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New SEC Climate Rules Are Burdensome – But Are They Constitutional?

Abusing power to strangle farms and the economy.

by | Apr 7, 2024 | Articles, Climate Change, Opinion

Controversial new SEC Rules compel corporations to report the climate impact of each step of the supply chain. It’s complex, convoluted, and confusing at best – but is it constitutional? That was the question asked during a powerful hearing on March 18, 2024, before the House Subcommittee on Oversight and Regulations. SEC Chair Gary Gensler is accused of overstepping constitutional bounds in his zeal to weaponize the Securities and Exchange Commission to regulate greenhouse gases, a far stretch from the agency’s mission to protect investors and ensure financial integrity in markets. Burdensome new rules do the opposite, threatening to inflict net-zero business profits in a kamikaze effort to achieve impossible net-zero emissions of carbon dioxide.

In a divided 3-2 decision on March 2, 2024, the SEC issued the controversial new “climate disclosure” rule as an 886-page amendment to S-K, which governs required disclosures in Form 10-Ks and other public filings. The rules purport to improve investor awareness, instead feeding the fantasies of climate ideology over investor concerns and imposing billions of dollars of compliance costs on businesses for a hazy effort to track every aspect of climate impact in each step of businesses’ complex supply chains. An even more ambitious plan under proposed “Scope 3” disclosures was curtailed.

An Unconstitutional Climate Regime

The US Constitution (Art. 1, § 1 and § 7, cls. 2) provides that “All legislative Powers herein granted shall be vested in a Congress of the United States.” The SEC was given the power to oversee financial markets, including “material” investor disclosures. The question in dispute is whether this extends to high-cost compliance efforts that will increase consumer costs for products and even close many businesses – including down-chain farming operations – that are already struggling with weak margins. This rule change is just one of many so-called climate initiatives under the Biden administration that exceed traditional administrative authority as defined by the courts.

Tennessee Republican Andy Ogles expressed this at the hearing:

“[W]e’ve seen these regulatory regimes come in and essentially function as members of Congress, as the body of Congress, by creating legislation and burdens by rulemaking …[through] SEC’s climate rules, which play to the tune of the administration’s obsession with the climate change religion, and that’s what it’s become, is a religion. Simply put, this rule will bully publicly traded companies into reporting environmental information that has no relevance to the financial concerns that matter to investors.”

The POTUS defied SCOTUS when he bypassed Congress to erase student debt, signaling that he seeks to escape the surly bounds of the Constitution and representative democracy in favor of tyrannical edicts and executive orders. The list of such episodes grows daily, including stricter EPA rules for gas emissions and expanded rules for wildlife protection that undermine farmers. Another sneaky initiative would create an international building code applicable to the entire nation, drafted by an unelected organization governed by “industry stakeholders” rather than We the People.

An Attack on Farming and Food Supplies?

The Scope 3 disclosures originally proposed by Chairman Gary Gensler would have dramatically impacted farmers economically downstream from publicly listed companies subject to its provisions. California now seeks to impose Scope 3 rules in the SEC’s stead, a back-door assault on states’ rights akin to its Proposal 12 governing pig farming.

The legal term for a government or corporation exceeding its authority is “ultra vires” – Latin for “beyond the powers.” It describes an act requiring legal authority but done without it. The Scope 3 disclosures – abandoned for the moment by the SEC but eagerly embraced by California – are precisely that. Their impact on farming operations was summarized at the hearing by third-generation Tennessee tomato farmer Renea Jones, of Jones and Church Farms:

“Scope 3 emissions – as proposed in the original rule – are emissions which are the result of activities not owned by the company but are in its supply chain. Naturally, this includes family farms as most farm products, including the tomatoes grown on my farm, end up in the value chains of these companies….

 

“To comply with Scope 3 reporting requirements, we would need to hire a legal consultant and a chemist to keep up with all that would be required of us. Looking across the entire tomato supply chain, there are approximately 6,000 inputs involved in the growing of one tomato. On average, my farm produces 38.5 million tomatoes every growing season. From a record-keeping standpoint, my small family farm operation would have to hire extra staff just to keep up with the data the SEC is asking for. A rule with requirements this extensive would cause us to consider closing our doors. Profit margins for farm operations are already tight due to inflated input costs, and hiring extra help to navigate these requirements would make those tight margins even tighter, if not nonexistent.”

Scope 3 requirements would ensure net-zero carbon emissions for Jones when tomato production hit net-zero. This is not just throwing the baby out with the bathwater; this is shoving its head underwater in the name of a rescue effort.

On the other side of the climate-nut food-attack spectrum, New York’s now-infamous Letitia James has sued JBS Foods (the world’s largest producer of beef) for fraud for claiming it is implementing GHG-reducing regenerative agriculture policies. This “damned if they do, damned if they don’t” insanity is insouciantly ignored by fearmongering alarmists who have their regulatory cake and eat it too. The complexity of the case against JBS displays the near-impossible reporting burden being foisted on companies by the SEC’s new 886-page rule.

Hiding Elephants in Mouseholes

Subcommittee testimony from Whitney Hermandorfer, an attorney and Director of Strategic Litigation with the Tennessee Office of the Attorney General & Reporter, laid the SEC out in legal lavender, invoking constitutional protections and extensive case law to aver that the new rule lacks statutory authority, distorts existing “materiality” principles, and imposes undue compliance and speech burdens, all accomplished through a flawed process of enactment. Hermandorfer claimed Congress never granted broad power to the SEC or unelected Gensler, especially in such clear derogation of reserved states’ rights, and that the rule’s “ambiguous statutory language” will harm consumers and the economy:

“Under the Supreme Court’s major-questions doctrine, an agency must come forward with ‘clear congressional authorization’ before using a rule to settle an issue of great ‘economic and political significance.’ This principle reflects the commonsense presumption that Congress ‘does not…hide elephants in mouseholes’ when delegating agency authority.

 

“The lack of clarity around what it means for climate risks to be material will no doubt subject companies to costly litigation that would detract from innovation and investor value—thus harming rather than helping consumers on balance.”

Dogmatic Policies Eclipse Common Sense

Climate policies have interfered with power grid maintenance, creating grid fragility even as the electric vehicles that will spike demand are touted as salvific. Corporations have been granted massive tax subsidies to “store” liquid carbon dioxide underground with little hope it will stay put, while billions of dollars are “invested” into other corporate winners who manufacture renewable energy darlings that are presented as inflation-reducing but are regressively pumping up the national debt. This corporate favoritism is unavailable to small and mid-sized farms compelled without subsidy to comply with a Kafka-esque panoply of vague or burdensome regulations. Americans cannot eat solar panels, heat pumps, or EVs, no matter how much they are subsidized.

Read More From John Klar

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