Michigan v. Environmental Protection Agency—Cost Considerations in Agency Regulations: Supreme Court Holds that EPA Is Required to Consider Costs When Determining Whether Regulating Certain Power Plants Is “Appropriate And Necessary”

Sullivan & Cromwell LLP - June 30, 2015

Yesterday in Michigan v. EPA, No. 14-46, the U.S. Supreme Court held that the EPA unreasonably determined that it should not consider costs in determining whether regulation of power plant emissions is “appropriate and necessary.”  The Court emphasized that “appropriate and necessary” is a broad standard that instructs the agency to consider all relevant factors, and that it was unreasonable for the EPA to conclude that costs should not be one of those considerations.  This decision reaffirms the importance of cost considerations in agency decision making and makes clear that agencies must ordinarily take costs into account when regulating pursuant to broadly worded statutory authority.  The decision may also reflect a continuing trend of the Supreme Court weakening Chevron deference to agency interpretations of statutes, and it emphasizes that administrative decisions must be evaluated solely on the grounds put forth by the agency during the administrative process.  The decision does not vacate the mercury regulation at issue, so litigation regarding that regulation and other emissions regulations should only be expected to continue.