Chief Justice John G. Roberts  

We'll hear argument this morning in Case 14-46, Michigan v. The Environmental Protection Agency and the consolidated cases.

Mr. Lindstrom.

 United States Supreme Court  

ORAL ARGUMENT OF AARON D. LINDSTROM ON BEHALF OF STATE PETITIONERS

 MR. LINDSTROM  

Mr. Chief Justice, and may it please the Court:

EPA's view that it can decide whether to regulate electric utilities without considering costs is contrary to the text and structure of Section 7412.

The text sets out two distinct terms and thus directs EPA to consider whether it is appropriate to regulate and whether it is necessary to regulate. EPA found that it's necessary to regulate because of the existence of public health harms, and it found it's appropriate to regulate for the exact same reason, the existence of public health harms.

So its interpretation --

 Justice Elena Kagan  

General, I'm not sure that that's quite what EPA said. My understanding of what EPA said is that it's necessary because of public health harms and that it's appropriate because there are technologies that can redress or remedy those public health harms. So on the one hand, it said that -- it said that the phrase "appropriate" went to the nature of the harms. The phrase -- the phrase "necessary" went to the nature of the harms. The phrase "appropriate" went to the existence of technologies.

 MR. LINDSTROM  

Justice Kagan, when they relied on the availability of controls, they did that only after having already said that we must find it's appropriate if a health hazard exists. So they've already determined that the health hazard is a necessary and sufficient condition so the existence of controls is something that's not --

 Justice Antonin Scalia  

Where is that? Can you give us a citation to their opinion? I mean, the language speaks for itself, I assume. What are you referring to?

 MR. LINDSTROM  

For example, if you look -- this is in our reply brief, but if you're looking at --

 Justice Antonin Scalia  

In the reply brief?

 MR. LINDSTROM  

Yes, Your Honor.

I think the -- that points you to the actual final rule. That's volume 1 of the UR petition appendix. So the language -- let me find it in the reply brief. I have the UR -- I have the volume.

 Justice Sonia Sotomayor  

I'm sorry, what was the page?

 MR. LINDSTROM  

Sure. If you turn to the UAR Petition Appendix volume 1.

 Justice Antonin Scalia  

Good Lord.

 MR. LINDSTROM  

Page 196. This is the text of the final rule. Page 206A. I misspoke the first time. 206 says, "We must find" -- at the top of the page -- "We must find it appropriate to regulate EGUs under Clean Air Act Section 112 if we determine that a single HAP emitted from EGUs poses a hazard to public health or environment."

They said we must regulate. And the phrase "must regulate" means that when you get back to the availability of controls, then there's nothing left to be done. You've already said that we have to do it so the availability of controls isn't doing any additional work.

The over --

 Justice Anthony Kennedy  

Is the government going to say that if the predicate for regulation exists, i.e., there are emissions, then it's appropriate to regulate? That's what the government will say. I mean, that's -- "appropriate" is a capacious term.

 MR. LINDSTROM  

It absolutely is.

 Justice Anthony Kennedy  

And it would seem to me that the government will say, well, it's appropriate to regulate if there's an emission, so --

 MR. LINDSTROM  

It is a capacious term, but it, in fact, cuts against the government because one of the things that's encompassed within the term "appropriate" is that it looks at all of the circumstances in the context of determining whether or not you're going to regulate costs is a relevant circumstance. So the very fact that it's capacious cuts against them.

But the fact that they're -- they've said we must find it's appropriate to regulate means that this other control --

 Justice Sonia Sotomayor  

Well, I thought --

 Justice Elena Kagan  

Are you saying that they didn't -- that they didn't look at the availability of technologies? Is that what you're saying? That they thought that the availability of technologies was itself irrelevant to the determination? Is that your argument?

 MR. LINDSTROM  

We're not saying they thought it was irrelevant. They thought -- well, I guess logically irrelevant. They thought that it's something they did look at. It's something that when they did the utility study, they examined the availability of controls, but then they said regardless of whether or not controls are available, if a health hazard exists, we have to regulate. So if I can give an example --

 Justice Sonia Sotomayor  

I -- I'm sorry. I thought they said only if it was necessary. Congress was motivated in not listing these sources because it didn't know whether the technology that was going to be put in place to control acid rain would reduce the HAPs sufficiently so that regulation wasn't necessary or a listing wasn't necessary.

I had a different understanding of appropriate and necessary. Appropriate if there were HAPs, but necessary only if those HAPs were not sufficiently controlled by the other technology.

 MR. LINDSTROM  

The necessary -- both of them looked at whether or not there was going to be an ongoing harm because both necessary and appropriate turned on the utility study. The utility study was something that examined what health hazards would remain after all the other regulations --

 Justice Sonia Sotomayor  

The health hazard could have been low enough so that no -- no standards were necessary.

 MR. LINDSTROM  

Well, they determined how severe -- the severity to the health hazard. The severity went into determining whether or not a public health hazard existed at all. So they looked at the -- the effects, and the only place they looked at severity in the final rule was determining whether or not a public hazard existed. Once there were enough health effects that there was a public health hazard, then they said we must regulate. And the fact that they said we must regulate, it's necessary to regulate, is exactly the same as what they said with appropriate, that we must regulate.

 Justice Elena Kagan  

Can -- can I step back for a minute, General Lindstrom? Because it seems to me that this quest for very particular meanings attached to each one of these adjectives; "appropriate" means X and "necessary" means Y. If we step back a little bit, I mean, that kind of language is used all over the U.S. Code and, indeed, that kind of language is used in our Constitution, the Necessary and Proper Clause.

And as I understand what courts have done with that kind of language, that they haven't insisted that there be separate, defined meanings for each of those words. When John Marshall was doing this in McCulloch, in fact, he starts off with the word "necessary" and then he says, no, this is a phrase and we have to understand what the phrase as a whole means. And why shouldn't we similarly say this idea that, you know, you can catch them in a redundancy or a super fluidity, it's just not right because it's a complete phrase.

 MR. LINDSTROM  

I think there's two responses to that. First of all, under the Necessary and Proper Clause, if you look at what this Court did in Prince v. The United States, it recognized something might be necessary and not necessarily proper. The commandeering of State legislature might be necessary to couch what you're trying to do --

 Justice Antonin Scalia  

Exactly. We -- we have separated out the two words and -- and said something could be necessary and not proper. And what Marshall said was that necessary doesn't mean absolutely indispensable. It just means useful. That's quite different from saying that proper has no -- has no role to play. It can be necessary; that is, useful to the Federal government, and yet not proper. So I --

 Justice Sonia Sotomayor  

So why do you get to pick what it means? I mean, I thought in -- in our agency role we repeatedly say if a term is ambiguous, and there is no legal definition of appropriate, it's contextual, yes. But, by definition, if you're saying word that's not self-defined, you have to look at in context, then it's ambiguous.

 MR. LINDSTROM  

I don't think it's ambiguous in context. You used the word "appropriate" in such a way that everyone understands what you're meaning. If I said we're going to take a group of people and we're going to go someplace and I want you to behave in an appropriate manner, and then I told you we're going to the library, everyone would know that that means be quiet.

 Justice Sonia Sotomayor  

Yes. But I look at this statute and I see them doing the first part, the part at issue, and the very next provision says in 4 years instead of 3, do a mercury study that includes costs. I'm looking at it. I can very safely say one study doesn't use the word "costs." The other does. The first one doesn't necessarily intend the costs to be looked at. What is irrational or not plausible about that reading?

 MR. LINDSTROM  

Well --

 Justice Sonia Sotomayor  

Because we don't -- all we have to find is a plausible reading to -- to uphold the EPA's interpretation.

 MR. LINDSTROM  

It's irrational because

they're taking the key statutory word and treating it as surplusage. The language I should have pointed you to earlier is on page 4 of our reply brief. So the -- by treating them as doing the exactly the same work, they're reading a word out of the statute. And Chevron deference doesn't extend so far as to say we can violate an ordinary rule of statutory construction, which is that independent words have --

 Justice Ruth Bader Ginsburg  

But the word -- the word "appropriate," often it's a signal that discretion is what's fitting and you have an expert agency. So the word "appropriate," I think, is commonly used to indicate that the expert agency will do what it finds fit based on its expertise. So, how you -- well, you are saying that appropriate necessarily embodies a cost calculation and yet this is a statute that uses cost, directs EPA to consider costs multiple, multiple times.

Is there any case in all -- all of our decisions where we have said even though there was no instruction to consider costs, EPA is required to consider costs? Is there any such decision?

 MR. LINDSTROM  

I don't think this -- no, I don't think this issue has arisen the same way where Congress has given broad discretion to an agency, told them to look at all of the circumstances, and the agency has said, we're going to ignore what is an important part of the problem. And that's why, in the way that Judge Kavanaugh looked at it, this is a problem under Chevron Step 1, 2 or under the State Farm doctrine, because agencies are supposed to not ignore an essential part of the problem as they engage in reasoned decision-making.

 Justice Elena Kagan  

But I think what Justice Ginsburg is getting at, General Lindstrom, is, you know, sometimes what we've done is we've looked at silence and we've said given that silence, cost considerations are precluded, right? So that's the example in Whitman. Sometimes we've said silence still allows agency discretion. They can do what they want with it. But it's so far from our most closely analogous case, which was Whitman, to say not only is -- is cost considerations, you know, not precluded, it's -- it's required when there's silence as to that subject.

Now, if Congress wanted to require something, and clearly, Congress required this in other places, Congress knows how to require consideration of costs, to get from silence to this notion of a requirement seems to be a pretty big jump.

