Is the EPA required to consider costs when determining whether it is appropriate and necessary to regulate hazardous air pollutants emitted by electric utilities?
The United States Supreme Court will consider whether the EPA acted reasonably based on the agency’s interpretation of its obligations under the Clean Air Act when it did not consider the costs, during rulemaking, of regulating the emissions of hazardous air pollutants from oil- and coal-fired electric utilities. The Petitioners argue that because the EPA did not consider cost of compliance as a factor in its decision, the EPA’s rule is an incorrect interpretation of the Clean Air Act and is unreasonable. The Respondents counter that the EPA acted reasonably and correctly interpreted the Clean Air Act by not considering cost of compliance as a factor in its decision to regulate hazardous air pollutants from electric utility plants. The Court’s decision will implicate the regulation of hazardous air pollutant emissions from electric utilities, and may have broader implications for the statutory interpretation of similar regulatory mandates to agencies.
Questions as Framed for the Court by the Parties
The Clean Air Act treats electric utilities differently from other sources of hazardous air pollutants. Other sources are required to limit their emissions if they exceed quantitative thresholds. 42 U.S.C. § 7412(c)(1) & (d)(1). By contrast, before EPA regulates hazardous air pollutants from electric utilities, it must first conduct a study of the hazards to public health resulting from those emissions even after imposition of all the other requirements of the Clean Air Act, and then decide whether it is "appropriate and necessary" to regulate such residual emissions under § 7412 after considering the results of the study. 42 U.S.C. § 7412(n)(1)(A).
The question for the Court is:
Whether EPA's interpretation of "appropriate" in 42 U.S.C. § 7412(n)(1)(A) is unreasonable because it refused to consider a key factor (costs) when determining whether it is appropriate to regulate hazardous air pollutants emitted by electric utilities.
THE SUPREME COURT GRANTED CERT LIMITED TO THE FOLLOWING: Whether the Environmental Protection Agency unreasonably refused to consider costs in determining whether it is appropriate to regulate hazardous air pollutants emitted by electric utilities.
Congress enacted the Clean Air Act (“CAA”) in 1970, including what is now § 7412, to address issue of air pollution, focusing on reducing hazardous air pollutants (“HAPs”). Section 7412 defined HAPs as “air pollutant[s] . . . which in the judgment of the Administrator [of the EPA] cause, or contribute to, air pollution which may reasonably be anticipated to result in an increase in mortality or an increase in serious irreversible, or incapacitating reversible, illness.” Section 7412 required that the EPA publish a list of all HAPs for which the EPA intended to establish emission standards, and then to promulgate such emission standards “provid[ing] an ample margin of safety to protect the public health.” During the eighteen years following the enactment of the CAA, the EPA listed only eight HAPs and promulgated limited emission standards for only seven of the listed HAPs.
In response to the EPA’s limited action, Congress amended the CAA in 1990 to reduce the EPA’s discretion and to mandate that certain HAPs be regulated. Under the new § 7412, the EPA was required to publish a list of categories, subcategories, major sources and area sources of HAPs and to promulgate emission standards for each item on the list. These emission standards were required to achieve the greatest possible reduction in HAP emissions that the Administrator of the EPA determines to be achievable, taking costs into consideration.
However, Congress established a separate process for electric utility steam generating units (“EGUs”) that first required that the EPA conduct a study of potential “hazards to public health” caused by EGU HAP emissions before listing or regulating EGU emissions. The Administrator of the EPA was directed to regulate EGUs if, after considering the results of the study, the Administrator found that regulation would be “appropriate and necessary.”
In 2000, after considering the results of studies and other data, the EPA determined “that regulation of HAP emissions from coal- and oil-fired electric utility steam generating units under § 7412 of the CAA is appropriate and necessary.” The EPA arrived at this determination because it found that mercury emissions from EGUs posed significant risks to public health.
In 2005, the EPA reversed this finding and delisted coal- and oil-fired EGUs based on the EPA’s revised interpretation of parts of § 7412. Part of this decision was based on the EPA’s determination that it was permitted to consider factors such as cost and whether the regulation of EGUs was necessary considering the possible emission reductions due to other requirements of the CAA. Following this determination, certain states and other groups petitioned for review and the Supreme Court found that delisting EGUs “was unlawful because Congress had ‘unambiguously limit[ed] EPA’s discretion to remove . . . EGUs from the . . . list once they have been added to it.’”
In 2012, the EPA confirmed its finding in 2000 that regulation of EGU emissions is “appropriate and necessary” and supplemented this finding with additional quantitative and qualitative data. Additionally, the EPA clarified that it did not continue to support the approach used in 2005 and instead determined that factors other than hazards to public health and environmental damage, such as cost, should not be considered in the EPA’s regulatory process. Following this determination, the EPA issued a Final Rule and promulgated corresponding emission standards for certain listed HAP emissions from coal- and oil-fired EGUs on February 16, 2012.
