On June 29th the Supreme Court issued a much-anticipated opinion on the Environmental Protection Agency’s (EPA) Mercury and Air Toxics Standards (MATS). The decision faulted EPA for not considering the costs of the standards before it made a statutorily-required finding that regulation in this area would be “appropriate and necessary.” Even though EPA did eventually consider costs when deciding how to regulate, its failure to consider costs when deciding whether to regulate was contrary to the Clean Air Act, the Court said. Because of this defect, the proceeding was remanded to the Court of Appeals for the D.C. Circuit, which will decide what happens to the rule next.

While the opinion is a rebuke of EPA’s rulemaking process, it is important to recognize that the holding does not affect EPA’s legal authority to regulate in this area. Rather, the decision requires only that EPA consider cost before it makes a decision to regulate under this section of the Clean Air Act. That means that even though the MATS rule is on hold for now, we are very likely to see it crop up again in the future. How soon that happens is now largely under the control of the D.C. Circuit, which must decide how to implement the Court’s decision in Michigan v. EPA.

The D.C. Circuit has at least two options here—either it can vacate the rule entirely, sending EPA back to square one, or it can ask EPA to go back and fix the defective parts of the rulemaking process (still leaving much of the rule intact). In either case, before re-issuing the rule, EPA would need to show that it considered costs according to the Supreme Court’s decision before deciding whether regulation in this area is necessary and appropriate. How soon the EPA will be able to do so is an open question, and depends on the D.C. Circuit proceedings, but could realistically be in the next few years. The electric power industry will, until then, continue to watch this issue closely as it continues to evolve.

Administrative-law enthusiasts will take note of Justice Thomas’s concurrence, which reaches the same result as the majority but also calls for the end of Chevron deference to agencies. He argues that the longstanding judicial practice of deferring to agency interpretations of ambiguous statutes presents constitutional separation-of-powers issues because it empowers the executive branch (in this case the EPA) to exercise Congress’s legislative power. “Although we hold today that EPA exceeded even the extremely permissive limits on agency power set by our precedents,” Justice Thomas concluded, “we should be alarmed that it felt sufficiently emboldened by those precedents to make the bid for deference that it did here.” While this represents the opinion of only one member of the Court, a less extreme version of the same sentiment echoes throughout the majority opinion (“Even under this deferential standard, however, ‘agencies must operate within the bounds of reasonable interpretation.’ . . . EPA strayed far beyond those bounds”). While Chevron deference is unlikely to disappear anytime soon, this decision marks a slight narrowing of the doctrine as it is applied to EPA.