Supreme Court's EPA ruling focuses on what's 'appropriate and necessary'

The Environmental Protection Agency must take cost into account when determining whether to regulate toxic air pollutants emitted from power plants, the US Supreme Court ruled on Monday.

In a 5-to-4 decision, the high court said the agency improperly streamlined the regulation process required under the Clean Air Act when it decided to consider only public health hazards in making the initial decision to restrict power plant emissions.

At issue in the case was how EPA was to proceed under the CAA in determining whether new power plant regulations were “appropriate and necessary.”

EPA’s rule set new standards for emissions of mercury and other toxic substances from some 600 oil- and coal-fired electric power plants mostly in the upper Midwest and the South.

The new standards were estimated to cost $9.6 billion a year – a cost ultimately passed on to consumers.

The required upgrades were expected to drive some older power plants out of business. But other, newer plants were already in compliance, officials said.

In challenging the new regulations, a coalition of business and industry groups and 21 states complained that the new standards would realize benefits only worth $4 million to $6 million at a cost of $9.6 billion.

That is like paying $960 for something that costs only 40 to 60 cents, they said. Critics argued that such regulation was irrational and by no means “appropriate and necessary,” under the terms of the CAA.

EPA responded that under a broader measure of benefits, the new regulations would provide $37 billion to $90 billion in benefits versus $9.6 billion in costs. The tighter restrictions on emissions would help prevent 11,000 premature deaths each year and 540,000 lost days of work from illness, officials said.

In the majority opinion, Justice Antonin Scalia said that EPA strayed far beyond the bounds of “reasonable interpretation” when it decided that it could ignore costs when examining whether to regulate power plants.

“The agency must consider cost – including, most importantly, cost of compliance – before deciding whether regulation is appropriate and necessary,” Justice Scalia wrote.

“We need not and do not hold that the law unambiguously required the agency, when making this preliminary estimate, to conduct a formal cost-benefit analysis in which each advantage and disadvantage is assigned a monetary value,” he said.

“It will be up to the agency to decide (as always, within the limits of reasonable interpretation) how to account for cost,” he added.

In a dissent, Justice Elena Kagan said she agreed with the majority justices that it would be unreasonable for EPA to never consider cost in the regulation of power plants.

“But that is just not what happened here,” she said.

“Over more than a decade, EPA took costs into account at multiple stages and through multiple means as it set emissions limits for power plants,” Justice Kagan said.

The issue in the case was whether the agency had to consider costs in the initial stages of the regulatory process.

Kagan said it was not required. “The agency acted well within its authority in declining to consider costs at the opening bell of the regulatory process given that it would do so in every round thereafter,” she wrote.

The CAA requires EPA to potentially regulate more than 180 toxic air pollutants. But Congress left significant discretion to the agency in deciding how best to do it.

EPA defended its decision not to consider cost at the initial stage of the regulation process and instead embrace a broad, permissive interpretation of the statute to allow it to make an initial determination based on health risks. Only later, in setting emissions levels, would the agency consider costs.

At its core, the dispute was over the meaning of the phrase “appropriate and necessary” within the CAA.

The statute directs the EPA administrator to regulate power plants if the administrator finds that such regulation is “appropriate and necessary” to address hazards to public health.

That statutory direction came in recognition that other regulatory efforts – like the acid rain program – might have already reduced power plant emissions.

Since the action was aimed at addressing residual pollution, critics argued that the agency must weigh costs against the benefits. They said Congress could have instructed EPA to regulate without regard to cost, but didn’t.

EPA argued that the statute was ambiguous and that under well-established Supreme Court precedents, the agency is entitled to resolve that ambiguity.

“We hold that EPA interpreted the statute unreasonably when it deemed cost irrelevant to the decision to regulate power plants,” Scalia declared.

In her dissent, Kagan accused the majority justices of micromanaging EPA’s rulemaking in a judicial action that runs counter to Congress’s allocation of authority between EPA and the courts.

“Costs matter in regulation. But when Congress does not say how to take costs into account, agencies have broad discretion to make that judgment,” she said.

“Far more than courts, agencies have the expertise and experience necessary to design regulatory processes suited to a technical and complex arena,” she said. EPA exercised its authority reasonably and responsibly, Kagan said.

She said the majority opinion deprives the EPA of the latitude Congress gave it to set emissions standards. She added that the decision also “deprives the American public of the pollution control measures that the responsible agency, acting well within its delegated authority, found would save many, many lives.”

Reaction to the decision was mixed. Some analysts praised the court for restraining EPA, while others urged the agency to press on with protections to public health.

“Today the Supreme Court once again disciplined the EPA for overreaching its statutory authority under the Clean Air Act,” said Richard Faulk, director of the Initiative for Energy and the Environment at George Mason University School of Law in Arlington, Va.

“Sadly, such discipline seems increasingly necessary for an agency determined to pursue extreme environmental regulations irrespective of the economic impact on industry and, indeed, to society at large,” Mr. Faulk said in a statement.

Washington lawyer C. Boyden Gray also praised the decision. “The Supreme Court today once again barred an EPA effort at overreach,” he said. “This decision and others of the last few years add to the growing sense that the courts and Congress must reconsider the practice of agencies asserting unlimited license to regulate without regard to constitutional safeguards.”

Fred Krupp, president of the Environmental Defense Fund (EDF), had a different perspective on the case.

“The court has sided with the Dirty Delinquents – the small percentage of coal-fired plants that haven’t cleaned up – and against the majority that are already protecting our children from mercury and other toxic pollutants,” Mr. Krupp said in a statement.

“It’s critically important for our nation that these life-saving protections remain in place while EPA responds to the court’s decision, and EDF will focus its efforts on ensuring these safeguards are intact,” he said.

John Walke of the Natural Resources Defense Council also called for quick action at EPA.

“The court’s ruling leaves the EPA rule in place, and we are confident the agency will meet its burden in justifying these important health standards,” he said. “This administration can and should complete its cost analysis promptly, and continue safeguarding public health and saving lives.”

Voting with Scalia in the majority were Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas, and Samuel Alito.

Voting with Kagan in dissent were Justices Ruth Bader Ginsburg, Stephen Breyer, and Sonia Sotomayor.

The case was Michigan v. Environmental Protection Agency.