 MR. LINDSTROM  

And Justice Kagan, I don't think it is silent when it tells the agency to look at

all of the circumstances. And the material circumstance in the context of the question that the agency has to answer is should we regulate under this section, costs are part of the relevant materials --

 Justice Antonin Scalia  

I'm not even sure I agree with the premise that when -- when Congress says nothing about cost, the agency is entitled to disregard cost. I would think it's classic arbitrary and capricious agency action for an agency to command something that is outrageously expensive and -- and in which the expense vastly exceeds whatever public benefit can be -- can be achieved. I would think that's -- that's a violation of the Administrative Procedure Act.

 MR. LINDSTROM  

And I think that's where --

 Justice Antonin Scalia  

Even without the word "appropriate."

 MR. LINDSTROM  

And I think that's where there's overlap between what the State --

 Justice Sonia Sotomayor  

I'm sorry. The study at issue that Congress commanded was simply a study. "The administrator shall perform a study of the hazards to public health, reasonably anticipated to occur as a result of emissions by electric utility steam-generating units." So the study that was directed to be made was only a public health hazard. And then it says, "The administrator shall regulate these entities after" -- under this section -- "if it finds regulation is appropriate and necessary after considering the results of the study."

So if the study is directed only at public health hazards, doesn't talk about -- it doesn't talk at all about cost, just public health hazards, why in the world would one assume that Congress was thinking about cost? Why didn't it do as it did with mercury? Make sure the study tells us how much control is going to cost. But it didn't do that. It just said tell us if they're a public health hazard.

 MR. LINDSTROM  

And, Your Honor, it didn't limit the considerations that EPA was supposed to look at only the study. It says to consider the study --

 Justice Sonia Sotomayor  

But it says only the study.

 MR. LINDSTROM  

It doesn't say only the study.

 Justice Sonia Sotomayor  

After it says -- it says, "The administrator shall regulate if the administrator finds such regulation is appropriate and necessary after considering the results of the study. After considering the results of the study." The only thing that the study requires is a -- an evaluation of hazards to public health.

 MR. LINDSTROM  

Well, first of all --

 Justice Sonia Sotomayor  

I'm not sure how you get to -- to -- to them having to do another step, when the only step that's a prerequisite to registration is studying public health hazards.

 MR. LINDSTROM  

Well, first of all, even EPA doesn't think it's limited solely to the things that were studied in that utility study. They rely on environmental harms to justify --

 Justice Sonia Sotomayor  

But that doesn't --

 Justice Antonin Scalia  

Does it say after considering only the results of the study?

 MR. LINDSTROM  

No, Your Honor. That's --

 Justice Antonin Scalia  

It doesn't say that, does it?

 MR. LINDSTROM  

No, Your Honor. That's correct, it doesn't --

 Justice Antonin Scalia  

Sure. And they have to consider the results of the study. It doesn't say they can't consider everything else. And the word "appropriate" seems to suggest that they may consider other stuff.

 MR. LINDSTROM  

Correct. So there's a study they're supposed to look at, but that's not the end of the analysis. They're supposed to do something else. That second step is to figure out whether it's also appropriate and necessary to regulate. So it didn't stop at just the study. And again, EPA agrees they can look beyond the results of the study. They look at environmental harms, which is not particularly mentioned here and is mentioned in (n)(1)(b).

 Justice Samuel Alito  

It -- it seems to me that a very salient feature of the statutes that we have to interpret, maybe the most salient feature is that Congress chose to treat power plants differently from other sources. It could have treated them the same way and if it hadn't done that, then the -- the listing decision would not have taken into account costs, it would have been based on emissions, right?

Or if it was an area source, it would have been based on effect of health alone. So what, if anything, can we infer from that, from the fact that Congress pointedly decided to treat power plants differently?

 MR. LINDSTROM  

I think we can tell that they're trying to create a different regime. They're trying to do something different here than they did elsewhere. And That includes --

 Justice Elena Kagan  

But they were trying to create a different regime, but the reason is pretty clear on its face. They were trying to create a different regime because they thought that the Acid Rain Program might have a real impact on what these electric utilities were doing. So they said, wait and see and let's see how the Acid Rain Program works, and let's see if we still have a problem to solve. And that's the reason why they put the electric utilities in a different category, isn't it?

 MR. LINDSTROM  

And that highlights why costs are significant. The Acid Rain Program, in particular, was an economically-based approach that was determined to regulate in a cost-effective manner.

 Justice Elena Kagan  

But the point is that the Acid Rain Program didn't do what they -- Congress thought it might have done, and it was still left with this issue of continuing harm from the electric, utilities. And then once that happened, it seems to me that it's natural to take a look at the rest of the statute and to say, let's regulate in a similar way to the way all other industries are being regulated.

 MR. LINDSTROM  

But if they had wanted to do it in the same way, there would have been no need to use the phrase, "necessary and appropriate." They could have just simply gone to the ten-ton threshold emissions that apply to major sources and to the risk-based analysis that goes to area sources. So the fact that they used different criteria here in (n)(1) as opposed to criteria that's listed in 7412(c) --

 Justice Elena Kagan  

Well, they could have, but they might have thought, you know, let's take a look at the Acid Rain Program. Let's take a look at the problem that still remains, if any, and let's give the discretion to the agency at that point, because it will be years down the road in a different set of circumstances.

 MR. LINDSTROM  

But the discretion includes looking at the entire problem. I mean, again, the language in the circumstances requires looking at the material circumstances, and this ties into the State Farm test. You have to look at all of the relevant circumstances if you're engaged in a reasoned decision. You can't ignore an important part of the problem. But I would like --

 Justice Samuel Alito  

If the -- if the reason for the separate treatment was the belief that the Acid Rain Program would be sufficient at some point in time to bring emissions from power plants below the level that would result in their being listed if they were other sources, why would it be necessary to enact this separate provision asking whether it's necessary and appropriate to regulate them?

 MR. LINDSTROM  

It could have just --

 Justice Samuel Alito  

I don't see how that can be the explanation.

 MR. LINDSTROM  

Yes, Your Honor. They could have just had a three-year delay if that's all they were trying to do, as opposed to -- and then go through the ordinary system.

 Justice Elena Kagan  

No, because they didn't know. They thought it might; they thought it might not. They were going to wait and see. It depended on how the industry responded to the regulatory requirements of the Acid Rain Program.

 MR. LINDSTROM  

That still doesn't explain, Your Honor, why they chose to use different criteria as opposed to just reiterating the criteria that are under 7412(c) under the ordinary thing that applies to every other source. They're still trying to treat electric utilities differently.

And I would like to return to one point about the Acid Rain Program, which is that, again, if you're addressing emissions from electric utilities in a program that's specifically targeting electric utilities as they did in the Acid Rain Program and that was entirely based on cost effectiveness, it makes little sense to look at what's remaining after you've already done that and then to say in this area of diminishing marginal utility, we're going to say costs are irrelevant. That's backwards. Costs would be especially relevant when you're in the area of what's left over.

 Justice Anthony Kennedy  

When the statute refers to the emissions standards for the 12 percent of the best performing plants, will the government say that implicitly is a cost consideration?

 MR. LINDSTROM  

I expect --

 Justice Anthony Kennedy  

I mean, is that their position and if so, how do you answer?

 MR. LINDSTROM  

Right. I expect they will. The way I would answer that is to say that that looks at plants across the range of how old they are. So plants that were built in 2005, for example, might have been built in such a way that they have technology where it was cost effective to include certain control measures. But if you're looking at a plant that was built in 1960, imposing those same control measures on an older plant is something new. It would be a lot more expensive. It's the difference between renovating your house and building it certainly in the first place.

 Justice Sonia Sotomayor  

But that's true of all --

 Justice Anthony Kennedy  

Mandated -- if that's a mandated base from which the government must operate and --

 MR. LINDSTROM  

It is.

 Justice Anthony Kennedy  

-- and it's -- and I -- it seems to me like there's an implicit cost consideration there. You still say that's insufficient because?

 MR. LINDSTROM  

Yes, Your Honor. That's insufficient because it's not -- I'm explaining why it doesn't necessarily take costs into effect. The fact that -- into consideration. The fact that some utilities were able to impose things doesn't mean it would be cost effective for other ones to do it.

 Justice Stephen G. Breyer  

Yes. But why isn't that taken care of by -- you see, you have to take into account cost somewhere. And so they -- they -- the other side says, well, there's room for that. But suppose that 25 percent of all electricity generators are near waterfalls. This is easy for them, okay? But 75 percent, it's impossible and they'll all go out of business and we'll have no electricity. Imagine that were so.

Could the EPA, under their current theory,

take account of that? Well, I guess the answer you want to say is no, but they say yes, they can. What about this 12 percent rule? You know, how does that -- well, a little bit earlier in the statute, it says, "The administrator may distinguish among classes, types and sizes of sources." So if you really had this situation, you could say, look 75 percent of the generators in the United States have this really old technology and they'll all go out of business. And EPA could say fine. That's a different class. Okay. I mean, if that were really true. So -- so don't they have, through that provision and the 12 percent and the next one, the ability to take into account at least serious cost problems?

 MR. LINDSTROM  

Well, assuming they have the ability to take into account.

 Justice Stephen G. Breyer  

Do they? Yes or no? Do they yes or no?

 MR. LINDSTROM  

No. I think --

 Justice Stephen G. Breyer  

No, they don't. Why not?

