Justices Agree Cost Matters, but Differ as to When

Posted on June 30, 2015 by Jonathan Z. Cannon

In Michigan v. EPA yesterday the Supreme Court held, 5-4, that EPA unreasonably declined to consider costs in deciding to regulate emissions of hazardous air pollutants (HAPs) from electric power plants.  At issue was the Agency’s interpretation of the Clean Air Act’s “appropriate and necessary” threshold for regulating emissions from power plants under Section 112.  The industry and state petitioners argued that the Agency could not reasonably interpret the phrase as excluding consideration of costs, whereas EPA contended that it could limit consideration of costs to a later phase of the regulatory process – i.e., the setting of emissions standards.

In Environment in the Balance: The Green Movement and the Supreme Court, I describe the competing cultural paradigms that orient us on environmental issues – paradigms immediately recognizable to anyone who works in environmental law and policy.  On the one hand, the new ecological model emphasizes the interconnectedness and fragility of natural systems and the importance of collective restraint in protecting those systems.  (Pope Francis’ Laudato Si embodies this model.)  On the other, the dominant social paradigm emphasizes individualism, entrepreneurial effort, and economic growth.  The postures of the justices in the Court’s environmental cases often reflect the influence of these paradigms.  Conservatives such as Chief Justice Roberts and Justices Scalia, Thomas and Alito tend to align in environmental cases with the dominant paradigm; liberals such as Justices Ginsburg, Kagan and Sotomayor with the ecological.  In the middle are Justice Kennedy, a conservative who has nevertheless been responsive to the ecological model in important cases, and Justice Breyer, a liberal who has expressed concern about extending environmental protections regardless of costs, as in his separate opinions in Whitman v. American Trucking Associations, Inc. and Entergy Corp. v. Riverkeeper, Inc. 

Consistent with these alignments, Michigan v. EPA revealed divergent responses among the justices to the economic burdens of environmental regulation.  Breyer held with his pro-environmentalist colleagues; Kennedy swung this time with the anti-regulatory faction; and the other justices lined up predictably according to their preferred worldviews.  But the divergence was less than it might have been, and the competing opinions reflected common ground among the justices on the importance of considering costs in environmental regulation to avoid “disproportionate outcomes.”  

Justice Scalia’s opinion for the Court argued that “reasonable regulation ordinarily requires paying attention to the advantages and disadvantages [i.e., costs] of agency decisions.”  (Scalia pointedly cites Breyer’s concurring opinion in Entergy here.)  Against a backdrop of the potential for burdensome and inefficient regulation, “appropriate and necessary” could not reasonably be read “as an invitation to ignore costs.”  That the agency did prepare and consider a cost-benefit analysis in the standard-setting phase did not salvage the validity of the threshold determination.  Costs were relevant at both stages.  As he did in his opinion for the Court in Entergy, Justice Scalia walked back the potentially expansive holding in American Trucking, which ruled that the Clean Air Act prevented consideration of costs in setting National Ambient Air Quality Standards; that decision, he wrote, stands only for “the modest principle” that EPA is not allowed to consider costs where Congress has used language that excludes them. 

Justice Kagan’s dissent (joined by Justices Ginsburg, Breyer and Sotomayor) agreed with the majority that rational regulation is generally not cost-blind: “absent a contrary indication from Congress” regulatory agencies must take costs into account.  But she differed from the Court in arguing that EPA’s consideration of costs in the standard-setting phase satisfied the requisites of reasonableness.  EPA’s cost-benefit analysis for the standards showed that the benefits (including the co-benefits of further reductions in particulate matter emissions) outweighed the costs by a factor of three to nine – a reasonable return indeed.  

Michigan v. EPA suggests a presumption, adhered to unanimously by the Court, that where Congress has not specifically addressed consideration of costs, agencies are required to consider them, because it would be unreasonable for them not to.  Only where Congress has evidenced its intent to preclude consideration of costs (the narrow niche to which American Trucking is now confined) are agencies free to ignore them.  Apart from the specific issues in the case, this is a significant development in the Court’s approach to regulatory review.  With both factions presuming that costs should be considered, the issue was not whether but when. 



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