Interpreting the smoke signals.

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Justices Flex Their Power in EPA Case

Noah Feldman is a Bloomberg View columnist. He is a professor of constitutional and international law at Harvard University and was a clerk to U.S. Supreme Court Justice David Souter. His books include “Cool War: The Future of Global Competition” and “Divided by God: America’s Church-State Problem -- and What We Should Do About It.”
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In a significant defeat for Barack Obama’s Environmental Protection Agency, the U.S. Supreme Court in a 5-4 vote Monday rejected emissions regulations for power plants because the agency didn’t engage in a full-blown cost-benefit analysis at the very first stage of its regulatory process. From the Obama administration’s perspective, if it had to lose Justice Anthony Kennedy’s deciding vote in one high-profile case this term, it was better for it to lose this environmental case than the Affordable Care Act decision. But the loss will still smart for environmentalists. And the decision in Michigan v. EPA, alongside the simultaneously announced 5-4 decision to uphold the use of the drug midazolam in executions, should remind all of us that Kennedy stubbornly refuses to become an out-and-out liberal in the twilight of his legal career.

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The court’s opinion, written by Justice Antonin Scalia, reads as though it’s describing a regulatory process completely unfamiliar from Justice Elena Kagan’s dissent. The Clean Air Act says that after studying “hazards to public health,” the EPA must act if it determines that regulation is “appropriate and necessary.” The case turns on the words “appropriate and necessary” -- do they require a cost-benefit analysis to determine if regulation would be not only beneficial to health but also worth its costs?

In Scalia’s presentation, the EPA proceeded to regulate without considering costs. “The Agency gave cost no thought at all,” he wrote with characteristic emphasis, “because it considered cost irrelevant to its initial decision to regulate.”

Scalia then applied a legal standard known as the “Chevron” standard, which was also in the news last week in the ACA case -- where Chief Justice John Roberts chose not to apply it. The Chevron rule says that where statute is ambiguous and applying it is the job of an administrative agency, the court should defer to the agency’s interpretation, provided it is reasonable.

Scalia, writing for the majority, said that it wasn’t reasonable for the EPA not to perform a cost-benefit analysis at the outset, before it began the regulatory process. This was an especially aggressive assault on the Chevron doctrine, which generally would give substantial leeway to an agency. Indeed, it’s hard to understand it as anything other than driven by the political outcome of the case. 

The reason for this understanding of Scalia’s opinion is that, as Kagan pointed out in dissent, the EPA did engage in cost-benefit analysis -- multiple times. She agreed with the majority, Kagan said, that the agency’s actions would’ve been unreasonable if they’d given no thought to cost at all, as Scalia charged.

“But that is just not what happened here,” Kagan wrote with more than a touch of annoyance. “Over more than a decade, EPA took costs into account at multiple stages and through multiple means as it set emissions limits for power plants.” And when the EPA made its “appropriate and necessary” finding, she explained, it knew it would engage in these repeated analyses of costs and benefits.

According to the usual application of Chevron, once it was determined to be ambiguous whether the words “appropriate and necessary” require an immediate cost-benefit evaluation or whether it’s sufficient to perform that task down the line, the court should defer to the agency’s answer to that question. For Kagan, the case should’ve been a standard instance of deference.

Justice Clarence Thomas concurred separately to say that Chevron is not just a bad idea, but fundamentally unconstitutional. It’s the province of the judiciary to say what the law is, according to the precedent of Marbury v. Madison, the early 19th century case that established the principle of judicial review. In Thomas’s view, deferring to reasonable agency interpretations of the law, even when they’re incorrect, involves an abdication of that power and responsibility.

The Chevron doctrine was created to respond to contemporary circumstances, in which huge amounts of real-world legislation is done by administrative agencies to whom Congress delegates rule-making power that amounts to the power to make laws.

Is Chevron under attack, as my colleague Cass Sunstein suggested after King v. Burwell, the ACA case decided last week? There Roberts held that Chevron doesn’t apply to questions of “deep economic and political significance,” where it appears Congress didn’t mean to assign interpretive power to the agency.

Monday’s EPA opinion suggests that the answer is no. The Chevron test is malleable enough for the court to use it to reach whatever conclusion it wishes -- and that’s often the yardstick by which a doctrinal tool’s usefulness is measured.

What’s more, Roberts was actually doing the Obama administration a favor by refusing to apply Chevron in the ACA case. If Chevron applies to a given statute, an agency can under the right circumstances reinterpret the meaning of the statute when control over the agency changes. Had Roberts applied Chevron to the question of whether the law allowed the IRS to grant subsidies to people purchasing insurance on exchanges created by the federal government on behalf of the states, a subsequent Republican administration could potentially have changed the Obama administration’s interpretation of the law. The victory for the Obama administration would therefore have been temporary.

The Chevron loophole in the ACA case is of a piece with the court’s use of the Chevron doctrine in the EPA case. Judges are using legal tools to get the results they think are best for the country. They’re in charge, not the administrative agencies. If you don’t like the outcome -- vote for your favorite party to nominate judges who share your preferences.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Noah Feldman at nfeldman7@bloomberg.net

To contact the editor on this story:
Stacey Shick at sshick@bloomberg.net