On June 29th the U.S. Supreme Court ruled in a 5-4 decision that EPA was required to consider costs of compliance when deciding whether it was "appropriate and necessary" to regulate emission of mercury and other air toxics from power plants. (Michigan v. EPA, U.S., No. 14-46, 6/29/15). The majority decision, written by Justice Scalia, reversed a 2014 federal appeal court decision that upheld the EPA mercury and other air toxics (MATS) rule.
The focus of the decision was not the standard itself. Rather, the Court reviewed EPA’s December 2000 finding that it was "appropriate and necessary" to regulate hazardous air pollution from power plants.
Under the Clean Air Act, EPA was required 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). After performing the study, EPA was required to regulate HAPs if it "finds such regulation is appropriate and necessary after considering the results of the study…." Id.
The key test for administrative deference to federal agencies is articulated in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The Court found EPA strayed far beyond the deference it is entitled to when it didn’t consider cost in deciding whether it was "appropriate and necessary" to regulate HAPs from power plants.
EPA estimated the annual cost of compliance at $9.6 billion. EPA’s benefits analysis performed when setting the standard only attributed $4 to 6 million in annual health benefits directly to mercury and other HAP emission reductions. However, the Agency did conclude the true health benefit from the rule was $90 billion per year if you factor in the co-benefits from other non-HAP pollutant reductions that could occur due to the controls required for compliance.
Dissent- EPA Did Consider Costs in Setting Standards
The dissent took a much different view (Justices Kagan, Ginsburg, Breyer, and Sotamayer). While EPA may not have considered cost in its decision to regulate, the justices noted that EPA did consider cost in the development of the final standards. The dissenting Justices felt it was within EPA discretion to not consider costs in the preliminary stage of whether to regulate mercury emissions.
Rule Remains in Place
Despite the Court’s ruling, the MATS rule remains in place. The Supreme Court remanded the rule back to the D.C. Circuit Court of Appeals for further proceedings. The D.C. Circuit will decide if the rule is vacated, stayed or will remain in effect while EPA reconsiders its "appropriate and necessary determination" to factor in the cost of compliance compared to health benefits.
Open Question- Ancillary Benefits from Reductions in Other Pollutants
One of the most significant questions remaining after the decision is how EPA will perform its cost benefit analysis now that the rule has been remanded. During oral arguments, several Justices were very critical of the EPA’s cost analysis when setting the standards because it included co-benefits of reducing other pollutants as a result of controlling mercury emissions.
In determining the health benefits from the MATS rule were approximately $90 billion annually, EPA included reductions in fine particulate matter and other pollutants (not just mercury) that are regulated under other provisions of the Clean Air Act. EPA only attributed between $4 to $6 million in benefits directly as a result of reduction of hazardous air pollutants such as mercury.
It will be interesting to see whether EPA revisits its conclusion that $4 to $6 million are the health benefits attributable to reduction in HAPs. Or, will EPA try and support the rule on the basis of the co-benefits from additional pollutant reductions.
Rejection of the Whitman v. American Trucking
EPA relied heavily on the Supreme Court’s prior ruling in Whitman v. American Trucking to support its decision not to consider costs in determining whether to regulate HAP emissions from utilities. In Whitman the Supreme Court held EPA could not consider costs in setting the new ozone standard. The Court held that the Clean Air Act is unambiguous when EPA may consider costs. The Court said it would not infer a duty to consider cost from ambiguous language in the Act.
It is true that the language at issue in Whitman was narrower- "requisite to protect public health…with an adequate margin of safety." This is compared to the term at issue in Michigan -"appropriate." However, couldn’t the term "adequate margin" be broad enough to also consider costs?
If both Whitman and Michigan are supposed to be read narrowly, as the Court suggests, then the Court has provided very little guidance as to when EPA may or may not consider costs when adopting its regulations.