 MR. LINDSTROM  

The reason that costs are not directly relevant to the first one is what I was explaining about the 12 percent. So in other words, as you -- the example you gave shows that some might be able to have the lower cost-effective approach just because they're near a waterfall. So relying on the fact that 12 percent rarely need this --

 Justice Stephen G. Breyer  

Fine. My point was -- I -- I want an answer to this. My point was, if in the imaginary situation that I've imagined, 20 percent of the generators, for whatever reason, can meet this pretty easily; the next 80 percent will require the entire gross national product to meet. Suppose that were the situation. You, I guess, could go to EPA and say, create, of that second group, a separate class, a separate type, for that's the reason it's so expensive. And, therefore, the 12 percent doesn't apply to them because they're in a separate class.

Now, my question is: Can you legally make that argument? And they will take it into account. And that's what I want a yes or no answer to.

 MR. LINDSTROM  

And I think the answer might be yes in the future, but now we can't do it because --

 Justice Stephen G. Breyer  

Did you make the argument here now?

 MR. LINDSTROM  

My point is that --

 Justice Stephen G. Breyer  

If you're saying yes in the future, let's now go to this case and say, did you make this argument?

 MR. LINDSTROM  

I don't believe either side has made that argument.

 Justice Stephen G. Breyer  

Fine. I'll -- I'll --

 Justice Antonin Scalia  

Has -- has the argue -- has the agency made this obvious argument?

 MR. LINDSTROM  

The agency has not --

 Justice Antonin Scalia  

Has the agency said, we're going to take costs into account; we're going to use this -- this provision that Justice Breyer discovered, and -- and that's what we're going to do? Is -- is that how the agency issued its rule?

 MR. LINDSTROM  

They did not. The only distinction --

 Justice Antonin Scalia  

I don't think so. I never heard of this argument.

 MR. LINDSTROM  

It --

 Justice Stephen G. Breyer  

Now, wait, because I still want to know a fact. I want to -- the fact that I want to know -- and you're familiar with this record -- is did anyone on your side of the issue ask the agency to take costs into account brutally, roughly, crudely, or did they all say we want a cost benefit analysis?

I would like your characterization of the record on that point, because reading what they've said, it's about cost-benefit analysis, that paragraph. So that gave me the idea that maybe everyone interested in cost asked for a cost-benefit analysis.

 MR. LINDSTROM  

And I think the answer is that we asked them to consider costs. We thought a cost-benefit analysis is the ordinary way that a reasoned agency decision-making happens, not through some vague sense of what the costs are, but by doing an analysis. And they have said -- their entire position here is that we don't need to do that because costs are irrelevant. That's not something we have to consider under the statute.

 Justice Sonia Sotomayor  

As I understand --

 Justice Elena Kagan  

General --

 Justice Sonia Sotomayor  

As I understand what happens, listing and standards are the only things that you can generally appeal from. It's only a final agency action when the -- when the standards are issued. And I thought it was at the issuance of the standards that the government sometimes breaks up the sources and the amount of emissions that each type of source that Justice Breyer is talking about can have.

So I think the listing is just of a broad category, because we've had plenty of cases in -- in this Court where we've looked at the agency saying this type of source meets these standards, that type of source meets another standard. Isn't that the way it works?

 MR. LINDSTROM  

Well, that highlights why they're not treating this as separate listing versus regulatory decision. They did both at the exact same time here. Same time they made the necessary and appropriate finding, they also promulgated the emission standards. And that shows this isn't simply a typical listing standard.

 Justice Antonin Scalia  

Once -- once they're listed, they are subject to minimum standards, aren't they?

 MR. LINDSTROM  

That's absolutely correct, and must be --

 Justice Antonin Scalia  

And it's not up to the agency to calibrate standards. Once they're listed, minimum standards apply, right?

 MR. LINDSTROM  

Absolutely.

 Justice Antonin Scalia  

And the agency could have discretion as to whether to lift the standards further, but the minimums apply, right?

 MR. LINDSTROM  

That's EPA's position. You --

 Justice Antonin Scalia  

That's theirs.

 MR. LINDSTROM  

-- must regulate as soon as -- has been made.

If I could reserve my time for rebuttal.

 Chief Justice John G. Roberts  

Thank you, Mr. Lindstrom.

Mr. Brownell.

 United States Supreme Court  

ORAL ARGUMENT OF F. WILLIAM BROWNELL ON BEHALF OF INDUSTRY PETITIONERS AND RESPONDENTS IN SUPPORT

 MR. BROWNELL  

Mr. Chief Justice, and may it please the Court:

I would like to make three points to supplement my colleague's argument: First, regarding the nature of power plant regulation under the Clean Air Act; second, the language of Subsection (n)(1)(A); and, third, the broader Clean Air Act context.

To begin, power plants are the most regulated source category under the Clean Air Act both before 1990 and after the 1990 Amendments. The Court has talked about some of the programs. It's not only Title IV Acid Deposition Program, but a visibility, best available retrofit technology, pollution transport programs targeted at power plants, and a variety of control programs, both control and air quality.

 Justice Elena Kagan  

Mr. Brownell, I -- I would think that cuts the other way, that every other significant industry in the United States is subject to this program except for electric power plants.

 MR. BROWNELL  

Your Honor, what it shows is that for the other industries, EPA estimated in 2010 that for all other industries, this Air Toxics Program would impose compliance costs of about $840 million. All of these other programs for power plants would impose compliance costs, EPA estimated in 2011, about 10.4 billion.

This single regulation now on air toxics imposes annual costs of 9.6 billion. And what does one get for it? There are three standards at issue here, and I think this is important to understand some of the questions that have been asked. There's a regulation for mercury, there's a regulation for nonmercury metals, and there's a regulation for acid gases.

Most of the costs here -- the majority, about 5 billion annually -- are associated with the acid gas regulation which the agency has concluded presents no public health risk, no public health concern. The agency said that our modeling has consistently shown that power-plant-related exposures are at least an order of magnitude below the conservatively determined safe level.

Now, in the Title IV program, Congress addressed pollution with acidification potential and required reductions of 9 million tons a year at about a cost of 1 to 1.4 billion. The Acid Gas Program is projected to result in reductions of acid gases about 40- to 50,000 tons per year at a cost of $5 billion.

What that background shows, Your Honor, is that when -- why Congress treated power plants differently. It asked whether it is appropriate to impose further regulation of a specific type, whether it's appropriate to propose regulation under this section on the most aggressively regulated industry under the Clean Air Act.

Now, what the statutory --

 Justice Elena Kagan  

Mr. Brownell, can I take you back to Justice Breyer's first question? And the first question was about the way these categories work and how the categories enable the EPA to mitigate certain dramatic or onerous costs on certain segments of the industry, because that's not an unknown provision of any kind. And, indeed, it seems to me that the provision very much cuts against your argument, because EPA, in some ways, can't even figure out the costs until it makes those categorization decisions. But the aggregate costs, not just within each category, but the aggregate costs obviously depend on how EPA categorizes and subcategorizes.

So you would have the EPA make the cost calculation before it really can, given the structure of the statute.

 MR. BROWNELL  

Your -- Your Honor, the cost does factor into a variety of determinations that are made as part of the regulatory process. When EPA issued its Notice of Regulatory Finding in December of 2010, it said this is nonfinal. EPA confirmed again -- and this is at page 555a of the UAR Petitioner's Appendix -- that the -- there is no final (n)(1)(A) determination or listing, and we are going to take comment on that as part of the rulemaking to examine Section 7412(d) emission standards.

So as part of that, the agency addresses issues related to level of control, subcategorization, and at the end of the rulemaking comes out with a regulation that has certain characteristics and consequences. And here this regulation -- what (n)(1)(A) says is, in light of the study, address whether such regulation under the section is appropriate and necessary for power plants.

Now, it may be necessary to regulate something like mercury if there's a public health risk, and that's the only hazardous air pollutant for which EPA has calculated a quantifiable public health risk, but that may not be the appropriate regulatory regime if, as EPA has explained here, their view of the statute is not to focus on whether such regulation is appropriate, but whether listing of power plants under subsection C is appropriate just like every other source.

 Justice Antonin Scalia  

Can -- can I say -- can I ask whether that listing is -- and -- and the minimum standards that that imposes are subject to the categorization device that Justice Breyer was asking about? Could -- could the agency say, well, you know, we're going to divide these into categories, and since it's too expensive for certain -- 80 percent of power plants that -- that don't have waterfalls nearby, we're going to exempt them from these minimum standards? Can -- can it do that?

 MR. BROWNELL  

No, Your Honor, not at the listing stage. But once the source category is listed at the standard-setting stage, they could consider subcategorization --

 Justice Antonin Scalia  

Reduce it below --

 MR. LINDSTROM  

-- in order to --

 Justice Antonin Scalia  

-- below the -- the minimums?

 MR. BROWNELL  

Not below the minimums. Your Honor is perfectly right --

 Justice Elena Kagan  

No. But the minimums depend --

 Justice Antonin Scalia  

That's -- that's what I thought.

 Justice Elena Kagan  

The minimums depend on the categories and the subcategories. You can categorize in such a way that the minimums will be up here, or you can categorize in such a way the minimums will be down there.

 MR. BROWNELL  

And during the rulemaking, Your Honor, arguments made about subcategorization, and EPA ultimately subcategorized the -- the power industry with respect to one limited set of sources, lignite sources with respect to the mercury standard. But, otherwise, EPA's position is once listed, it triggers an obligation to issue emission standards under the --

 Justice Elena Kagan  

It triggers an obligation as to some standard, but, again, the minimum standard can vary dramatically depending upon how the categories and subcategories are set up. And because the minimum standard can vary dramatic, so, too, will costs vary dramatically. So you're having the EPA consider costs before the EPA can know what the costs are.

