Caseflicks

Supreme Court of the United States • 2015

Michigan v. Envtl. Prot. Agency

576 U.S. 743 | 135 S. Ct. 2699 | 192 L. Ed. 2d 674 | 2015 U.S. LEXIS 4256

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Takeaway

In short, this case holds that EPA must consider cost before deciding that hazardous-air-pollutant regulation of power plants is “appropriate and necessary,” though it retains discretion over the method of doing so.

Background

Section 112 of the Clean Air Act generally requires the Environmental Protection Agency to regulate major stationary sources of listed hazardous air pollutants. 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 regulate power plants if it found regulation “appropriate and necessary.”

EPA concluded in 2000, and reaffirmed in 2012, that regulating coal- and oil-fired power plants was appropriate because their mercury and other hazardous-pollutant emissions endangered public health and the environment and available controls could reduce them. It found regulation necessary because other Clean Air Act programs did not eliminate those risks. EPA maintained that cost was irrelevant to this threshold finding.

EPA's accompanying Regulatory Impact Analysis estimated annual compliance costs of $9.6 billion. It estimated direct, quantifiable benefits from reducing hazardous-air-pollutant emissions at only $4 to $6 million annually, although it also projected $37 to $90 billion in ancillary benefits from reductions in particulate matter and sulfur dioxide. EPA did not rely on those ancillary benefits in making its appropriate-and-necessary finding.

Twenty-three States and other petitioners challenged the rule. The D.C. Circuit upheld EPA's refusal to consider costs at the threshold stage. The Supreme Court granted certiorari, reversed, and remanded.

Issues

Issue #1

Whether EPA may treat cost as irrelevant when deciding under 42 U.S.C. §7412(n)(1)(A) whether regulation of power-plant hazardous-air-pollutant emissions is “appropriate and necessary.”

Holding

No. EPA acted unreasonably by deeming cost irrelevant to its threshold decision to regulate power plants.

Reasoning

Administrative agencies must engage in reasoned decisionmaking and consider the relevant factors. Although Chevron ordinarily requires courts to accept an agency's reasonable resolution of statutory ambiguity, deference has limits: an agency must remain within the bounds of reasonable interpretation. EPA exceeded those bounds when it gave no consideration to the costs of deciding to regulate power plants.

The phrase “appropriate and necessary” is broad and context-dependent. In ordinary usage, deciding whether regulation is appropriate requires attention to both its benefits and its disadvantages. It is not rational, and therefore not appropriate, to impose billions of dollars in costs in return for only a few dollars in health or environmental benefits. Cost also includes more than compliance expenditures; it can include counterproductive harms to health or the environment caused by regulation itself.

The statutory context reinforced that conclusion. Section 7412(n)(1) calls for three studies concerning power plants, including a mercury study that expressly addresses health and environmental effects, available control technologies, and the costs of those technologies. EPA itself had treated all three studies as part of the framework for its appropriate-and-necessary determination. It could not reasonably rely on that study as evidence that environmental effects and technology mattered while disregarding its equally explicit concern with cost.

Other Clean Air Act provisions that expressly refer to costs did not make cost irrelevant here. Those provisions often prescribe narrow, discrete criteria, whereas “appropriate and necessary” is an expansive standard that naturally embraces several relevant considerations, including cost. Whitman v. American Trucking Associations was therefore inapposite because the health-based standard at issue there did not, by its terms, encompass cost.

EPA's assertion that costs could be considered later, when setting emission standards, did not solve the problem. The question was whether costs mattered to the initial decision to subject power plants to the hazardous-air-pollutants program. Moreover, once EPA chose to regulate, it had to impose statutory floor standards regardless of cost; cost was expressly considered only for more stringent beyond-the-floor standards. Later consideration of a limited issue could not justify ignoring cost in the threshold decision.

EPA also could not justify its approach by arguing that the Act treats cost as irrelevant when EPA decides whether to regulate other source categories. Congress deliberately created a separate provision for power plants and used the broader phrase “appropriate and necessary,” rather than the narrower pollution-volume and health-threat criteria used elsewhere in §7412. EPA's preference for regulatory symmetry could not override that asymmetrical statutory choice.

