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June 29 — The Environmental Protection Agency was required to consider the cost of compliance when deciding whether it was “appropriate and necessary” to regulate emissions of mercury and other air toxics from power plants, the U.S. Supreme Court ruled June 29.
The court, in a majority opinion written by Justice Antonin Scalia, reversed a 2014 federal appeals court decision that upheld the EPA mercury and air toxics standards (MATS), a rule that the agency estimated would cost the power industry $9.6 billion annually. Scalia was joined in the 5-4 majority by Chief Justice John Roberts and justices Anthony Kennedy, Clarence Thomas and Samuel Alito.
The ruling did not address the substance of the 2012 mercury and air toxics standards, which established emissions limits for mercury, filterable particulate matter as a surrogate for toxic metals and hydrogen chloride as a surrogate for acid gases. Instead, the litigation focused on the EPA's December 2000 determination that it was appropriate and necessary to regulate hazardous air pollution from power plants, which are the largest U.S. source of mercury emissions.
The EPA had argued that Section 112(n)(1)(A) of the Clean Air Act, which instructed the agency to study air toxics emissions from power plants and determine whether to regulate those emissions, did not explicitly require the agency to consider cost in making that determination. The court ruled that was an unreasonable interpretation of the statutory language.
“EPA must consider cost—including cost of compliance—before deciding whether regulation is appropriate and necessary,” Scalia wrote. “It will be up to the agency to decide (as always, within the limits of reasonable interpretation) how to account for cost.”
The Supreme Court's decision overturned a 2014 decision by the U.S. Court of Appeals for the District of Columbia Circuit, which ruled that the EPA decision to not consider the cost of regulating was reasonable (White Stallion Energy Ctr. LLC v. EPA, 748 F.3d 1222, 78 ERC 1757, 2014 BL 103957 (D.C. Cir. 2014)).
The petitioners in the case were a coalition of 21 states led by Michigan, the National Mining Association and the Utility Air Regulatory Group.
The court held that the EPA “strayed far beyond” the bounds of the Chevron doctrine, a two-part test for review of agency actions, when it decided to not consider cost.
Under Chevron, a court first must decide whether the plain text of the law is clear. If the law is ambiguous, then the court must decide whether the agency's interpretation of the law is permissible.
Scalia wrote that even under the Chevron doctrine, an agency still must operate within “the bounds of reasonable interpretation,” something the agency did not do when it determined it could ignore cost when deciding to regulate power plants.
“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,” Scalia wrote.
Scalia said that while there are settings in which the phrase “appropriate and necessary” does not include cost, a determination of whether to regulate the power industry is not one of those instances.
The other four members of the court, in a dissenting opinion written by Justice Elena Kagan, described the majority opinion as “micromanagement” of the EPA rulemaking process. Kagan wrote that the EPA reasonably declined to analyze cost during a single step in a rulemaking process that was “otherwise imbued with cost concerns.”
Kagan highlighted the EPA's ability to divide power plants into different categories subject to different standards and the agency's cost-benefit analysis prepared for the final MATS rule as examples of the agency's consideration of cost.
“The central flaw of the majority opinion is that it ignores everything but one thing EPA did,” Kagan wrote.
Despite the court's ruling, the mercury and air toxics standards are still in place. The court remanded the decision back to the U.S. Court of Appeals for the District of Columbia Circuit for further proceedings.
The circuit court panel ultimately will determine whether the mercury and air toxics standards are vacated, stayed or remain in effect while the EPA reconsiders its determination to regulate power plant emissions, attorneys told Bloomberg BNA June 29.
Thomas Lorenzen, a partner with Crowell & Moring LLP, said no one involved in the litigation can afford to wait too long for the D.C. Circuit to decide how to proceed.
“So much rests with what the D.C. Circuit does on remand,” Lorenzen said.
Lorenzen highlighted about 170 power plants that received a compliance extension of up to one-year from state regulators, which he said will want to know “as quickly as possible” whether they have to comply with the MATS rule. Plants that were not granted an extension were required to comply with the standards by April 16, 2015, a deadline that required the installation of billions in pollution controls and factored into the closure of many coal-fired power plants.
Representatives from American Electric Power, FirstEnergy Corp. and other utilities told Bloomberg BNA in April that a Supreme Court ruling against the EPA would come too late to alter plans to close plants or invest in pollution controls.
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However, there still could be practical implications for power companies if the MATS rule were to be vacated or stayed, Debra Jezouit, a partner at Baker Botts LLP, told Bloomberg BNA. Even companies that are in compliance with the standards are subject to monitoring and recordkeeping requirements under the MATS standards, a burden that could disappear if the rule is vacated, Jezouit said.