 MR. BROWNELL  

Your -- Your Honor, if I can respond to -- to that before the other question at the other end of the bench.

EPA does know what the costs are through the rulemaking process in which it undertakes notice and comment with respect to both the (n)(1)(a) determination and the emission standard. Section 7607(d)(1)(c) of the Clean Air Act lists subsection N as one of the provisions that requires notice and comment rulemaking under the special Clean Air Act procedures. And this is why the agency explained that there's no final (n)(1)(a) until the end of the process, until notice and comment and we've taken and determined what the costs are.

 Justice Sonia Sotomayor  

So interestingly -- and -- and this is then confirming what Justice Breyer said -- the point that you had an opportunity and apparently took advantage of it to tell the EPA that it should subcategorize this source, and it decided to subcategorize just one piece of it.

So what you're really saying to us is it's not the listing. It's the way they've set up their emissions standards that I disagree with because they could have decided that there were subcategories that didn't require a standard at all. I'm presuming that they could have said anybody by the water doesn't have

to do more because they're already 12 -- they're part of the 12 percent. We're going to do cost by everybody else that's not by the water.

 MR. BROWNELL  

Conceptually, Your Honor, I imagine they could have subcategorized away the entire industry, but that's not what they did in this rulemaking. And with respect to certain of the regulations --

 Justice Sonia Sotomayor  

No, they didn't do it. But -- but you're asking us -- you're -- this is almost a -- this is a challenge to a regulation that's only piecemeal because you're -- you're arguing that they should have considered costs, but they obviously did before they issued the standards. You can't look at the standards and the emission to the case, and -- and the listing in a case like this in isolation.

 MR. BROWNELL  

Justice Sotomayor, if I could try the answer to the question once again.

The subsection N(1)(a) question is whether after considering the results of the study -- and I note that the study also looks at alternative control strategies for any emissions that may warrant regulation -- the agency determines such regulation is appropriate and necessary. So the focus of the determination is not on -- on listing and whatever may flow from that, but the regulation that the agency decides to apply to address the remaining public health hazard that is identified from this source category.

 Justice Samuel Alito  

Mr. Brownell, when -- did EPA say we are not going to take costs into account at the listing stage because we will take costs into account through this sub-categorization possibility that's being discussed?

 MR. BROWNELL  

No, they did not, Your Honor. As I recall the record of the proceeding, this discussion of sub-categorization has come up in the briefing afterwards.

 Justice Stephen G. Breyer  

Why -- why didn't they write -- you see what's -- try -- these questions are difficult because they're so hypothetical. It isn't true that 50 percent of the industry will use up 50 -- all the domestic product, et cetera. But they wrote this thing in a way that sounds as if even if that had been true, they wouldn't have taken it into account. So -- so what they say is the EPA does not believe it is appropriate to consider costs when determining whether EGU is -- okay. You see the problem? So for me -- but the SG is telling us, don't worry. Maybe they should have written, knowing what we know and what is undisputed so far, we don't think that the cost problem is big enough for us to warrant a cost-benefit analysis or other consideration. Okay? Then they've taken it into account. So there's no problem if it's within, it's reasonable.

Now, they didn't write that. So that's why I'm looking to see is the -- it's really the SG, but I mean, is -- is there really a different way that they could eliminate this horrible scenario if it existed, which it didn't. You understand what I'm driving at? I'm trying to get your best answer on that.

 MR. BROWNELL  

And -- and I want to emphasize that this is not an argument about whether or not to regulate mercury where there's been an identified public health risk. It's whether the regulatory regime that has been defined here under Section 7412, which the government says is the listing that applies to all other source categories, and the (d)(3) minimum controls technology standards that apply to all other source categories is the right way to do it. Regardless of how you subcategorize, it's going to have tremendous impacts as a result of acid gas regulation and for a pollutant that presents no public health risk. There are other ways --

 Chief Justice John G. Roberts  

I -- I suppose we can't -- we can't uphold an agency rule on a ground that they didn't adopt below, right?

 MR. BROWNELL  

That's correct.

 Chief Justice John G. Roberts  

Under Chenery?

 MR. BROWNELL  

That's correct.

 Chief Justice John G. Roberts  

So is your understanding correct that this is not an argument -- a basis for decision that they adopted below?

 MR. BROWNELL  

That's correct, Your Honor. My understanding of the basis for the decision below is that costs are irrelevant in our determination under (n)(1)(a) whether or not -- whether to regulate the source category under the typical Subsection 7412 regime that applies to other source categories.

 Justice Elena Kagan  

But that's exactly right, Mr. Brownell. I mean, the -- the agency, at that point in time, was only answering the very first question, the very threshold issue. And at that point, the agency said costs were irrelevant. But costs become relevant later in the analysis and in a variety of ways: Through the 12 and a half percent, through the 12 percent, through the categorization and sub-categorization, through the determination whether to raise standards even higher. So costs costs costs later, but as to this particular thing, the agency said, yes, here we don't consider costs. We could, but we don't want to because there's all this potential for costs to come in afterwards.

 MR. BROWNELL  

And, Your Honor, it's costs costs costs under the statutory criteria that Congress provided for setting (d)(3) control technology standards and then having defined those standards at the end of the process, the agency finalizes its (n)(1)(a) determination in light of the costs and impacts and other factors that are mentioned in the --

 Justice Anthony Kennedy  

Do you think -- do you think that whenever the term "appropriate" is used in a regulatory context in the Clean Air Act, that it demands a cost-benefit analysis?

 MR. BROWNELL  

Your Honor, when you say in any context, that's so broad I don't think that I can say that it would require cost-benefit in any context. But in a specific context here where the focus is on whether such regulation is appropriate and necessary, that regulation has certain characteristics and consequences that we have talked about this morning, including the fact that it imposes on a pollutant that presents no public health risk, $5 billion a year.

 Justice Ruth Bader Ginsburg  

But, Mr. Brownell, before you finish, because your time is out, can you clarify for me why this is -- is at this stage something that we should be concerned about because there is this regulatory impact assessment and that -- that has said that the benefits vastly exceed the costs, and that's -- that's an impact analysis and has gone through the OR process and OR concluded that EPA appropriately calculated the costs.

 MR. BROWNELL  

Yes, Your Honor, Mr. Chief Justice. The co-benefits -- all of those benefits are co-benefits. Only 4 to 6 million dollars are associated with hazardous air pollutants. Those co-benefits that are in the regulatory impact analysis were not considered as part of the regulatory determination for good reason, because they're important questions regarding their legal importance and relevance under the proper standard. And what I mean, Your Honor, is that PM 2.5 is the pollutant, fine particles that is associated with these co-benefits. That is extensively regulated under the National Ambient Air Quality Standard. In fact, those are quality standards were only recently revised to be tightened, and in the context of that proceeding, the agency found that the low levels of exposure for these co-benefits did not produce effects or risks that were of regulatory significance because they're too uncertain. So there are serious questions about legal relevance and importance.

 Chief Justice John G. Roberts  

Thank you, counsel.

 MR. BROWNELL  

Thank you, Mr. Chief Justice.

 Chief Justice John G. Roberts  

General Verrilli.

 United States Supreme Court  

ORAL ARGUMENT OF DONALD B. VERRILLI, JR. ON BEHALF OF FEDERAL RESPONDENTS

 GENERAL VERRILLI  

Mr. Chief Justice, and may it please the Court:

EPA's interpretation of Section 7412(n)(1)(A) should be affirmed for three basic reasons. First, it is the most natural and certainly a permissible reading of the statutory text which directs EPA to focus on health concerns and doesn't mention costs.

Second, it harmonizes the provision with Section 7412's structure and design, because it applies the same regulatory logic to power plants that Congress directed EPA to apply to regulate hazardous air pollution from every other type of source, and that is decide whether to list for regulation based on health and environmental hazards alone, and consider costs in setting the emission standards.

And third, as a matter of common sense and sound government practice, it was certainly appropriate for EPA to list power plants for regulation based solely on health and environmental hazards, because that reflects the approach Congress chose not only in 7412, in this regulatory program, but in all of the major regulatory programs under the Clean Air Act.

 Chief Justice John G. Roberts  

Could I go to your -- you're now three out -- your first -- first point. You concede, don't you, that EPA could have interpreted the statutory language to allow them to consider costs?

 GENERAL VERRILLI  

I think EPA read it as -- read the best interpretation of the statute was it didn't provide for the consideration of costs at the listing stage --

 Chief Justice John G. Roberts  

But under Chevron, if you adopted a regulation that said appropriate and necessary allows us to consider cost, you think that would be appropriate?

 GENERAL VERRILLI  

I think the phrase appropriate and necessary doesn't, by its terms, preclude the EPA from considering cost. But under Chevron, what the EPA has got to do is explain the justification for its reading of the statute, and that's what it did.

 Chief Justice John G. Roberts  

Right. But since you're dealing with the term, I think this says as capacious as appropriate, and since you could have issued a regulation allowing the consideration of costs as appropriate, you're saying that the agency deliberately tied its hands and said we're not going to consider something. We're going to issue a rule saying we can't consider something that we could consider otherwise.

 GENERAL VERRILLI  

No, I think the best way to think about this, Mr. Chief Justice, is what the agency did was decide that it was appropriate to approach the question of whether to regulate power plants in the same manner that Congress found it was not only appropriate, but mandated to address the question.

