Delivering a sharp blow to President Obama’s efforts to regulate coal plants, the U.S. Supreme Court invalidated the Environmental Protection Agency’s (EPA’s) 2012 Mercury and Air Toxics Standards (MATS) rule, finding that the agency improperly failed to consider compliance costs in determining that the regulation of coal- and oil-fired power plants was “appropriate and necessary” under the Section 112 of the Clean Air Act, 42 U.S.C. § 7412(n)(1)(A).

In a 5-4 opinion by Justice Scalia, the Supreme Court held in Michigan v. EPA, No. 14-46 (June 29, 2015), that the EPA’s decision not to consider costs when determining that regulation of power plants under the hazardous-air-pollutants program was “appropriate and necessary” was an unreasonable interpretation of those statutory terms. The court refused to grant Chevron deference to the EPA’s interpretation, finding that the agency had strayed beyond the bounds of reasonable interpretation “when it read §7412(n)(1) to mean that it could ignore cost when deciding whether to regulate power plants.” Slip. op. at 6.

In refuting the EPA’s position, the court distinguished this case from Whitman v. American Trucking Ass’n, 531 U.S. 457 (2001) by focusing on the differences in the statutory language at issue. American Trucking, explained the court, held that a requirement to consider cost cannot be implicitly read into a statute. Slip op. at 10.

That said, the court opined, the term “appropriate and necessary” is a “far more comprehensive criterion than ‘requisite to protect the public health’; read fairly and in context, as we have explained, the term plainly subsumes consideration of cost.” Id. The court added that Congress’s separate treatment of power plants in requiring EPA to conduct a study prior to regulation, as well as the explicit mention of costs in later subsections of the same section, indicated that a cost consideration was clearly encompassed within the meaning of “appropriate and necessary.”

The court remanded the case to the U.S. Court of Appeals for the District of Columbia Circuit to determine whether to vacate the rule in its entirety or to require the EPA to engage in additional fact-finding consistent with the new holding – a task easier said than done, since the majority did not define how the agency is to consider costs. In commenting on the EPA’s obligations, the court noted only that the agency is not required to conduct a formal cost-benefit analysis, but rather “to decide (as always, within the limits of reasonable interpretation) how to account for cost.” Slip op. at 14.

No new MATS rule is likely for several years at least. As a practical matter, it may not matter. Market pressures, in the form of cheap and abundant natural gas, have caused utilities nationwide to retire most of the remaining coal- and oil-fired power plants without controls for mercury and air toxics.

The new high court decision comes just weeks before the agency is to unveil its final rules to govern carbon emissions from new and existing power plants. While not directly applicable to the upcoming rules, the decision has likely caused the EPA rule writers to worry about the level of deference they can expect from the Supreme Court on the landmark greenhouse gas regulation.