Monday, September 23, 2019

What Does the Trump Administration Have Against Industries Negotiating Deals with Regulators?

Last Thursday morning, the Environmental Protection Agency and the National Highway Transportation Safety Administration revoked California’s authority to regulate mobile sources’ greenhouse gas emissions.  Todd's previous post here provides a concise summary of the legal issues, and other bloggers have already done a nice job explaining the revocation rule’s flaws and the reasons why many of the Administration’s public claims about the new rule are dishonest.  I won’t rehash those points here. 

My interest is in a particular motivation for the new rule.  The Trump Administration seems to have been outraged that California and major carmakers tried to negotiate an agreement resolving their modest differences.  And the outrage at that deal seems to go well beyond general frustration with California’s opposition to the Trump Administration climate policies.  The Administration appears to have accelerated the schedule of the revocation and made it a separate decision partly because of California’s negotiations; the preamble to the final rule goes on at length about those negotiations; Trump and his political appointees have unleashed an unusually high number of anti-California taunts and threats in recent days; and, perhaps most tellingly, the administration has launched an antitrust investigation into the automakers who tried to compromise with California. In short, the fact that California and automakers were negotiating a deal seems to have given the administration a fit.

This hostility to deals between regulators and the regulated isn’t a new thing.  A few weeks earlier EPA announced a policy against the use of “supplemental environmental projects” in environmental settlements.  A SEP is an environmentally beneficial project carried out by an entity that had violated some environmental law, and the money spent on the project partially reduces the financial penalty the violator otherwise would have paid.  Usually both sides see SEPs as good deals: rather than just pay a fine, the money improves the environment and the community where the violation occurred (and if either side doesn’t like the deal, it can reject it).  So SEPs ought to appeal to an administration ostensibly interested in dealmaking and regulatory flexibility.  But the Trump Administration has prohibited using SEPs to settle enforcement actions against government entities and has suggested it might try to eliminate them entirely.

This hostility to negotiated deals also shows up in the administration’s persistent attacks on compensatory mitigation, which I’ve written about here.  Compensatory mitigation allows people to damage the environment in ways that would be otherwise unallowable so long as they provide extra environmental restoration or protection someplace else.  In other words, it allows flexibility for negotiated deals. At its best (it is not always at its best), the deals can be beneficial for both regulated entities and the public: regulated activities can proceed in desirable locations while high-value environmental resources are protected or restored.  But the Trump Administration has been attacking compensatory mitigation for several years now, sometimes with enthusiastic support from congressional Republicans.

All of this might seem a little odd.  If you like regulatory flexibility, and you like deals, what’s not to like about a deal that provides regulatory flexibility?  Perhaps the answer is that you really dislike the regulations that made the deal necessary.  That partially explains why the Trump Administration is trying to revoke California’s authority over greenhouse gases, though it doesn’t explain why the act of negotiating seems to have drawn so much extra ire.  And it also doesn’t explain why the administration is going after SEPs or compensatory mitigation.  In either case, the assault on negotiation just reduces a regulated entity’s options.  Why do that?

One answer, explored in an interesting article by law professor Lee Anne Fennell, is that if you dislike government regulators, perhaps anything that takes flexibility away from those regulators is appealing, even if it undercuts flexibility for regulated entities.  The goal, in other words, might just be to hurt government however you can, regardless of the collateral consequences for regulated entities.  Fennell offers this theory as a partial explanation for conservative affection for cases like Nollan v. California Coastal Commission and Dolan v. City of Tigard.  I think she’s on to something, but conservative activists aren’t just creatures of emotion.  There are strategic calculations at work here as well.

A second possible reason, which I explored in the essay on compensatory mitigation, is a sense government regulators will be less inclined to implement laws at all if they don’t think they can implement them in a flexible way.  Regulators are generally well aware that enforcement is controversial, and they therefore may be somewhat reluctant to embark on a regulatory initiative if they know it will culminate in a financial penalty—particularly if that penalty will be imposed on a powerful or sympathetic actor like a prominent business or local government.  The possibility of a SEP or a compensatory mitigation deal therefore might make implementing the law more feasible.  And if you don’t want implementing the law to be feasible, taking that option away might make some strategic sense; it’s just a way to ensure that there’s less enforcement overall.

Then there’s a third possibility, which I suspect explains some of the vehemence the administration has displayed against the California-automaker deal: the outrage is largely about maintaining a united industry front against regulators.  Consider, for a moment, the incentives of antiregulatory activists and politicians, a category that clearly includes the Trump Administration.  In many circumstances, they have made alliances with and get their money from businesses that are desperately opposed to regulation.  The coal industry is the most obvious example (for-profit colleges might be another); its viability depends on society’s willingness to tolerate massive externalization of costs, and government regulation is the means through which such tolerance usually comes to an end.  That means these industries badly need alliances with politicians and are willing to spend serious money to maintain those alliances, and the Republican Party has happily soaked up that money and political support. 

But there just aren’t enough desperately anti-regulatory businesses to dominate politics on their own.  Instead, those businesses and their political clients need alliances with a more mainstream business establishment, and also with public-sector entities that have mixed feelings about oversight from other parts of government.  Those alliances exist and have been powerful for years, but they also are fragile; many businesses, like the automakers, have realized that a world with stronger environmental regulations is world in which they can thrive (and some realize it might be the only world in which they can thrive).  Consequently, every settlement with regulators, and every negotiated deal that accommodates both environmental and business goals, is a threat to a fragile alliances upon which hyper-antiregulatory businesses and the Trump Administration both depend.  Without a more generalized business-environment conflict, and without a widespread perception that business and regulation are implacably at odds, their tenuous coalition falls apart.

Of course, that’s not the only dynamic in play.  Clearly Trump is lashing out at California partly because of his perpetually wounded pride.  But this administration has long pursued a strategy of ruthless disciplining allies that seem to waver in their support, and it also clearly perceives value in conflict.  As political strategy, that might all be quite smart.  But for people who want a well-governed society in which regulated entities thrive, it should be deeply concerning.

- Dave Owen

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