Today the U.S. Supreme Court ruled  that the U.S. Environmental Protection Agency (EPA) improperly refused to consider costs when it decided to regulate mercury and other hazardous emissions. The EPA regulated power plant emissions via its Mercury and Air Toxics Standards (MATS) rule. The Supreme Court’s 5-4 decision penned by Justice Antonin Scalia reversed and remanded the case to the U.S. Court of Appeals for the D.C. Circuit.

Analyzing the EPA’s actions under Chevron v. NRDC, the Supreme Court ruled that the EPA’s decision to ignore costs when deciding whether to regulate power plants was an unreasonable interpretation of the Clean Air Act. Justice Scalia’s opinion centered on Clean Air Act § 7412(n)(1) which required the EPA to conduct studies on the impact of power plant emissions on public health and the environment. Congress directed the EPA to regulate emissions from power plants if “such regulation is appropriate and necessary after considering the results of the study.” 42 U.S.C. § 7412(n)(1)(A). The EPA interpreted this directive as not requiring consideration of the cost of such regulation.

To the contrary, Justice Scalia found the term “appropriate” to be an “all-encompassing term that naturally and traditionally includes consideration of all the relevant factors” and that a determination of “appropriate and necessary” requires “at least some attention to cost.” The EPA’s Regulatory Impact Analysis for the MATS rule estimated that the rule would cost utilities about $9.6 billion per year to implement. The EPA estimated the rule’s environmental and health benefits would be between $4 and $6 million per year. The EPA also estimated approximately $37 to $90 billion per year in ancillary benefits from the MATS rule. However, the EPA stated it did not consider ancillary benefits to make its appropriate and necessary finding.

The MATS rule became effective on April 16, 2015. Some affected sources obtained a compliance extension until April 16, 2016. Many power plants have already expended significant sums to meet MATS, so this ruling’s impact on the regulated community is unclear. The utility industry will closely watch how the D.C. Circuit and the EPA respond to the Supreme Court’s decision on remand.