Supreme Court overturns EPA air toxic rule for coal-fired power plants

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The Supreme Court on June 29 rejected as “unreasonable” an interpretation by the Environmental Protection Agency (EPA) of Section 112(n)(1)(A) of the Clean Air Act, invalidating the Mercury and Air Toxics Standards.

The narrowly divided court agreed that the deference generally given to an agency’s interpretations of the statute it administers does not extend to a reading of “appropriate and necessary” that precludes any consideration of costs.

The legal effect of this ruling on the regulation of hazardous air pollutant emissions from power plants under the MATS rules in the interim is a question that the D.C. Circuit must answer in the first instance.

Section 112(n)(1)(A) of the act contains special provisions governing the application of Section 112 — the “maximum achievable control technology” requirement for HAP emissions — to electricity generating units.

Congress included these provisions because many other programs in the act govern emissions from electricity generating units, and Congress wanted the EPA to conclude that Section 112 regulation was “appropriate and necessary” before the EPA would proceed to add further regulations on these sources.

In 2012, President Obama’s EPA revised a 2005 interpretation (which, in turn, had revised a 2000 interpretation) of that language and, important to the Supreme Court’s ruling, stated that it was “reasonable to make the listing decision, including the appropriate determinations, without considering costs.”

The court ruled that the EPA “strayed far beyond” the bounds of reasonable interpretation by not considering that the nearly $10 billion a year in costs would only achieve benefits quantified at $4 million to $6 million per year.

The court agreed with Judge Kavanaugh of the D.C. Circuit that the term “appropriate” is “the classic broad and all-encompassing term that naturally and traditionally includes consideration of all the relevant factors.”

By refusing to consider cost in determining whether further regulation of emissions pursuant to Section 112(n)(1) was appropriate or necessary, the court concluded, the EPA had achieved an outcome that could not be reconciled with the statute: One would not say that it is rational, never mind “appropriate,” to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.

The Supreme Court described the “appropriate and necessary” language chosen by Congress as “capacious” and held that it was “unreasonable” for the EPA to have treated this language “as an invitation to ignore cost.”

The EPA’s argument that cost could be considered later in the regulatory process was to no avail. Instead, the court likened that contention to deciding whether to buy a Ferrari without regard to its cost because the buyer can “think about cost later when deciding whether to upgrade the sound system.”

It is not necessarily safe to assume that the Supreme Court’s ruling will send the EPA rushing back to its Section 112(n)(1)(A) drawing board. The Supreme Court has reversed the judgment of the D.C. Circuit and remanded the challenges to the Court of Appeals for further proceedings consistent with the undoing of the “appropriate and necessary” finding.

The Supreme Court did not itself order the rule vacated. The D.C. Circuit will have before it the question of how to change its judgment to conform to the Supreme Court’s opinion. While the undoing of the entire foundation of the MATS rule — the “appropriate and necessary” finding — would seem to leave the D.C. Circuit with little choice but to vacate the MATS rule, the EPA or other parties may argue for remand without vacatur. The D.C. Circuit has issued somewhat unpredictable opinions embracing that remedy if justified by a weighing of:

  1. “‘The seriousness of the ... deficiencies’” of the action, that is, how likely it is “the (agency) will be able to justify” its decision on remand; and
  2. “The disruptive consequences of vacatur.” The EPA and its supporters in the underlying rulemaking usually can be counted on to argue for remand without vacatur, but it is not so clear they will do so here.

Losing this case might be a blow to the air toxics program and might circumscribe federal agencies’ future use of Chevron deference in some contexts. It even could present problems for future interpretations of other regulations, where the responsible agency determines that cost need not be considered.

Despite these drawbacks, this outcome might be a “pyrrhic loss” for the Obama administration because the ruling could help defend the Clean Power Plan.

One of the expected legal challenges to the Clean Power Plan is that its statutory basis, Section 111(d), states that source categories (like power plants) regulated under Section 112 may not be regulated under Section 111(d). The EPA might respond to these arguments by contending that because of the decision in Michigan v. EPA, electricity generating units no longer are regulated under Section 112 and thus can be regulated under Section 111(d). To make that argument, the D.C. Circuit must vacate the MATS rules first.

The D.C. Circuit likely will ask the parties to brief the question of remedy, specifically asking the parties which outcome, vacatur or remand without vacatur (left in place) is the most appropriate resolution. It seems safe to assume that the EPA will at least consider any potential collateral impacts on the Clean Power Plan’s legal viability before deciding how to position itself on remand regarding any further action relative to regulating emissions from electricity generating units pursuant to Section 112.

Regulated utilities also might reverse expected positioning for the same reason as the EPA, especially given that several large utilities have said that the Supreme Court’s ruling would not affect already announced plant closures; accordingly, the loss of the Section 112 preemption argument in the forthcoming Clean Power Plan litigation might be more significant than the obligation to continue complying with the MATS rules, which may lead at least some regulated entities to be more inclined to ask for remand without vacatur.

The Supreme Court did not completely resolve the fate of the MATS rule. That fate will unfold during the next couple of months as the D.C. Circuit considers what judgment to issue.

This article is intended for educational and informational purposes only and does not constitute legal advice or services. These materials represent the views of and summaries by the author. They do not necessarily reflect the opinions or views of Vinson & Elkins LLP or of any of its other attorneys or clients.

Eric Groten is a partner in Vinson & Elkins’ Austin office. He is a full-service Clean Air Act practitioner. During his 30-year career, Groten has handled a wide array of legal work generated by state and federal air quality laws, including the defense of cases brought to enforce them, prosecution of applications for the permits they require, transaction of emission rights created by them, counseling on and auditing of compliance with them, and changing those laws and the rules that implement them. Reach him at egroten@velaw.com.

George C. Hopkins is a partner in Vinson & Elkins’ Washington, D.C., office, where he advises and represents clients in matters related to environmental laws in transactional and litigation contexts. Reach him at ghopkins@velaw.com.

Jeremy C. Marwell is a partner in Vinson & Elkins’ Washington, D.C., office. Marwell is an appellate litigator with a focus on constitutional and administrative law. His practice involves civil and criminal matters in the Supreme Court and federal and state appellate and trial courts, as well as regulatory and legal counseling. Reach him at jmarwell@velaw.com.

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