The President issued his Executive Order for Reducing Regulation and Controlling Regulatory Costs on January 30, 2017. That EO—better known as the “one in, two out” EO—has not received the same coverage and attention as the travel bans. Yet it has the potential to have sizeable, long-lasting impact.

The EO is straightforward. Its purpose is “to manage the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations.” Sec. 1. To do so, it requires agencies to “identify at least two existing regulations to be repealed” when proposing new rules unless agencies are “prohibited by law” from doing so. Sec. 2(a). It also requires that “any new incremental costs associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations.” Sec. 2(c). In 2017, the EO requires that the “cost of all new regulations, including repealed regulations … shall be no greater than zero, unless otherwise required by law.” Sec. 2(b). In future years, the Director of the Office of Budget and Management (“OMB”) will “identify to agencies a total amount of incremental costs that will be allowed for each agency in issuing new regulations and repealing regulations.” Sec. 3(d). More simply put, all regulatory activity in 2017 must be cost-neutral and OMB will set the ceiling for adding new costs in future years.

The EO’s implementation could have significant effects. The American Hospital Association lauded it as a much-needed reprieve from the crush of new regulations. “In the past year alone, the federal government added 23,531 pages to the stack of existing regulations affecting hospitals and health systems,” the association’s President stated. The EO slows that “substantial and unsustainable” growth in regulatory burdens. Amit Narang, who is involved in regulatory policy at Public Citizen, has been reported as saying “[t]he federal workforce, the rulemaking staff, will now have to devote all of their attention to getting rid of rules mostly,” which he sees as a drawback. For its part, the New York Times editorial board acknowledged the EO would slow new rulemakings (though the board also sees that as a bug).

The EO will certainly face challenges in implementation. Procedurally, it is difficult to count regulations. A single new “rule” typically imposes many new obligations on regulated industries.  Is the “rule” in its entirety just one regulation for purposes of the EO? Or is each new mandate within the rule a separate regulation? The order does little to clarify this ambiguity. It defines “regulation” and “rule” simply to mean “an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or to describe the procedure or practice requirements of an agency.” Sec. 4. As Ryan Bourne of the Cato Institute has noted, the “two out” requirement can easily “be gamed” by counting every minuscule mandate as its own regulation for repeal purposes.  

But the number of “regulations” and “rules” that agencies repeal is largely window dressing. The EO’s real benefit will be agencies offsetting the costs of the new regulations by repealing old ones. The impact of repealing a single billion-dollar regulation is more than the impact of repealing two million-dollar regulations. It would make little difference to a regulated industry that the billion dollars in savings results from one repeal rather than two. The manner of measuring “costs” will therefore be crucial to the order’s impact.

To that end, the EO directs OMB to provide guidance on “processes for standardizing the measurement and estimation of regulatory costs,” “standards for determining the costs of existing regulations that are considered for elimination,” “processes for accounting for costs in different fiscal years,” and “methods to oversee the issuance of rules with costs offset by savings at different times or different agencies,” among others. Sec. 2(d). That is easier said than done. As Ryan Young of the Competitive Enterprise Institute has explained, “cost estimates for regulations are notoriously subjective and imprecise.” Even so, Young recognizes that the simple requirement to offset costs is an “important step in the right direction for reining in regulatory costs.”

The Office of Information and Regulatory Affairs (“OIRA”) has already issued some guidance to address these and other ambiguities in the EO. Costs are to “be measured as the opportunity cost to society” under OMB’s preexisting definitions. In addition, federal spending rules that affect monetary transfers to beneficiaries, such as rules associated with Medicare spending, are exempt from the EO. As are any rules issued by independent agencies, which have historically been outside of OIRA’s reach. OIRA has also confirmed that agencies may obtain a waiver from the EO for “[e]mergencies addressing critical health, safety, or financial matters or … some other compelling reason.”

Unsurprisingly, the EO’s potentially far-reaching effects have prompted a major legal challenge. Public Citizen, the Natural Resources Defense Council, and the Communications Workers of America sued to invalidate the EO shortly after it was issued. In their complaint, the plaintiffs contend the EO violates “separation of powers,” the Take Care Clause, and the Administrative Procedure Act, among other claims. The district court will likely dismiss the suit for lack of standing or on ripeness grounds. Indeed, the administration’s motion to dismiss leads with this argument because the plaintiffs have neither identified any new regulations that incorporated the EO’s mandates nor anyone who the EO has harmed.

Should the court reach the merits, however, it will likely dismiss the claims. For example, it is unclear how the President violates the “separation of powers” by directing his subordinates to execute his policy preferences. The APA claim gets closer to its mark. Forcing agencies to consider costs for every new rulemaking (and repealing old rules to make room for the new ones) could lead to arbitrary and capricious outcomes. But costs are commonly a factor that agencies consider when issuing new rules. See Michigan v. EPA., 135 S. Ct. 2699, 2707 (2015) (“Agencies have long treated cost as a centrally relevant factor when deciding whether to regulate.”). And in some instances, agencies are required to consider the costs of their new rules. Id. at 2711 (“The Agency must consider cost—including, most importantly, cost of compliance.”)

Even if the plaintiffs’ claims were feasible in the abstract, the EO’s numerous escape hatches defeat them in reality. The EO is careful that its mandates apply “unless prohibited by law” and “to the extent permitted by law.” Sec. 2(a), 2(c). It also expressly provides that “[a]ny agency eliminating existing costs associated with prior regulations … shall do so in accordance with the Administrative Procedure Act and other applicable law.” Sec. 2(c). In other words, agencies must follow all constitutional and statutory obligations in implementing the EO. That alone defeats much of the opposition’s critique.

In any event, it remains to be seen just how much of an effect the EO will have going forward. At the very least, it starts the process of slowing the regulatory inertia of the prior administration.

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Bryan Weir is an Associate at Consovoy McCarthy Park PLLC.