Michigan v. EPA and the future of Chevron deference

In Michigan v. EPA, the Supreme Court late last month invalidated the Environmental Protection Agency's (EPA) choice not to consider costs in determining whether to regulate hazardous air pollutants from power plants. Going forward, the case casts a shadow over the scope of agency deference under the so-called Chevron doctrine. Named for the court's 1984 decision in Chevron U.S.A. v. Natural Resources Defense Council, the doctrine is a critical component of existing administrative law, requiring courts to defer to agencies' interpretations of ambiguous statutes. After Michigan, it is unclear how much breadth agencies have to interpret ambiguous statutes according to the agencies' policy preferences.

Chevron consists of two steps. In the first step, the court decides whether the statutory language at issue is ambiguous. If it is not, then the court — and the agency — must interpret the statute according to its unambiguous meaning. However, if the court finds the statutory language to be ambiguous, then it must defer to any "reasonable" agency interpretation of that language. The second step does not empower agencies to interpret statutes however they wish. Rather, to defer, the court must be satisfied that the agency's interpretation is within the scope of the statute's ambiguity; an interpretation that lies beyond what the statute (taking its ambiguity to an extreme) could mean is not valid.

In Michigan, the court conceded that the statute at issue — part of the Clean Air Act — was ambiguous, thus satisfying step one of the Chevron analysis. Thus, the court invalidated the agency interpretation on the basis of step two: the agency interpretation was not reasonably within the statute's permissible "zone of ambiguity." But an examination of the court's reasoning suggests in fact the answer is otherwise.

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The Clean Air Act directed the EPA to conduct a study of emissions of hazardous air pollutants from power plants, and to take regulatory action if the agency found regulation to be "appropriate and necessary." The majority conceded ambiguity, noting that the term "appropriate" "leaves agencies with flexibility."

So we proceed to Chevron step two. When the majority described the phrase "appropriate and necessary" as "capacious," one might have thought it was setting up the zone of ambiguity — and, concomitantly, the scope of the agency's discretion — as substantial. After all, the use by Congress of "capacious" phrasing as the regulatory trigger would seem to imply Congress's assent to an agency bringing to bear whatever factors it saw fit. Yet the court read the capaciousness of the phrase instead as reflecting congressional intent to require the agency to consider factors — including, in particular, cost.

Fair enough; perhaps it's implicit from any reasonable policy perspective that cost must somehow figuring into regulatory decision-making. And the dissent was on board with this point: In her dissent, Justice Elena Kagan emphasized that she had "no doubt," and "agree[d] with the majority" that the "EPA's power plant regulation would be unreasonable" had the agency not considered cost at all. Yet a divide between the majority and dissent persisted, with the majority insisting that the statute did not give the EPA the leeway to decline to consider cost in direct connection with the decision to regulate in the first instance. Here, the majority's understanding of what constitutes consideration of cost in the first instance — that is, in deciding whether to regulate at all — seems very limited, affording the agency little meaningful deference. The majority complained: "If (to take a hypothetical example) regulating power plants would yield $5 million in benefits, the prospect of mitigating cost from $11 billion to $10 billion at later stages of the program would not by itself make regulation appropriate." The court thus indicated it would read "appropriate" to require the agency to undertake at least a rough cost-benefit analysis and to decline to regulate where regulatory benefits were found to dwarf the costs.

Yet that conclusion is very much at odds with the court's decision over a decade earlier in Whitman v. American Trucking Associations. There, the court considered a provision of the Clean Air Act — one that calls upon the EPA to set air quality standards at a level "requisite to protect the public health" with "an adequate margin of safety." The court in Whitman concluded that, insofar as the provision made no mention of cost, the EPA had no leeway to consider cost in setting those air quality standards. The court emphasized that, even though the statutory provision there at issue required (under the court's interpretation) that cost not be taken into account, the broader statutory scheme left other (state) regulators free to consider cost in structuring the overall regulatory approach. The two decisions — both, ironically, authored by Justice Antonin Scalia — are very hard to reconcile: How odd indeed that the court should in one opinion (Whitman) interpret Congress to have declined to give the EPA the freedom to consider costs in deciding whether to regulate — in part on the ground that regulators had the freedom to integrate costs later in the regulatory process — while in another opinion (Michigan), it should interpret Congress's use of the word "appropriate" to preclude the EPA from undertaking essentially that approach. Scalia's curt response — that Whitman establishes the "modest principle" (that, "where the Clean Air Act expressly directs EPA to regulate on the basis of a factor that on its face does not include cost, the Act normally should not be read as implicitly allowing the Agency to consider cost anyway") that "has no application here" — does not explain why the act's use of a term that contemplates consideration of cost should be read as implicitly requiring the agency to consider cost in a particular way.

In short, nine justices agreed in Michigan that the "capacious" word "appropriate" required the EPA to consider costs. And the court majority read the term to require the EPA to consider cost at the initial stage of deciding whether to regulate at all. Regulatory actors should find Michigan discomfiting; the decision suggests that agencies' freedom to interpret congressional statutes is more constrained than they might previously have thought — at least when it comes to considerations of cost.

Nash is professor of law and David J. Bederman Research Professor (2014-15) at Emory University School of Law. He specializes in the study of courts and judges, federal courts and federal jurisdiction, legislation and regulation, and environmental law. Follow him on Twitter @JonathanRNash.