The United States Supreme Court ruled 5-4 today that EPA’s Mercury Rule (limiting mercury and other toxic emissions from power plants) must be remanded for consideration of costs as a necessary step in determining whether the regulation is “appropriate and necessary.”  Justice Scalia’s opinion for the majority indicated, “Read naturally in the present context, the phrase ‘appropriate and necessary’ requires at least some attention to costs,” adding “one would not say that it is even rational, never mind ‘appropriate,’  to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.”

While the agency had argued that the hazardous air pollutant program didn’t require consideration of costs in its initial decision to regulate power plants, because it could consider costs later in deciding how much to regulate them (i.e. when determining the appropriate level of regulation), the Court disagreed.  The Court determined that, in the past, agencies have treated cost as a “centrally relevant factor” in the initial decision to regulate.  While the Court agreed that cost could become relevant again at later stages of the regulatory process,  that did not make cost irrelevant to the initial decision on whether regulation was “appropriate and necessary,” finding that EPA “strayed far beyond the bounds” when it read the applicable provision of Section 112 of the Clean Air Act to mean that it could ignore cost in deciding whether to regulate power plants.

Justice Kagan wrote the dissenting opinion for the minority, pointing out that EPA later conducted cost analyses in developing suitable emissions limits.  She argued that both the terms “reasonable” and “necessary” are “inherently context-dependent,” which requires reading the phrase in context with the broader regulatory scheme.  By her reasoning, the majority’s determination was based on EPA’s one failure to consider costs in the initial decision to regulate, without considering everything else the agency argued that they did in later stages of the regulatory process.  However, this dissent failed to convince the Court’s majority that EPA’s estimates of the costs of these regulations to power plants (in the billions of dollars), which by the agency’s own estimates vastly outweighed the quantifiable benefits (by orders of magnitude), satisfied the requirements of the Clean Air Act.

Further, echoing discussions in earlier cases on just how much deference to federal agencies is justified, Justice Thomas wrote an opinion concurring with the majority but further discussing the level of deference justified under the law and U.S. Constitution.  He expressed that EPA’s request for deference to their interpretation of the Clean Air Act provisions at issue raised serious questions, stating the court had made a “paltry” effort to understand the historical justification for that deference in prior cases cited by the agency and that the Court “should be alarmed that it [EPA] felt sufficiently emboldened by those precedents to make the bid for deference that it did here.”  He opined that the Court should stop to consider the Constitution before “blithely giving the force of law to any other agency ‘interpretations’ of federal statutes.”