Supreme Court: EPA Should Have Considered Cost When Deciding Whether Mercury Limits For Power Plants Were Appropriate

Screen Shot 2015-06-29 at 9.19.29 PMToday the United States Supreme Court held that the Environmental Protection Agency (EPA) improperly refused to consider costs when determining whether it was “appropriate and necessary” to regulate mercury emissions from power plants under the Clean Air Act. Ultimately, EPA may be able to keep the same rules after going back and explaining why the cost of the regulations is justified in the circumstances. But the decision is an important victory for advocates of cost-benefit analysis and those who think environmental agencies should pay more attention to the costs of regulation.

Section 112 of the Clean Air Act directs EPA to regulate hazardous air pollutants from power plants if it finds “regulation is appropriate and necessary.” 42 U.S.C. §7412. EPA said that regulation was “appropriate and necessary” even without considering costs because 1) power plant emissions posed risks to human health and the environment that were not eliminated by other provisions of the Clean Air Act and 2) there were controls available to reduce those dangerous emissions. So there was no need for EPA to consider costs to make its initial decision to regulate, but it promised to consider costs when adopting the actual final regulations for power plants.

Although EPA said it ignored costs when it made its initial decision to regulate, it still estimated the costs and benefits of the final rules that it adopted. EPA estimated that its rules would cost power plants $9.6 billion dollars a year. EPA couldn’t estimate all the possible benefits of limiting mercury emissions, but the little it could quantify came to about $5 million a year—less than 0.1% of the cost of the rule. On the other hand, EPA said that cleaning up mercury would have massive side benefits: it would lower sulfur dioxide emissions and these reductions would be worth between $37 and $90 billion per year. So these ancillary benefits far outweighed the costs of EPA’s rule, but if you didn’t count them, EPA’s rule imposed costs far in excess of its benefits.

Justice Scalia, writing for a 5-4 majority, held that EPA must consider the costs of regulation before making its initial decision to regulate, reasoning that “No regulation is ‘appropriate’ if it does significantly more harm than good.” The four dissenters conceded that, generally speaking, “an agency must take costs into account in some manner before imposing significant regulatory burdens” but agreed with EPA’s argument that the agency could consider those costs later when adopting regulations for specific source categories.

The Supreme Court’s decision may not have much impact on mercury regulation. Power utilities are already complying with the mercury rules that the court struck down in this case. And the case will now go back to the appellate court, which could decide to leave the rules in place while the agency rethinks whether these rules are “appropriate and necessary” factoring in the costs that they impose. EPA already determined that the benefits of the rules far outweighed their costs if you consider ancillary benefits, so it will probably reach the same decision. On the other hand, the Court’s decision raises very important questions for the future.

First: Can agencies consider ancillary benefits? At oral argument, some justices seemed to suspect it was inappropriate to consider the benefits associated with pollutants other than mercury. After all, if the other pollutants are the problem, why not adopt regulations aimed at the other pollutants? On the other hand, it has long been standard practice for agencies to consider ancillary or “co-benefits” of reducing pollutants other than the main target of regulation. If an agency is going to consider all the important costs of a regulation, why shouldn’t it consider all the important benefits? In some ways, the mercury rule may just be an outlier case because EPA estimated that the co-benefits of reducing sulfur dioxide were 10,000 times greater than the direct benefits of reducing mercury itself. But over half of the benefits of EPA’s Clean Power Plan come from co-benefits in reducing pollution other than greenhouse gases, so the question does have wider importance.

Second: How much cost-benefit analysis will the Court require for other regulations? Today’s decision may be seen as part of a trend that is making cost-benefit analysis a kind of default background principle for agency decision-making. Just fourteen years ago, Justice Scalia wrote an opinion for eight justices, holding that EPA could not consider the cost of regulation when the Clean Air Act demanded a standard at the level “requisite to protect the public health.” In that case, Justice Scalia explained that EPA could consider costs later when it implemented the standard. Last year, the Court held that EPA could consider the cost of emissions controls when it decided whether a State “contributed significantly” to air pollution in another state; Justice Scalia dissented. Now, the Court holds that EPA must consider the cost of regulation when it determines whether regulation is “appropriate and necessary.” Justice Scalia writes the opinion, and all justices agree that EPA must consider costs at some stage. Observing this trend, litigants will feel increasingly bold to demand that EPA consider the costs at each stage of adopting new environmental regulations.

U.S. Supreme Court Narrows Greenhouse Gas Rules: What It Means for the U.S. Climate Agenda

Today, in Utility Air Regulatory Group v. Environmental Protection Agency (EPA), the U.S. Supreme Court struck down a portion of the United States’ first regulations for greenhouse gas emissions from industrial sources. The Court held that the Environmental Protection Agency (EPA) may not apply its “Prevention of Significant Deterioration” (PSD) program to new industrial sources on the basis of their greenhouse gas emissions. Instead, EPA can only regulate greenhouse gas emissions from new sources that are already subject to the PSD program because they emit other pollutants.

