## Facts

- Congress enacted the American Energy Manufacturing Technical Corrections Act of 2012, after which the Department of Energy (DOE) issued two 2014 final rules regulating commercial refrigeration equipment (CRE).
- DOE promulgated an Energy Conservation Standards Rule setting new energy-efficiency standards for CRE under the Energy Policy and Conservation Act (EPCA).
- DOE also issued a Test Procedure Rule revising measurement procedures used to determine compliance with the CRE standards.
- CRE manufacturers and trade groups, including a small business manufacturer and an industry association, petitioned for review in the Seventh Circuit under EPCA and the Administrative Procedure Act (APA).
- Petitioners challenged DOE’s economic and engineering analyses, DOE’s consideration of the Social Cost of Carbon (including global climate benefits), DOE’s assessment of small-business impacts and cumulative regulatory burdens, and the validity of the revised test procedures.

## Issues

1. Whether DOE’s CRE energy conservation standards were within DOE’s EPCA authority and “economically justified.”
2. Whether EPCA permitted DOE to incorporate the Social Cost of Carbon (SCC), including global benefits, in its cost-benefit analysis.
3. Whether DOE’s engineering and economic modeling was arbitrary or capricious or unsupported by substantial evidence.
4. Whether DOE adequately evaluated impacts on small businesses and cumulative regulatory burdens.
5. Whether DOE had authority to adopt the revised CRE test procedures and whether the procedures were reasonable.

## Decision

- The court denied the consolidated petitions for review and upheld both the Energy Conservation Standards Rule and the Test Procedure Rule.
- DOE’s engineering and economic analyses were supported by substantial evidence and were not arbitrary or capricious.
- DOE’s use of SCC as part of its EPCA cost-benefit analysis was within statutory authority; the court accepted DOE’s inclusion of environmental and climate-related benefits, including global estimates.
- DOE reasonably considered small-business impacts, including alternatives and the interaction of the rules with other regulatory requirements.
- DOE acted within its authority and reasonably promulgated the revised test procedures.

## Legal Principles

- Under EPCA, DOE may set energy conservation standards if they are technologically feasible and “economically justified,” applying the statute’s specified factors through reasoned decisionmaking.
- Under APA review, courts defer to agency technical judgments where the agency examines relevant data, provides a rational explanation, and supports its conclusions with substantial record evidence.
- Environmental benefits may be treated as having economic significance in EPCA analysis, permitting DOE to consider monetized climate damages reflected in SCC.
- An agency may use global SCC estimates when it reasonably explains why global climate impacts relate to the regulatory analysis and national interests.
- Agencies must address small-entity impacts and cumulative regulatory burdens in a reasoned manner; adequacy turns on whether the agency considered the issue and supported its conclusions, not on whether challengers prefer different assumptions or models.

## Conclusion

The Seventh Circuit sustained DOE’s 2014 CRE efficiency standards and related test procedures, holding that DOE acted within EPCA authority and satisfied APA review through substantial evidentiary support, reasoned modeling choices, and a permissible cost-benefit analysis that included SCC-based climate benefits and consideration of small-business and cumulative-burden concerns.


Zero Zone, Inc. v. U.S. Dep’t of Energy, 832 F.3d 654 (7th Cir. 2016)