On June 29, 2015, in Michigan et al. v. Environmental Protection Agency et al, Slip Opinion No. 14-46, the U.S. Supreme Court ruled 5-4 that EPA acted unreasonably when it deemed cost irrelevant to its initial decision on whether to regulate power plants under Section 112 of the Clean Air Act (the National Emission Standards for Hazardous Air Pollutants [NESHAP] program). The Court remanded the three cases involved to the D.C. Circuit Court for further disposition. The ruling should result in vacatur of the NESHAP for electric utilities although it may not occur for some time (as demonstrated by the lack of resolution of the Supreme Court's June 23, 2014 decision that EPA does not have the authority to require PSD permits from GHG-only sources).
The Clean Air Act specifies that EPA may regulate power plants under the NESHAP program only if it concludes that "regulation is appropriate and necessary" after studying hazards to public health posed by power-plant emissions. The Court held that EPA cannot reach the conclusion that the regulation is "appropriate" without first considering the cost, including the cost of compliance. Because EPA did not consider cost in reaching its conclusion, the Court found EPA's conclusion invalid.
Four Justices disagreed. The dissenting opinion framed the issue as whether EPA "reasonably took costs into account in regulating plants'emissions of hazardous air pollutants."1 They found that EPA's extensive cost analysis during the rule development process resulted in a "reasonable" outcome.
The CAA requirement to first determine that regulation under NESHAP is appropriate and necessary is unique to power plants. As a result, this ruling is limited only to this particular NESHAP.2 The Court said "although the Clean Air Act makes cost irrelevant to the initial decision to regulate sources other than power plants, the whole point of having a separate provision for power plants was to treat power plants differently."3
EPA can easily correct the procedural flaw in its rulemaking, using the extensive cost information it prepared during the rule development process. Once it does so, it can proceed with promulgation of its rule. However, because only 0.1% of the economic benefits EPA claims for this Hazardous Air Pollutant rule are due to reductions in Hazardous Air Pollutants, the question remains as to whether a NESHAP regulation for this category is appropriate. This is an issue at which the Court hinted, but did not clarify in its opinion.
Many plants subject to this rule have already invested heavily towards compliance; some plant owners have made retirement decisions based on the expected compliance dates. While it is unlikely that compliance investments already begun will be reversed, some may be delayed, and retirement dates for older plants may similarly be delayed.
1 Kagan, dissenting, p. 15.
2 The opinion does provide ammunition for arguing that any CAA requirement that requires "appropriate" regulation must include cost as a factor.
3 Opinion Syllabus, p. 2.