What the Michigan v. EPA SCOTUS ruling means for the President’s Clean Power Plan

Since the Supreme Court announced its decision in Michigan v EPA on June 29, the law and policy community has been debating the decision’s implications for the legality of the EPA’s Clean Power Plan (CPP). The CPP is expected to be finalized in August and immediately challenged in the courts.

The CPP is the centerpiece of the Obama administration’s Climate Action Plan, and its ability to survive judicial review will have a far-reaching impact on U.S. and global efforts to address climate change. Since the Supreme Court will have the last word on the CPP’s validity, insights into how it might rule are of great interest to supporters and critics alike.

By a 5-4 margin, the Court in Michigan held that EPA had improperly excluded cost from its determination that regulation of power plant emissions of mercury and other toxics was “appropriate and necessary” under section 112 of the Clean Air Act (CAA). CPP opponents in industry and Congress have argued that this ruling foreshadows rejection of the CPP, which they claim reflects the same overly broad interpretation of EPA’s CAA authority that the Court struck down in Michigan.

However, CPP defenders, including EPA Administrator Gina McCarthy, have dismissed Michigan as a narrow decision turning on unique issues, maintaining that it has no relevance to the coming legal battle over the CPP and reaffirming their confidence that the CPP will be upheld.

With the political fault lines on the CPP so sharply defined, it’s not surprising that its defenders and opponents would cast the significance of Michigan in such starkly different terms. However, the reality is more complex than these different perspectives would suggest.

Why the Michigan decision is Important

At first glance, the CPP would seem to have no similarity to the Mercury and Air Toxics Standards (MATS) for power plants at issue in Michigan. The two are based on different provisions of the CAA—MATS was issued under section 112, which establishes a technology-based framework for reducing emissions of hazardous air pollutants, whereas the CPP derives from section 111(d), which authorizes standards of performance for existing sources of pollutants not regulated under section 112.

The two provisions also differ in their approach to cost. Section 111(d) identifies cost as a relevant factor in setting standards of performance and EPA has analyzed and explicitly considered the costs of compliance in its CPP rulemaking. By contrast, section 112(n)(1)(A) (where the “necessary and appropriate” language appears) doesn’t mention cost, and EPA made a conscious choice not to consider cost in its threshold decision to regulate power plants.

The significance of Michigan, however, lies not in the precise statutory provisions addressed by the Court, but in the unusually aggressive approach of the majority in scrutinizing and then rejecting EPA’s legal and policy choices under a complex regulatory scheme.

Congress did not define the terms “necessary and appropriate” in the CAA, but left this task to EPA. The agency determined that regulation was “appropriate” because power plant emissions presented “significant hazards to public health” and control options existed that could “effectively reduce” emissions. It determined that regulation was “necessary” because other CAA requirements applicable to power plants “will not adequately address” the identified hazards.

In adopting these definitions, EPA sought to put power plants on the same footing as other industry sectors under section 112, which requires emission standards to be based on available technology and not the balancing of benefits and costs. The agency also reasoned that a meaningful analysis of costs was impossible before a proposed rule had been developed, but that costs would be considered as the rulemaking process progressed.

Chevron Doctrine under siege

Under the Chevron line of cases, courts must accept agency interpretations of ambiguous statutory provisions where the agency has rationally exercised its regulatory expertise. EPA’s approach to power plant regulation under CAA section 112 would seem to be a strong candidate for judicial deference under this doctrine. But after paying lip service to Chevron, the majority in Michigan concluded that EPA had strayed “far beyond [its] bounds.” In the Court’s view, the term “appropriate” encompassed cost considerations, and it was inherently “unreasonable” to give them no weight in the threshold decision to regulate power plants.

Since EPA articulated legitimate reasons for its interpretation and Congress precluded consideration of cost in other CAA provisions, the majority’s reasoning amounts to substituting its policy choices for the agency’s. Cost-benefit analysis is an important regulatory tool but EPA would seem better equipped than the Court to determine when and how to use it in the absence of direction from Congress. Thus, Justice Kagan’s opinion for the minority characterized the Court’s decision as “micromanagement of EPA’s rulemaking, based on little more than the word ‘appropriate’” and said it “runs counter to Congress’s allocation of authority between the Agency and the courts.”

The conservative wing’s hostility toward EPA

Why this tendency to second-guess EPA’s interpretation of ambiguous statutory terms despite the principles of Chevron? It’s hard to avoid the conclusion that members of the Court’s conservative wing (Justices Alito, Scalia and Thomas at a minimum) believe that EPA is exercising disproportionate control over the U.S. economy and must be reined in. To these Justices, EPA’s efforts to bolster its authority by broadly interpreting ambiguous terms in the CAA reflects Executive Branch overreach and does not deserve the deference customarily accorded to agencies construing complex and technical statutes.

