Why EPA Is Proposing a Clean Power Plan Model FIP (Because Otherwise It Can’t Impose Highway Sanctions)

[This is part 2 of a 3 part series on EPA’s announcement last week that it will propose a model federal implementation for the Clean Power Plan. For Part 1, “Context of EPA’s Bombshell Announcement That It Will propose a Model FIP for the Clean Power Plan,” click here. Part 3, on what a Clean Power Plan model FIP could look like, will be posted tomorrow]

In order to mitigate air pollution, the Clean Air Act establishes a State-Federal partnership known as “cooperative federalism.” Generally, under this regulatory arrangement, EPA sets nation-wide targets which States are then left to meet however they see fit (subject to EPA approval). Thus, States are primarily responsible for the actual implementation of the Clean Air Act.

So what happens when a State fails to heed the agency? As I explained in Part 1, the Clean Air Act gives EPA two tools to achieve its regulatory ends in the face of an uncooperative State:

1. direct federal implementation of the regulation, also known as a “federal implementation plan” (42 U.S.C. §7410(c)); and
2. conditioning state receipt of federal highway funds upon a state’s compliance with the regulation (42 U.S.C. §7410(m)).

These two options are very much germane to the Clean Power Plan—the Obama administration’s marquee climate change mitigation initiative—because a number of States have indicated that they won’t lift a finger to implement the rule. 

Doubtless, the agency would prefer option #2, for the simple reason that it’s much easier for EPA if it can get the States to do the work. In fact, direct federal implementation of the Clean Power Plan likely would stress EPA’s limited resources well past the agency’s comfort zone. As I explain in a recent study, the regulation would fundamentally overhaul the electricity industry; naturally, implementation of a rule which completely alters one of America’s largest industries is a heavy administrative lift. Historically, EPA relied on conditional grants of federal money rather than federal implementation to achieve compliance for similarly large administrative tasks required by the Clean Air Act (e.g., implementing a regulatory regime for vehicle inspection and maintenance).

Due to the tremendous scope of the regulatory task set forth by the Clean Power Plan, I’ve long labored under the misapprehension that direct federal implementation is implausible. I’ve since realized I was wrong. Recent Supreme Court constitutional jurisprudence has cast serious doubt on EPA’s authority to rely on sanctions to engender State compliance with a federal regulation. Allow me to explain.

The Federal Government’s power to condition receipt of federal highway funds upon regulatory compliance is based on the Spending Clause of the Constitution (Article 1, Section 8, Clause 1). While it’s true that ordering a State to enact laws and regulations to meet federally-determined objectives falls outside of the Congress’s constitutionally-enumerated powers, the same does not hold for the Congress’s authority pursuant to the spending clause, which “is not limited by the direct grants of legislative power found in the Constitution.” U.S. v. Butler, 297 U.S. 1, 66 (1936). In this fashion, “objectives not thought to be within Article I’s enumerated legislative fields…may nevertheless be attained through the use of the spending power and the conditional grant of federal funds.” South Dakota v. Dole, 483 U.S. 203 (1987), at 207 (citations omitted). Simply put, through conditional spending, Uncle Sam can induce action by the States that he otherwise could not impose.

Of course, the federal government’s Spending Clause power is not unlimited. During the 20^th Century, the Supreme Court repeatedly warned that Congress’s authority to condition state behavior on the receipt of federal money could be found to be impermissible, if it is coercive in practice. See, e.g., ibid at 211; Steward Machine Co. v. Davis, 301 U.S. 548 at 589-90. However, the Court never ruled that conditional spending unduly infringed on state authority…until 2012, in adjudicating the legality of Obamacare. In NFIB v. Sebelius, the Court for the first time struck down an attempt by Congress to attach strings to federal grants to States. In so doing, the court (also for the first time) established standards by which it can determine whether conditional spending crosses a line into impermissible state coercion.

