Zero Zone, Inc. v. United States Department of Energy

The Energy Policy and Conservation Act (EPCA) imposed energy-conservation standards on manufacturers of equipment and appliances. EPCA required the Department of Energy (DOE) (defendant) to review existing standards and implement new standards if appropriate, based on factors including the need for national energy conservation. In 2009, the DOE published a rule that set energy-conservation standards for 38 classes of commercial refrigeration equipment (CRE). In 2014, the DOE published a New Standards Rule that established energy-conservation standards for 49 classes of CRE. Although some standards had not changed between 2009 and 2014, the DOE had set a higher standard for several CRE classes after determining that the new standards were technologically feasible and economically justified. In analyzing economic justification, the DOE used the social cost of carbon (SCC), which estimates the monetized damages of an incremental increase in carbon emissions. The DOE concluded that the global benefits of the new standards, based on lower energy usage and reduced greenhouse-gas emissions, outweighed the national costs of developing new CRE. The DOE cited several documents and an interagency report supporting its SCC calculations. CRE manufacturer Zero Zone, Inc., and a CRE trade association (collectively, Zero Zone) (plaintiffs) petitioned for review of the New Standards Rule, arguing that the DOE had acted arbitrarily and capriciously in treating CRE as price inelastic (i.e., assuming that an increase in the price of CRE would not affect consumers’ demand for CRE). The DOE had addressed this issue in supporting materials for the New Standards Rule. The DOE stated that it did not have sufficient data to estimate the purchase-price elasticity of CRE, but it had explained that because most CRE purchasers (e.g., restaurants) were subject to health codes and other food-storage regulations, CRE was effectively a necessity for those purchasers, and they would purchase CRE regardless of price. Zero Zone also asserted that the DOE had acted arbitrarily and capriciously in its economic-justification analysis by considering environmental factors, engaging in flawed SCC analysis, and comparing the standards’ global benefits to the environment against their national costs.