Environmental, Land and Natural
Resources Alert
April 2009
Authors:
Craig P. Wilson
craig.wilson@klgates.com
+1.717.231.4509
Robert A. Lawton
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+1.717.231.4549
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U.S. Supreme Court Upholds Use of CostBenefit Analysis in Clean Water Act
Rulemaking
On April 1, 2009, the United States Supreme Court issued its opinion in Entergy
Corp. v. Riverkeeper, Inc., upholding the use of cost-benefit analysis in connection
with regulations promulgated by the Environmental Protection Agency (“EPA”)
pursuant to § 316(b) of the Clean Water Act (“CWA”).1 The EPA CWA § 316(b)
regulations (commonly known as the “Phase II Rule”) were designed to minimize the
adverse effect of impingement and entrainment of aquatic life by cooling water
intake structures at existing power plants. The Phase II Rule established national
performance standards for impingement and entrainment, based in part on EPA’s
consideration of costs and benefits, and authorized EPA and state agencies to allow
cost-benefit variances from the national performance standards when making permit
decisions. In the decision below, the United States Court of Appeals for the Second
Circuit had held that EPA’s use of a cost-benefit analysis was impermissible under §
316(b), and, for that and other reasons, had remanded the regulations to EPA for
further consideration.
The petitioner energy companies and association appealed the Second Circuit’s
decision to the Supreme Court and the Court granted certiorari on the question of
whether CWA § 316(b) authorizes EPA to compare costs with benefits in
determining the “best technology available for minimizing adverse environmental
impact” at cooling water intake structures. If upheld, the Second Circuit decision
could have required retrofitting many power plants across the country with closedcycle re-circulating cooling water systems, without regard to the net benefit (cost
compared to benefit) of installing such technology versus alternative technology.
The Supreme Court, however, reversed the Second Circuit and upheld EPA's use of
cost-benefit analysis and allowance of cost-benefit variances.
I. Background – Second Circuit Decision
In Riverkeeper, Inc. v. EPA, 475 F.3d 83 (2d Cir. 2007) (“Riverkeeper II”), the
Second Circuit addressed challenges from environmental, state, and industry entities
regarding the Phase II Rule. The Phase II Rule applies to existing power generation
facilities whose cooling water intake flow is more than 50 million gallons each day.
The regulations were issued to implement CWA § 316(b), which requires EPA to
ensure that “the location, design, construction, and capacity of cooling water intake
structures reflect the best technology available for minimizing adverse environmental
impact” (referred to as “BTA”).
.
1
33 U.S.C. § 1326(b).
Environmental, Land and Natural Resources Alert
The Phase II Rule permitted existing power
facilities to satisfy BTA through the selection and
implementation of one of five compliance
alternatives. Compliance alternatives included
the option to demonstrate that a facility’s existing
design and construction technologies meet
specified national performance standards. The
regulations also authorized issuance of sitespecific variances, as one of the compliance
alternatives, upon demonstration that the costs of
compliance are “significantly greater than” the
costs considered by EPA in setting the national
performance standards or that the costs of
compliance would be “significantly greater than
the benefits” of compliance with the performance
standards.
The Second Circuit determined that EPA may
have exceeded its authority by rejecting closedcycle cooling generally as a national requirement
and establishing instead the national performance
standards on the basis of a cost-benefit analysis.
Because the basis for EPA’s decision was not
clear, the court remanded the matter to EPA for
clarification of whether establishment of the
national performance standards was based on a
cost-benefit analysis or merely a costeffectiveness analysis. The Second Circuit also
determined that a process of comparing costs and
benefits of various alternatives, and selecting the
one with the best “net benefits,” is not authorized
by CWA § 316(b).
