July 01, 2015

Supreme Court Decision Could Limit EPA's Authority Over Greenhouse Gas Emissions

On June 29, 2015, the U.S. Supreme Court delivered another warning to the Environmental Protection Agency (EPA) against overstepping its statutory authority under the Clean Air Act. In Michigan v. Environmental Protection Agency, No. 14-46, the Court held that EPA acted unreasonably in promulgating the Mercury Air Toxics Standards (MATS) rule, when it did not take cost into account in deciding whether to regulate hazardous air pollutants emitted by power plants. This decision will have a limited impact on power plants, because the MATS rule has been in place for three years already. However, the opinion provides more precedent for a narrow construction of EPA’s authority to regulate greenhouse gases from power plants under the proposed Clean Power Plan, anticipated to be finalized in August.

The Michigan v. EPA Holding

Under the Clean Air Act, EPA may regulate emissions of hazardous air pollutants (HAPs) by power plants only after deciding whether such regulations are “appropriate and necessary.” In 2000 and again in 2012, EPA determined regulation was “appropriate” because the emission of hazardous air pollutants jeopardizes public health and the environment, and “necessary” because no other Clean Air Act provisions adequately addressed those risks. EPA expressly concluded that, as a threshold matter, the term “appropriate and necessary” did not require consideration of an estimated $9.6 billion in projected regulatory costs of the program. Petitioners, including 23 states, challenged this determination. The D.C. Circuit upheld EPA’s decision.

In the 5-4 decision in Michigan v. EPA, the Supreme Court rejected EPA’s contention that the Clean Air Act’s “appropriate and necessary” language does not require consideration of costs, reasoning that “[n]o regulation is ‘appropriate’ if it does significantly more harm than good.” In keeping with its recent decision reigning in EPA’s regulatory action under the Clean Air Act, the Court held that “EPA strayed far beyond” the bounds of reasonable statutory interpretation in failing to consider regulatory costs as an initial matter. The Court concluded the agency’s interpretation did not deserve deference under Chevron U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 387 (1984).

Limited Immediate Impact on Power Plants

Although the Court remanded the case back to the D.C. Circuit for further action, it did not stay the MATS rule. The MATS rule initial implementation deadline was April 2015, and many utilities have already made plans to shutter their older coal-fired units or are already MATS compliant. The Court’s ruling most likely will not affect these facilities. It is estimated that as many as one-third of coal plants have applied for the available one-year extensions, however; these units may see some effect of the ruling. Although there are several procedural possibilities on remand, it is not expected that the rule will be entirely vacated. 

Implications for the Clean Power Plan

The implications of the Michigan holding are more important for challenges to EPA’s upcoming Clean Power Plan (to be finalized in August 2015) and other future EPA regulations. Michigan marks the second time in two sessions that a Supreme Court majority has taken the unusual step of limiting deference to EPA’s regulatory authority under the Clean Air Act. 

Taken in conjunction with the Utility Air Regulatory Group v. Environmental Protection Agency decision last year, the Michigan ruling makes it clear that the majority has started to tighten the Chevron deference in Clean Air Act cases. Last year the Court called EPA out for "unreasonable interpretations" of the statute and stated that the agency cannot reinterpret the act for its own regulatory purposes. It accused EPA of trying to lay "claim to extravagant statutory power over the national economy" without authority. In Michigan, the Court accused the agency of straying “far beyond” the “bounds of reasonable interpretation” in failing to consider costs in its decision to regulate. These two instances of limited deference to EPA’s interpretation of the Clean Air Act indicate that the Court would take a similar position to curb EPA’s efforts to regulate greenhouse gases from power plants under Clean Air Act § 111(d) in the Clean Power Plan. 

The Court also drew a clear distinction between the types of costs identified by the agency in the Regulatory Impact Analysis issued concurrently with the rule. The Regulatory Impact Analysis could not fully quantify the direct benefits of the estimated reduction in air toxics and mercury, but estimated those to be $4-$6 million per year. The Court noted that in contrast to the $9.6 billion per year price tag of regulations, “[t]he costs to power plants were thus between 1,600 and 2,400 times as great as the quantifiable benefits from reduced emissions of hazardous air pollutants.” However, the Regulatory Impact Analysis then included an estimated additional $33 billion-$86 billion per year from ancillary benefits based on incidental reductions in sulfur dioxide and particulate matter emissions, causing the benefits in the Regulatory Impact Analysis to outweigh the costs.

The Court noted that the ancillary benefits, although analyzed in the Regulatory Impact Analysis, ultimately “‘played no role’ in [the agency’s] appropriate-and-necessary finding” when EPA decided to regulate. However, the question of which benefits are appropriate for analysis could be a pivotal point as the EPA considers future regulations with enabling statutes requiring a threshold cost analysis. For example, Section 111(d) of the Clean Air Act, the basis for the Clean Power Plan, requires EPA to factor in the “remaining useful life of the existing source to which such standards apply,” a proxy for cost analysis.

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