In Michigan v. EPA, the U. S. Supreme Court invalidated EPA’s rules limiting emissions of mercury and other pollutants from power plants, ruling that EPA inappropriately ignored the costs of regulation – particularly compliance costs – when it decided it should regulate these emissions from power plants.  The June 29, 5-4 decision chastises EPA for deeming costs “irrelevant” early on in its analysis.  The immediate result sends the 2011 Mercury and Air Toxics Standards (MATS) back to the D.C. Circuit Court but the regulated power plants have already made decisions and implemented steps pursuant to MATS.  The longer term impact is less physical – EPA must be faster and more detailed in its cost/benefit analysis of regulations and those opposing EPA action may use the lack of cost estimates as an argument to slow imposition of new regulations.

See the full decision here:  http://www.supremecourt.gov/opinions/14pdf/14-46_10n2.pdf.

Under the Clean Air Act, EPA may regulate power plants’ emissions of hazardous air pollutants, including mercury, if, after further studies, the agency finds that regulation is “appropriate and necessary.” Here, EPA finished its studies in 2000 and determined that regulating power plants was “appropriate and necessary” because of the mercury emissions posed risks to human health and environment that could not be otherwise eliminated, and because there were controls available to reduce those emissions. EPA concluded that it did not need to study costs at that juncture, in determining whether to regulate power plants.  Rather, EPA could consider costs in detail later, when determining how much to regulate power plants’ emissions.  It reaffirmed these “appropriate and necessary” determinations and promulgated the MATS rule in 2011.

Michigan, and 23 other states, filed suit challenging MATS, claiming that EPA should have considered costs when making the initial determination of whether to regulate power plants.  The majority of the Court agreed with the petitioners and found that EPA acted unreasonably when it deemed cost irrelevant to the decision to regulate power plants.  The decision rests heavily on a common understanding of the words “appropriate and necessary” – “[r]ead naturally in the present context, the phrase ‘appropriate and necessary’ requires at least some attention to cost.”  While EPA has some flexibility in interpreting “appropriate and necessary,” the majority ruled it cannot “entirely fail to consider an important aspect” of the problem.  The Court criticizes EPA for deeming cost “irrelevant” and giving cost “no thought at all”.

The estimated cost of complying with MATS, once EPA did do the cost/benefit analysis, is striking:   EPA estimated that it would cost power plants $9.6 billion per year to achieve and maintain compliance with its regulations.  In contrast, it estimated that compliance would create benefits worth $4 to $6 million per year (although when ‘ancillary benefits are included the comparison is not as one-sided.)  Additionally, one of the studies EPA performed before its 2000 determination of whether to regulate mercury emissions from power plants included an examination of “technologies which are available to control such emission and the costs of such technologies.”  While EPA asserted that it would prepare a detailed cost/benefit analysis later, this study certainly opened the door for the consideration of costs at an earlier stage of the rulemaking process.

While utilities have already implemented technology or decided to cease certain operations due to MATS requirements, the longer terms impact of this decision is that it will likely be used as a weapon in the arsenal of those challenging other EPA regulations.  Clearly, the Court is giving less deference to EPA’s interpretation of its statutory authority, and admonishing it to provide a detailed cost-benefit analysis early in the process of developing environmental regulations.  This judicial benchmark may delay EPA’s release of its final rule on carbon emissions under section 111(d) of the Clean Air Act (previously anticipated to be in August).  In addition, those opposing the 111(d) regulations will likely feel emboldened by the prospect that EPA may be given less deference when those regulations reach the Supreme Court.