Ninth Circuit Preemption Case Raises Questions about the Authority of State and Local Governments to Regulate Energy Efficiency through Building Codes
On June 25, 2012 -- while Constitutional Law wonks waited with bated breath for the Supreme Court’s decision on the Patient Protection and Affordable Care Act, which came just three days later -- the U.S. Court of Appeals for the Ninth Circuit rendered an interesting opinion on the relationship between the U.S. government and the States, which basically went unnoticed.
In Building Industry Association of Washington v. Washington State Building Code Council, 683 F.3d 1144, the Ninth Circuit held that Washington State’s recently-revised building code was not preempted by federal regulations promulgated by the Department of Energy (“DOE”). By way of background, Congress enacted the Energy Policy and Conservation Act (“EPCA”) in 1975, giving DOE the authority to set minimum levels of efficiency for various household appliances. The act initially preempted all state energy efficiency standards, but in 1987, Congress amended it to permit a limited preemption exception for state and local building codes. Under the EPCA as modified in 1987, a state and local building code containing energy efficiency standards is not preempted if the building code satisfies seven conditions. All seven conditions are codified in 42 U.S.C. § 6297(f)(3), sub-sections (A) though (G), but only two are relevant here: (B), which provides that the building code must not “require” the use of appliances with energy efficiencies exceeding the minimum efficiency set by DOE regulations; and (C), which provides that the building code must offer builders a “one-for-one credit” for alternative methods that reduce energy use. Sub-section (C) is designed to prevent state and local agencies from favoring particular products or methods.
Washington State promulgated its current building code in 2009. Plaintiffs, who were generally home builders and contractors, filed suit in the Western District of Washington, challenging the building code on several grounds. The district court rejected all their arguments, and they appealed to the Ninth Circuit where they narrowed their focus. On appeal, they advanced two arguments. First, they argued that the building code did not satisfy condition (B) because it effectively “required” them to install more efficient appliances in new construction by making it too costly for them to install lower efficiency appliances. The Ninth Circuit, however, rejected that argument, observing that an “economic incentive is not a requirement.” In reaching its conclusion, the court looked to the Webster’s Dictionary definition of “require,” which defined the verb as, to “command,” “demand,” or “insist.” The court reasoned that the building code did not “command, demand, or insist that builders select higher efficiency options,” and, thus, did not “require” the use of higher efficiency appliances. The court also relied on the Supreme Court’s decision in Bates v. Dow Agrosciences, LLC, 544 U.S. 431 (2005), in which the Supreme Court held that federal law regulating the labels on insecticide, fungicide, and rodenticide did not preempt state common law products liability claims based on negligence, strict liability or fraud, notwithstanding the fact that “verdicts on [such] state tort claims might create economic incentives” to word a label in a certain way.
Second, the plaintiffs argued that the building code failed to satisfy condition (C) because it did not offer builders a “one-for-one credit” for alternative methods of reducing energy use. The plaintiffs claimed that the building code’s assigning the same credit value to certain options was erroneous. For example, they maintained that a geothermal heat pump would reduce a building’s energy use by six percent, whereas a system for ventilating and preventing leakage of climate-controlled air would reduce a building’s energy use by ten percent; thus, they argued, the buildings code’s assignment of the same credit value to both of those options was not on a “one-for-one” basis as required by condition (C). The court, however, rejected their argument, reasoning that “[a]ny credit-based system that involves comparing different methods of reducing energy  may seem like comparing apples and oranges” and, thus, it should not be surprising that the correspondence between “energy use saved and credit value awarded” is not perfect. The court also relied on a Senate Committee Report noting that that credits are to be given “to the greatest degree possible,” as evidence that Congress did not intend “mathematical perfection.”
Building Industry Association of Washington is an important case because “green” and sustainable building codes are becoming increasingly popular with State and local governments, and it appears to be the only appellate decision on the issue of whether such a building code is exempted from federal preemption (I do not know whether the plaintiffs chose to petition the U.S. Supreme Court for a Writ of Certiorari). Thus, it likely will be persuasive authority for other appellate courts as similar cases bubble up in the circuits. The case suggests that such codes can be implemented in ways that do not violate federal law, but it leaves plenty of room for argument. For instance, although the court recognized that “economic incentives” are not “requirements,” does the court’s rationale rule out the possibility that another building code’s so-called “economic incentives” could be so draconian that they result in a Hobson’s Choice in favor of higher efficiency appliances? The court’s rationale regarding application of condition (C) also leaves plenty of room for further disagreements. For example, although the court recognized that any given building code likely never will have “perfect correspondence between energy use saved and credit value awarded,” where should courts draw the line? In other words, what degree of correspondence is required? This question, in turn, raises yet more questions, such as, who decides whether credit value awarded sufficiently corresponds to energy use saved? And, what, if any, deference should a reviewing court give to that determination? Perhaps, in time, these questions will be answered, as it is quite likely that there will be more litigation on preemption under the EPCA.
This article first appeared in ADMINISTRATIVE LAW NEWS, Vol. 2, Issue 1 (Maryland State Bar Association, January 2013) and is reposted with permission.