 Chief Justice John G. Roberts  

They could have -- I'm not -- I understand your argument that they could have done that, but I think it's unusual for an agency to say, when they want to do something, that that's the only thing we could do. Agencies usually like to maintain for themselves as much discretion as they can. And it strikes me as unusual, maybe the agency could go ahead and consider -- and not consider costs, but to say that we're prohibited from considering costs under the phrase appropriate, it strikes me as very unusual.

 GENERAL VERRILLI  

Well, it said -- I don't think so, Mr. Chief Justice. It said -- it didn't say, we're prohibited from considering costs. It said, we are not going to consider costs at the listing stage in making the decision about whether power plants should be listed for regulation under Section 7412.

 Chief Justice John G. Roberts  

I thought -- I thought the rule was that the phrase appropriate and necessary did not allow them to consider costs.

 GENERAL VERRILLI  

And appropriate and necessary goes to the question of whether power plants should be listed for regulation under Section 7412, which would then kick in the regulatory mechanism by which standards were set and costs are considered at the standard-setting --

 Justice Anthony Kennedy  

I have the same question as the Chief Justice. Let me ask one more time. Could this agency reasonably have considered costs at stage one?

 GENERAL VERRILLI  

I don't think the statutory text unambiguously forbids them from considering costs. But they determined that the best reading of the statutory text is that power plants, because after the study was conducted that Congress required, EPA determined that power plants are no differently situated than any other source of hazardous air pollutants regulated under Section 7412.

And if I may, for every other source of hazardous air pollutants, what Congress mandated as appropriate was that you do not consider costs when you decide whether to regulate. You only consider health and environmental effects, and then you do consider costs under Section 7412(d) when you set the emissions standards.

 Justice Samuel Alito  

How is that -- how is that consistent with this statutory scheme? If your argument is that EPA's only reason for doing this is that it wants to treat power plants the same as other sources, we know that that's what Congress didn't want or it would have -- it would not have enacted the separate provision for power plants.

 GENERAL VERRILLI  

I agree, Justice Alito, that Congress proposed different treatment for power plants, but that doesn't answer the question. That just asks the question. The question is what different treatment did Congress prescribe. Now, what Petitioners are arguing is what Congress prescribed and mandated was a cost-benefit analysis that does not apply to any other source of hazardous pollutants.

But that is not what the text of the statute says, and it's not what the history reflects. What the text of the statute says in (n)(1)(A) is that even though for every other source, regulation would proceed immediately; for power plants, there was uncertainty about whether power plants emitted hazardous pollutants at a level that would cause a problem, whether the acid rain regulations would solve the problem, and whether there were alternative control strategies available.

And so -- if I may. I'm sorry.

EPA -- what Congress told EPA to do was to study those three things. Those go to health considerations. And then once EPA was -- made a judgment about that, it was to decide whether to list power plants for regulation as -- whether it was appropriate and necessary to list them for regulation.

 Justice Samuel Alito  

This is what I don't understand about your position. Congress's decision to treat power plants differently, it seems to me, reflects the fact that Congress wanted at least to hold open the possibility that power plants would not be listed even if their emissions exceeded the levels that would result in listing for other sources. I don't see another reason why they would treat them differently.

 GENERAL VERRILLI  

Well, I think --

 Justice Samuel Alito  

If I can just continue.

 GENERAL VERRILLI  

I'm sorry.

 Justice Samuel Alito  

Perhaps you may disagree with that, but it seems to me that -- that that's a necessary inference from this statutory scheme.

If that is the case, what factor might Congress have thought would justify allowing power plants to emit more than would be permitted if they were other sources?

Now, Petitioners have an explanation which is costs, and they say that power plants have to bear a lot of costs that other sources don't have to bear, in particular the Title IV program. Their emissions might exceed the otherwise permissible limit because they have participated in the cap and trade program, so they have contributed to the reduction in emissions in that way, in a way that wouldn't be reflected in their -- in their own emissions.

So what -- that is an explanation. Cost is what's missing. I don't know what your explanation is.

 GENERAL VERRILLI  

So I know Your Honor asked me to accept the premise, but I can't accept the premise because both the text of (n)(1)(A) and the legislative history tell you what considerations Congress left open, and they were all related to the possibility of health hazards. No one -- the argument that Your Honor just posed is not in the legislative history, and it's not in the text. And if Congress really thought that, then what they would have said to EPA is, take the -- push the pause button, take the three years and study -- don't subject them to the same schedule as everybody else -- and study the cost problem. They would have expressly told EPA to study costs. And they did not do that.

 Justice Samuel Alito  

If all they were concerned about was health, why wouldn't they impose on power plants the same standard that's imposed on area sources? Just ask EPA to determine whether there is -- I forget the exact term -- but is there an effect on public health, a significant effect on public health, whatever. If so, list.

 GENERAL VERRILLI  

I think they came very close to that, because what they said -- first of all, they -- they told EPA to make its judgment after considering the results of a study, and they told EPA to study things that went to health hazards. And so that comes very close, it seems to me, and the reason, I think, it used the appropriate and necessary language, rather than the language Your Honor suggests, is because I think Congress, when it was legislating here in 1990, understood that there might well be uncertainty at the end of this -- of the analysis that Congress directed the EPA to undertake. There might be uncertainty about the projected effects of the acid rain regulations, because I do -- I do think it's important to clear up --

 Justice Sonia Sotomayor  

I don't -- I think that's what the legislative history said.

 GENERAL VERRILLI  

Right. And I do want to clear up a misconception about that, I think, which is that -- that the way these acid rain regulations unfolded, they were put in place in 1990 at the same time as 7412, but they were to unfold over a 10-year period; 5 years until the first stage, and then 5 more years until second stage. So EPA was going to have to make a long-term projection here about which there could be some uncertainty.

And so I think what Congress was saying to EPA was you may need to exercise your judgment here, and in fact, EPA did exercise its judgment because it concluded --

 Justice Stephen G. Breyer  

There are two parts to this argument. One is what were they thinking of the word appropriate if it wasn't costs? All right, I see your answer to that. I'll think about that.

But the second, which I think your argument very much depends on, in my mind anyway, is, well, don't worry, because there is a way to take into account costs. So, if, in fact -- I mean, you know, it's a lot of money, $9 billion, and if you divide it by the population, you have $30 a person for a family of four of $120. That's a lot of money for people, for some people. And to say, gee, you couldn't take it into account ever, suppose it would have been 500? You know, it begins to look a little irrational to say, I'm not taking it into account at all. But you say, never fear, because they will take it into account when they set standards. And at that point I read the thing about the 12 percent. I've got the word "similar source," which then can refer me back to the categorization of two things earlier, as they say maybe, and then I have, aside from that, hey, here's what you do. When you're regulating you look at the top 12 generators and that's the minimum standard. So they might want to say, hey, that's not right. I mean, it's right, it says it. But if you go to the bottom 50 generators, you're going to see it's not going to cost $120 per family, it's going to cost $1,000 a family. And we have the EPA saying, we won't even look at that.

At that point I begin to say, oh, my goodness. Why? Why won't you even look at it? You could say it isn't true, but why wouldn't you even look at it.

And -- and now the answers seems to me to be in that word "similar source," and the classes and the subclasses. Because were there such an argument, maybe the EPA could say, don't worry. If there is such an argument, which there isn't, we have the power here under the statute to take it into account.

Now, you know where that argument came from? From discussion and thought in my chambers. Now, maybe it came out of the briefs, too. But is what I say right? Can the EPA take that into account, or do they have to just blindly say, if it's the top 12, that's for everybody no matter what the cost? In which case they can't take it into account ever except for the word "appropriate." Now, that's the argument I'm putting -- you got it in my argument because that's important.

 GENERAL VERRILLI  

I -- I've got it. I'm going to make three points in response to it.

 Justice Stephen G. Breyer  

Yes.

 GENERAL VERRILLI  

The first one goes to the empirical situation in this case, but then I'm going to get to the theoretical question you asked.

 Justice Stephen G. Breyer  

Yes.

 GENERAL VERRILLI  

The first is this: Nine billion is a big number. This is an industry with $360 billion a year in annual revenues, so you're talking about two to two-and-a half annual revenues -- of annual

revenues. And what Congress and what EPA concluded when it --

 Justice Sonia Sotomayor  

Revenues doesn't talk about profit, though.

 GENERAL VERRILLI  

Right. But it's -- well, this is a cost, and the cost is about two and-a-half percent of revenues. And then what EPA concluded was that this -- that about 2 percent of electrical generating capacity could go offline as a result of it being uneconomic. So it's not a 50 percent or a 78, 88 percent.

 Justice Stephen G. Breyer  

Great. And as soon as you've said that, you've taken costs into account, which is what they say they wouldn't do.

 GENERAL VERRILLI  

And then -- but then -- now, let me talk about the way EPA under this regime does take costs into account. The first point I would make is that the situation that Your Honor described in the hypothetical is a quite unusual one. In the normal case, the 12 percent rule, it's a technology-forcing rule, the kind that Your Honor discussed in -- in your concurring opinions in Whitman and in Entergy. It's that kind of a rule. And for -- and in the normal case, it's not going to have that effect. It means that this -- this percentage of the industry has been able to meet this without an operator in an economic matter and Congress is trying to force the rest of the industry to catch up. And as we know from multiple experiences, as Your Honor identified with respect to catalytic converters and motor vehicles and with respect to acid rain, it turned out that the cost was vastly lower on industry than EPA anticipated it would be; that there's a very great tendency to overestimate costs in that situation.

