Last week, in Michigan v. EPA, the U.S. Supreme Court held that it was unreasonable for the U.S. Environmental Protection Agency (“EPA”) to refuse to consider costs in connection with its finding that it was “appropriate and necessary” to regulate hazardous air pollutant (“HAP”) emissions from power plants under the federal Clean Air Act (“CAA”).

By way of background, the CAA instructs EPA to regulate HAP emissions from power plants if it concludes that regulation is “appropriate and necessary.”  The “appropriate and necessary” language stems from the 1990 CAA amendments, wherein Congress established a procedure for determining the applicability of the HAP program to power plants.  Those amendments require EPA to regulate power plants as ordinary major sources if, after conducting several studies, EPA finds that it is “appropriate and necessary.”

After EPA completed the required studies in 1998, it concluded that regulation of power plants was in fact “appropriate and necessary.”  EPA’s “appropriate” finding was based on a conclusion that power plants emitted mercury and other HAPs which posed a risk to human health and the environment and that emission reduction controls were available.  EPA’s “necessary” finding was based on its conclusion that then-existing requirements did not eliminate risks.  In conjunction with its conclusions, EPA determined that “costs should not be considered” in determining whether power plant HAPs should be regulated.  A Regulatory Impact Analysis issued by EPA estimated that EPA’s decision would cost power plants $9.6 billion per year, whereas quantifiable regulatory benefits would be worth $4 to 6 million per year.

Reviewing EPA’s statutory interpretation under the test enunciated in Chevron USA, Inc. v. NRDC, Inc., the U.S. Supreme Court concluded that the phrase “appropriate and necessary” requires “at least some attention to cost.”  Moreover, the Supreme Court found that statutory context reinforced the relevance of cost, as EPA was asked to study cost prior to determining whether it was “appropriate and necessary” to  regulate HAP emissions from power plants.  Although EPA argued, among other things, that the statute at issue did not mention cost and therefore did not require EPA to consider cost, the Supreme Court maintained that the statute’s broad reference to “appropriateness” encompassed multiple relevant factors—including cost.

Several commentators have concluded that the effect of the Supreme Court’s decision in Michigan v. EPA is somewhat inconsequential, since EPA can nevertheless regulate HAP emissions from power plants (including mercury) provided that it merely considers costs in the future.  It is unclear whether this conclusion is true, as the Supreme Court’s opinion is chock-full of intimations that in determining “appropriateness,” EPA must also weigh—to at least some extent—costs against benefits.   For example, the Supreme Court stated that “[o]ne 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.”  Moreover, although the Supreme Court acknowledged that “[i]t will be up to [EPA] to decide . . . how to account for cost,” the Court also acknowledged that EPA must nevertheless consider costs “within the limits of reasonable interpretation.”  Thus, in any event, Michigan v. EPA stands for the principle that EPA must engage in reasoned decision making in its decision to regulate HAP emissions from power plants.