Missing Offsets: EPA and DOE Rules May not Comply with One-in-Two-out Executive Order

July 20, 2017

Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs,” requires agencies to identify two rules for removal for each new significant rule they issue after noon on January 20, 2017. Additionally, the EO instructs agencies to comply with a $0 regulatory cost cap for fiscal year 2017, meaning that the costs of new significant rules should be offset by the costs of the rules selected for removal or modification. While some scholars have hypothesized that the requirements of EO 13771 will halt rulemaking entirely, agencies have managed to publish two significant rules in recent weeks—without mentioning the requirements of EO 13771.

What is a “Significant” Rule?

In February, the Office of Management and Budget (OMB) issued an interim guidance to agencies on implementing the new one-in-two-out requirement and limiting its scope to new significant rules from executive branch agencies. “Significant” rules are defined in Executive Order 12866 as rules that are expected to result in $100 million in annual economic impact, materially alter certain budget impacts, or raise novel legal or policy issues, among other things. Based on this definition and OMB’s guidance, EO 13771 is intended to apply only to the regulations with the biggest potential effect: only about 5% of final rules published in any given year are “significant.”

Significant Rules without Regulatory Offsets

On June 14, EPA published a significant rule in the Federal Register requiring dental practices to use the best available technology to control the discharge of mercury and other metals in dental amalgam into publicly owned sewage treatment plants. Despite the fact that EPA’s rule “is a significant regulatory action that was submitted to the Office of Management and Budget (OMB) for review because it raises novel legal or policy issues,” EPA did not identify any regulatory offsets, or even mention EO 13771 in the preamble to its rule.

Although the rule wasn’t published in the Federal Register until June, OMB concluded its review of the rule on December 8, 2016, more than one month before EO 13771 was issued. In this case, it could have been difficult for OMB to enforce the requirements of EO 13771 after regulatory review had concluded.

The Department of Energy also published a final rule increasing the stringency of existing energy efficiency standards for walk-in coolers and freezers, which were last updated in 2014. DOE expects the amended standards to save 0.9 quads of energy over 30 years, resulting in $5.6 billion in benefits and $600 million in costs. Unsurprisingly, OMB determined that this rule is a significant regulatory action; however, DOE did not identify regulatory offsets in its rule pursuant to EO 13771.

Judicial Deadline?

There are two reasons behind why DOE may have neglected to identify regulatory offsets for the $600 million in new costs. One is that, like the EPA dental amalgam rule, OMB concluded review of DOE’s final rule on December 23, 2016, well before the requirements of EO 13771 were in place. The second reason may be that OMB identifies DOE’s rule as being driven by a judicial deadline, which could make it eligible for additional time to identify which rules will be used as offsets.

DOE’s rule is being issued in response to a decision by the United States Court of Appeals for the Fifth Circuit, which vacated six of the 2014 standards for refrigeration systems. While DOE details how its current rule responds to the court’s decision, it makes no mention of a judicial deadline, raising questions as to whether DOE qualifies for additional time to identify its offsets.

Renewable Fuels Standards Require Offset

Continuing this trend, EPA recently released a pre-publication draft of its proposed Renewable Fuel Standards (RFS) for 2018. These standards mandate the volumes of ethanol, biodiesel, and cellulosic ethanol to be blended into transportation fuel in the following year, and are required to be issued prior to November of the year prior to the standards.

Similar to the EPA and DOE rules above, this proposed rule is a significant regulatory action that makes no mention of how it will comply with the requirements of EO 13771. What sets this proposed rule apart is that EPA is bound by a statutory deadline to issue the standards by November 30th, 2017. Although rules with statutory deadlines are still bound by the requirements of EO 13771, agencies are granted additional time to identify the regulatory offsets for these rules.

Day of Reckoning

OMB’s guidance indicates that the Unified Agenda of Federal Regulatory and Deregulatory Actions will be used to track new agency rules and offsets. All eyes will be on the Agenda, expected to be published this week, to see how these rules as well as others on the horizon comply with EO 13771.