But then the third point is Your Honor's point about subcategories. And Section 7412(c)(1), which is the provision that governs the listing of categories, it mentions the availability of subcategories and, in fact, the last sentence of it says nothing in this --

 Justice Anthony Kennedy  

Do you have that page?

 GENERAL VERRILLI  

I'm sorry, I'm sorry, Justice Kennedy. It's 35A of the appendix to our brief.

 Justice Anthony Kennedy  

Thank you.

 GENERAL VERRILLI  

And this is (c)(1)and it's the last sentence. And it -- and it talks about the EPA's authority and says, "Nothing in the preceding sentence limits the administrator's authority to establish subcategories under this section as appropriate." And in fact, that is what --

 Justice Antonin Scalia  

Can -- can those subcategories apply to the minimum standards?

 GENERAL VERRILLI  

Yes. That's how it would work, because you -- you identified the category and then you generate the standard based on who's in the category.

 Justice Antonin Scalia  

No, but I thought the standards are automatic. There's certain minimums. Once they find on the basis of -- of the study that these things should be listed, I thought there -- there is an automatic requirement imposed on -- on -- which is the reason they're complaining.

 GENERAL VERRILLI  

Well, the -- the requirement -- it depends on how you categorize. And so if -- if there were a situation -- if there were a situation in which one segment of the industry was so vastly different from another segment of the industry in terms of its economics, in terms of its technology, then EPA would have the authority to break those into two separate subcategories and then you don't calculate the best performing 12 percent, which is what the standard is, until you know if it's the best performing 12 percent of the people you've put in the category.

 Justice Stephen G. Breyer  

The language that does that -- the language that does that is the first sentence of three, which says, "The maximum degree that is deemed achievable, not less stringent than the emission control," that is achieved in practice by the best-controlled similar source as determined by the administrator." That's what allows him to break it into categories and apply the minimums to the -- to similar source.

 GENERAL VERRILLI  

Right. And --

 Justice Stephen G. Breyer  

Am I right or not?

 GENERAL VERRILLI  

That's correct. And EPA did that in this case. It broke out power plants that generate power burning natural gas, and it said that's a separate subcategory.

 Chief Justice John G. Roberts  

Where in the record -- where can you point me into the record where this argument was made or considered by the agency? As opposed to Justice Breyer's chambers. Because it's a very important principle of administrative law that we will only uphold a rule based on the arguments that were considered and addressed by the agency. So -- and I -- I -- as I said, it's not something I recall from --

 GENERAL VERRILLI  

It's, of course, true, Mr. Chief Justice. But -- and you're -- you're exactly right in stating that principle. But our argument in this case is that this question here is -- under -- under (n)(1)(a), (n)(1)(a) says, "EPA shall regulate under this section if it determines that such regulation is appropriate and necessary," and therefore, that when EPA makes a judgment to regulate under this section, because it is appropriate and necessary, EPA is -- is triggering all of the requirements --

 Justice Antonin Scalia  

Well, you're just saying -- you're just saying that the argument is right, not that the -- not that the agency made it, right?

 GENERAL VERRILLI  

Well, it's -- I guess what I would say about it, Your Honor, is --

 Justice Antonin Scalia  

It's not enough that the argument be right. The -- the agency must have rested its decision on the point.

 GENERAL VERRILLI  

The -- I think that the agency in the order on being challenged here did use the approach. But beyond that, whether or not -- it would be one thing if this were a case in which you had a situation in which EPA -- or EPA faced a situation in which 50 percent or 75 percent were going to face vastly uneconomic consequences. But this case didn't present that situation. EPA made a judgment about --

 Justice Sonia Sotomayor  

General, can I simplify your answer for you?

(Laughter.)

 GENERAL VERRILLI  

Yes. I'd be delighted if you did that, Justice Sotomayor.

 Justice Sonia Sotomayor  

All right. Basically, you have consistently in your brief, and so has the other Respondents, basically said at the listing stage we don't consider costs, we consider it later. And everybody gave a few examples. Whether this example was given or not is irrelevant. The issue here was, do you have to do it at listing? It's only some of my colleagues here who are concerned that when you issue standards, you never consider cost.

 GENERAL VERRILLI  

And that's exactly right. The question here is whether EPA's got to conduct a cost-benefit analysis when it does the listing, and the logic of the statute of 7412 doesn't -- it doesn't operate --

 Justice Anthony Kennedy  

But at that point the game is over.

 GENERAL VERRILLI  

No, I don't think it is, Justice Kennedy, for -- for several reasons. First, the -- the standard under Section 7412(d) for setting emissions -- emissions standards once you've decided to list, that is Your Honor's question to -- to my friend General Lindstrom pointed out, that does take costs into account in the sense that a segment of the industry can operate economically. Secondly --

 Justice Antonin Scalia  

Excuse me. I don't -- I didn't understand that. I thought that there were automatic requirements imposed once -- once the -- the plants are listed.

 GENERAL VERRILLI  

Once EPA lists --

 Justice Antonin Scalia  

Yes.

 GENERAL VERRILLI  

-- and defines the category for listing, then the automatic requirement that is applied is that everyone in the category has to match the performance of the best 12 percent.

 Justice Antonin Scalia  

Where did this categories comes from? I -- I really don't like the fact that your -- your friend on the other side was -- was not permitted to mount an argument in opposition to this categorization theory that Justice Breyer's chambers devised. Usually -- usually we have arguments on both sides. This is an argument I never heard of and I'm not sure it's right. But -- but I certainly didn't -- didn't know the agency to say, oh, we're just listing, but we're -- you know, we're going to categorize the listing. They didn't say that.

 GENERAL VERRILLI  

I understand your point about the focus or non-focus on subcategories. But the point that we're just listing, we say that over and over again in our brief. And in fact, the Petitioners concede, and this is at page 5 and 6 of the UARG reply brief, that if this is just about listing, then, of course, costs are irrelevant. But it is just about listing. That is the way the statute works.

 Chief Justice John G. Roberts  

You had responded to the fairly dramatic disparity your friends on the other say, the 6 million benefits, 9.6 million cost. You respond with a different calculation that looks to -- I call them collateral --

 GENERAL VERRILLI  

Co-benefits.

 Chief Justice John G. Roberts  

-- the ancillary -- co-benefits. And then the -- the argument is raised that that's -- that's not quite proper because you're using your -- your -- the HAP regulation to get at the criteria pollutants that you otherwise would have to go through a much more difficult process to regulate.

In other words, you can't regulate the criteria pollutants through the HAP program, so you get, okay, here we've got this tiny bit of mercury, and so we're going to regulate, and that's how we're going to get additional regulation of the criteria pollutants. And so it's sort of an end run around the restrictions that would otherwise make -- give you less control over the regulation.

What -- what's your response to that?

 GENERAL VERRILLI  

Let me address that. It's -- there's several points, and I actually need to make all of them, I think, to -- to make this clear.

The first point is that that's not an argument that any party has raised. One amicus brief raised it, one -- and it was averted to a bit more oral argument --

 Chief Justice John G. Roberts  

Well, my chambers found it, but --

(Laughter.)

 Chief Justice John G. Roberts  

Yes.

 GENERAL VERRILLI  

And -- and here's the problem with the argument: The problem with the argument is that -- it -- it has two problems. One is that once EPA concludes that a source emits a hazardous pollutant, and here EPA has concluded these sources emit mercury at levels that are unsafe. I don't think Petitioners dispute that. And by the unambiguous terms of Section 7412(d), EPA is under an obligation to regulate all hazardous pollutants that the source emits, and -- and that's -- the D.C. Circuit in a case called National Lime 15 years ago --

 Chief Justice John G. Roberts  

Well, no, no, no. I understand --

 GENERAL VERRILLI  

-- interpreted it that way --

 Chief Justice John G. Roberts  

-- I understand how the end run works.

 GENERAL VERRILLI  

Well, it's not --

 Chief Justice John G. Roberts  

I'm -- I'm just questioning --

 GENERAL VERRILLI  

It's not a --

 Chief Justice John G. Roberts  

No, I'm just questioning the legitimacy of it --

 GENERAL VERRILLI  

Yes.

 Chief Justice John G. Roberts  

-- because what they would say, okay, you found, you know, a -- a HAP that -- that you want to list, but you ought to consider only the benefits of regulating that. You shouldn't consider the -- the bootstrapped --

 GENERAL VERRILLI  

Well, I guess the --

 Chief Justice John G. Roberts  

-- benefits -- that should be addressed through the other --

 GENERAL VERRILLI  

I guess the next point I would make, Mr. Chief Justice, is that it's not an end run, and it's not a bootstrap. This is a well -- regulating the surrogates, regulating the surrogates, is a well-recognized methodology that goes back decades, that EPA has used for decades, that the D.C. Circuit has

upheld for decades, that that is a perfectly appropriate way to -- to deal with getting at metals and -- and other pollutants that would be hard to get at directly. And, in fact, the very argument that Your Honor is positing here as a -- as an end run is one that was made in this same National Lime case to the D.C. Circuit 15 years ago and the D.C. Circuit rejected.

So what EPA is doing here -- basically what the D.C. Circuit said, that Section 7412(d) required them to do with respect to regulating every hazardous pollutant that the -- that the sources emit, and what the EPA has said, and what the D.C. Circuit has said for decades, EPA --

 Chief Justice John G. Roberts  

Well, right. But, I mean, the --

 GENERAL VERRILLI  

-- is permitted to do, and that it isn't an end run at all. It's just a normal way in which you regulate --

 Chief Justice John G. Roberts  

Well, but the issue that I think raises the red flag, at least, is that there's such a tiny proportion of benefit from the HAP program and such a disproportionate amount of benefit that would normally be addressed under the criteria --

 GENERAL VERRILLI  

So --

 Chief Justice John G. Roberts  

-- program. So --

so it's not just that, yes, where you're regulating one, if -- it's a good thing if it also has benefits with respect to other pollutants. But if your basis for regulating what -- what is the benefit from the co-pollutants that you get?

