The Role of “Cost” Consideration in Regulatory Proceedings
Time 4 Minute Read
Categories: EPA, Policy

In Michigan v. EPA, 135 S. Ct. 2699 (2015), the Supreme Court held that the cost of regulation is an essential factor that EPA must consider when deciding whether to regulate.  Id. at 2707.  According to the Court, “[a]gencies have long treated cost as a centrally relevant factor when deciding whether to regulate.”

In subsequent regulatory proceedings, however, EPA has offered different views as to what Michigan’s cost mandate means.  At the end of the Obama Administration, EPA said Michigan only means that it need determine whether the costs of a regulatory action are “affordable” or can be “absorbed” by the regulated industry.  81 Fed. Reg. 24,421.  More recently, EPA has said that its earlier statement “does not meet the statute’s requirements to fully consider costs,” and that the Supreme Court’s decision in Michigan requires that it “meaningfully consider cost within the context of a regulation’s benefits.”  84 Fed. Reg. at 2675.

EPA’s more recent view is consistent with, if not compelled by, Michigan.  In that case, the Court did not simply direct EPA to consider cost in the abstract:  its underlying concern was that EPA had “refused to consider whether the costs of its decision outweighed the benefits” in any way.  Id. at 2706.  While the Court did not mandate a specific type of cost-benefit analysis, see id. at 2711, it nonetheless repeatedly stressed that EPA must undertake some analysis that weighs the benefits against the costs of regulation.  See, e.g., id. at 2707 (explaining “reasonable regulation ordinarily requires paying attention to the advantages and the disadvantages of agency decisions”).  As the Court succinctly put it, “[n]o regulation is ‘appropriate’ if it does significantly more harm than good.”  Id.

In Michigan, the Court faulted EPA’s refusal to “consider whether the costs of its decision outweighed the benefits."  Id. at 2706.  According to the Court, “[o]ne would not say that it is even rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits,” id. at 2707, and  that the fundamental aim of considering cost is to “ensure that the costs are not disproportionate to the benefits.”  See id. at 2710.  Even the dissent in Michigan acknowledged that an agency “acts unreasonably” in ignoring costs and benefits because “such a process would ‘threaten[] to impose massive costs far in excess of any benefit.’”  See id. at 2716-17 (Kagan, J., dissenting) (quoting Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208, 234 (2009) (Breyer, J., concurring in part and dissenting in part)).

The Court’s emphasis on evaluating the costs of regulation in relation to their benefits is not novel:  comparing costs and benefits is an “established administrative practice” that has long been recognized as an essential feature of rational agency decision-making.  Id. at 2707-08.  A standard “is neither ‘reasonably necessary’ nor ‘feasible’ … if it calls for expenditures wholly disproportionate to the expected health and safety benefits.”  Id. at 667 (Powell, J., concurring in part and concurring in the judgment).  More recently, Justice Breyer observed that “every real choice requires a decisionmaker to weigh advantages against disadvantages,” Entergy Corp., 556 U.S. at 232 (Breyer, J., concurring in part and dissenting in part).  And as the Supreme Court said in AFL-CIO, a program of “pervasive regulation limited only by the constraint of feasibility” would reflect “unprecedented power over American industry.”  448 U.S. at 645.

This principle has broad importance for agency rulemaking.  While ATA v. Whitman, 531 U.S. 457 (2001), has been read by some to stand for the proposition that costs are irrelevant to agency decision-making absent an explicit direction from Congress, this is not correct.  Michigan confirms that meaningful consideration of the costs and benefits of regulatory action is required unless specifically precluded by Congress (as it was in the statutory provision at issue in ATA).

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