Everyone with a stake in President Obama's Clean Power Plan waited anxiously last month for the Supreme Court's decisions in the mercury and healthcare cases, Michigan v. EPA and King v. Burwell. What would those cases tell us about prospects for EPA's carbon pollution standards?
The two decisions, taken together, tell us the Clean Power Plan's prospects are, in fact, pretty good. Here are three reasons why:
1. The mercury setback is temporary, and won't interfere with the Clean Power Plan.
From the immediate press coverage of the Michigan case, one could be forgiven for thinking the Supreme Court had "thrown out," "struck down," or "blocked" the mercury and air toxics standard (MATS), and put EPA's forthcoming carbon pollution standards into grave doubt. Republican Congressional leaders claimed vindication and coal companies' basement-level stock prices ticked upwards.
But the Michigan decision is quite narrow, and the MATS rule can be easily fixed. To be sure, on remand EPA will have to make a new threshold determination whether it is "appropriate" to regulate mercury from power plants, this time considering compliance costs as well as health benefits. But the Supreme Court did not vacate or otherwise suspend the standards. They remain in effect. And though EPA did not rely on it in its original decision, the agency has already conducted a thorough cost-benefit analysis (to meet OMB regulatory review requirements) that shows health benefits of $37-90 billion per year -- many times the $9.6 billion estimated costs.
Those health benefits include up to 11,000 lives saved and hundreds of thousands of illnesses avoided each year due to reductions in fine particles, sulfur dioxide, and oxides of nitrogen wrought by the same control measures that curb mercury and the other toxic air pollutants. Industry litigants argued vociferously that EPA should not be allowed to consider those "co-benefits," but Justice Scalia's majority opinion - perhaps showing the influence of Justice Kennedy - pointedly leaves EPA broad leeway to decide how to consider costs and benefits on remand: "It will be up to the Agency to decide (as always, within the limits of reasonable interpretation) how to account for cost."
(Industry's plea to ignore the fine particle, SO2 and NOx co-benefits from mercury controls seems particularly hypocritical. They have always argued that EPA must consider the mercury reduction co-benefits from other SO2 and NOx controls when deciding whether to set mercury standards.)
Because EPA already has analysis in hand showing huge benefits over costs, the agency should have little trouble quickly fixing the MATS rule - well within President Obama's term.
So it's no surprise that by Tuesday, coal stocks had already given up their Monday gains.
Michigan's implications for the future are even more limited by the fact that the provision at issue - the "appropriate and necessary" clause in section 112 of the Clean Air Act - applies only to the MATS decision. It does not apply to any other hazardous air pollutant standards under section 112 or to carbon pollution standards under section 111. (Because it's a completely "one-off" provision, it's hard to understand why the Court bothered to take the case.)
In any case, there's never been any doubt that EPA must consider costs when setting carbon pollution standards under section 111, and EPA has done so from the start of its regulatory process. The agency published an extensive analysis last year showing that the proposed carbon standards will have huge health and climate protection benefits many times their cost - benefits of $55-93 billion per year in 2030 compared to costs of $7.3-8.8 billion. This is a benefit-cost proposition even more favorable than for the MATS standard. The final carbon standards will undoubtedly include an updated analysis -- one that will surely meet the broad parameters for reasonable assessment of costs that the Supreme Court set forth in Michigan.
2. The MATS rule was an ordinary Chevron case.
The most important thing to glean from the Michigan decision concerns a legal question: what standard of review would the Court apply to determine whether EPA had acted within its legal authority?
For more than 30 years, the courts have followed a two-part test established in Chevron v. NRDC -- a case that I argued (and lost!) in the Supreme Court. If a statute is unambiguous, courts will enforce its clear meaning. But if a statute is ambiguous - i.e., if it has two or more reasonable interpretations - courts must defer to the one chosen by the agency charged with the law's implementation. When executive branch agencies confront implementation questions that statutory terms don't clearly resolve, Chevron deference allows the agency, rather than the courts, to "fill the gap left open by Congress" by choosing among the reasonable interpretations. As Justice Ginsburg wrote in EPA v. EME Homer City Generation, a key case decided just last year, Chevron deference allows expert agencies vital leeway to make policy choices necessary to resolve "thorny" implementation problems in statutes Congress has charged them to administer.
King v. Burwell, handed down the week before the MATS decision, raised a question mark, however. The big news from Burwell, as everyone knows, is that the Court upheld the availability of insurance subsidies under the Affordable Care Act to Americans who purchase health insurance on both state and federal exchanges. But the pathway to that decision raised new questions about Chevron deference.
Chief Justice Roberts ruled that a key clause of the healthcare law was ambiguous, but he refused to apply Chevron. Instead of determining if the agency's interpretation was reasonable and then deferring, the Court took on the task of resolving the ambiguity itself.
The premise of Chevron, Roberts wrote, is that a statutory ambiguity constitutes "an implicit delegation from Congress to the agency to fill in the statutory gaps." "In extraordinary cases, however, there may be reason to hesitate before concluding that Congress has intended such an implicit delegation." (These are quotations from an earlier case, FDA v. Brown & Williamson, holding that the Food and Drug Act did not give the FDA leeway to control tobacco nicotine.) Roberts found the Obamacare subsidies to be one of those "extraordinary" cases, mainly because of the magnitude of the economic stakes - the subsidies "involv[e] billions of dollars in spending each year and affect the price of health insurÂance for millions of people," and were one of the "key reforms" without which insurance markets would likely fail altogether. Roberts also found deference inappropriate because the healthcare subsidy regulation was issued by the IRS - an agency without healthcare expertise - not Health and Human Services. Because of these "extraordinary" factors, the Court itself decided the meaning of the ambiguous clause at issue in the case, without deference to the executive branch.
