On April 15, 2014, in White Stallion Energy Center v. EPA, the US Court of Appeals for the D.C. Circuit upheld the Mercury and Air Toxics Standards (MATS) promulgated by US EPA on February 16, 2012, which sets new emissions standards for new and existing coal- and oil-fired power plants. EPA estimates that 1,400 power plants will be affected by the MATS rule, including privately owned facilities and governmentally owned plants.  Under the rule, power plants must comply with numerical emission limits for mercury, hydrochloric acid, and hydrofluoric acid, and revised limits for particulate matter by March 2015 unless an extension is granted by EPA or the equivalent state agency. Per EPA’s own calculations, “the annual costs of the final rule in 2015” will “be $9.6 billion in 2007 dollars.”

The petitioners – a collection of state attorneys generals, labor groups, and industry groups – challenged whether the regulation of power plant-generated pollutants, such as mercury, is “appropriate and necessary” under Clean Air Act Section 112(n)(1)(A).  In so arguing, petitioners asserted that EPA wrongfully disregarded the costs of regulation in promulgating the MATS rule. Siding with EPA, the court held that the plain definition of “appropriate” did not dictate a consideration of costs when deciding whether to regulate emissions from power plants.  However, the court noted that, although it was appropriate to disregard costs in deciding whether to regulate pollutants from power plants, EPA should consider costs in determining the stringency of those regulations.

This decision contributes to a worrisome precedent for industry and labor associations regarding cost considerations in environmental rulemakings. For example, in its 1980 opinion in Lead Industries Association v. EPA, the D.C. Circuit held, “[w]here Congress intended the [EPA] to be concerned about economic and technological feasibility, it expressly so provided.”  This language was endorsed by the US Supreme Court in its 2001 opinion in Whitman v. American Trucking Associations.  In addition, EPA Administrator Gina McCarthy has stated that President Obama has already expressed his desire to make climate change policy “a necessary part of his legacy.”

The petitioners in White Stallion Energy have not yet petitioned the D.C. Circuit for en banc review or the Supreme Court for a Writ of Certiorari.  However, in light of the major financial implications facing energy companies, such a challenge may be well on its way.  Squire Sanders will continue to monitor this litigation.