Photographer: Luke Sharrett/Bloomberg

The U.S. Supreme Court ruled against the Obama administration’s effort to limit toxic pollution from the nation’s coal-fired power plants, leaving the fate of a landmark environmental regulation in doubt.

The 5-4 decision Monday went against an Environmental Protection Agency mercury rule that forces utilities to shutter old coal plants or invest billions of dollars in equipment to clean up the emissions from their smokestacks. The court said the EPA should have considered the costs and benefits before deciding whether to impose those limits on the toxic emissions.

“The agency must consider cost -— including, most importantly, cost of compliance -— before deciding whether regulation is appropriate and necessary,” Justice Antonin Scalia wrote in the majority opinion. “Reasonable regulation ordinarily requires paying attention to the advantages and the disadvantages of agency decisions.”

Coal stocks, battered over the previous months by a number of pending EPA regulations and cheap natural gas, initially rose on the news. Peabody Energy Corp., the largest coal supplier in the U.S., climbed as much as 15 percent. Arch Coal Inc. jumped 19 percent and Alpha Natural Resources Inc. gained 14 percent. They pared much of those initial gains.

Utilities such as American Electric Power Co. and Southern Co. have already invested billions of dollars to install scrubbers or switch to natural-gas generation, as the initial deadline for the rule was early this year. Any changes to their plans would be limited, because of other state or federal rules.

Mercury, Air Toxics

Still, the defeat of the EPA regulation drew praise from industry and Republican critics of the agency, who argue that the EPA under President Barack Obama has abandoned commonsense balance.

“Today’s Supreme Court decision represents a cutting rebuke to the administration’s callous attitude,” Senate Majority Leader Mitch McConnell, a Kentucky Republican, said in a statement. “Obama administration officials like to pretend that the costs of their massive and regressive regulations either don’t exist or don’t matter.”

Separately on Monday, 18 states filed lawsuits to block a just-published EPA measure that expands federal authority over small streams, ponds and wetlands.

The agency’s coal-plant rule had been awaited by health advocates since President Bill Clinton’s administration decided in 2000 that the EPA should regulate mercury from power plants. It is one of the most expensive rules in EPA history.

The decision to send the regulation back to a lower court to decide what happens next leaves open the possibility that the 2011 rule, called the mercury and air toxics regulation, could be left on the books while the agency does the analysis that the high court said it should have done long ago. It could take a few months for that lower-court decision.

Cost-Benefit Analysis

“I think the D.C. Circuit will have to throw out the existing rule until the EPA goes back and decides whether regulating power plants is appropriate and necessary,” said Brian Potts, a lawyer specializing in the Clean Air Act. Potts said it would be difficult for the EPA to come up with a cost-benefit analysis that meets the requirements of the high court.

Other lawyers disagreed, and said the analysis the EPA performed as part of its rulemaking should be enough to satisfy the Supreme Court’s requirements. Scalia said the agency has leeway to determine how to weigh the costs in some form.

“It’s extremely likely that while all this is done, the rule will stay in place,” said Richard Revesz, a New York University law professor. “Given the fact that the agency is likely to prevail, it makes no sense to vacate the rule.”

Series of Defeats

The utility industry has suffered a series of defeats at the Supreme Court in recent years, as the justices sided with the EPA on cases including rules governing pollution that crosses state lines and on permit requirements for greenhouse-gas emissions. The agency is now developing the first regulations for greenhouse-gas emissions from power plants, a rule that’s also likely to be argued all the way to the Supreme Court.

With Monday’s decision, the court indicated it’s ready to limit the agency’s leeway to interpret the 25-year-old revisions to the Clean Air Act, said Thomas Lorenzen, a lawyer at Crowell & Moring. It’s a sensitive time because the EPA’s greenhouse-gas rules will be issued within the next two months.

The agency “will have to proceed quite carefully in the future,” said Lorenzen. “This is a significant blow to EPA.”

This case centered on an EPA regulation that aims to curb birth defects, heart disease and premature deaths. The rule, which had just begun taking effect, has forced companies to close aging facilities or install expensive scrubbing equipment.

Mercury, the main pollutant targeted by the rule, accumulates in fish and can cause neurological and kidney disorders when people consume those fish.

‘Appropriate and Necessary’

The Clean Air Act says the EPA may regulate mercury and other hazardous power-plant pollutants if the agency concludes action is “appropriate and necessary.”

The question for the Supreme Court was whether the agency must consider the cost before deciding to regulate. The Obama administration contended that the Clean Air Act requires that costs be taken into account only at a later stage -- when the EPA is deciding the extent of the regulation.

In the decision -- the last of this term -- the court divided along familiar lines. Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan dissented.

“The agency acted well within its authority in declining to consider costs at the opening bell of the regulatory process given that it would do so in every round thereafter,” Kagan wrote in the dissenting opinion.

Analysts say that about two-thirds of the nation’s 460 coal plants have already complied with the rule and that it’s unlikely utilities will reverse already announced plans to close old coal plants.

Yet some companies could delay plans to install cleanup equipment or choose not to run scrubbers they have already paid to put in place, said Sanjay Narayan, a lawyer for the Sierra Club.

“You lose a lot of public health benefits, but you don’t save companies a lot of money,” he said.