Today, the United States Supreme Court ruled that EPA unreasonably interpreted the Clean Air Act (CAA) when the agency failed to consider cost in determining whether regulation of air toxics from power plants was appropriate and necessary. The U.S. Court of Appeals for the District of Columbia (D.C. Circuit) upheld the EPA regulations in 2014, but the high court has reversed and remanded the lower court’s ruling. Michigan v. EPA, U.S., No. 146 (June 29, 2015). Justice Scalia delivered the majority opinion in which justices Roberts, Kennedy, Thomas and Alito joined. Justice Thomas also filed a concurring opinion. Justices Kagan, Ginsburg, Breyer, and Sotomayor dissented.

The rule, commonly referred to as the Mercury and Air Toxics Standards (MATS), was finalized in 2012 to require coal- and oil-fired power plants to reduce emissions of mercury and other air toxics. The rule established technology-based emission limitations and work practice standards that became applicable on April 16 of this year, unless a source was granted a one-year compliance extension. Writing for the majority, Justice Scalia explained that the CAA treats power plants differently from other sources for regulation of hazardous air pollutants by requiring EPA to first determine that regulation was “appropriate and necessary.” EPA determined that regulation of hazardous air pollutants was appropriate and necessary but specifically did not consider costs in the determination.

The Supreme Court found that EPA is required to consider cost as a relevant factor in the appropriate and necessary determination. First, the Court found that the term “appropriate and necessary” is broad and all-encompassing and should include consideration of cost, noting that administrative agencies have long treated cost as relevant when deciding to regulate. Second, the Court found that the statutory context, which required a study considering the cost of control technology, showed the relevance of cost in the appropriate and necessary finding. The Court further rejected EPA’s claim that the CAA makes cost irrelevant to the initial decision to regulate other sources under Section 112, pointing out that Congress crafted a separate provision in Section 112 specifically to address power plants.

The Court specifically stated that EPA “must consider cost - including, most importantly, cost of compliance - before deciding whether regulation is appropriate and necessary”. The Court, however, left to EPA the discretion “within the limits of reasonable interpretation” to decide how to account for cost.