Congress, Courts Should Stamp Out EPA’s Power of the Purse

Yesterday, CEI published a study by me about how the Environmental Protection Agency has leveraged regulatory enforcement to create its own power of the purse.

Here’s how it works: The agency sues an alleged violator of the Clean Air Act. Instead of seeking fines paid to the Treasury, the EPA tells the company that it can reduce its overall penalty if it makes investments in green energy. Thus, since 2005, the EPA has used settlements in 18 Clean Air Act enforcement actions to move $1.55 billion in private-sector funds to renewable energy, energy efficiency, and electric vehicle infrastructure projects. All but two settlements, allocating a combined total of $7 million, were negotiated during the Obama administration.

In effect, the agency’s Office of Enforcement and Compliance Assurance (OECA), which oversees these settlements, has become a manager of $1.55 billion in green energy industrial policy—despite the fact that Congress neither delegated authority nor appropriated funds to do so.

The use of regulatory enforcement to fund presidential priorities is an unwelcome innovation in executive authority, and it’s a direct threat to Congress. All a president would have to do is pour resources into regulatory enforcement, and then pursue settlements whereby the regulated target agrees to spend money in accordance with the president’s policy priorities. After all, any rational business would prefer to make an upfront payment when the alternative is an interminable battle with the vast resources and machinery of the federal government. Under this model, a president doesn’t need Congress to implement industrial policy.

Obviously, Congress has the most to lose. The Founding Fathers gave lawmakers the exclusive power of the purse, but the president now has a template to circumvent Congress for funds. Accordingly, Congress should be alarmed by the developments described in my paper. By passing the Stop Settlements Slush Fund Act of 2017, Congress would bar most, if not all, of these types of settlements.

Courts have a role to play, too. To date they’ve been reviewing these settlements under an inappropriately lax standard.

EPA describes a mitigation project as “injunctive relief,” even though it is included in judicial settlements. This raises an important question: Should the court judge a mitigation project as if it is injunctive relief or a voluntary settlement? The difference matters, because the standard of review for injunctive relief conflicts with the standard for reviewing a settlement agreement.

On the one hand, the Supreme Court has declared that injunctive relief “is a drastic and extraordinary remedy, which should not be granted as a matter of course.” Monsanto Co. v. Geertson Seed Farms, 561 U.S. 139, 165 (2010). On the other, federal courts have a “strong,” “clear,” or “high” favor for approving settlements. Officers for Justice v. Civil Serv. Comm’n, 688 F.2d 615, 625 (9th Cir. 1982) (“[V]oluntary conciliation and settlement are the preferred means of dispute resolution.”); In re Corrugated Container Antitrust Litig., 643 F.2d 195, 207 (3d. Cir.) (explaining the “strong judicial policy favoring settlements of disputes.”); Patterson v. Newspaper & Mail Del. U. of N.Y. & Voc., 514 F.2d 767, 771 (2d. Cir. 1975) (noting a “clear policy in favor of encouraging settlements,”); Autera v. Robinson, 419 F.2d 1197, 1199 (D.C. Cir. 1969) (“Voluntary settlement … is in high judicial favor.”).

The difference is explained in part by the different legal bases for injunctive relief and a judicial settlement. Injunctive relief flows from the courts equity powers, while “the parties’ consent animates the legal force of a consent decree.” Local Number 93 v. City of Cleveland, 106 S. Ct. 3063.

In the study, I found no examples of a court that reviewed a mitigation project as if it were injunctive relief. Instead, all mitigation projects were treated as if they were settlement stipulations. Accordingly, these projects are not being vetted to ensure that “extraordinary” injunctive relief is warranted. In all likelihood, courts labor under the misapprehension that these mitigation actions are purely voluntary. After all, EPA’s complicated legal justification for mitigation actions is by no means intuitive.

In this author’s view, federal judges should give greater thought to what is being asked of them when the government seeks a court order entering a consent decree that includes a mitigation action that goes “beyond the fence line” of the defendant and into the realm of industrial policymaking. These green energy projects flow from judicial power, yet it’s probable that courts don’t even realize their authority is being co-opted by the EPA in order to fund a president’s political priorities independent of Congress. Judicial scrutiny of mitigation actions is especially appropriate on account of the evident weakness of the EPA’s measures meant to prevent unconstitutional agency appropriating.

Read the full study, “Ending the EPA’s Billion-Dollar Green Energy Rip-Off: How Agency Regulators Leverage the Courts to Create their own ‘Power of the Purse,’” here.