Jeffrey Holmstead, a partner at Bracewell & Giuliani LLP who represents the power industry, predicted that it is unlikely that the MATS rule will be vacated by the D.C. Circuit. A more realistic possibility is that the court will stay implementation of the rule or stay the rule in part, so that power plants that received a compliance extension do not have to take further action to come into compliance, Holmstead told Bloomberg BNA.
“I think there will be a lot of pressure on the court to do something quickly,” Holmstead said.
Lorenzen said it is possible that the D.C. Circuit could convene quickly and expedite action on the remand, but he said it is more likely that the court won't act until sometime in the fall.
Holmstead said he expects the court to call for briefing on further proceedings “relatively soon.” Briefing could be completed in about 90 days and a decision on how to proceed could be issued before the end of 2015, Holmstead said.
The EPA said in a June 29 e-mail statement that the agency is reviewing the Supreme Court's decision and will determine “any appropriate next steps” once that review is complete.
The agency noted that the court's decision did not focus on the substance of the standards themselves, nor the EPA's authority under the Clean Air Act to limit hazardous air pollutants. The EPA “remains committed” to ensuring that appropriate regulations are in place to protect the public from hazardous power plant emissions, the agency said.
Several attorneys representing environmental groups who intervened in the litigation on behalf of the EPA characterized the rule as a narrow loss that is easily correctable by the EPA.
Sean Donahue, an attorney representing the Environmental Defense Fund, told Bloomberg BNA that while he's disappointed with the decision, the court's ruling is very narrow and leaves the EPA with “considerable leeway” on how to proceed.
“Actually, if I had to lose, I'm pretty pleased with the way the majority opinion is written,” Donahue said.
Donahue said the EPA should be able to make a similar “appropriate and necessary” determination while considering cost because the agency has already done a cost-benefit analysis when it promulgated the MATS rule. The EPA cost-benefit analysis for the MATS rule estimated the standards would generate up to $90 billion in annual public health benefits.
Ann Weeks, senior counsel and legal director at the Clean Air Task Force, agreed that the EPA should be able to go back and do what the Supreme Court said it must do relatively quickly since the agency already has found that the costs are outweighed by the benefits of regulation.
“It shouldn't take that long because the agency has already done the work,” Weeks said. “I think it's just a matter of crossing the T's and dotting the I's on remand.”
Weeks and Donahue both indicated that public health and environmental groups would oppose requests to vacate or stay the MATS rule on remand. Weeks said that while the majority opinion downplays the benefits of the standards, the regulation protects the public from “pretty nasty pollution.”
Sanjay Narayan, managing attorney with the Sierra Club, said that given the neurological effects of exposure to mercury and other air toxics, it is possible that the EPA can go ahead and make a formal finding that the rule is “massively beneficial” quickly.
“However, the nature of rulemaking tends to discourage quick action, even when the question is somewhat obvious,” he said.
Narayan said one thing the EPA must consider on remand is how it can best address cost in a way that won't end up with the rule back in court.
James Rubin, counsel in the global Energy, Transport & Infrastructure sector at Dentons US LLP, said that although the EPA did a cost-benefit analysis for the rule, it could still take some time for the agency to figure out its next steps. While the Supreme Court gave the EPA a “road map” of what they did not do, the EPA is still going to have to decide how they want to address cost, Rubin said.
Additionally, Rubin noted much has changed since the EPA issued the MATS rule, including the closure of many coal-fired power plants. That could effect the overall cost of the MATS rule, he said.
“It's not just going to be the same study,” Rubin said.
One issue the Supreme Court did not address in the Michigan v. EPA opinion is EPA's use of “co-benefits” to justify regulation.
During oral arguments, several members of the court were critical that the EPA's cost-benefit analysis for the MATS rule attributed billions in annual public health benefits to the standards, even though the agency could only quantify between $4 million and $6 million in benefits to reductions of hazardous air pollutants. Chief Justice John Roberts questioned the legitimacy of counting benefits from reductions of fine particulate matter and other pollutants that are regulated under other sections of the Clean Air Act.
Scalia wrote the court did not need to address whether the EPA could have legally considered those ancillary benefits in making the “appropriate and necessary” determination because the agency plainly did not do so.
Holmstead of Bracewell & Giuliani, who formerly served as EPA assistant administrator for air and radiation under President George W. Bush, said the co-benefits issue would likely come back in litigation if the EPA were to weigh those ancillary benefits against the cost of regulating air toxics.
“I think EPA is on pretty thin ice if it tries to use co-benefits to justify it,” Holmstead said. “I'm sure that would bring another challenge.”
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The court's opinion in Michigan v. EPA is available at http://www.supremecourt.gov/opinions/14pdf/14-46_10n2.pdf.
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