In a nutshell, Chief Justice Roberts’s ruling in NFIB v. Sebelius establishes three criteria for discerning unconstitutional Spending Power coercion.

1. The grant itself must be substantial;
2. The new condition must be placed on an entrenched spending program; and,
3. The new condition must effectuate a regulatory program independent of the entrenched spending program.

An EPA attempt to condition the disbursement of federal highway money on state compliance with the Clean Power Plan seemingly meets all three criteria:

1. Highway funding is substantial—it is the third largest federal grant to States (after Medicaid and education spending), comprising 4 percent of State spending in 2010 and about half of an average state’s highway budget.
2. Highway funding is entrenched—it’s been around since the 1966 Highway Safety Act.
3. EPA’s Clean Power Plan is independent of the highway funding grant program—EPA’s Clean Power Plan regulates greenhouse gas emissions from stationary sources, not cars and trucks.

The upshot is NFIB v. Sebelius likely renders unconstitutional any effort by EPA to rely solely on highway sanctions to achieve state compliance with the Clean Power Plan.

Despite the Court’s ruling in NFIB v. Sebelius, there is a way forward for the agency to proceed with a strategy to coerce States into Clean Power Plan compliance by withholding highway funds. If the agency were to propose a federal implementation plan (i.e., direct federal implementation of the Clean Power Plan) concomitantly with highway funding sanctions, then the States would have an alternative choice: lose highway funding OR have the federal government take-over. There would be no “gun to the head,” to borrow Chief Justice Roberts’s metaphor.

The agency’s path to constitutional coercion is clear: Create an alternative—that is, produce a model federal implementation plan—that is so terrible, the States have no choice but to implement the Clean Power Plan, or else they’d countenance the loss of their highway funding.

Above, I describe the legal necessity of EPA’s model federal implementation plan for the Clean Power Plan: without it, that EPA loses its major cudgel to compel the States to act. At the same time, the agency has every incentive to try to avoid having to impose a federal implementation plan. The regulation reaches deep into the electricity industry; its implementation bears steep administrative costs. There is, moreover, a political cost to the agency. Given the controversial nature of the rule, implementation of a Clean Power Plan federal implementation order would court Congressional attention. Lawmakers would doubtless be enticed to use the budget process, which often can avoid the Senate filibuster, to strip EPA of funds to administer expensive Clean Power Plan FIPs.*

So the agency has to walk a fine line: It must render a viable federal plan (the cheaper to craft, the better), which States would never choose. Perhaps you’re thinking: What’s the difference between crafting a miserable FIP to goad an inactive State, and crafting a miserable FIP to trigger sanctions to goad an inactive State? The answer lies in the Clean Air Act’s peculiar timing regime for federal action. On the one hand, EPA is required to issue a federal plan within two years of determining that a state’s compliance strategy is inadequate. On the other, the agency is empowered to impose highway sanctions at any time after it disapproves a state plan. This gap affords the agency two years (at least), during which the agency can “tailor” the model FIP to the recalcitrant State, all the while subjecting it to sanctions whose constitutionality passes the NFIB v. Sebelius test regarding impermissible coercion.

Bottom line: The agency is giving itself more legal and regulatory flexibility (or: arrows in the quiver) in its inter-sovereign negotiations with States over implementation of the Clean Power Plan.

Tomorrow, in the final post of this part series, I’ll discuss what such an EPA Clean Power Plan model federal plan could look like. Alas, it will prove relatively cheap and easy for EPA to craft a flimsy FIP that the agency can use in order to lend constitutional muster to sanctions that can coerce States into action.

*In this vein, it is worth remembering that the foremost proponent of state inaction in the face of EPA commands to implement vehicle inspection and maintenance programs was none other than…Current California Governor Jerry Brown, who, in his Moonbeam days, was a pioneering anti-EPA politico. I mention this wonderful historical happenstance because it demonstrates how federalism issues can cut across party lines.