II. U.S. Supreme Court Decision
In a 6-3 decision written by Justice Scalia, the
Supreme Court reversed the Second Circuit and
held that EPA permissibly relied on a cost-benefit
analysis in setting the national performance
standards and in providing for cost-benefit
variances from those standards as part of the
Phase II Rule. Chief Justice Roberts and Justices
Kennedy, Thomas, and Alito joined in the
majority opinion. Justice Breyer wrote
separately, agreeing with the majority that the
CWA allows EPA to compare cost and benefit,
but saying that he would have sent the matter
back to EPA to clarify its standards. Justice
Stevens filed a dissenting opinion, in which
Justices Souter and Ginsburg joined.
a. Majority
The Court reviewed whether EPA’s decision to set
Phase II national performance standards and to
provide site-specific cost-benefit variances was a
reasonable interpretation of the CWA. A reasonable
interpretation, as recognized by the Court, is “not
necessarily the only possible interpretation, nor even
the interpretation deemed most reasonable.”2 The
interpretation only must be reasonable. In this case,
the issue involved EPA’s interpretation of the
statutory language in CWA § 316(b) requiring use of
“the best technology available for minimizing
adverse environmental impact.”
The Second Circuit had interpreted this language to
mean “the technology that achieves the greatest
reduction in adverse environmental impacts at a cost
that can reasonably be borne by the industry.”3 The
Supreme Court acknowledged that this was a
plausible interpretation; however, the Court noted
that a similarly plausible interpretation is that “best
technology” could “describe the technology that
most efficiently produces some good.”4 Thus, “best
technology,” in the Court’s opinion, could “refer to
that which produces a good at the lowest per-unit
cost, even if it produces a lesser quantity of that good
than other available technologies.”5
The Court also reviewed parallel provisions of the
CWA that have language similar to the provision at
issue here, such as “best practicable control
technology,” “best available technology
economically achievable,” “best conventional
pollutant technology,” and “best available
demonstrated control technology.” Some of these
provisions, and associated statutory tests, expressly
allow cost-benefit analysis, while others (respondent
environmental groups argued) preclude such
analysis. The BTA provision in § 316(b) is silent on
the point. The Court opined that this omission “can
reasonably be interpreted to suggest that EPA is
accorded greater discretion in determining the
precise content.”6
2
Entergy Corp. v. Riverkeeper, Inc., 556 U.S. __, __ (2009)
(slip op., at 7) (opinion of the Court).
3
Riverkeeper II, 475 F.3d at 99-100.
4
Entergy, 556 U.S. at __ (slip op., at 8) (opinion of the Court).
5
Id.
6
Id., at __ (slip op., at 11).
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Environmental, Land and Natural Resources Alert
The Court disagreed with respondents’ argument
that because Congress did not provide expressly
for use of cost-benefit analysis in § 316(b), as it
did elsewhere, Congress intended to forbid it.
The Court responded that drawing such inference
“from the silence [of § 316(b)] is, in any event,
implausible, as [§ 316(b)] is silent not only with
respect to cost-benefit analysis but with respect to
all potentially relevant factors. If silence here
implies prohibition, then the EPA could not
consider any factors in implementing [§ 316(b)] –
an obvious logical impossibility.”7 The Court,
therefore, found it reasonable to conclude that
CWA § 316(b)’s silence conveys “a refusal to tie
the agency’s hands as to whether cost-benefit
analysis should be used, and if so to what
degree.”8
The Court also compared the Phase II Rule with
EPA’s existing practices for the past 30 years.
The Court noted that as early as 1977, EPA
determined that it was not reasonable to “interpret
Section 316(b) as requiring use of technology
whose cost is wholly disproportionate to the
environmental benefit to be gained.”9 The Court
recognized that the “wholly disproportionate”
standard may be different from Phase II’s
“significantly greater than” standard; however,
there is nothing in the statute that indicates one
interpretation is permissible and the other is not.
After considering the text of § 316(b), the parallel
provisions, and EPA historical practices, the
Court held that EPA’s interpretation of CWA §
316(b) was reasonable. Therefore, the Court
concluded that it was permissible for EPA to rely
on cost-benefit analysis in setting the national
performance standards and in providing for costbenefit variances from those standards. The
Court, however, did not express a view on the
remaining bases for the Second Circuit’s
remand.10 Accordingly, the Second Circuit’s
remand of other parts of the Phase II Rule, e.g.,
use of restoration measures to achieve
compliance, is not impacted by the decision.
