High Court Rebuffs Environmentalists, Permits Cost-Benefit Analysis

The U.S. Supreme Court recently ruled 6-3 that the U.S. Environmental Protection Agency (EPA) can weigh costs against benefits under parts of the Clean Water Act. The court said EPA was not required to impose the most environmentally protective requirements on power plants that inadvertently kill millions of fish.

Writing for the majority, Justice Antonin Scalia concluded that EPA "permissibly relied on cost-benefit analysis" and noted that "whether it is 'reasonable' to bear a particular cost may well depend on the resulting benefits."

The April 1 ruling allows for the possibility that EPA could apply cost-benefit analysis to future Clean Water Act judgments. In the near term, the Obama administration will be responsible for implementing the Clean Water Act consistent with the ruling.

The EPA rule in question required existing power plants that use natural waters to cool their facilities to reduce the number of fish killed during water intake. In fleshing out the details of its rule, EPA weighed the benefits of fish conservation against costs industry would bear in meeting the new requirements.

In part because EPA attempted to balance costs and benefits, the rule was not as strict as conservationists had hoped. Those calling for a stricter standard cited the Clean Water Act, which calls on EPA to require facilities to adopt "the best technology available for minimizing adverse environmental impact" and faulted the agency for not requiring closed-cycle cooling systems, a technology that would save more fish.

When power plants withdraw water from natural sources, fish can become trapped on a plant's intake screen and die there from lack of oxygen and movement. "Every day, power plants in the United States withdraw over 214 billion gallons from U.S. water bodies to cool their facilities, and kill billions of fish and aquatic creatures in the process," according to Riverkeeper, an environmental group that brought the suit against the EPA.

Closed-cycle cooling systems, which EPA explicitly rejected, "reduc[e] the amount of water withdrawn and the number of fish killed by over 95 percent," according to Riverkeeper. Industry groups objected to a closed-cycle mandate, citing high costs.

Riverkeeper and others charged the rule was further weakened by a provision that would exempt individual facilities if they could show the costs of complying would significantly outweigh benefits to aquatic life. The provision set up a sort of case-by-case cost-benefit analysis.

Richard Lazarus, who argued the case on behalf of environmental groups, said the EPA's cost-benefit strategy was prohibited by the Clean Water Act: "Congress did not authorize EPA to decide that the benefits of minimizing adverse environmental impact did not justify the cost of available technology." He added, "EPA has no authority in any circumstance to decide that fish aren't worth a certain amount of cost."

The Court disagreed, ruling that cost-benefit analysis is an appropriate criterion for determining which technology is the "best" technology. "In common parlance one could certainly use the phrase 'best technology' to refer to that which produces a good at the lowest per-unit cost, even if it produces a lesser quantity of that good," Scalia wrote.

The Court did not rule that cost-benefit analysis is required under the Clean Water Act, only that it is not prohibited.

Scalia was joined in the majority by Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas, Samuel Alito, and in part by Justice Stephen Breyer. The case is Entergy Corp. v. Riverkeeper, Inc.

Although the court upheld EPA's use of cost-benefit analysis, the agency will still have to write new regulations to minimize the intake of fish. The Supreme Court's opinion overturned only a portion of an appellate court ruling that sent the rule back to the agency in January 2007. In response to the appellate ruling, EPA suspended the original rule.

Since the Supreme Court ruled that EPA maintains discretion over whether a cost-benefit analysis should guide the regulatory outcome, the Obama administration will have a significant degree of latitude in deciding what new requirements to impose. "The current administration will now have to issue a new regulation that conforms to the 2007 decision of the U.S. Court of Appeals for the Second Circuit, as modified in one limited respect by [the April 1] Supreme Court ruling," according to Riverkeeper.

The use of cost-benefit analysis in regulatory decision making, especially in the field of environmental regulation, is contentious. Critics say cost-benefit analysis cannot effectively measure the benefits of regulation, especially those that cannot be translated into dollars and cents, while proponents say it prevents the government from moving forward on regulations that aren't worth the cost of compliance.

In an amicus brief filed by OMB Watch, Temple University law professor Amy Sinden wrote, "The application of formal CBA to environmental regulation rests on the untenable assumption that complex effects on ecological and human health can be quantified and expressed in dollar terms."

For the fish kill rule, "EPA had no way of valuing most of these broader ecological impacts, both because they involve processes that are only dimly understood by science, and because they involve goods and services not traded in markets," Sinden wrote. "Accordingly, EPA simply left most of these values off the balance sheet altogether."

In a dissenting opinion, Justice John Paul Stevens wrote, "Instead of monetizing all aquatic life, the Agency counted only those species that are commercially or recreationally harvested, a tiny slice (1.8 percent to be precise) of all impacted fish and shellfish."

Deferring to EPA's judgment

In deferring to EPA's judgment that cost-benefit analysis is allowed, the majority cited Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., a landmark case in judicial review of agency regulations, in which the Supreme Court decided that, if a statute is not clear, the Court should not substitute its judgment for that of the agency.

The majority determined that since the Clean Water Act does not expressly prohibit reliance on cost-benefit analysis, EPA deserves what has come to be known as Chevron deference. Chevron deference is predicated on the ideas that Congress delegates authority to agencies, with some understanding that agencies will need to decipher statutory ambiguity, and that agencies, not courts, possess relevant expertise on substantive policy issues.

However, the rulemaking record indicates that EPA may not have been the decision maker on the fish kill rule. EPA originally intended to require more stringent closed-cycle cooling systems for the nation's largest power plants, but the White House Office of Information and Regulatory Affairs (OIRA), which reviews and approves draft rules, stripped the requirement. OIRA also pressed EPA to include the provision that would allow facilities to opt out of complying with the rule if costs exceed benefits.

When the appellate court heard arguments in the case, OMB Watch argued, in an amicus brief by former Georgetown University law professor Lisa Heinzerling, that EPA deserved no deference. Heinzerling wrote, "The paper trail in this case makes clear that the Office of Information and Regulatory Affairs foisted on EPA an interpretation of the Clean Water Act that EPA itself had not developed." She added, "EPA should not be given Chevron deference for an interpretation that simply caves in to the will of [OIRA]."

OIRA's role was not mentioned in oral arguments before the Supreme Court or in the Court's opinions. The failure to consider the contentious atmosphere in which the rule was developed allowed the majority to grant EPA deference.

Note: Image in teaser by flickr user dbking, used under a Creative Commons license.

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