June 29, 2015

It is almost never “rational, never mind ‘appropriate’” to ignore regulatory costs

By Todd F. Gaziano Chief of Legal Policy and Strategic Research, and Director, Center for the Separation of Powers

Today’s Supreme Court decision in Michigan, et al. v. EPA (consolidated with Utility Air Regulatory Group v. EPA and National Mining Assoc. v. EPA) invalidated EPA’s regulation on electric power plant hazardous air pollutants for not taking its enormous costs into account.

It affirms a common-sense principle that EPA too often ignores: regulatory agencies must consider both the benefits and costs of their regulations and only issue those in which the benefits outweigh the various costs they impose, including the cost of compliance. Any other practice is economically and environmentally unsustainable, and it almost always violates federal law. Writing for the Court, Justice Scalia stressed that regulatory agencies must engage in “reasoned” decisionmaking, regardless of the underlying statute, and that EPA’s actions in ignoring massive costs under the particular provision fell far short of that mark.

The EPA admitted it could consider the costs of its regulations involving residual mercury emissions from electric power plants under the Clean Air Act, but chose not to do so. EPA’s own estimate to OMB was that the rule would cost $9.6 billion (which could cause some power plants to shut down) to produce $4 to 6 million in direct benefits, and many experts think the $6 million in benefits is either fictitious or highly inflated. The Court held today that, with regulatory costs that were about 2000 times the estimated benefits, it was not “even rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.”

Time will tell, but today’s decision is likely to have broad implications beyond the provision at issue in the Clean Air Act. EPA isn’t alone in in the exercise of such regulatory zealotry and disregard for the negative impacts of its regulations. All such actions violate: the “reasoned” administrative process that federal agencies must follow, sound scientific practice, rational decisionmaking, and a balanced approach to environmental regulation.

Moreover, EPA and other regulatory agencies should never ignore the costs of the regulations they issue unless Congress expressly forbids the consideration of costs. All similar statutory provisions that authorize “reasonable” or “appropriate” regulations should be read to require the consideration of costs, and Congress should be made aware of this background principle of law when it legislates.

In a concurring opinion in the case, Justice Thomas went even further to raise constitutional questions about the limited scope of judicial review for administrative actions. He argued that the case “raises serious questions about the constitutionality of our broader practice of deferring to agency interpretations of federal statutes.” This not only mirrors his concurring opinions in two cases in March, questioning judicial deference to administrative agency interpretation of their own power, but also contains a broader attack on the court-created Chevron deference doctrine itself, which he argues needs to be limited to avoid constitutional problems.

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