Several states petitioned for review of the EPA’s Final Rule in the United States Court of Appeals for the D.C. Circuit, where the D.C. Circuit applied the test from Chevron U.S.A., Inc. v. Natural Resources Defense Council and found that the EPA’s interpretation of § 7412 of the CAA was reasonable, entitled to deference, and should be upheld.
In these consolidated cases, the Supreme Court will have the opportunity to review a D.C. Circuit’s ruling over whether the EPA acted unreasonably by disregarding costs of compliance when determining if an emission regulation is “appropriate and necessary.” The EPA and other Respondents argue that not considering costs when determining whether to regulate EGU emissions is a reasonable interpretation of the CAA, so the Supreme Court should defer to the EPA’s decision. In contrast, the State of Michigan (“Michigan”), the Utility Air Regulatory Group, and the National Mining Association—Petitioners—argue that considering costs would be consistent with congressional intent underlying the CAA.
REASONABLENESS OF THE EPA DECISION TO REGULATE ELECTRIC UTILITIES
Michigan argues that the EPA did not exercise reasonable judgment under the framework of Chevron deference, which makes the decision to regulate EGUs unlawful. Michigan asserts that the structure of the CAA requires the EPA to consider costs, not just public health benefits, which is consistent with Congressional intent. Michigan maintains that § 7412(n)(1)(A) requires the EPA to first conduct a study on the benefits of regulating electric utilities before determining whether such a regulation is appropriate. Michigan contends that not conducting a cost-benefit analysis in this two-step process would make the term “appropriate” meaningless.
The EPA counters that its interpretation of § 7412(n)(1)(A) is reasonable so the EPA’s decision is entitled to deference. Specifically, the EPA argues that its decision to regulate EGU emissions can rest solely on the need to mitigate the harmful public health impacts of the pollutants without considering costs. Additionally, the American Academy of Pediatrics (“AAP”), a Respondent who intervened at the D.C. Circuit, argues that the EPA is required to consider only one factor—effects on public health—when deciding whether to regulate EGUs. Additionally, the AAP argues that the term “appropriate” does not require the EPA to engage in a cost-benefit analysis—rather, the EPA has discretion to regulate EGUs without considering all possibly relevant factors. Although the AAP concedes that costs are important in determining emission standards under § 7412(d), the AAP argues cost is irrelevant to the EPA’s initial decision to regulate EGUs.
The National Mining Association and the Utility Air Regulatory Group argue that § 7412(n)(1)(A) should be construed within the context of the statute as a whole. The Utility Air Regulatory Group argues that § 7412(n)(1)(A)’s “appropriate and necessary” standard requires the EPA to exercise judgment when regulating electric utilities, where there may be residual risks to public health. Specifically, the Utility Air Regulatory Group argues that although the statute is silent on the issue of costs, Congress did not intend for the regulation of residual risks without considering all relevant factors, including costs.
However, the EPA contends that because § 7412(n)(1)(A) is silent on the issue of costs, the EPA is not obligated to consider cost in its agency decisions. The EPA counters that the CAA as a whole does not require the EPA to consider costs when delisting a source of pollutants, which demonstrates that costs should not be a factor when the EPA decides to regulate a source, such as EGUs. For example, the EPA contends that because it does not need to consider costs when creating air quality standards, this shows that Congress intended for the EPA to similarly not consider costs in the context of EGUs and focus only on public health and environmental impacts and benefits. The EPA and Industry Respondents argue that the consideration of costs comes into play when implementing a final rule, which is more consistent with congressional intent underlying the CAA. In contrast to the Utility Air Regulatory Group and the National Mining Association, the EPA further argues that the decision to regulate EGUs is a threshold question different than the decision to adopt higher emission standards for residual risks, which are already identified as threats to public health or the environment; thus, the EPA concludes that it does not need to consider costs.
REASONABLENESS OF COSTS
Michigan contends that the EPA’s regulatory decision imposes costs that far outweigh the benefits, which renders the regulation not “appropriate” under § 7412. The National Mining Association points out that the EPA’s calculations show that electricity utilities would have to bear $9.6 billion in annual compliance costs for environmental and public health benefits valued at $4 million to $6 million, a fraction of the costs. The Utility Air Regulatory Group, the National Mining Association, and Michigan argue that this imbalance between costs and benefits is unreasonable. Although the EPA argued in the D.C. Circuit that the regulation would achieve additional benefits, such as reduced emissions of other pollutants, Michigan counters that such benefits should not be relevant in the EPA’s determination of whether the regulation is appropriate because such a determination is limited to HAP emissions.