The Court did not require EPA to conduct a formal cost-benefit analysis or monetize every benefit and burden before regulating. EPA retains discretion, within reasonable interpretive limits, to decide how to account for cost. But it must consider cost, especially compliance cost, before deciding that power-plant regulation is appropriate and necessary.

The Court declined to uphold EPA's decision on the basis of the Regulatory Impact Analysis showing large ancillary benefits. Under Chenery, a reviewing court assesses agency action on the grounds the agency actually invoked. EPA expressly stated that ancillary benefits played no role in its appropriate-and-necessary finding, so those benefits could not retrospectively supply the missing justification.

Concurrences

Justice Thomas

Reasoning

Justice Thomas joined the Court's judgment and reasoning but wrote separately to question the constitutional foundation of Chevron deference itself. Chevron rests on the premise that Congress intends agencies to resolve statutory ambiguities, yet that premise raises serious separation-of-powers concerns.

If Chevron is understood as transferring interpretive authority to agencies, it conflicts with Article III because federal courts must exercise independent judgment in saying what the law is. A court that must accept an agency's permissible reading even when the court believes another reading is best has surrendered part of the judicial power.

If Chevron instead treats statutory ambiguity as an implicit delegation of policymaking authority, it raises an Article I problem. Giving legal force to an agency's policy choices where Congress itself did not choose a result permits an executive body to exercise legislative power. EPA's claim here illustrated the danger: it asserted authority to choose among fundamental policy goals without clear statutory direction.

Although the Court held that EPA's interpretation failed even under Chevron's permissive standard, Justice Thomas urged the Court to reconsider why it defers to agency interpretations at all and whether that practice is consistent with the Constitution's allocation of legislative and judicial powers.

Dissents

Justice Kagan

Reasoning

Justice Kagan agreed that agencies ordinarily must account for costs before imposing substantial regulatory burdens, but she maintained that EPA did so throughout this rulemaking. The relevant threshold finding was only the first step in a long process, not the final imposition of emissions limits. EPA reasonably considered health harms and technological feasibility at the outset while planning to evaluate costs when it developed the actual standards.

In her view, the word “appropriate” had to be interpreted in the context of the entire statutory process. EPA's initial finding triggered later proceedings in which the Agency would repeatedly evaluate cost, so the question was not whether EPA could regulate without considering costs at all. The question was whether EPA could defer cost analysis from the threshold stage to later stages better suited to measuring the costs of concrete regulatory choices. That was a reasonable administrative judgment entitled to Chevron deference.

EPA considered costs in setting the statutory floor standards. Because floor standards reflect the emissions levels already attained by the best-performing sources in a category, they incorporate the economic decisions of actual market participants. EPA also used categories and subcategories based on technological, fuel-related, geographic, and other characteristics that bear on the cost of meeting a particular standard, preventing unlike plants from being compared to one another.

EPA also reduced compliance costs through flexible methods of compliance, including alternative input- and output-based standards, averaging emissions across units at a facility, work-practice standards for certain limited-use plants, and additional time where source-specific obstacles existed. When deciding whether to impose beyond-the-floor standards, EPA rejected stricter standards for nearly all plants because they were not reasonable after considering costs.

Finally, EPA performed a formal cost-benefit analysis, estimating less than $10 billion in annual costs and $37 to $90 billion in annual quantified benefits, including thousands of avoided premature deaths and other health gains. Justice Kagan believed these later analyses were relevant not as post hoc rationalizations, but as confirmation that EPA had carried out the cost-conscious process it promised at the beginning.

Justice Kagan rejected the majority's Ferrari analogy. EPA was not deciding to purchase a luxury without considering its price; it was responding to hazardous pollution while knowing that later, more concrete stages would permit cost-effective comparison shopping and tailoring of the final rule. Because EPA considered costs at every meaningful stage before regulation took effect, she would have affirmed the D.C. Circuit.