On June 29, 2015, the U.S. Supreme Court reversed the U.S. Court of Appeals for the D.C. Circuit and invalidated U.S. EPA's 2012 regulation of mercury and other hazardous air pollutant ("HAP") emissions from coal and oil-fired power plants.  Michigan v. Environmental Protection Agency, No. 14-46.

On February 16, 2012, EPA issued national emission standards for mercury and other HAPs from fossil fuel-fired powered electric utility steam generating units (a/k/a "power plants"). 77 Fed. Reg. 9304. The regulations are also known as the Mercury and Air Toxics Standards ("MATS"). The MATS were issued pursuant to the Clean Air Act Amendments of 1990, which required EPA to study "the hazards to public health reasonably anticipated to occur as a result of emissions by [power plants] of [HAPs] after imposition of [other] requirements [of the CAA]." 42 U.S.C. § 7412(n)(1)(A). Congress then required EPA to regulate HAPs from power plants if the EPA "finds such regulation is appropriate and necessary after considering the results of the study…." Id.

EPA studied the hazards from power plant emissions in 2000 and again in 2011, and determined that further regulation of power plants was "appropriate and necessary," in large part due to mercury emissions.  When EPA issued the proposed emission standards for power plants, it expressly stated that it did not consider the costs of regulating HAPs when it determined that such regulation was "necessary and appropriate." 77 Fed. Reg. 9326-27. Michigan, other states, and members of industry contested the final MATS,

including EPA's refusal to consider costs when it evaluated whether to regulate under CAA § 7412(n)(1). The petitioners lost in their attack on the regulations in the Court of Appeals, but prevailed before the Supreme Court.

The Supreme Court held, in a 5-4 decision authored by Justice Scalia, that EPA's regulation was unreasonable because EPA failed to consider the costs to industry of such regulation when it determined that regulation was "appropriate." The Court's analysis was based onChevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the foundational administrative law decision regarding the scope of federal agency power when interpreting federal statutes. The Court found that despite the deference to agencies required by Chevron, "agencies must operate within the bounds of reasonable interpretation." Utility Air Regulatory Group v. EPA, 573 U.S. ___, ___ (2014) (slip op at 16).Michigan, slip op. at 6.  The Court held that "EPA strayed far beyond these bounds when it read § 7412(n)(1) to mean that it could ignore costs when deciding whether to regulate power plants." Id.

In the dissent authored by Justice Kagan and joined by Justices Ginsburg, Breyer, and Sotomayer, Justice Kagan argued that MATS would have been unlawful if "[t]he Agency gave cost no thought at all." Slip op., Kagan J. dissent, p. 2 (quoting majority decision, slip op. at 5.). However, the dissent noted that cost had been considered by EPA in the development of the final standards, albeit not in its determination of whether to regulate in the first place. The dissent stated that EPA's decision not to consider cost at a preliminary stage of regulatory proceedings was within EPA's power.

The majority opinion rejected the dissent's position, noting that EPA did not rely on its subsequent consideration of costs when it declared that cost was irrelevant to the determination of whether to regulate power plants. Slip op. at 13. The Court further noted that, although EPA cannot reasonably determine "that cost is irrelevant to the initial decision to regulate power plants," it "will be up to the Agency (as always, within the limits of reasonable interpretation) how to account for cost." Slip op. at 14. The Court cautioned, however, that it was not deciding whether EPA can reasonably consider "ancillary benefits" when determining whether regulation of power plants' HAPs is "appropriate" under the CAA. Slip op. at 14-15.