In Michigan v. Environmental Protection Agency, the United States Supreme Court ruled in a 5-4 decision that the EPA violated the law by not considering cost when it decided to regulate certain power plant emissions.  Under the Clean Air Act Amendments of 1990, the EPA was empowered to regulate air pollutants from stationary sources if it determined that regulation was “appropriate and necessary” after studying hazards to human health caused by these emissions of mercury and other pollutants. The EPA determined that regulation was appropriate and necessary, but in doing so did not consider financial cost as part of its initial decision, reserving that inquiry to later stages where emission standards were set.  A comparison of the majority and dissenting opinions reveals that the dispute between the justices was relatively narrow.

The majority opinion, written by Justice Scalia, declared that the EPA must consider cost, including the cost of compliance, before deciding whether regulation is necessary and appropriate and that it could not leave that inquiry until later stages of the regulatory process.  It did not require EPA to conduct a formal cost benefit analysis, but stated that the agency must make a preliminary estimate before it decided whether to regulate.  That estimate could take into account factors that the EPA reasonably deemed relevant.

The dissent, written by Justice Kagan for the four dissenters, agreed that “cost is almost always a relevant – and usually, a highly important – factor in regulation.”  Justice Kagan continued that unless Congress provides otherwise, an agency acts unreasonably in setting standards pursuant to  a process that ignores economic considerations.  She noted that had the regulatory process ended after the initial decision to regulate the power plant emissions was made, she would agree that cost had not been adequately taken into account.  However, Justice Kagan then described in detail the various later steps taken by EPA to consider economic factors when setting the emission standards.  She stated that as long as the overall regulatory process adequately took cost into account, it did not matter that the first step of the process did not, especially since it was not possible to carefully quantify cost factors at that early stage of the process.

In retrospect, the EPA, which has had a reasonably good track record before the Supreme Court in the past 10 years, could have avoided this outcome by simply making a reasonable showing that it had considered costs on at least a preliminary basis before deciding to regulate power plant emissions. The challenge to its rule making and the fact that a majority of a conservative Supreme Court might not be receptive to its position that cost should not at all be a consideration in its initial decision to regulate was to have been expected.  The agency will now have to return to the beginning of the process and undertake such a cost analysis.  Unfortunately, as the regulatory process again slowly unfolds, the public will remain exposed to the documented and apparently undisputed, harmful effects of these emissions.

Questions? Let Mitchell know.

Mitchell Kizner is a New Jersey focused attorney in Flaster Greenberg PC’s Litigation and Environmental Law departments. He represents clients in insurance, environmental, construction and other commercial matters as part of his active litigation and commercial law practice. He is also General Counsel to the firm. He can be reached at mitchell.kizner@flastergreenberg.com or 856.382.2247.