In the 1990 Amendments to the Clean Air Act, Congress directed EPA to study the public health hazards of power plant emissions and to regulate those plants under Section 112 only if the Administrator found such regulation 'appropriate and necessary.' See 42 U.S.C. § 7412(n)(1)(A). In 2000, EPA made the 'appropriate and necessary' finding for coal- and oil-fired electric utility steam generating units, and in 2012 it finalized the Mercury and Air Toxics Standards (MATS), establishing stringent Maximum Achievable Control Technology (MACT) limits under § 7412(d). EPA expressly declined to consider costs when making the threshold 'appropriate and necessary' determination, asserting that cost would be addressed later when setting emission standards. The agency estimated annual compliance costs around $9.6 billion, while quantifying direct mercury-specific benefits between roughly $4–6 million annually; EPA also identified large co-benefits from reductions in particulate matter (tens of billions of dollars), but those were not part of the initial threshold decision. A coalition of states (including Michigan) and industry petitioners challenged the rule. The D.C. Circuit upheld EPA's interpretation, deferring under Chevron. The Supreme Court granted certiorari and reversed, holding that EPA unreasonably refused to consider costs at the threshold 'appropriate and necessary' stage.
Does the Clean Air Act permit EPA to deem regulation of power plants 'appropriate and necessary' under § 7412(n)(1)(A) without considering the costs of such regulation at the threshold decision to regulate?
When a statute commands an agency to decide whether regulation is 'appropriate' (and does not expressly bar consideration of cost), the agency must consider costs—including the cost of compliance—at least to some meaningful degree in making that determination. An agency's refusal to consider costs where the statute makes them relevant is unreasonable under Chevron and arbitrary-and-capricious review under the Administrative Procedure Act.
No. EPA acted unreasonably by refusing to consider costs when determining that it was 'appropriate and necessary' to regulate power plants under § 7412. The Court reversed and remanded for EPA to consider costs in its threshold determination.
The majority (Justice Scalia) concluded that the term 'appropriate' in § 7412(n)(1)(A) is a broad, common-sense term that naturally encompasses consideration of cost, particularly where regulatory compliance costs are exceptionally high. The Court emphasized that reasoned decision-making requires attention to both advantages and disadvantages of agency action, citing Motor Vehicle Manufacturers Association v. State Farm. Although Congress elsewhere in the Clean Air Act sometimes forbids consideration of cost (e.g., Whitman v. American Trucking interpreting § 109 NAAQS), § 7412(n)(1)(A) contains no such prohibition. Instead, its open-textured 'appropriate and necessary' language invites the agency to consider all relevant factors, including cost. The Court noted the stark disparity between the rule's annual compliance costs (approximately $9.6 billion) and the quantified direct benefits from mercury reductions (in the millions), using this disparity illustratively to show why cost is an important aspect of the problem at the threshold stage. The Court rejected EPA's argument that it could ignore costs initially and consider them only later when setting MACT standards under § 7412(d). While the agency retains discretion about how to account for cost, it may not exclude costs entirely from the 'appropriate and necessary' determination. The majority did not require a particular form of cost analysis (such as a formal cost-benefit test) nor did it hold that co-benefits are impermissible; rather, it held that EPA must, at minimum, pay attention to compliance costs when making the threshold decision to regulate. Concurring, Justice Thomas questioned the constitutionality of broad delegations and the propriety of deference, but that view did not control. Justice Kagan's dissent (joined by Justices Ginsburg, Breyer, and Sotomayor) would have upheld EPA's approach, reasoning that the statutory scheme allowed consideration of cost downstream and that the agency did, in fact, meaningfully factor costs at later stages. The majority, however, deemed the timing and complete initial disregard of costs unreasonable under Chevron and APA principles.
Michigan v. EPA instructs that, absent a clear statutory bar, cost is a relevant and often required consideration when an agency determines whether regulation is 'appropriate.' The case tightens Chevron's reasonableness inquiry: even where statutory language is broad or ambiguous, an agency's interpretation is invalid if it irrationally excludes an important factor like cost. It also reinforces the State Farm duty to consider important aspects of the problem and has influenced subsequent administrative law debates about reasoned decision-making, the role of cost and co-benefits, and the limits of agency discretion in major regulatory programs. Practically, the decision did not immediately vacate MATS; on remand, the D.C. Circuit allowed the standards to remain in place while EPA issued a supplemental finding considering costs. The case remains a key citation for litigants challenging or defending regulations on the ground that an agency either improperly ignored costs or that the statute precludes their consideration.
Michigan v. EPA establishes a clear principle: when Congress directs an agency to decide whether regulation is 'appropriate,' the agency must at least consider compliance costs unless the statute says otherwise. The decision thus tightens the bounds of Chevron deference and strengthens the APA's demand for reasoned decision-making by requiring agencies to grapple with economically significant consequences at the threshold.