 GENERAL VERRILLI  

The -- oh, it's many, many billions of dollars.

 Chief Justice John G. Roberts  

Do you remember how much it is? It's sort of 30 --

 GENERAL VERRILLI  

30 to $90 billion.

 Chief Justice John G. Roberts  

30 to 90 billion. The benefit from the mercury is, what, 4 million?

 GENERAL VERRILLI  

Well --

 Chief Justice John G. Roberts  

So you say, we get to regulate this. We get to regulate it because there's a $4 million impact on mercury. But when we do that, we get to regulate 35 billion -- in a way that gives us $35 billion in cost on the other side.

 GENERAL VERRILLI  

So --

 Chief Justice John G. Roberts  

So I understand the idea that you can have -- you know, it's a good thing if your regulation also benefits in other ways. But when it's such a disproportion, you begin to wonder whether it's an illegitimate way of avoiding the different -- quite different limitations on EPA that apply in the criteria program.

 GENERAL VERRILLI  

So I don't -- I -- I really don't think that. I understand that Petitioners have put the case that way, Mr. Chief Justice. I don't think that's a fair way to put it.

What EPA did with respect to mercury was quantify one of the public health benefits. It did not quantify many of the other public health benefits. If you'll look in the Joint Appendix -- and I think this is about page 910 to about page 940, there's page after page of charts in which EPA has listed the other benefits that come from regulating mercury and the hazardous substances that it didn't try to quantify.

Part of the reason it didn't try to quantify is because quantifying those kinds of benefits can be very difficult and challenging. And, frankly, that is one of the key reasons that Congress adopted not only in 7412, but under the NAAQS Program and the Motor Vehicle Program and the New Source Performance Standard Program, the approach it did of not taking costs into consideration at the listing stage, but only at the regulatory stage --

 Justice Sonia Sotomayor  

Could you tell me about --

 GENERAL VERRILLI  

-- because --

 Justice Sonia Sotomayor  

-- the natural gas? You were cut off earlier.

 GENERAL VERRILLI  

Sure. EPA reached the conclusion that they ought to have -- that natural gas power plants ought to be a separate category and -- and because they didn't generate public health problems at the level that would make them comparable to the -- the -- the coal and --

 Justice Sonia Sotomayor  

So they were --

 Justice Samuel Alito  

Now, on this issue of --

 Justice Sonia Sotomayor  

-- part of the listing, but not --

 Justice Samuel Alito  

I'll wait.

 GENERAL VERRILLI  

Correct.

 Justice Sonia Sotomayor  

They were part of the listing, but they were not regulated, because you just sort of turn it off.

 GENERAL VERRILLI  

Yes, Your Honor.

 Justice Samuel Alito  

Can I ask you another question about these subcategories?

Your -- your argument is that under the last sentence of 7412(c)(1), the EPA can create subcategories based, in whole or in part, on costs; is that right?

 GENERAL VERRILLI  

I -- I think -- I think it's more subtle than that. I think that if -- I think -- and it's not just that provision. It's -- there are numerous provisions within 7412 that allow for subcategorization. But I think that if there is such a vast difference in the tech -- in the -- in the technologies that the -- that the group of entities is using, that there would be that vast a difference in cost, that there might well be a basis to treat them as a different subcategory.

 Justice Antonin Scalia  

Well, why didn't the EPA say that? I thought the EPA said, we are not going to take into account costs with regard to the listing. Now, they could have said, we're going to take into account costs as to whether some categories should be listed and other categories shouldn't be listed. That's not what they said. They said, we will not take into account costs with regard to listing. We list all --

 GENERAL VERRILLI  

Here -- here's what --

 Justice Antonin Scalia  

-- of -- of these --

 GENERAL VERRILLI  

-- here's what they said --

 Justice Antonin Scalia  

-- utilities.

 GENERAL VERRILLI  

-- Justice Scalia, and I -- and here's why they said it, and I think this is critical.

What they said was that we think it is appropriate, with respect to power plants, not to consider costs at listing and to consider costs --

 Justice Antonin Scalia  

Right.

 GENERAL VERRILLI  

-- at emission standard setting. And the reason we think it is appropriate is because that is the standard, that is the regulatory logic that Congress deems not only appropriate, but mandatory for every other source category. And so one would have to conclude, then, that what Congress said was mandatory, and therefore necessarily appropriate for every other category, was inappropriate, and even additionally goes so far as to say --

 Justice Antonin Scalia  

That -- that -- that's how I understood their argument --

 Justice Elena Kagan  

But --

 Justice Antonin Scalia  

-- entirely. And I did not understand it to say, we -- you know, we -- we can -- we can exempt some people from these minimum standards because we categorize them differently. It -- it definitely was not allowing --

 GENERAL VERRILLI  

That -- that is their main argument, but I do think the point -- what the point of -- the point of the logic of EPA's position here is that you make the listing decision, and then you regulate, as (n)(1)(A) says, under Section 7412, and these are provisions in Section 7412 that give EPA the authority to --

 Justice Elena Kagan  

And, General, as --

 Justice Samuel Alito  

Are their regulations that --

 Justice Elena Kagan  

-- as I understood it -- please.

 Chief Justice John G. Roberts  

Alito.

 Justice Samuel Alito  

Are there regulations that set out the criteria for creating these subcategories?

 GENERAL VERRILLI  

I'm -- I'm not aware that there are. I'm not -- I just don't know the answer to that, Your Honor.

 Justice Samuel Alito  

So, well, without them, we really don't know to what extent, if any, costs are taken into account in creating subcategories, do we?

 GENERAL VERRILLI  

Well, I -- I think that -- I -- no, I do think that if -- it's -- it's going to be based on differences in technology and operation, I think, from which you might be able to infer costs.

But that's hypothetical in this case because this is not a case in which EPA needed to confront that question, except with respect to natural-gas-fired power plants, which they did find to be so different that they -- they warranted different treatment, because it didn't have the kind of problem that Justice Breyer's hypothetical raised. You -- you didn't have that kind of problem. You didn't need to face this issue in these cases, so the EPA didn't.

And if I could just make this point, because I think it's quite -- I think it's quite critical. Given that 7412's regulatory logic provides for listing based on health, emissions standard-setting based on -- on costs, including consideration of costs, and based on the -- and -- and given that that's exactly the same logic under the NAAQS Program, it's exactly the same logic under the Motor Vehicle Program, it's exactly the same logic under the New Source Performance Standards Program, that if Congress intended to mandate that EPA cut so deeply against the grain and make such a radically different approach with respect to this one category of sources, you would expect to see very clear legislative language to that effect. You would expect to see a -- a direction to EPA in 7412 to study costs before making this judgment.

 Justice Antonin Scalia  

General Verrilli, let me -- let me ask a question about costs. There -- there are economic costs. There are other costs. Is it -- is it the Agency's position that no cost can be taken into account? For example, it -- it may find that -- that a particular material has an effect on health, but it may find that eliminating it will have other effects that are even more deleterious to health. Could that cost be taken into account?

 GENERAL VERRILLI  

If I may answer, Mr. Chief Justice. I think that cost would be taken into account in the OIRA regulatory impact analysis.

 Justice Antonin Scalia  

But not for the listing.

 GENERAL VERRILLI  

But -- but not for the listing.

 Justice Antonin Scalia  

Not for the listing. That's right.

 GENERAL VERRILLI  

Thank you.

 Chief Justice John G. Roberts  

Thank you, General.

Mr. Smith.

 United States Supreme Court  

ORAL ARGUMENT OF PAUL M. SMITH ON BEHALF OF INDUSTRY RESPONDENTS

 MR. SMITH  

Mr. Chief Justice, and may it please the Court:

We agree with the government that the EPA was not required to engage in a cost-benefit analysis before making the initial listing decision to regulate hazardous pollutants emitted by power plants from power -- applying the appropriate and necessary standard. And I -- I certainly want to acknowledge at the beginning, clearly, Congress did think that power plants needed to be treated differently, but what did they give them? They gave them a 3-year pause in which the EPA was instructed to take account of the health effects of the particular pollutants emitted by power plants, and it did this under an appropriate and necessary standard.

And if I could address the issue of what those two words mean in the reading of the EPA, I would refer the Court to pages 226 and 227 of the National Mining Association sur-petition appendix. I don't think it's necessary to read from it, but what the EPA said consistently throughout this record is we looked at two things. There was a claim made in the legislative history that these chemicals are simply not harmful enough to require any further regulation, that their effects are negligible, and they looked at that issue under the appropriateness rubric. And they said these are harmful chemicals, particularly mercury.

In addition, under the appropriateness rubric, they looked at the question of whether or not there were technologies available to regulate them. The necessary rubric was used to look at the post-Clean Air Act post-acid rain health effects that would persist. So they said, A, these are harmful chemicals -- harmful pollutants; and B, under necessary, they will continue to be harmful after the Acid Rain Program has kicked in. And that's how the Court -- the EPA saw the two different words, and it's a perfectly logical way for them to proceed.

 Justice Antonin Scalia  

Who -- who would have guessed? I mean, that seems such an artificial division of -- of necessary and appropriate. Why -- describe it again. I really didn't -- didn't quite understand it. Necessary means what?

