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Supreme Court of the United States • 2015

Michigan v. EPA

576 U.S. 743

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Takeaway

In short, this case holds that EPA cannot treat cost as categorically irrelevant when deciding whether it is "appropriate and necessary" to regulate hazardous air-pollutant emissions from power plants, though EPA retains discretion over how to consider cost.

Background

Section 112 of the Clean Air Act requires EPA to regulate hazardous air pollutants from most major stationary sources. Congress created a special path for fossil-fuel-fired power plants: EPA had to study the public-health hazards remaining after other Clean Air Act requirements took effect, and it had to regulate power plants if it found regulation "appropriate and necessary." 42 U.S.C. § 7412(n)(1)(A).

EPA made that finding for coal- and oil-fired power plants and issued mercury-and-air-toxics standards. It concluded that regulation was appropriate because power-plant emissions threatened public health and the environment and feasible controls existed. It found regulation necessary because other Clean Air Act programs did not adequately eliminate those risks. EPA expressly treated cost as irrelevant to that threshold decision, although its Regulatory Impact Analysis estimated annual compliance costs of about $9.6 billion. The directly quantifiable benefits from reducing the regulated hazardous pollutants were estimated at $4 to $6 million annually; the analysis also identified much larger ancillary benefits from reductions in particulate matter and sulfur dioxide.

Michigan, other States, and industry groups challenged the rule. The D.C. Circuit upheld EPA's decision not to consider cost when making the appropriate-and-necessary finding. The Supreme Court reversed and remanded.

Issues

Issue #1

Whether EPA reasonably interpreted § 7412(n)(1)(A)'s direction to regulate power plants when regulation is "appropriate and necessary" to make cost irrelevant to its initial decision to regulate.

Holding

No. EPA acted unreasonably in deeming cost irrelevant; it must consider cost, including compliance cost, before deciding whether regulation of power plants is appropriate and necessary.

Reasoning

Administrative agencies must engage in reasoned decisionmaking and consider the relevant factors. EPA's choice to regulate power plants had substantial economic consequences—nearly $10 billion annually by EPA's estimate—yet EPA gave cost no consideration because it believed cost was categorically irrelevant. The Court reviewed that statutory interpretation under Chevron, but Chevron permits deference only to reasonable interpretations.

The phrase "appropriate and necessary" is broad. In ordinary usage and against the background principle that sensible regulation weighs advantages against disadvantages, deciding whether regulation is appropriate requires at least some attention to cost. The Court explained that it is not rational, much less appropriate, to impose billions of dollars in costs for only a few dollars in health or environmental benefits. Cost also includes harms beyond compliance expenses, such as adverse consequences for health or the environment.

The surrounding statutory context reinforced that conclusion. Section 7412(n)(1) required EPA to conduct three studies concerning power plants, including a mercury study that expressly addressed health and environmental effects, available control technologies, and the costs of those technologies. EPA itself had treated all three studies as the framework for its appropriate-and-necessary determination. It could not reasonably rely on the study's reference to environmental effects and controls while disregarding its equally express reference to costs.

Other Clean Air Act provisions that expressly mention cost did not make cost irrelevant here. Those provisions use more specific criteria, whereas the broad term "appropriate" naturally includes several relevant considerations, including cost. Whitman v. American Trucking Associations did not control because its instruction to set standards "requisite to protect the public health" identified a discrete health-based criterion; "appropriate and necessary" is far more comprehensive.

EPA's ability to consider cost at later stages did not excuse its refusal to consider cost at the threshold. Once EPA chose to regulate, it was required to set statutory floor standards regardless of cost, and it could consider cost in deciding only whether to impose more stringent beyond-the-floor requirements. Considering cost later therefore could not establish that cost was irrelevant to the earlier decision whether regulation should begin at all.

Congress's different treatment of power plants supported, rather than undermined, the Court's reading. Unlike other sources, power plants are subject to a separate statutory provision using the expansive phrase "appropriate and necessary." EPA's preference to harmonize treatment of power plants with other stationary sources could not override Congress's choice to use different language for power plants.

The Court did not require EPA to perform a formal cost-benefit analysis assigning a dollar value to every advantage and disadvantage. EPA retains discretion, within the bounds of reasonable statutory interpretation, to determine how it will account for cost. Nor could the Court uphold the rule based on the Regulatory Impact Analysis's ancillary-benefit calculations, because EPA conceded that those calculations played no role in its appropriate-and-necessary finding. Under Chenery, agency action must be evaluated on the grounds the agency actually invoked.

Concurrences

Justice Thomas

Reasoning

Justice Thomas joined the Court's judgment and agreed that EPA's interpretation failed even under Chevron. He wrote separately to question Chevron deference itself, arguing that the doctrine raises serious separation-of-powers concerns.

In his view, Article III requires courts to exercise independent judgment when interpreting federal statutes. Chevron instead directs judges to accept an agency's reasonable interpretation of ambiguity even if the court believes another reading is better, thereby transferring ultimate interpretive authority from the judiciary to the Executive Branch.

Thomas also argued that agencies often do not truly interpret statutory ambiguity; they make policy choices that fill gaps Congress left unresolved. If those policy choices carry the force of law, the practice may also implicate Article I's Vesting Clause by allowing bodies other than Congress to exercise legislative power. He viewed EPA's claim of authority to choose among broad policy goals as illustrating the scope of the constitutional problem.

Dissents

Justice Kagan

Reasoning

Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, argued that EPA did consider costs extensively throughout the rulemaking process. EPA made its initial appropriate-and-necessary finding based on the serious harms caused by hazardous emissions and the availability of controls, while expressly stating that it would evaluate control costs when developing the actual standards. The dissent viewed the majority as improperly isolating the first step from the full regulatory process.

The Clean Air Act's later stages, in the dissent's view, supplied multiple mechanisms for considering costs. EPA set floor standards based on the emissions levels already achieved by the best-performing plants, benchmarks that reflect real-world cost decisions. EPA also used categories and subcategories to avoid comparing facilities with different technologies and cost structures, provided flexible compliance options, and rejected most beyond-the-floor requirements after considering their costs.

EPA ultimately completed a formal cost-benefit analysis under an Executive Order. That analysis estimated annual benefits of $37 to $90 billion and annual costs of less than $10 billion, including substantial public-health gains such as thousands fewer premature deaths. Although many benefits were ancillary to the hazardous-pollutant reductions, the dissent regarded the analysis as confirming that the final rule was cost-effective.

The dissent maintained that EPA reasonably sequenced its analysis. At the threshold stage, EPA could not accurately determine costs because it had not yet created categories, calculated floors, chosen compliance alternatives, or decided whether to require more stringent standards. EPA could sensibly determine first whether harmful emissions remained a serious problem requiring regulation, then assess costs while designing the particular standards.

Justice Kagan also emphasized that EPA's approach matched the process Congress prescribed for more than 100 other categories of hazardous-pollutant sources: a threshold decision based on emissions and their effects, followed by cost-sensitive standard setting. Congress treated power plants differently only because other Clean Air Act provisions might have reduced their hazardous emissions; once EPA found those other provisions insufficient, the dissent saw no reason to demand a different approach to cost.

Finally, the dissent rejected the majority's reliance on Chenery. EPA had not said cost was irrelevant to the regulatory process as a whole; it had said that costs would be examined in developing the regulation and that it would seek least-cost solutions. In the dissent's view, EPA reasonably used its delegated authority to account for costs at the stages where it could do so most accurately.