Entergy Corp. v. Riverkeeper, Inc., 556 U.S. ____, No. 07-1355 (2009)
On April 1st, the Supreme Court held that the federal Clean Water Act (the “Act”) allows the Environmental Protection Agency (the “EPA”) to use cost-benefit analysis in setting the performance standards that power plants must meet to reduce the impact of cooling water intakes on aquatic organisms. Entergy Corp v. Riverkeeper, Inc., 556 U.S. ____ (2009), reverses a decision of the Second Circuit that held the EPA had unlawfully weighed the costs of environmental remediation measures against their benefits in setting “best technology available” standards for existing facilities. The opinion has major implications because the challenged regulations apply to facilities that account for more than half of the nation’s electricity generating capacity and may allow those facilities to avoid billions of dollars annually in increased compliance costs. The Court’s reasoning also may open the door to use of cost-benefit analysis under the Act in other contexts, such as storm water regulation, where it is not currently considered.
The Entergy opinion concerns regulations for power plant cooling water intake structures that EPA promulgated under section 316(b) of the Act. Intake structures, which draw in water to cool power plants during operation, can cause harm to aquatic organisms by crushing them against intake screens (“impingement”) or trapping them in the cooling system (“entrainment”). To address these environmental impacts, section 316(b) directs the EPA to promulgate standards that require cooling water intake structures to “reflect the best technology available for minimizing adverse environmental impact.” 33 USC § 1326(b).
In 2001, EPA adopted regulations under section 316(b) that established standards for new facilities having cooling water intake structures with intake flow greater than 10 million gallons per day (the “Phase I rules”). The Phase I rules require restriction of water inflow to levels attainable by closed-cycle recirculating cooling systems. Alternatively, a facility may demonstrate that the technology used will reduce adverse environmental impacts to levels comparable to those of closed-cycle systems. See 40 CFR §§125.80-125.84. Closed-cycle systems recirculate water within the cooling system and thus take in less water, reducing impingement and entrainment. The Second Circuit largely upheld the Phase I rules against challenge. Riverkeeper, Inc., v. EPA, 358 F.3d 174 (2004).
In 2004, the EPA adopted the regulations at issue in Entergy, which govern existing power plants with cooling water intake of more than 50 million gallons per day (the “Phase II rules”). 69 Fed. Reg. 41576 (2004). The Phase II rules apply to more than 500 facilities, which collectively represent about 53% of the nation’s electricity generating capacity and remove more than 214 billion gallons of water each day from the nation’s waterways. The Phase II rules require most facilities to reduce impingement mortality for fish and shellfish by 80% to 95% compared to the “calculation baseline.” Some facilities also must reduce entrainment mortality by 60% to 90%. See 40 CFR §§ 125.93, 125.94(b)(1)-(2). These targets are based on the improvements attainable through use of technologies the EPA deemed “commercially available and economically practicable.” 69 Fed. Reg. 41602.
Counting the Cost—EPA Rejects Closed-Loop Systems As Too Expensive
In setting the Phase II standards, the EPA declined to require the adoption of closed-cycle cooling systems, or equivalent reductions in impingement and mortality, even though it found that closed-cycle systems could reduce mortality by up to 98% compared to the calculation baseline. 69 Fed. Reg. 41601. While closed-cycle systems could produce greater environmental benefits, the cost of converting existing facilities to closed-cycle systems would be nine times the cost of achieving the Phase II standards as adopted. EPA estimated the collective cost of compliance with the Phase II standards at $389 million annually, as compared with $3.5 billion annually to employ closed-loop systems or comparable technology at all affected facilities. Use of closed-cycle systems also could reduce plant efficiency by 2.4% to 4.0%, which might require the construction of new plants to replace lost generating capacity. The EPA concluded that the benefits of the Phase II rules as adopted “can approach those of closed cycle recirculating at less cost with fewer implementation problems [than closed-cycle systems].” 69 Fed. Reg. 41601-41606.
The Phase II rules also allow site-specific variances from the performance standards if a facility can show that its costs of compliance would be “significantly greater” than the costs the EPA considered in setting the standards, or that its costs would be “significantly greater than the benefits of complying” with the standards. In such cases, the facility must use measures that produce results “as close as practicable” to the standards. 40 CFR § 125.94(a)(5)(i)-(ii).
The Second Circuit, considering a challenge to the Phase II rules, took issue with the EPA’s apparent balancing of costs and environmental benefits. The Second Circuit held that EPA is permitted under CWA section 316(b) to consider costs in determining whether the cost of a given standard can be “reasonably borne” by the industry,” and in determining which technologies are the most cost-effective. But it concluded that section 316(b) prohibits the use of cost-benefit analysis, which compares the costs and benefits of various approaches and chooses the approach with the best combination of the two. See slip op. at 6. That court thus found unlawful the provisions of the Phase II rules allowing site-specific variances for facilities where the cost of compliance would be significantly greater than the benefits. The court also remanded the regulations to the EPA to clarify whether the agency had relied on cost-benefit analysis in setting the performance standards themselves (or only on the permissible cost-effectiveness analysis).
