Feb. 6 (Bloomberg) -- The Obama administration withdrew a U.S. Supreme Court appeal filed by the Bush administration and said it will comply with a court ruling governing mercury emissions from coal- and oil-fired power plants.

A federal appeals court ruled last year that the Environmental Protection Agency erred when it decided to change the way it regulates those emissions. The agency had planned to remove plants from a list of polluters regulated under a section of the Clean Air Act and instead establish a “cap-and-trade” program.

“EPA has decided, consistent with the court of appeals’ ruling, to develop appropriate standards to regulate power plant emissions,” Acting Solicitor General Edwin Kneedler said in a court filing released today.

Coal-fired power plants emit about a third of the mercury released annually in the U.S. by human activity, according to the Energy Department. Exposure to high levels of mercury can result in nervous disorders and can harm development in children.

New Jersey and 14 other states sued to challenge the planned change. The states said the rule would allow individual plants to exceed mercury limits.

“This decision is a huge victory for public health and the environment,” Connecticut Attorney General Richard Blumenthal, a Democrat, said in a statement. “Cap-and-trade would create dangerous ‘hot spots’ -- areas with high mercury concentrations toxic to humans and the environment.”

Power plant owners supported the rule because it would reduce their compliance costs.

‘The Unfortunate Thing’

“The unfortunate thing is that this approach will be less effective, and more expensive, than a well-designed trading program,” said Jeffrey Holmstead, former assistant administrator at the EPA and now a partner at Bracewell & Giuliani LLP in Washington, in an e-mailed statement today.

Upholding the program would mean “we’ll all be paying much more than necessary to address mercury emissions from power plants,” Holmstead said.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

Last Updated: February 6, 2009 15:25 EST