The SEC's new climate regulations have sparked legal and legislative challenges. Both the House and Senate are advancing measures to revoke these rules, reflecting a broader effort to counter what is seen by many as regulatory overreach by the SEC under Chair Gary Gensler's leadership. Senator Tim Scott (R-S.C.) and Representative Bill Huizenga (R-Mich.) introduced resolutions through the Congressional Review Act (CRA) to reject the SEC's climate regulations.
The CRA allows Congress to examine and potentially overturn new federal rules by passing a joint resolution, which is then presented to the President for approval, potentially invalidating these. Given the nearly even party split in Congress and unpredictable voting behaviors, these resolutions might succeed. However, President Biden is unlikely to endorse such a measure, whereas a President like Trump might support it.
Senator Scott and Representative Huizenga have openly criticized the SEC's broad regulatory agenda, which they argue exceeds its authority, lacks public input, and has not been properly analyzed for costs and benefits. Earlier in the year, Senator Scott led a group of Republican Senators in demanding transparency from the SEC about its climate regulations. They questioned the SEC's statutory authority and its interactions with European regulators, which they believed undermined U.S. interests. The SEC's reluctance to provide the requested documents has been a major source of dispute, especially concerning its involvement in global climate and wider social justice efforts.
Representative Huizenga conducted a 14-month inquiry into the SEC's climate rulemaking process, including holding four hearings on climate disclosures (I testified at one). His subcommittee sought details from the SEC on the scope of its enforcement powers for a climate disclosure rule. However, the process was hindered by what Huizenga termed a lack of cooperation from the SEC, which provided an excessive number of documents without clarifying its stance, while also pushing through the 886-page final climate rules.
In presenting the resolution in the House, Representative Huizenga criticized the SEC for yielding to the political left and ignoring the Supreme Court's ruling in West Virginia vs. EPA, which emphasized the necessity for explicit congressional authorization for major regulatory actions. He also referenced a 2023 federal appellate court decision that overturned a new SEC rule on share buybacks, citing the SEC's arbitrary and capricious actions and failure to comply with the Administrative Procedure Act, including inadequate responses to public comments and insufficient cost-benefit analysis.
Shortly after the SEC adopted its new climate rules, a federal appellate court issued a temporary stay. Although this suspension was lifted when the case was consolidated in a different appellate court, the SEC stayed the rules on its own due to the numerous challenges these face. Invoking the CRA to nullify the SEC's climate rules signals Congressional determination to supervise regulatory bodies. The resolution is poised to become a central issue not only in the debate regarding the scope of the SEC's statutory authority, but the broader debate over the government's role in business regulation and environmental protection.
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