Chevron Analysis Now a Single Step?
The Supreme Court reversed the Second Circuit, holding that the EPA’s use of cost-benefit analysis was based on a reasonable construction of the Act and therefore was permissible under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The Court’s application of Chevron was unorthodox, however. Chevron calls for a two-step analysis in evaluating an agency’s interpretation of a statute: a court first must consider whether Congress spoke clearly to the issue at hand. If it did, that is the end of the analysis, and the court must apply Congress’s expressed intent. But if the statute is ambiguous, the agency’s interpretation is entitled to deference and must be upheld if “reasonable.” Chevron at 842-843.
In analyzing EPA’s interpretation of section 316(b), the Court did not explicitly address the first step in the Chevron analysis. Instead, it appeared to begin with step two, asking whether the EPA’s interpretation of section 316(b) was reasonable in light of the language and structure of the Act. In a footnote, the Court suggested that its approach rendered step one unnecessary, because “surely if Congress had directly spoken to an issue then any agency interpretation contradicting what Congress has said would be unreasonable.” Slip op. at 7 n. 4.
Sometimes the ‘Most Good’ Is Not the ‘Best’
The Court began its analysis of the EPA’s interpretation by looking to the language of section 316(b), which calls for standards that require the “best technology available for minimizing adverse environmental impact.” The Court acknowledged that “the ‘best technology’ . . . may well be the one that produces the most . . . reduction in adverse environmental impact.” In the Court’s view, however, “‘best technology’ may also describe the technology that most efficiently produces some good . . . even if it produces a lesser quantity of good than other available technologies.” Likewise, “minimizing environmental impact” does not necessarily mean “reducing to the smallest amount possible,” because “‘minimize’ is a term that admits of degree.” Slip op. at 8. Under the Court’s reading, therefore, the language of section 316(b) “does not unambiguously preclude cost-benefit analysis” in setting performance standards. Slip op. at 9.
Agency Discretion Grows Within the Sound of Congressional Silence
The Court next rejected the argument that cost-benefit analysis was clearly precluded by the structure of the Act. In addition to the “best technology available” (“BTA”) standard found in section 316(b), the Act contains four other standards for pollution control technologies that apply, or did apply at one time, to various classes of pollutants and pollutant sources. These are best practicable control technology (“BPT”), best available technology economically achievable (“BATEA”), best conventional-pollutant control technology (“BCT”) and best available demonstrated control technology (“BADT”). For each of these four standards, Congress provided various factors for EPA to consider in implementing the standards, including costs. For BPT and BCT, the Act explicitly authorizes cost-benefit analysis, while for BATEA and BADT it authorizes consideration of cost but does not mention consideration of the cost-benefit relationship. Slip op. at 10-11. In contrast, the Act does not provide any factors to guide EPA’s implementation of the BTA standard under section 316(b). Slip op. at 10-11.
Riverkeeper argued that Congress’s failure to authorize cost-benefit analysis for the BATEA and BADT standards, when it had done so explicitly for the BPT and BCT standards, indicated that Congress did not intend to allow the use of cost-benefit analysis for the former standards. Likewise, because Congress did not authorize any consideration of cost for the BTA standard (or otherwise provide guidance), it must have intended to forbid the use of cost-benefit analysis there as well.
The Court rejected this inference from Congressional silence. Even if cost-benefit analysis is not permissible under the BATEA and BADT standards, the BTA test need not be interpreted the same as those standards, the Court held. According to the Court, Congress’s decision to leave the BTA test “unencumbered by specified statutory factors . . . can reasonably be interpreted to suggest that the EPA is accorded greater discretion in determining its precise content.” Slip op. at 11. The EPA’s decision to use cost-benefit analysis was a reasonable use of that discretion and was therefore entitled to deference.
Opinion May Signal Openness to Use of Cost-Benefit Analysis In Other Areas
Significantly, the Court also suggested that it was “not obvious” that cost-benefit analysis is not permitted in implementing the BATEA and BADT standards. The Court did not pursue this issue, in light of its conclusion that the BAT standard need not be treated like the BATEA and BADT standards. But the Court’s comment suggests that the EPA may have the discretion to weigh costs against benefits in applying the BATEA and BADT standards, if it chose to do so. Slip op. at 11. Readers should note, however, that in approving the EPA’s interpretation of the BTA standard the Court also relied in part on the EPA’s longstanding interpretation of section 316(b) as not “requiring use of technology whose cost is wholly disproportionate to the environmental benefit to be gained.” Slip op. at 14. Thus, the Court’s openness to use of cost-benefit analysis under other standards may be influenced by the EPA’s existing practices in those areas.
Robert J. Uram and Ella Foley-Gannon are partners in the Real Estate, Land Use and Environmental Practice Group in the firm’s San Francisco office. James Rusk is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm’s San Francisco office.