Amid the flurry of landmark Supreme Court rulings unveiled at the end of June, the full impact of the Michigan vs. EPA decision on June 29 was difficult to evaluate. The case reviewed EPA’s authority to implement new mercury and air toxic standards (MATS) for power plant emissions under the Clean Air Act. In a 5-4 decision, the court ruled in favor of Michigan, with the majority determining that by failing to account for the industry's compliance costs, the Agency operated outside of its mandate to do what’s “appropriate and necessary.” Now, the rule heads to the D.C. Circuit for review, where the lower court will decide if EPA should amend or even rewrite the proposal. After handing down favorable rulings on same sex marriage and Obamacare, the High Court dealt a major blow to the President’s environmental agenda. Or did it?

Calling the verdict a win for the industry groups and 21 states who filed the EPA challenge might be misguided. For starters, the decision didn’t strike down EPA’s ability to regulate mercury and air toxics. Rather, the majority found that the EPA didn’t consider costs to industry early enough, prior to initiating its rulemaking process. The Agency felt this was not required in order to determine whether the emissions of harmful toxins warranted regulation. EPA asserts it did account for industry costs once it began rulemaking, and that the benefits far outweigh the costs. “Simply put, calculating costs before starting to write a regulation would put the cart before the horse,” wrote Justice Elena Kagan in the dissent opinion.

According to the figures in the majority opinion authored by Justice Antonin Scalia, the rule would cost coal and oil-fired power plants $9.6 billion annually while providing just $4 to $6 million in quantifiable benefits. The EPA is likely to challenge the latter numbers; in a 2011 fact sheet, the Agency valued that in human health alone, the benefits from improved air quality as a result of air pollution controls undertaken for MATS compliance would total between $37 and $90 billion annually.

The vast discrepancies between the cost evaluations largely derive from how “co-benefits” are determined. These benefits are indirect results of the rule, and were notably excluded from the majority’s consideration. EPA places heavy weight on the value of co-benefits in its analysis of MATS, citing the immense advantages of lowering soot and other air pollutants not explicitly targeted by the regulation.

Promising for the EPA is that in the majority opinion, Scalia granted the Agency freedom in deciding how to perform the cost-accounting as it revisits the standards, so long as the method is “within the limits of reasonable interpretation.” Therefore, the judicial ruling may amount to little more than a delay for the full implementation of MATS. Whether or not the rule is amended or re-written, Clean Air Act experts expect the outcome to be the same – an upholding of the MATS rule.

What’s more, some experts argue that the mercury and air toxic standards may have already run their course. Having gone into effect in 2011, with final compliance with the rule having been set for April of this year, the majority of coal plants have already taken steps to comply with the EPA regulation, and thus the targeted toxic emissions are already restricted. “The way this rule works practically, all the utilities have already put on all of the controls and capital investment needed – or they’re in construction right now and they’re not going to stop,” said Foley & Lardner LLP litigator Brian Potts, an attorney specializing in the Clean Air Act.

The fact that MATS may, in the end, remain the same, is likely little solace to the 200 power plants (representing 20 percent of U.S. generation) that had filed for MATS compliance extension. Since these plants have not yet complied with the rule, the uncertainty likely means taking a wait-and-see approach for these utility operators.

Perhaps the most significant takeaway from the MATS ruling is what it could mean for implementation of the proposed Clean Power Plan (CPP). According to reporting from Morning Consult, those opposing the proposal to limit power plants’ carbon dioxide emissions under the CPP have contended that the EPA can’t regulate power plants under two separate sections of the Clean Air Act. Section 112 is used to justify MATS, while the CPP gets its authority from Section 111. Ironically, the industry and states’ triumph in contesting Section 112 as a distinct entity may undermine one of their key arguments against the CPP. Despite this silver lining, any legal challenge to the CPP still hinges on the high court’s deference to EPA’s interpretation of the Clean Air Act.

And the Court’s decision on MATS could materialize into something more powerful down the road. It is unlikely EPA will be able to finalize the new MATS rule—complete with all the proper cost-accounting—until President Obama is out of office. The possibility of several Supreme Court Justices being nominated under the next President opens up a world of uncertainties for the future of EPA’s standing in the Supreme Court.

More broadly, the ruling emphasized some realities EPA and other federal agencies will likely face in pushing new environmental regulations, especially with the CPP expected to be finalized in August. The Supreme Court made clear this week its reluctance to back regulations that could impact industry profits unless there is an intensive cost-benefit analysis to support them. So while the link between toxic emissions like mercury and negative human and ecological health impacts may be well-studied, it’s time to think in terms of dollars.

Author: Billy Lee