The Limits on Regulatory Power

January 20th, 2019

On January 16, 2020, the Washington Supreme Court handed down its long-anticipated ruling in a lawsuit filed by a number of business groups against the Washington State Department of Ecology. The case involved the scope of an Ecology rule designed to limit the emission of greenhouse gases.

The full court of nine justices decided the case but split, five to four, on what the result should be. The majority, led by the Chief Justice, explained the limits on regulatory power by holding that the rule in question could not regulate non-emitters of greenhouse gases.

Emitters and Emission Reduction

Ecology has rulemaking authority to regulate the emission of greenhouse gases. Under that authority, Ecology identified three types of businesses subject to regulation. They are:

1. “Stationary sources,” or facilities.

2. Petroleum product producers and importers.

3. Natural gas distributors.

Ecology’s rule required most of the businesses falling within one of these categories to reduce greenhouse gas emissions by 1.7% each year.

Under Ecology’s rule, there are two ways to reduce greenhouse gases. First a business may modify its operations at its facilities to lower emissions. Second, a business may acquire and submit “emission reduction units” to offset its carbon emissions.

One emission reduction unit represents the reduction of one metric ton of carbon dioxide or its equivalent. A business may acquire emission reduction units in three ways:

1. A business may reduce its own emissions in excess of the 1.7% reduction per year minimum set out in Ecology’s rule.

2. Alternatively, a business may participate in recognized projects, programs or activities that reduce emissions in real, specific, quantifiable, permanent and verifiable ways.

3. Finally, a business may purchase emission reduction units in greenhouse gas emission markets outside the state.

A business may “bank” its units to save them for a later compliance period or may exchange them with other businesses subject to the rule.

Complaints About Limits on Regulatory Power

Ecology’s rule covered approximately 68% of all the greenhouse gas emitters in Washington. Of that 68%, about 74% of the emissions are generated by the combustion of natural gas and petroleum products. Gas and petroleum producers complained that although they sold natural gas and petroleum products, the businesses were not themselves emitters of greenhouse gases. The end users of the products caused the emissions, not the businesses that sold them fuel.

The businesses argued that they have no way to reduce direct greenhouse emissions because they do not control how much the end users burn. Accordingly, the only way these businesses can comply with the rule is to purchase emission reduction units. In other words, said the businesses, the rule required them “to pay to offset the emissions caused by third parties using their products.”

In the lawsuit, the businesses argued that Ecology could apply the rule only to direct emitters of greenhouse gases, not nonemitters such as themselves. They claimed that the rule exceeded the limits on regulatory power given to Ecology by statute.

The Court’s Opinion

The majority opinion for the Court set the stage for the Court’s decision:

The issue is not whether man-made climate change is real – it is. Nor is the issue whether dramatic steps are needed to curb the worst effects of climate change – they are. Instead, this case asks whether the Washington Clean Air Act grants Ecology the broad authority to establish and enforce greenhouse gas emission standards for businesses and utilities that do not directly emit greenhouse gases, but whose products ultimately do.

Ecology claimed that the Clean Air Act authorized it to apply the rule to indirect emitters because the statute permits Ecology to limit the “quantity, rate or concentration” of greenhouse gas emissions based on the three classes of businesses subject to the rule. But the Court disagreed, holding that the definition of an “emission standard” in the Act “plainly limits such rules to those entities that release air contaminants.”

The Dissent: No Limits on Regulatory Power

The four dissenting justices disagreed with the majority’s analysis. The dissent argued that the Act clearly defines “emission standard” and “emission limitation” in such a way that the Act unambiguously applies to both direct and indirect emissions of greenhouse gases. Noting that the legislature intended a broad construction of laws protecting Washington’s environmental interests, the dissent would have upheld the rule.

Lessons to be Learned

This case teaches several lessons about the law. First, and foremost, it is sometimes astonishing that two groups of judges can read the same language yet come to opposite conclusions about what a statute means. Such is the nature of litigation and the necessity of having skilled counsel.

A second lesson is deference to the legislature. Under the majority opinion, the parts of the rule that govern direct emissions remain in place. The majority left it up to the legislature to decide whether to amend the Act to allow the rule to cover indirect emissions.

A third lesson offers a contrary view to the second one. When faced with an issue as large as regulating the quality of the air, should a court broadly construe legislation in light of its underlying purpose? This question is especially important when the Court’s decision removed about 50% of Washington’s greenhouse gas emissions from regulation. But if the court had so ruled, would there be any limits on regulatory power?

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