The Clean Air Act assigns certain fact-based judgments to the EPA, such as setting industry-wide New Source Performance Standards or Maximum Achievable Control Standards. And the Act assigns other such decisions to the states, subject to federal review, including case-by-case determinations of Best Available Control Technology and Best Available Retrofit Technology.

This post seeks to answer the following question: Which sovereign merits judicial respect for its fact-finding and decision-making—i.e., “arbitrary & capricious” deference—when courts review federalism disputes under the Clean Air Act involving determinations that are delegated to the states but subject to EPA oversight?

This question has significant implications regarding the balance of power between states and the EPA. Because these Clean Air Act federalism disputes typically center on factual questions like the cost and feasibility of air pollution controls, it follows that whichever sovereign gets the benefit of reasonableness review is likely to carry the day in court.

In answering this question, first principles provide little guidance. The fundamental bases of arbitrary & capricious deference are a delegation of congressional authority and agency expertise. However, under the Clean Air Act, the congressional delegation is split between the states and the federal agency. And states possess air quality expertise on par if not in excess of the EPA’s. To wit, state legislatures appropriated $28 billion to state environmental agencies on average annually from 2013-2015; by contrast, the EPA’s budget averaged about $8 billion.

The Clean Air Act, alas, does not directly address the question of which sovereign merits the benefit of arbitrariness review when federalism disputes come before Article III courts. The statute enumerates more than 20 regulatory decisions by the EPA that are subject to the “arbitrary & capricious” standard of judicial review, but the agency’s oversight of decisions assigned to the states is not included on the list.

Against this confusing backdrop, the Supreme Court muddled matters further in 2004. At issue in Alaska Department of Environmental Conservation v. EPA, 540 U.S. 461, (ADEC) was a disagreement between Alaska and the EPA over what constituted Best Available Control Technology for two small natural gas electricity generating units at a remote zinc mine

Alaska argued that because it operated a federally-approved permitting program, it was the “permitting agency” to which the Clean Air Act assigns responsibility for determining “best available control technology.” That is, Alaska argued that Congresse gave this decision to the states, not the EPA. Accordingly, Alaska argued that EPA’s oversight role was ministerial. For its part, the agency argued that it was authorized to perform a substantive review of the reasonableness of Alaska’s fact-finding and decision-making, and, having done so, the agency determined the state was being unreasonable.

In a 5-4 opinion written by Justice Ginsburg, the Supreme Court sided with the EPA. At the same time, the Court conditioned the EPA’s review to comport with the cooperative federalism structure of the Clean Air Act. The Court emphasized that the Clean Air Act “leaves the ‘permitting authority’ considerable leeway.” ADEC at 490. Ultimately, the “underlying question” was “[w]hether the state agency’s BACT determination was reasonable, in light of the statutory guides and the state administrative record.” ADEC at 494. After establishing that the EPA is empowered to perform a deferential review of state decision-making, the majority opinion turned to the how it would review the EPA’s oversight role. For this purpose, the Court fell back on the “familiar default” arbitrary & capricious of the Administrative Procedure Act, “[b]ecause the [Clean Air] Act does not specify a standard for judicial review.” ADEC at 496-97.

Remarkably, the ADEC opinion sets forth two conflicting standards of review! Under one ADEC holding, the “operative question” before the Court is whether the state was being reasonable. But under a different ADEC holding, the Court gave arbitrary & capricious deference to the EPA’s review of Alaska’s decision, and this standard of review entails an entirely different “operative question”—i.e., was the EPA being reasonable? These two standards, moreover, are mutually exclusive. Here, the crucial insight is that for almost every regulatory endeavor, there are multiple different “reasonable” conclusions that would survive judicial review. If there can be multiple possible reasonable outcomes, then it follows that both sovereigns could disagree yet still hold reasonable positions. If ADEC is right, then both reasonable positions should survive judicial review, which is of course impossible.  So ADEC cannot be right.

If ADEC is wrong, it is worth investigating the correct standard of review for cooperative federalism disputes under the Clean Air Act. To this end, I think the statutory text merits closer scrutiny.

As I noted above, Clean Air Act § 307(d)(1) governs a reviewing court’s standard of review and lists 21 regulatory determinations that are subject to an “arbitrary and capricious” standard. Each one is a regulatory determination that is delegated to the EPA. None of them are regulatory determinations that are assigned by the statute to the states and subject to federal oversight.

It makes little sense for Congress to omit federal review of these state determinations from a detailed list of actions subject to “arbitrary & capricious” review, but then for the Supreme Court to conclude that the same “arbitrary & capricious” standard in the Administrative Procedure Act applies to such decisions. The expressio unius est exclusion alterius principle of statutory interpretation suggests that it was not Congress’s intent for the EPA to receive arbitrary & capricious deference when a court reviews cooperative federalism disputes over decisions delegated to the states but subject to EPA review.

The Supreme Court’s ADEC error remains relevant. In a review of U.S. Courts of Appeals opinions during the Obama administration, I found five cases that addressed the sorts of federalism disputes discussed in this post. In each case, the panel of judges accorded “arbitrary & capricious” deference to the EPA, and the reasonableness of the state’s decision was not a subject of direct review. Rather, the state’s actions were reviewed only through the prism of the federal government’s review of the state’s behavior. The EPA swept all five cases.

William Yeatman is a senior fellow at the Competitive Enterprise Institute, a libertarian think tank in Washington, D.C., that focuses on the administrative state. He may be reached at wyeatman@cei.org.