In opposition, the EPA argues that even if it had to consider costs in its determination to regulate EGUs, the benefits in the Regulatory Impact Analysis (“RIA”) suggest that the regulation is “appropriate.” The EPA and Industry Respondents disagree that the benefits are only valued at $4 million to $6 million and notes that their RIA shows that the benefits are valued between $37 billion and $90 billion. The EPA and Industry Respondents contend that the $4 to $6 million figure cited by the Petitioners failed to include unquantifiable benefits and co-benefits, which are relevant to agency decisions under the CAA. The AAP argues that some of these benefits include reducing public health hazards, such as reducing toxic pollutants in the air. Finally, the AAP points out that the value of the benefits cited by the Petitioners is too narrowly focused on “foregone future earnings” for individuals who suffered from mercury poisoning as a child, which does not account for other benefits.
In this case, the Supreme Court has an opportunity to determine the validity of the EPA’s Final Rule, and to resolve the issue of whether the EPA should consider costs of compliance when determining whether to regulate HAPs from EGUs. Michigan and the other Petitioners in this case argue that the EPA should have to consider the costs of compliance when regulating HAP emissions from electric utilities, and that by failing to do so, the EPA acted unreasonably. The EPA and other Respondents counter by arguing that the EPA acted reasonably when it chose not to consider costs when determining whether to regulate certain power plants under § 7412 and the EPA’s actions are entitled to deference. The ultimate outcome of this case will affect the level of cost, associated with complying with EPA regulations, born by electric utility industries, as well as the process the EPA must undergo when deciding to designate and regulates HAPs.
HOW SHOULD THE EPA EVALUATE COSTS AND BENEFITS?
Supporters of the Petitioners argue that the EPA should be required to consider the full scope of costs of regulation during the decision-making process. They argue that this should not only include the direct costs on the industry of implementation and compliance, but also the broader effects on the public and the state and national economies. The Petitioners and their supporters contend that allowing the EPA to choose not to consider all relevant costs would lead to disproportionate cost-to-benefit ratios and inappropriate regulation. The Petitioners argue that the EPA must consider costs because otherwise the EPA could decide that even if the costs of regulation were in the billions and the benefit was $1, the regulation could still be considered “reasonable.” Some amici in support of the Petitioners contend that regulation with costs that are grossly disproportionate to the benefits is inherently unreasonable and it should therefore be considered invalid. Additionally, amici in support of the Petitioners argue that in this case, the costs of implementation are among the highest ever imposed while the benefits are minimal and that implementing this regulation would have detrimental impacts on the country’s economy. Because of this, the amici supporting the Petitioners contend that the EPA should have to consider the full range of costs—not only for the regulated entities, but also for the economy as a whole.
The Respondents argue that the EPA should not be required to consider the costs of implementing the regulation during the regulatory process because there is no statutory requirement that the agency do so. The Respondents argue that the CAA generally and § 7412 specifically reflect a congressional determination that the EPA should focus on public health and environmental protection, and not costs when determining whether to regulate a certain kind of source or type of pollutant. Instead, the Respondents argue that the EPA should only consider costs when deciding “how stringently to regulate.” The Respondents argue that the language of the CAA prevents gross disparities between the costs and benefits of regulation because only those public health hazards of sufficient severity and magnitude trigger the EPA’s responsibility to regulate. Additionally, the Respondents assert that Congress specifically drafted the CAA to weight costs and benefits differently under varying circumstances, and that the type of regulation at issue in this case has never yet resulted in “wildly unbalanced costs.” Moreover, the Respondents contend that the Petitioners misrepresent the balance between costs and benefits, and that the EPA found that the benefits to public health in this case far outweighed the costs to the regulated entities.
In these consolidated cases, the Supreme Court will have the opportunity to review a D.C. Circuit’s ruling on whether the EPA should consider costs when regulating electric utilities under the Clean Air Act. Michigan, the Utility Air Regulatory Group, and the National Mining Association contend that the EPA unreasonably disregarded costs in its decision to regulate EGUs, which is inconsistent with congressional intent. On the other hand, the EPA and others argue that the EPA reasonably disregarded costs and is entitled to deference because the EPA’s decision was reasonable. The outcome of this case will impact the regulation of hazardous air pollutant emissions from electric utilities and may affect future interpretation of similar statutory provisions.
- Robert Barnes: Supreme Court to Hear Challenge to EPA’s Power-Plant Emissions Rule, The Washington Post (Nov. 25, 2014).
- Environmental Protection Agency: Final Mercury and Air Toxics Standards (MATS) for Power Plants.