This is the first Supreme Court decision on EPA’s authority to regulate greenhouse gases from industrial sources, so it has important implications for EPA’s future climate agenda—including its recently proposed rule for the electricity sector. And the varied opinions offered by the Supreme Court justices offer hints about how courts will approach the inevitable legal challenges to those regulations.

EPA’s PSD program has two basic requirements:

1) You need a permit before you build a new major industrial source of air pollution.

2) And to get a PSD permit, you must show that you are using the “best available control technology” for the air pollutants that you emit.

In this case, the Supreme Court held:

1) EPA may not require new sources to get a PSD permit simply because they will emit large amounts of greenhouse gases. The Court held that it would be unreasonable for greenhouse gases to trigger the permit requirement, because the PSD permit program is only meant to apply to the thousands of industrial sources that emit conventional pollutants, not the millions of sources that emit significant amounts of greenhouse gases.

2) But if a source needs a PSD permit anyway, because it emits other pollutants, then EPA may require it to adopt the “best available control technology” for greenhouse gases, along with other air pollutants.

I will not say anything more about the complexities of the decision, because I described them extensively in a previous post, which read the tea-leaves of oral argument in the case, and suggested the Supreme Court would reach exactly this compromise. So you can read that post both for a description of the statutory interpretation question and an explanation of the reasoning that the court eventually followed.

The most pressing question raised by the case today may be its implications for the United States’ future climate agenda, including EPA’s recently proposed rule for existing power plants. There are three important implications, and each could spell trouble for EPA’s climate agenda.

First, the Court suggested that one reason for rejecting EPA’s rule is that “it would bring about an enormous and transformative expansion in EPA’s regulatory authority without clear congressional authorization” because millions of sources would be subject to a greenhouse gas permit requirement. EPA, it is true, had suggested it would only regulate a reasonable number of them, but the court was not willing to leave that decision in the agency’s hands.  The court noted: “When an agency claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy, we typically greet its announcement with a measure of skepticism.”

This passage will trouble EPA. In the agency’s recent proposal to cap greenhouse gas emissions from state power sectors, which the agency calls the “Clean Power Plan,” the agency is using a long-ignored statutory provision, Clean Air Act §111(d), to overhaul the nation’s electricity sector. As noted in a previous post, §111(d) has rarely been used, and it is so obscure that when Congress passed the Clean Air Act amendments in 1990, no one even noticed that the House and Senate had passed two different versions. Talk about unheralded.

Second, the Court expressed some skepticism about controlling greenhouse gas emissions through energy efficiency, which is an important part of EPA’s climate agenda. Carbon dioxide, the most common greenhouse gas, is the inevitable result of burning fossil fuels. Clean combustion of clean fossil fuels emits carbon dioxide and water. And once carbon dioxide is emitted, it is hard to pull out of the air. So most attempts to limit carbon dioxide emissions are really attempts to limit fossil fuel combustion. The only other option is carbon capture and storage, which is usually too costly to be feasible. EPA’s Clean Power Plan and its guidance on what is the “best available control technology” under the PSD program both rely on encouraging energy efficiency.

But the Supreme Court was not willing to endorse this approach. First, it stated that it didn’t need to decide whether energy efficiency could be the “best available control technology” because EPA also said states could consider carbon capture and storage. Second, it said that even if EPA could mandate energy efficiency at new sources, it could not redesign the source, require it to consume less electricity, or otherwise micromanage industrial source proposals. In doing so, the Supreme Court handed industry arguments to use against regulators in permit proceedings.

A third important takeaway from the case is that Justice Scalia, the conservative justice that authored the Supreme Court’s opinion, was able to convince Justice Kennedy to join his opinion limiting EPA’s authority to regulate greenhouse gases. Justice Kennedy is generally considered the Court’s swing vote and he was a deciding vote on the Court’s 5-4 decision in Massachusetts v. EPA, which required EPA to consider the climate consequences of greenhouse gases from cars and trucks.

Justice Kennedy has seemed very supportive of EPA’s efforts to regulate greenhouse gases. At oral argument, he admonished industry’s lawyers that he would continue to follow “both the result and the reasoning” of Massachusetts v. EPA—and the reasoning of Massachusetts v. EPA stressed the possible benefits of greenhouse gas regulation. Until now, EPA may have been justified in believing that the Court’s swing justice would sympathize with the challenges they face in adapting the Clean Air Act to address global warming and give them the benefit of the doubt. But today’s decision shows that Justice Kennedy’s sympathy only goes so far: he is quite willing to strike down overly broad climate regulations. That may have much longer-term implications for EPA’s climate agenda—only the coming years will tell.

 


 

Full disclosure: Before entering my academic career in 2011, I represented some of the petitioners in their challenge to EPA’s regulations.