On June 29, 2015, the U.S. Supreme Court issued its opinion in Michigan v. EPA, which may have serious implications for legal challenges to the Clean Power Plan ("CPP"), which seeks to cut carbon emissions by 30 percent from 2005 levels by 2030. In a 5-4 decision, the Court invalidated U.S Environmental Protection Agency ("EPA") regulations setting limits on mercury, arsenic, and acid gas emissions from coal-fired power plants ("MATS Rule" or "Rule") by determining that EPA should have considered the compliance costs imposed on utilities at the first stage of the Agency's regulatory analysis.

The Court's opinion is a solid endorsement of the need for agencies to engage in a cost–benefit analysis in deciding whether to regulate. The opinion is also another example of the Court's gradual shift away from paying broad deference to EPA decisions. See , e.g., Utility Air Regulatory Group v. Environmental Protection Agency (rejecting EPA's request for deference to its interpretation of the Clean Air Act to require certain air permits for greenhouse gas emissions from stationary sources) and King v. Burwell (expressly refusing to apply Chevron deference to an agency's interpretation of the Affordable Care Act).

Given that the Court remanded the case to the D.C. Circuit, the MATS Rule will technically remain in effect while that court determines EPA's next steps. The form of the final D.C. Circuit mandate will make a difference for whether and when compliance with the Rule is ultimately required. For example, if the D.C. Circuit remands to EPA, the Rule may remain in effect while the Agency is considering the required costs and benefits. If the court vacates the Rule, however, EPA must begin the regulatory process again, and power companies may not have to comply with upcoming deadlines imposed by the Rule.

The Supreme Court's decision and the D.C. Circuit's ultimate resolution of the case also will have implications for electric and coal companies' legal challenges to the CPP. The CPP is promulgated by EPA under §111(d) of the Clean Air Act. Two versions of §111(d) of the Clean Air Act were signed into law—one from the Senate and one from the House—and critics of the CPP argue that one version forbids EPA from issuing carbon emissions standards under §111(d) for sources already covered by other regulations like the MATS Rule.

If the MATS Rule is ultimately vacated and fossil-fuel-fired power plants are not subject to regulation under the hazardous air pollutant provisions of the Clean Air Act, critics of the CPP may lose one of their legal arguments against the new greenhouse gas regulations. Alternatively, if the D.C. Circuit remands to EPA and the MATS Rule remains in effect, the court's decision will preserve power companies' §111(d) argument in their challenge of the Plan. Given the significant implications of the D.C. Circuit's upcoming decision, power companies and other challengers of the CPP are likely to press for a speedy resolution. Nevertheless, resolution may not occur before the challenges to the CPP unfold.

Additional information on the Court's decision in Michigan v. EPA can be found in our Jones Day Commentary, "Supreme Court Rejects EPA Mercury Rule for Power Plants and Raises Questions about Judicial Deference to Future EPA Rules."

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