While most people quite reasonably focused on Burwell's momentous consequences for Obamacare, the decision left a giant question hanging in the air: Would the Court decide the then still-pending MATS case under the new Burwell test for "extraordinary" cases, or under the traditional Chevron test for "ordinary" cases?
Answers to questions this big rarely come so quickly. But last Monday we learned that Michigan v. EPA was just an ordinary Chevron case. To be sure, Justice Scalia found the Clean Air Act clause at issue in that case to be ambiguous and EPA's interpretation to be unreasonable. But his opinion for the majority stayed squarely in the Chevron frame. As explained above, the Court ordered EPA to redo its determination whether mercury standards are "appropriate," this time considering costs. But in perfect harmony with Chevron, the opinion made clear that EPA, as the expert agency charged with carrying out the Clean Air Act, has a lot of leeway on how to consider costs. As already noted, Scalia wrote: "It will be up to the Agency to decide (as always, within the limits of reasonable interpretation) how to account for cost."
Despite the MATS rule's $9.6 billion per year price tag, Scalia found no reason to move it to the "extraordinary" category. Only Justice Thomas argued, in a concurring opinion, for limiting Chevron deference, and he got no takers.
That MATS is an ordinary Chevron case has very important implications for the Clean Power Plan. Its foes regularly claim that the Clean Power Plan means the ruin of the American economy and the end of life as we know it. But as the figures quoted above show, the estimated cost of the proposed Plan is less than the cost of the MATS rule, and its adoption poses no economic risk even close to the demise of health insurance markets threatened in Burwell. That makes it very likely that courts reviewing the Clean Power Plan will accord EPA Chevron deference just as the Supreme Court did in Michigan, and will not take over the interpretive lead as Chief Justice Roberts did in Burwell.
As the Michigan decision shows, EPA can still lose under Chevron. But if EPA presents a clear and persuasive argument for its statutory interpretations in the final Clean Power Plan rule, the agency will prevail.
3. The Burwell Court didn't buy a "plain meaning" challenge that would have knocked the sense out of the Affordable Care Act as a whole.
In King v. Burwell, opponents tried to bring down Obamacare with a "literal" reading of a single clause. They lost because the Court decided that reading went against the obvious intentions of the healthcare law considered as a whole. The failure of the Burwell challenge is good news for the Clean Power Plan.
The Affordable Care Act gives states the option to establish health insurance exchanges, and it provides insurance subsidies to qualified lower-income people. If a state declines to set up an exchange, the Act directs Health and Human Services to establish a federal exchange to serve that state's citizens. The challengers in Burwell sought to exploit a drafting glitch - a clause providing subsidies through exchanges "established by the state" - to block subsidies to citizens in states served by federal exchanges. Reading the Act as a whole, the Supreme Court found clear evidence that the availability of insurance subsidies was crucial to achieving the law's insurance reform objectives. The Court rejected the challengers' supposed "plain meaning" because denying subsidies to insurance purchasers on federal exchanges would have pushed insurance markets into the "death spiral" that Congress intended to avoid.
Clean Power Plan foes claim to have found a "plain meaning" argument of their own. They claim that the Clean Air Act bars EPA from regulating any air pollutant under section 111(d) if the source of that pollution is already "regulated under section 112" - even for a wholly different pollutant. Thus, they assert that Congress intended to bar curbs on power plants' carbon pollution under section 111(d) because EPA has already regulated their mercury pollution under section 112. (Never mind that the same parties in Michigan are also trying to void the MATS rule.)
For a host of reasons, the supposed "plain meaning" argument advanced against the Clean Power Plan is even less plausible than the one put forward in Burwell. As we've shown here and here, Congress actually adopted two versions of the Clean Air Act clause in question - one from the Senate, and one from the House - and neither version (let alone both) shows that Congress intended to bar EPA from regulating one dangerous power plant pollutant (carbon dioxide) because the agency has previously regulated another (mercury). To the contrary, the Senate version of the clause is crystal clear that both pollutants must be curbed, while the House version read in context plainly bars regulating a source's emissions of a pollutant under section 111(d) only if its emissions of the same pollutant are already curbed under section 112. Power plants' carbon emissions are not regulated under section 112, and so there's no barrier to regulating them under section 111(d).
In any case, it does not help Clean Power Plan's foes that the Burwell Court refused to mechanically put a single clause's supposed plain meaning above the entire statutory context. Rather, the Court looked to the purpose of the provisions, and the consequences of buying the challengers' argument. "A fair reading of legislation," the Court wrote, "demands a fair understanding of the legislative plan."
Here, the Clean Power Plan challengers' argument would open a gap in the Clean Air Act's legislative plan directly at odds with Congress's intentions. Congress intended that EPA have the legal tools needed to curb all kinds of dangerous air pollution. Congress adopted section 111(d) precisely to avoid any gap in EPA's authority to curb dangerous air pollutants from the nation's industrial sources.
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So, what have we learned from the Supreme Court decisions in Michigan and Burwell? Look for the MATS rule to get fixed quickly. And look for the Clean Power Plan to stay on course.