"Capacious" Term Dooms MATS Rule - Does It Say Anything About the Clean Power Plan?

By J. Wylie Donald

The Energy Information Agency predicted the retirement of up to 60 gigawatts of coal-fired electricity generation by 2020.  A significant contributor to that evolution was the Mercury and Air Toxics Standard or MATS Rule.  Until now that is, because a 5-4 majority on the Supreme Court concluded in Michigan v. EPA that EPA’s failure to consider cost in deciding to regulate power plant emissions was improper, [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance].

The Clean Air Act statute goes on for over 1000 pages; this opinion is less than 15.  Justice Scalia, writing for the majority, reaches a surprisingly simple conclusion:   “EPA interpreted § 7412(n)(1)(A) unreasonably when it deemed cost irrelevant to the decision to regulate power plants.”  Id. at 15.

The starting point was the terms of the statute.  Following mandated studies, if EPA found “regulation is appropriate and necessary”, it was required to regulate power plants.  Id. (citing 42 U.S.C. § 7412), [subscribers can access an enhanced version of this statute: lexis.com | Lexis Advance]. So what did that phrase mean?  Under Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], courts are required to defer to agency interpretation of an ambiguous statute that the agency administers.  But even if that is so (and Justice Thomas in a concurrence argues otherwise), there are limits.

"Chevron allows agencies to choose among competing reasonable interpretations of a statute; it does not license interpretive gerrymanders under which an agency keeps parts of statutory context it likes while throwing away parts it does not."  Id. at 9. 

 A “capacious” word like “appropriate” is a “classic broad and all-encompassing term that naturally and traditionally includes consideration of all the relevant factors.”  Id. at 6.  And one of those factors is cost.  Cost is a “centrally relevant factor” to the decision to regulate.  Regulation requires consideration of “the advantages and the disadvantages.”  Id.  at 7.   A poor decision may mean ineffective use of limited resources.  Id.  “Against the backdrop of this established administrative practice, it is unreasonable to read an instruction to an administrative agency to determine whether ‘regulation is appropriate and necessary’ as an invitation to ignore cost.”  Id. at 7-8.

EPA had refused to countenance any consideration of cost.  The opinion cited EPA’s statements:  “Cost does not have to be read into the definition of ‘appropriate.’”  “We further interpret the term ‘appropriate’ to not allow for the consideration of costs.”  Id. at 5.  Why was that so?   One reason may have been the disparity between costs and directly quantifiable benefits.  Nearly $10 billion (with a “b”) would be spent by power plants annually.  Id.  Between $4 million and $6 million (with an “m”) were the quantified annual benefits of regulation.  Id. at 4.  “The costs to power plants were thus between 1,600 and 2,400 times as great as the quantifiable benefits from reduced emissions of hazardous air pollutants.”  Id.  In sum, “[t]he Agency gave cost no thought at all, because it considered cost irrelevant to its initial decision to regulate.”  Id. at 5.

This was fatal to the regulation.  “The Agency must consider cost – including, most importantly, cost of compliance – before deciding whether regulation is appropriate and necessary.”  Id. at 14. 

The above summary suggests that EPA overreached by billions of dollars.  But that is the blog’s deliberate contrivance.  As it turns out, EPA’s study of “ancillary benefits” indicated that the benefits to be derived from the MATS Rule totaled between $37 and $90 billion (with a “b”), as set forth in the regulation’s accompanying Regulatory Impact Analysis.  Id. at 4.   In other words, the benefits of MATS outweighed its costs.  If this is so, why was it ignored?  The Court ignored it, because EPA ignored it.  “EPA concedes that the regulatory impact analysis ‘played no role’ in its appropriate-and-necessary finding.”  Id. at 4.  Thus, Michigan v. EPA is potentially a narrow decision.  On remand, will EPA simply re-propose the rule with the ancillary benefits included in the analysis?

Which leads us to the Clean Power Plan, another offspring of the Clean Air Act.  The CPP likewise seeks to regulate power plants.  EPA seeks a final rule by the end of the summer.  Based on Michigan, the question EPA must answer before then is whether they have built enough of a record regarding their consideration of cost. If they have not, we predict it will face a lot more dirty weather before the CPP becomes law.

   J. Wylie Donald, a partner at McCarter & English, LLP, counsels and litigates for clients on insurance coverage, environmental and products liability matters. Mr. Donald co-chairs the firm's Climate Change and Renewable Energy Practice. He draws on his substantial environmental experience, his prior non-legal technical work, and his deep involvement in risk management to assist clients in understanding and controlling the coming regulatory and non-regulatory impacts of climate change. He has tried cases and argued appeals in the state courts in New Jersey and Maryland, conducted private arbitrations and mediations, and argued motions in federal courts across the nation.

Read more at Climate Lawyers Blog by McCarter & English, LLP.

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