4, 2012); Michigan v. EPA, No. 13-2130 (8th Cir., filed May 22, 2013); Nebraska v. EPA, No. 12-3084 (8th Cir., filed Sept. 4 2012);

FN**: The ADEC majority never elaborated on how this burden of proof arrangement would apply in practice.

FN***: Correspondence with Oklahoma Attorney General Office

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