Indeed, Justice Scalia (author of the majority opinion in Michigan) said as much last year in writing for the majority in Utility Air Regulatory Group v EPA, which involved whether greenhouse gases (GHGs) are “air pollutants” for purposes of the CAA permitting requirements for new and modified pollution sources. The Justice rejected EPA’s interpretation as “unreasonable because it would bring about an enormous and transformative expansion in EPA’s regulatory authority without clear Congressional authorization.” He added that the Court should be skeptical “when an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy.’”

Justice Scalia and his two colleagues are likely to see the CPP through the same lens. Like section 112(n)(1)(A), section 111(d) contains general wording susceptible to differing interpretations. An example of this wording is “best system of emission reduction,” which EPA has defined to include beyond-the-fenceline emission control strategies—like energy efficiency and increased reliance on renewables. This interpretation is consistent with the statutory language and reflects the recognition that the electricity grid is an interconnected system of power producers and users who, in combination, determine the overall level of GHG emissions. Despite the strong case for Chevron deference, the three conservative Justices will likely cut EPA little slack based on their perception that EPA is unduly interfering with the energy sector and thereby overstepping the bounds of “reasonable” regulation.

Where do Chief Justice Roberts and Justice Kennedy stand?

Whether these views will command a majority of the Court is another matter. The strongly worded dissent in Michigan demonstrates that the Court’s liberal wing is unwilling to jettison traditional Chevron principles and will line up squarely behind the CPP. If they are joined by Justices Roberts or Kennedy, there will be a majority to uphold EPA’s rule. Although these Justices joined in Justice Scalia’s opinions in Michigan and Utility Air Regulatory Group, they did not write separately. It is therefore unclear how far they are prepared to go in replacing Chevron with a more aggressive, policy-driven approach to statutory construction–a far-reaching step that would require considerable soul-searching by the Court.

Indeed, it is striking that, despite Justice Scalia’s sweeping rhetoric, the practical impact of the Michigan and Utility Air Regulatory Group decisions is extremely limited. The Court did not vacate MATS and undoubtedly knew that industry had virtually completed installing the required emission controls. Moreover, since MATS was accompanied by a comprehensive cost-benefit analysis showing reductions in mortality and disease valued at several billion dollars, it is likely that EPA will be able to recast its “appropriate and necessary” determination to satisfy the majority’s expectations. As for Utility Air Regulatory Group, while the Court rejected one approach advocated by EPA, it embraced a slightly different reading of the statute that preserved the bulk of EPA’s permitting program for GHG emissions from new and modified industrial sources.

Justices Roberts and Kennedy may have joined the majority in these cases knowing that EPA would sustain little damage from the Court’s opinions. But the stakes will be far greater when the Court addresses the CPP. An adverse ruling would bring to a halt the Administration’s climate initiatives and leave the U.S. with few tools to achieve substantial reductions in GHG emissions. U.S. credibility in international fora would sustain a serious, perhaps fatal, blow because we would be unable to deliver on our emission reduction commitments.

Even if these concerns carry little weight with Justices Scalia, Alito, and Thomas, they will likely give pause to Chief Justice Roberts, whose vote was decisive on two occasions in upholding the Affordable Care Act, despite its unpopularity in conservative ranks. Justice Kennedy may also be resistant to a ruling that, as a practical matter, makes the CAA a dead letter in combatting climate change. He was in the majority in Massachusetts v EPA, the groundbreaking 2007 decision that recognized the application of the CAA to climate change and pushed EPA to use its authority to regulate GHG emissions from motor vehicles. He may feel that striking down the CPP would be backtracking on Massachusetts by making it impossible for EPA to use the tools that that the Court provided in 2007.

Predictions for future Supreme Court decisions are inexact at best but, while the Justices will be deeply divided, EPA may have a winning hand in defending the CPP despite its setback in Michigan.

To learn more about Michigan v. EPA and the Chevron doctrine, read “Michigan v. EPA: Competing conceptions of deference due to administrative agencies
by Philip Wallach.

Bob Sussman is the principal in Sussman and Associates. He recently completed four and a half years of service in the Obama administration, first as co-chair of the Transition Team for the EPA and then as senior policy counsel to the EPA administrator. He was a senior fellow at the Center for American Progress in 2008, writing and speaking about climate change and energy. In 2007 he retired as a partner at Latham & Watkins. He previously served in the Clinton administration as the EPA deputy administrator, chief operating officer, and regulatory policy officer.