We May Have Dodged A Bullet In The Misnamed "Inflation Reduction Act"

August 09, 2022 Francis Menton @ Manhattan Contrarian

On Sunday (August 7) the Senate passed the 700+ page bill with the Orwellian name of the “Inflation Reduction Act.” The bill has essentially nothing to do with supposedly reducing inflation, and is really just a conventional tax-and-spend extravaganza, with hundreds of billions of dollars of completely counterproductive taxing on the one hand, and even larger amounts of equally counterproductive and wasteful spending on the other hand. The bill is still not final, since it differs substantially from a version previously passed by the House. So it may be a while before there is an enacted statute. But now that the main hurdle of Senate passage has been cleared, there probably will be a statute within days, in all likelihood identical to what the Senate has passed.

This is one of the very worst bills ever to clear a house of Congress, although to be fair the (equally misnamed) Build Back Better bill passed by the House toward the end of last year was much larger and would have been even worse. But from information coming to me, it appears that the very most destructive provision of the proposed bill got scrapped at the last minute, just prior to Senate passage. That was a provision that would have attempted to substantially undo the Supreme Court’s June 30 decision in West Virginia v. EPA. Although the bill is not final, and I cannot find definitive information at the time of this writing, it appears likely that we have dodged a huge bullet, at least for the moment.

Some background: the West Virginia v. EPA case concerned a challenge by many (red) states to an attempt by the EPA to transform the electricity generation sector of the economy, and impose hundreds of billions of dollars of costs on the American public, on the basis of the thinnest of statutory pretexts. The particular statutory pretext on which EPA relied was found in Section 111 of the Clean Air Act. The Supreme Court held that that provision was insufficiently clear and specific, under the Court’s Major Questions Doctrine, to support the economic transformation that EPA was attempting to accomplish:

In arguing that Section 111(d) empowers it to substantially restructure the American energy market, EPA “claim[ed] to discover in a long-extant statute an unheralded power” representing a “transformative expansion in [its] regulatory authority.” . . . It located that newfound power in the vague language of an “ancillary provision[]” of the Act, . . . one that was designed to function as a gap filler and had rarely been used in the preceding decades. And the Agency’s discovery allowed it to adopt a regulatory program that Congress had conspicuously and repeatedly declined to enact itself. . . . Given these circumstances, there is every reason to “hesitate before concluding that Congress” meant to confer on EPA the authority it claims under Section 111(d).

Thus the effect of West Virginia v. EPA was to stymie the Administrative State, at least for the moment, in its efforts to transform the economy without clear Congressional authority. But the Supreme Court left open the possibility that Congress could enact a new statute granting to EPA the authority that it had just been found to lack. It was obvious that a top priority of the Democrats was going to be to try to get something into the reconciliation bill that could be used to argue that EPA had been unleashed.

Now, this was never going to be an easy task. Under the Senate’s arcane rules, to avoid the possibility of a filibuster and a requirement for 60 votes to proceed, the proposed bill had to meet the tests for “reconciliation.” That meant that the bill could only include provisions for taxing and spending. An official with the title of Senate Parliamentarian would have the ability to make the call if something was non-germane, and therefore made the bill subject to the super-majority to pass. Everyone on the Republican side fully expected the Democrats to try to slip something into the bill that could be argued to effectively reverse West Virginia v. EPA. As drafts of the bill exceeding 700 pages circulated over the last week, think tank scholars and Republican staffers scoured them repeatedly to try to find the inevitable provision that would try to accomplish the task. On Friday, Marlo Lewis at the Competitive Enterprise Institute blog reported:

This Wednesday on Fox Business with Larry Kudlow and later on Fox News with Sean Hannity, Sen. Ted Cruz (R-TX) warned that buried in the 725-page Schumer-Manchin bill are provisions designed to “overturn” the Supreme Court’s decision in West Virginia v. Environmental Protection Agency.