7
Id., at __ (slip op., at 12).
Id.
9
Id., at __ (slip op., at 14).
10
Id., at __ (slip op., at 16), stating: “We of course express
no view on the remaining bases for the Second Circuit’s
decision which did not depend on the permissibility of costbenefit analysis.”
b. Concurrence
In his concurrence, Justice Breyer agreed with the
majority that the CWA gives EPA the authority to
compare costs and benefits. Justice Breyer dissented
from the majority because he was not convinced that
EPA had successfully explained the basis for its
change from the “wholly disproportionate” to the
“significantly greater than” cost-benefit standard.
Justice Breyer recognized that “significantly greater”
differs from “the words the EPA has traditionally
used to describe its standard, namely ‘wholly
disproportionate.’”11 He expressed the opinion that
EPA never adequately explained why this change
occurred or even if the change represents a new and
different test (or no change at all). Accordingly,
Justice Breyer concluded that, like the majority, he
would remand the case to the Second Circuit;
however, unlike the majority, Justice Breyer would
have preferred the Second Circuit to remand the
cases to the EPA to “either apply its traditional
‘wholly disproportionate’ standard or provide an
adequately reasoned explanation for the change.”12
c. Dissent
Justice Stevens wrote a dissent joined by Justices
Souter and Ginsburg. The dissent disagreed with the
majority’s conclusion that EPA’s interpretation of
CWA § 316(b) was reasonable and that EPA could
permissibly consider cost-benefit analysis. The
dissent diverged from the majority particularly as to
whether silence in the pertinent statutory provision
constitutes a prohibition.
Justice Stevens wrote that the section of the CWA in
question “neither expressly nor implicitly authorizes
the EPA to use cost-benefit analysis when setting
regulatory standards; fairly read, it prohibits such
use.”13 He reached this conclusion based, in part,
upon his determination that Congress should have
expressed a clear intent if it wished the agency to use
cost-benefit in crafting regulations. He wrote that
“this Court has recognized that when Congress has
intended that an agency engage in cost-benefit
analysis, it has clearly indicated such intent on the
face of the statute.”14 Thus, Justice Stevens felt that
the Court should not treat CWA § 316(b)’s silence as
8
11
Id., at __ (slip op., at 7-8) (BREYER, J., concurring).
Id., at __ (slip op., at 8).
13
Id., at __ (slip op., at 2) (STEVENS, J., dissenting).
14
Id., at __ (slip op., at 3).
12
April 2009
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Environmental, Land and Natural Resources Alert
“an implicit source of cost-benefit authority,”
particularly when other provisions of the CWA
expressly grant such authority.15 Justice Stevens
used an earlier Supreme Court decision to make
his point that Congress “does not alter the
fundamental details of a regulatory scheme in
vague terms or ancillary provisions –
it does not, one might say, hide elephants
in mouseholes.”16
III. Conclusion
The long journey of rulemaking pursuant to CWA §
316(b), which originally began in the 1970s, now
returns to the Second Circuit and EPA. EPA had
suspended large portions of the Phase II Rule in
response to the Second Circuit’s Riverkeeper II
decision, and had begun formulating further
rulemaking. The memorandum that suspended
the rule stated that “if the court’s decision is
overturned …, the Agency will take appropriate
action in response.” What action EPA will deem
“appropriate” in response to the Supreme Court
decision now will be decided by the new
Administration. Certain aspects of the Second
Circuit’s prior remand are not impacted by the
Supreme Court decision (such as the court’s rejection
of the use of restoration measures to achieve
compliance with performance standards) and those
rulings remain in place, although the Supreme
Court’s decision clearly recognizes that EPA may
utilize cost-benefit analysis, if it so chooses, in
formulating and promulgating further regulations
for existing facilities under CWA § 316(b).
15
16
Id.
Id., at __ (slip op. at 4).
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upon in regard to any particular facts or circumstances without first consulting a lawyer.
Id.
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__ (slip
op.LLP.
at 4).
April 2009
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