Environmental and social governance concepts

Biden’s Climate Agenda Dealt Serious Blows

In short order, President Joe Biden’s climate agenda has suffered serious blows on both the legislative front and in the judicial sphere. On Thursday of last week, Senator Joe Manchin (D-WV), who had been negotiating with Senate Majority Leader Chuck Schumer (D-NY) on a budget reconciliation bill that would, among other things, include a number of provisions aimed at addressing climate change, announced he would only support a slimmed-down bill focused on reducing the cost of drugs and extending subsidies for healthcare coverage. And just about a month ago, the Supreme Court ruled that the Obama administration and the Environmental Protection Agency (EPA) had exceeded their legal authority when they tried to regulate carbon emissions from existing power plants by creating a cap-and-trade system that had not been legislated by Congress. In essence, both the pathway for legislation and action through executive orders and regulation have become more difficult for the White House.

Manchin, in an interview with a home-state radio station, said he had been troubled by a report the day before that showed inflation rising to a 9.1% level, and that he was concerned additional spending and tax increases at this time were unwise. He said he would be willing to support provisions aimed at lowering prescription drug prices and continuing federal healthcare insurance subsidies, but wanted to wait until a mid-August report on inflation before agreeing to any additional spending on climate provisions.   

Practically speaking, Manchin’s decision makes including major climate provisions in any reconciliation bill that passes the Senate unlikely. The reconciliation budget process, which allows legislation to pass the Senate with a simple majority and would not be subject to a filibuster, was being used by the Biden administration and congressional Democratic leadership to bypass any Senate Republican opposition.  But because reconciliation is seen as a highly partisan approach (with no Republicans voting for it as a result), it requires that all 50 Democrats currently in the Senate support the bill. 

And although Manchin kept the door open to including additional provisions in a bill depending on the August inflation report, timing works against that as well. The deadline for passing a reconciliation bill is Sept. 30. The Senate is scheduled to recess the first week of August and not return until after Labor Day, which is not likely to be altered in a midterm election year. Additionally, each provision included in a reconciliation must be pre-cleared by the Senate parliamentarian after meetings with both Republicans and Democratic Senate staff, with floor action taking about a week of debate and amendments. 

The Biden administration and Democratic congressional leadership seemed to grasp their limited legislative options. Reacting to Manchin’s statements, Biden said he would support a bill focused on prescription drug pricing and extension of current healthcare insurance subsidies.

Senate Democrats have already begun putting together the slimmed-down version. Republican and Democratic staff are expected to meet this week with the Senate parliamentarian to review the relevant language of the prescription drug pricing proposal. But the president also indicated, without giving details, that he would continue to address climate change through aggressive executive action. Some Senate Democrats are calling on Biden to declare a “climate emergency,” enabling him to act without congressional approval.

But implementing broad policies aimed at addressing climate change has also become a tougher path for any administration after the Supreme Court issued its opinion in West Virginia v. Environmental Protection Agency last month. That case essentially altered the regulatory landscape, making it much more difficult for federal agencies to regulate in areas where they lack a clear congressional authorization. The case involved an Obama-era attempt to create a cap-and-trade system to reduce greenhouse gas emissions from existing power plants, using the EPA’s regulatory power under the Clean Air Act as the legal basis. But the Supreme Court held that the EPA in fact did not have the legal authority to set climate-changing greenhouse gas (GHG) emissions standards, reasoning that the issue was a major question of policy that is within the responsibility of Congress to address. Invoking this “major questions doctrine,” as it is known, Chief Justice John Roberts wrote that “it took hold because it refers to an identifiable body of law that has developed over a series of significant cases all addressing a particular and recurring problem: agencies asserting highly consequential power beyond what Congress could reasonably be understood to have granted.”

It should be noted that in that case, the Obama administration was attempting to establish a cap-and-trade system similar to efforts that had already been rejected in Congress. Nevertheless, the ruling is expected to have far-reaching implications beyond the EPA. One possible impact may be to force the Securities and Exchange Commission (SEC) to rethink certain aspects of its recently proposed climate-related disclosure rule, which would have required public companies to disclose various levels of greenhouse gas emissions – both direct and indirect – that resulted from their economic activities. That rule would have a broad economic impact beyond the companies regulated by the SEC, including on NAIOP’s members in the commercial real estate industry. While protecting investors and capital markets are within the SEC’s responsibilities, policies that can be characterized more as environmental policy may arguably run afoul of the “major questions doctrine” rationale in the West Virginia case and could be deemed as being outside the SEC’s legal authority to regulate. Overly ambitious or aggressive executive actions by the Biden administration may suffer the same fate.

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