Zero Zone, Inc. v. United States Department of Energy, 832 F.3d 654 (7th Cir. 2016)

Zero Zone, Inc. v. United States Department of Energy, 832 F.3d 654 (7th Cir. 2016).

Zero Zone, Inc. (Zero Zone), a small business specializing in commercial refrigeration equipment (CRE), and others, petitioned for review of rules published by the U.S. Department of Energy (DOE) aimed at improving energy efficiency in manufacturing. 

Under the Energy Policy and Conservation Act (EPCA), DOE must issue energy conservation standards and “review these standards and implement new ones when appropriate.”  Id. at 662.  EPCA mandates the standards be economically and environmentally justified, among other requirements. 

Petitioners challenged DOE’s newly published standards under the Administrative Procedure Act (APA) claiming, in part, that the standards were not economically justified and that the agency improperly considered environmental benefits as part of its economic analysis.

The Seventh Circuit Court of Appeals considered whether DOE abused its discretion or was arbitrary and capricious in its decision-making.  The Court explains that DOE “employed ‘an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year,’ known as the Social Cost of Carbon (SCC).”  Id. at 677 (citing the final rule at 79 Fed. Reg. at 17,777).

In its final rule, DOE explains that it used the federally adopted SCC:  “The value of the CO2 reductions is calculated using a range of values per metric ton of CO2 (otherwise known as the Social Cost of Carbon, or SCC) developed by a recent Federal interagency process.”  Energy Conservation Program: Energy Conservation Standards for Commercial Refrigeration Equipment Final Rule, 79 Fed. Reg. 17,726, 17,729 (citing to the Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. Interagency Working Group on Social Cost of Carbon, United States Government. May 2013; revised November 2013).  The final rule further states: “The SCC is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services. Estimates of the SCC are provided in dollars per metric ton of carbon dioxide. A domestic SCC value is meant to reflect the value of damages in the United States resulting from a unit change in carbon dioxide emissions, while a global SCC value is meant to reflect the value of damages worldwide.” 79 Fed. Reg. at 17,777.

The Court held that Congress intended DOE to “have the authority under the EPCA to consider the reduction in SCC.”   Zero Zone, Inc. at 677.  In a footnote, the Court opined that DOE probably had the authority to consider environmental benefits under other statutory authority as well, and stated more generally that “[e]nvironmental benefits have an economic impact.”  Id. at fn. 24.

The Court found that “DOE’s determination of SCC was neither arbitrary nor capricious.”  Id. at 678.  After reviewing other issues raised, the Court denied “the petitions for review in their entirety.”  Id. at 690.