One of the most potent pending challenges to the FCC’s Open Internet Order will be based on the Supreme Court’s opinion last year in Utility Air Regulatory Group. That case, which the court has affirmatively cited several times this past term, rejected EPA efforts to “tailor” provisions of the Clean Air Act, effectively rewriting the Act to facilitate its policy goals. There is a strong – if not perfect – analogy to be drawn between the EPA’s approach to the Clean Air Act in that case and the FCC’s need to use forbearance in the Open Internet Order to make the rules viable.
The court’s latest rejection of the EPA’s efforts to stretch the limits of the Clean Air Act to reach its own policy goals presents yet another potent challenge to the FCC’s Open Internet Order.
Yesterday the court once again rejected the EPA’s efforts to shape the Clean Air Act to implement its own – as opposed to Congress’s – policy goals. In Michigan v. EPA (0) the court found that the EPA’s implementation of regulations without consideration of the costs of those regulations violated the Clean Air Act. The statute allows the EPA to impose regulations if it “finds such regulation is appropriate and necessary.” The court explains that “the phrase ‘appropriate and necessary’ requires at least some attention to cost,” going on to say that “One would not say that it is even rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.” The same analysis – and critique – likely applies to cost of the FCC’s Open Internet Order.
But the court’s Michigan opinion may be even more problematic for the FCC. It has language that calls into question the commission’s “virtuous cycle” theory – the basic premise upon which the commission’s Open Internet regulations are based. The “virtuous cycle” refers to the FCC’s idea that “Internet openness drives a ‘virtuous cycle’ in which innovations at the edges of the network enhance consumer demand, leading to expanded investments in broadband infrastructure that, in turn, spark new innovations at the edge.” Indeed, some of the court’s language almost seems written with the commission – and its troubled history with “ancillary jurisdiction” – in mind.
Part of the reason that the EPA chose not to consider cost in implementing its regulation is that it found it difficult to assess the costs, and the offsetting benefits, of its proposed regulations. Indeed, as required by Executive Order, it did conduct a Regulatory Impact Analysis, which made some efforts to assess the regulation’s costs and benefits. Quoting from the Court’s opinion:
This analysis estimated that the regulation would force power plants to bear costs of $9.6 billion per year. The Agency could not fully quantify the benefits of reducing power plants’ emissions of hazardous air pollutants; to the extent it could, it estimated that these benefits were worth $4 to $6 million per year. The costs to power plants were thus between 1,600 and 2,400 times as great as the quantifiable benefits from reduced emissions of hazardous air pollutants.
Let that sink in for a minute. The EPA’s own estimates found that its regulation would cost nearly $10 billion per year to implement for a net benefit of a scant $4 to $6 million. The court continues:
The Agency continued that its regulations would have ancillary benefits – including cutting power plants’ emissions of particulate matter and sulfur dioxide, substances that are not covered by the hazardous-air-pollutants program. … [T]he regulatory impact analysis took the[se] into account, increasing the Agency’s estimate of the quantifiable benefits of its regulation to $37 to $90 billion per year.
So, that does sound better. Factoring in these ancillary benefits, which were outside the scope of the agency’s statutory authority, the analysis found benefits that clearly satisfied a cost-benefit analysis.
But this merely frames the key question this case presents for the Open Internet Order. Namely: are the relevant benefits $4-6 million per year or $37-90 billion per year? Or, do we include ancillary benefits in that calculation? It must be noted at the outset that the court doesn’t answer this question. The dissenting Justices do argue that ancillary benefits should be considered. The majority opinion, however, expressly does not address whether they should be considered. It does note, however, that this result stems from factors that fall outside of the EPA’s authority – and argues that the dissent “vastly overstates” its analysis of the EPA regulation’s cost-effectiveness.
Recall the basic premise of the “virtuous cycle”: That, at its core, FCC regulation will increase consumer demand for edge application which will increase investment in broadband to support that demand. It is difficult to attribute the effects of the virtuous cycle to costs and benefits – increased broadband investment, for instance, is a cost that is offset by increased consumer willingness to pay. Critically, that willingness to pay, under the terms of the virtuous cycle, is driven by consumer demand for edge applications – broadband Internet service is merely the means to accessing those applications. And the FCC has no authority – and has repeatedly assured that it has no authority – to regulate the broader Internet ecosystem, including edge applications. In other words, the virtuous cycle theory increases the costs of the FCC’s regulation, without generating any consumer benefits attributable to offsetting those costs.
This may seem crazy. But it follows from a basic premise of administrative law: agencies may only act within the bounds of their statutory authority. If an agency’s regulation is only viable because of how it affects things over which it has no legal authority, it is hard to understand the agency as acting within its statutory authority. In any such case – be it with the EPA, FCC, or any other agency – it could be true that the regulation is ultimately justifiable – but, if it is, it is up to Congress to implement the regulation, not to a rogue agency to adopt its preferred policy without legal authority.
The FCC has no statutory authority to regulate the Internet. If the Open Internet Order is only justifiable based on how it affects the Internet, then it really can only be understood as regulation of the Internet with an ancillary effect on services within the FCC’s statutory authority. The tail must not be allowed to wag the dingo – and yesterday’s opinion suggests the court will find just this fault with the Open Internet Order.