The Insane Climate Bureaucracy That Never Was
The SEC’s Atkins deserves praise for strangling the climate disclosure rule in its cradle.
On Friday, Securities and Exchange Commission (SEC) Chairman Paul Atkins made one of the most important announcements in the history of modern financial regulation. His news was not a new regulation or a billion-dollar fine for some white-collar miscreant. In a refreshing move that will hopefully inspire future policymaking, Atkins announced the elimination of a huge bureaucratic burden: the agency’s climate disclosure rule. Critics of the rule cheered.
The rule would have imposed an annual reporting mandate on every public company in the U.S. related to their energy use and climate-change-related policies. This would have been a departure from the SEC’s traditional “principles-based” approach to disclosure, which allows companies to prioritize the information they think will be most useful to investors. This emphasis on one specific topic — especially coming during the Biden administration’s “whole-of-government” campaign on climate change — suggested that the agency was going beyond its authority and implementing environmental policy rather than trying to protect investors or improve market efficiency.
It’s been a long road for this rule, which started with a “request for information” by the agency in 2021, a proposed rule in 2022, and a slightly less extreme final rule in March 2024. After publication in the Federal Register, the rule was immediately challenged in federal court, both by business groups and small government advocates who argued it went too far, and a few environmental activist groups upset because it didn’t go far enough.
Those challenges were making their way through the system when Donald Trump was elected president for the second time and nominated Republican attorney and former SEC Commissioner Paul Atkins to be the new chairman of the agency. In March of last year, the agency voted to take the first major step in reversing course by voting to no longer defend the rule in court. In September, the Eighth Circuit Court of Appeals announced that the legal challenge was essentially on hold until the SEC made the next move. That next move has now been made.
In its Friday press release, the agency made its reasoning very plain: “The Commission is now proposing to rescind the climate disclosure rules in their entirety because they exceed the scope of the agency’s statutory authority.” That should be more than enough justification for the repeal of any federal regulation. But the climate disclosure rule has many more specific problems that should serve as a warning for future policymakers tempted to proceed in the same direction.
The rule would have required public companies to make subjective and disparaging disclosures about their own operations, created a rent-seeking bonanza for self-interested parties (to the detriment of ordinary investors), implemented environmental policy disguised as financial regulation, and would not have come close to passing any reasonable cost-benefit test. The rule would have created a value-destroying vortex of redundant paperwork and board-level meddling of staggering proportions. It also would have constituted an entire new industry unto itself in the form of climate-themed corporate auditing. It’s no wonder the biggest accounting firms all lobbied aggressively for the rule’s adoption.
The justification for all of this was that “investors” were demanding this huge volume of granular data about the climate policies of public companies. The word clearly left out of that claim was “some.” Yes, a handful of the most highly motivated people in the world of climate finance wanted a database of information on their favorite topic. Only billions of dollars in enforced compliance could create such an asset, so of course they wanted every other investor in the country to pay the costs of producing it. That was never fair, reasonable, or within the legitimate bounds of the SEC’s authority.
But, of course, the cover story that investors were demanding this disclosure was never the real motivation. Members of the progressive policy ecosystem had simply decided that everything in the modern world needed to be aligned toward the goal of net-zero greenhouse gas emissions. Every new model of car, every home heating method, every consumer decision, and every investing decision must — in their view — be subordinated to the goal of decarbonization. The climate disclosure rule was just another mechanism to force the rest of us to make their goals into our goals.
While few voters in November 2024 were likely focused on this issue specifically, it’s fortuitous that this reversal played out the way it has. Because of the legal challenge after the rule was published, it was never really in force. Firms, of course, had already spent huge amounts of money getting ahead of enforcement deadlines and preparing to comply, but we never had a full reporting cycle before the Biden-era SEC stayed enforcement of the rule in April 2024, soon after approving it.
If the climate disclosure rule had been implemented as planned and survived for multiple annual reporting seasons, the landscape would have shifted dramatically. Institutional investments, professional guidelines, and legal recommendations in the corporate world would have made repealing it much harder. Firms would have incurred substantial hiring and training costs, and the rule would have become the new normal of disclosure filings. Some companies would, no doubt, have already gone on PR sprees bragging about how they were the most climate compliant, and the rent-seeking incentive for further regulation would have been stoked.
Not that it’ll be smooth sailing for the foreseeable future. The original rule attracted many high-profile litigants to challenge it, and there’s no reason to think that this move will be any different. If green groups were willing to sue over the previous rule not being strict enough, you can be sure there’ll be lawsuits over it being rescinded entirely. But the latest move by the SEC is likely to be very sturdy — the 2024 rule was always weak, especially given recent Supreme Court decisions like West Virginia v. EPA (2022) and Loper Bright Enterprises v. Raimondo (2024) that have restricted the ability of federal agencies to stray into the realm of policymaking properly reserved for Congress.
Future generations of Americans — and actually, even the present ones — will likely never know the bullet they dodged in terms of avoiding a huge, sclerotic climate bureaucracy overlaid onto the entire U.S. corporate world. Innovative and high-quality products are essential in a modern economy, but the legal and regulatory framework under which those products are made and sold matters more than a lot of people realize.
When it comes to economic flourishing, the Competitive Enterprise Institute’s founder, Fred L. Smith Jr., liked to say “You don’t have to teach the grass to grow. You just have to move the rocks off the lawn.” This week the SEC moved a giant pile of boulders out of our way. So, for those in the liberty movement who despair about the seemingly inexorable growth of government, take a moment to savor this victory — it’s a real one.
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