Cruz did not name the provision or provisions he was referring to. But Lewis went through the then-current 725-page version of the bill, and found this provision in Section 60105(g) at page 666:

(g) OTHER ACTIVITIES.—In addition to amounts otherwise available, there is appropriated to the Adminis- trator of the Environmental Protection Agency for fiscal year 2022, out of any money in the Treasury not otherwise appropriated, $45,000,000, to remain available until September 30, 2031, to carry out, with respect to greenhouse gases, sections 111, 115, 165, 177, 202, 211, 213, and 231 of the Clean Air Act (42 U.S.C. 7411, 7415, 7475, 7507, 7521, 7545, 7547, and 7571).

Note that one of the sections listed is 42 U.S.C. 7411, which is also what goes by the name of Section 111 of the Clean Air Act — the very section that the Supreme Court had just ruled did not give the EPA the authority to transform the electricity sector of the economy with respect to greenhouse gases. Lewis points out that this section the IRA bill appeared to be clearly intended to give the EPA something to cite to claim new authority to regulate “greenhouse gases” like CO2 under the Clean Air Act:

And then there was Section 60107 of the draft bill. Lewis:

Section 60107 of Schumer-Manchin also provides $18 million “to ensure that reductions in greenhouse gas emissions from domestic electricity generation and use are achieved through use of the authorities of this Act, including through the establishment of requirements under this Act,” based on the $1 million monitoring program. So, if Schumer-Manchin passes, Congress will have amended the Clean Air Act to create an electric-sector greenhouse gas reduction program, with an $18 million fund to “ensure” reductions are “achieved,” including by “the establishment of requirements.”

Thus, in the guise of seemingly modest appropriations of $45 million in one case and $18 million in the other (rounding errors in a bill containing over $500 billion in appropriations), Congress could perhaps be argued to have given EPA authority that did not previously exist to regulate “greenhouse gases” in the electricity-generating sector of the economy.

And then, after a flurry of last-minute changes over the weekend, the Senate passed a somewhat revised version of the IRA bill on Sunday. But, were Sections 60105(g) and 60107 still in the version that actually passed? I have sources that are telling me that those sections were deleted at the last minute, at the behest of the Senate Parliamentarian. As of this writing, I have not been able to find a definitive text of the bill as passed, and thus I have not been able to confirm the deletions. I suppose we will know the definitive answer shortly.

Even if Sections 60105(g) and 60107 had made it into the final statute, it is probably unlikely that the six justices of the Supreme Court majority in West Virginia would have been impressed. Lewis concurs in that assessment:

Creating a Low Electricity Emissions Program through a reconciliation bill, without benefit of a hearing, would not cut any ice with the six justices comprising the majority in West Virginia. It would in no way contradict their judgment that CAA Section 111 does not authorize the EPA to compel states or utilities to reallocate production and market share from coal to gas generation and from fossil generation to renewables.

But the prospect of ultimate defeat in the Supreme Court would have been unlikely to deter the zealots at the EPA, who would be only too happy to wreak havoc with the electricity sector, and triple everyone’s cost of electricity, for three or five years before the next case could reach the high court. With any luck, we will now be spared that prospect.

Meanwhile, the rest of the IRA bill is a disaster in every way, although perhaps not as big a disaster is it could have been. The amount of money allocated by the Federal Government in the bill for renewable energy has been reported in the range of $370 billion, a truly astounding amount. It is subsidies, grants, handouts, and tax benefits of every sort for wind and solar power in particular. Basically, we are now going to follow the completely failed strategy of Germany, that has brought the Germans wind and solar generators covering the landscape, triple our electricity costs, but yet no ability to get rid of fossil fuel backup because that is still absolutely essential.

UPDATE, August 11: It looks like my sources had it right about the removal from the Senate bill of the provisions seeming to grant new regulatory authority to EPA to regulate “greenhouse gases.” From an unsigned editorial in today’s Wall Street Journal:

Enter [Shelley Moore Capito, the other Senator from West Virginia], who offered an amendment on the Senate floor to strip the bill’s sweeping grant of regulatory authority from the bill. . . . She then challenged compliance with budget reconciliation rules, which prohibit measures whose budgetary effects are “merely incidental” to the policy impact. The Senate parliamentarian agreed and struck the provisions from the bill.