In Michigan v. EPA, the Supreme Court invalidated an EPA rule regulating power plant emissions of mercury and other pollutants. This post discusses the decision’s potential impact on cost-benefit jurisprudence generally.

All nine justices endorsed the proposition that agencies have a general obligation under the Administrative Procedure Act to consider costs when deciding to regulate. Justice Scalia’s majority opinion describes a “backdrop of [] established administrative practice” in which “[a]gencies have long treated cost as a centrally relevant factor when deciding whether to regulate.” Justice Kagan’s dissent states “absent contrary indication from Congress an agency must take costs into account in some manner before imposing significant regulatory burdens.”

If applied faithfully, such statements in Michigan v. EPA should have little influence on how lower courts interpret statutory cost-benefit requirements. The Court clearly was not evaluating the validity of the EPA’s cost-benefit analysis of the rule. Rather, the Court faulted the EPA for failing to consider costs when deciding to issue the regulation. And even on that question, the majority took pains to emphasize that it was not commenting on the quality or nature of cost consideration that the EPA would have to conduct in deciding to regulate. All of this should limit the opinion’s impact on lower court interpretation of statutory cost-benefit requirements. Of course, a determined judge could always take language in Michigan v. EPA out of context to misinterpret a statutory cost-benefit requirement.

The harder and more interesting question is whether Michigan v. EPA will encourage lower courts to begin vacating rules for failure to adequately consider costs under the APA’s “arbitrary or capricious” standard of review. The door now seems more open to such review. Plaintiffs may begin to argue that agencies that have not considered costs have violated the APA. A few lower courts have previously decided against agency rules for this reason, but to my knowledge this has been rare. Enterprising plaintiffs may even argue that errors an agency’s cost-benefit analysis submitted to the Office of Management and Budget violate the APA. Courts have traditionally declined to review such analyses, but Michigan v. EPA may open the door to change that.

Agencies would therefore appear to be well advised to consider regulatory costs in all new rules unless acting under the (rare) statute that specifically prohibits consideration of costs.