Yesterday the U.S. Supreme Court heard oral argument in Michigan v. EPA, a Clean Air Act case involving hazardous air pollutant regulations, with implications for fossil fuel-fired power plant owners and operators in California and across the country.  Below you’ll find guest blogger Tom Wood‘s insight into the case and the arguments:

On Wednesday, the U.S. Supreme Court heard arguments from a large group of states challenging EPA’s approach in developing the Mercury and Air Toxics Standard (MATS) rule. The MATS rule imposes stringent hazardous air pollutant (HAP) standards on coal-fired and oil-fired power plants. The rule is expected to cost the industry nearly $10 billion per year to comply. 21 states and a variety of impacted industries argued to the court that EPA had not appropriately accounted for cost in determining whether to regulate hazardous air pollutants from these power plants.

In considering the Supreme Court case, it is important to understand that Congress established a different regulatory approach for power plants than for other industries. EPA regulates HAPs emitted from other industries by determining Maximum Achievable Control Technology (MACT) and requiring that it be implemented within a relatively short time frame (typically 3 years). After MACT is established, EPA is supposed to perform a residual risk determination and consider whether the risk after implementing MACT justifies additional requirements.

Power plants were not subject to the same MACT process imposed on other sectors. As part of the same 1990 Clean Air Act Amendments that created the MACT program, Congress imposed extensive utility specific requirements such as the acid rain program.   Congress treated these programs as equivalent to the MACT process for other industries. Congress then instructed EPA to perform a residual risk assessment on the HAP emissions that remained after the other Clean Air Act programs targeting power plants were fully implemented. The core of the Supreme Court case is whether, EPA should have considered cost/benefit when deciding that the residual risk analysis justified power plant HAP standards. The states and industries challenging the rule argued that the annual cost of $9.6 billion/yr (approximately $30 billion in additional capital costs) dwarfs the $4 to $6 million in benefits. Therefore, EPA was not justified in imposing the limits. EPA has taken the position that it was proper to ignore whether it makes economic sense to have listed power plants for regulation. Against this backdrop, the parties arrived before the Supreme Court today to argue the case.

Today EPA reiterated its position that it did not need to consider costs when deciding to impose additional HAP regulations on power plants. The utilities argued that the statute requires that EPA consider both health impacts and costs when making the threshold decision to further regulate power plants. The arguments were quite boisterous with the attorneys barely being able to complete a sentence before multiple justices vied to ask questions or expound theories. An interesting exchange ensued where Chief Justice Roberts hammered EPA for defending its mercury standards, for which there was relatively little economic benefit, based on economic benefits gained on pollutants that are not hazardous (i.e., criteria pollutants). This author shares the concern that EPA often justifies its actions based on purported benefits that are unrelated to the statutory authority the agency is relying on. This regulatory shell game has become increasingly prevalent in recent years as EPA has increased its marketing and PR efforts. However, as satisfying as this exchange was to hear, it likely will not reflect on the outcome of the case as the justification the Chief Justice complained of relates to the standard setting stage as opposed to the listing stage. The question before the court relates to the listing stage.

It is hard to ever know how a case will be decided based on oral argument. However, it appears that there was a deep philosophical divide among the justices. I am predicting it will be a close decision with some justices agreeing with the utilities that cost should have been taken into account when the utility category was listed and some holding that cost only needs to be considered when evaluating whether to go above the floor standards.   The most likely outcome is that the majority will defer to EPA and allow the rules to stand.   The direct impact of the decision will be limited to those entities with coal or oil fired power plants. However, with a $9.6 billion price tag, all consumers of electricity can be sure that they will be feeling the impacts of the case. Stay tuned for a decision by early summer.