 MR. SMITH  

The claim -- everybody concedes that necessary means that there will still be health problems after the Acid Rain Program kicks in.

 Justice Antonin Scalia  

All right. And appropriate means?

 MR. SMITH  

The appropriate was intended to meet the claim made by the -- the industry that these chemicals already are sufficiently harm-free that we don't need to regulate them regardless of the effects.

first one?

that way.

 Justice Antonin Scalia  

Why isn't that part of the I mean -- MR. SMITH: Well, it could have been done They read them separately -- JUSTICE SCALIA: I see.

 MR. SMITH  

-- Your Honor.

 Justice Antonin Scalia  

Okay.

 MR. SMITH  

That's the way the government read them.

 Justice Antonin Scalia  

It's a silly way to read them, I think.

 MR. SMITH  

Perhaps so, Your Honor. But the key thing is, the issues that they were directed to study, the issues that were then supposed to control the listing decision were the health effects of the pollutants that come out of these power plants. And they then deferred the issue of considering a cost to the second stage just as occurs with every single other source of the same 189 hazardous pollutants that they were dealing with.

And if I could pause here and just clarify one thing about what happened at that listing stage. Natural gas-fired plants were not turned into a category. They looked at the health effects of natural gas-fired plants and said we are exempting them entirely from regulation under this section, under the appropriate and necessary standard because they simply don't emit these chemicals in more than trace amounts, and there's simply nothing for us to regulate. So natural gas plants get taken out at the listing stage.

We then have coal-fired and oil-fired plants as to which they begin to apply the subsection (d) standards, standards which were designed by Congress to limit the emission regulation to reasonable amounts, designed because the floors are, in fact, limited to what has already been achieved by comparable plants in the same category.

Now, there was some question raised about whether or not this categorization was something that EPA recognized it could use to effect the emissions standards and make them reasonable. In fact, as Mr. Brownell acknowledged, they did use -- create a category -- a separate category of coal-burning plants that burned Lignite, because it turns out that none of the Lignite plants could meet the -- the standards that would otherwise have -- have applied with respect to mercury if they were in the category with the other coal-fired plants.

They then through this whole process looked at the issue of categorization. They started out with two coal-fired categories. They ended up with -- and as far as that, with one oil-fired category. In the final rule, there are four separate categories of oil-fired plants, depending on what they burn and how they operate. So this whole process of separating out these categories to produce emissions standards that make sense and are practicable was built into that process under subsection (d) --

 Justice Elena Kagan  

Mr. Smith, could -- could you just clarify for me that the -- the categorization happens after the listing; is that correct?

 MR. SMITH  

Yes, Your Honor. What they listed was all coal-fired plants and all oil-fired plants, but no natural gas plants. They then go to the question of what emissions standards should occur. And with respect to other sources, that's sometimes years after the listing decision is made. But they then have a process of saying, what are our categories going to be? We have to put out -- we have to get information at that point. What of the top 12 percent of the category would, in fact, are there emissions? You have to -- they have to report in. They make a calculation about that.

 Justice Antonin Scalia  

Aren't -- aren't these just requirements above the minimums that automatically apply?

 MR. SMITH  

No, Your Honor. The -- the minimums are established by what the top 12 percent in the category that the EPA has --

 Justice Antonin Scalia  

Yes. But I'm -- I'm saying the categorization that allows you to -- you know, to reduce some people and -- and not to reduce others, that applies to requirements above the minimums. No?

 MR. SMITH  

Your Honor, the -- the minimums are the things that are set by mathematical calculation from the categories. Everything else above the minimums is done taking cost into account under (d)(2) expressly.

 Justice Antonin Scalia  

Yes.

 MR. SMITH  

So the only thing that is done using not express consideration of cost, but consideration of cost indirectly basing the regulations on what the top 12 percent are doing is the minimums. And the minimums are then altered, depending on what categories you establish. That is the way that the regulation has worked for all of the sources that they regulated. That is the -- the practical mechanism --

 Justice Elena Kagan  

So just to clarify that just for -- for my own purpose, Mr. Smith. It's just you categorize one way, the minimums are down here. You categorize another way, the minimums are up there.

 MR. SMITH  

That's correct, Your Honor.

 Justice Elena Kagan  

It can make a huge difference in terms of what the minimums are.

 MR. SMITH  

Right. And there's a notice and comment process. They put out proposed categories. They tell them what we -- empirically what we found about what the top 10 -- 12 percent are doing. They then get comments in and they -- as they happened here -- they make different categories in the final rule adjusting.

 Justice Samuel Alito  

How can we -- how can we tell the degree to which costs are taken into account, if they are at all, without knowing what the criteria are for creating these subcategories?

 MR. SMITH  

Well, Your Honor, it's in the statute that they create the categories in applying this 12 percent. I don't --

 Justice Samuel Alito  

No, no. The 12 percent -- I thought the 12 percent came into play after you've created the category -- the subcategory.

 MR. SMITH  

Right, as part of the process. It's part of the process.

 Justice Samuel Alito  

But how do I know how they create the subcategories?

 MR. SMITH  

Well, it's -- you can see it in the notice of proposed rulemaking. They say here are our proposed categories: Two coal categories, one oil category. Then they get comment about how -- we are not -- what happens, then, is the people that comment say we're so different from that category. We have these special problems. We need our own separate category.

 Justice Elena Kagan  

And it's a rulemaking after the rulemaking that applies to the listing; is that right?

 MR. SMITH  

It's totally after that, Your Honor. It's a second phase. It -- it happened here that they announced it all at the same time, but only because there had been an 11-year delay.

 Justice Stephen G. Breyer  

You -- you confirm it was not made up in my chambers.

(Laughter.)

 Justice Stephen G. Breyer  

The fact -- the fact is --

 MR. SMITH  

Although they did a wonderful job figuring it out again, Your Honor.

(Laughter.)

 Justice Stephen G. Breyer  

You're right. The -- the brief said Congress -- the SG's brief -- unambiguously required EPA to consider costs at the second stage of the regulatory process. That's what it said. A few pages later, they have the statute. So not surprisingly, I read the statute. And -- and reading the statute leads me to think it works along the lines you just said.

 MR. SMITH  

That's correct.

 Justice Stephen G. Breyer  

But if you did have the most expensive set of generators in the world, you would ask EPA to create a separate category for them in which case the top 12 percent would no longer be in your category and you wouldn't have to do it.

 MR. SMITH  

And that's what happened with --

 Justice Stephen G. Breyer  

Now, what I'm asking is if that you think it's the system, that's what I read in the statute. The SG thinks that's the system, but is there a treatise? Is there a -- an explanation that EPA has put out so that it is clear that it was not made up, that it's clear that this is the system that they follow? Would you refer me to a source?

 MR. SMITH  

Your Honor, the only source that I can refer you to -- and perhaps the government can supply something after -- is -- is the notice of proposed rulemaking in the final rule in which all of this categorization process is laid out in -- in exquisite detail. And -- and you can see the comments that come in and say the categories don't work, we need different categories, and they then produce different categories.

 Justice Sonia Sotomayor  

I think that Justice Alito --

 Chief Justice John G. Roberts  

Is there something in the -- excuse me. Is there something in the administrative record where EPA adopts that? When somebody says you're not considering cost. It's a bad thing. We're going to go to the Supreme Court if you don't consider cost, and EPA says, oh, no we're going to consider cost. We're going to consider cost when we categorize the power plants. Is there a reference to the administrative record where there's something like that?

 MR. SMITH  

Well, they certainly said, Your Honor, in the notice of proposed rulemaking, that we interpret the listing decision as being something that is based solely on health and not on cost.

 Chief Justice John G. Roberts  

The listing decision is not based on cost.

 MR. SMITH  

Right.

 Chief Justice John G. Roberts  

I want to know if there's anything there that says, but don't worry because we're going to consider cost through the categorization process.

 MR. SMITH  

I don't know whether they said that explicitly. That was so implicit in the whole system. This is a system that's been in operation for other sources for -- since 1990.

 Chief Justice John G. Roberts  

Well, implicit usually doesn't work when you're talking about an administrative record.

 MR. SMITH  

Your Honor, they gave everybody the opportunity to attack the categories that they, in fact, proposed, based on the argument that they were impractical for them.

 Justice Anthony Kennedy  

But I thought your position was that you didn't need to consider costs at the first step, and that that would include your initial category.

 MR. SMITH  

No, Your Honor, the categories are at the second step. The categories have -- the only thing that they did at the first step is say --

 Justice Anthony Kennedy  

But you didn't take that second step.

 MR. SMITH  

They did, Your Honor. They categorized oil-fired plants into four categories. They categorized coal-fired plants into various categories. And that was all done through a notice and comment process which led, then, to different emission standards.

 Justice Anthony Kennedy  

And are you saying that was done based on cost?

 MR. SMITH  

Yes, Your Honor, it was done -- what -- what was feasible for these different technologies.

 Justice Antonin Scalia  

I see. How much money did that save? I mean, do we know how much of the $9.6 billion cost would be reduced by this categorization?

 MR. SMITH  

Well, Your Honor --

 Justice Antonin Scalia  

I mean, that's the problem here, isn't it?

 MR. SMITH  

I don't have that calculus, but I would point out that it's important to recognize that something like 90 percent of that 9.6 billion -- 90 percent of the capital cost, which is most of that 9.6 billion, has now already been spent. And the industry has not experienced the kinds of upheavals that are being described. The rule takes effect in the middle of April, and so the idea that the result here was somehow ludicrous or outlandishly expensive is belied by the fact that the industry is bringing itself into full compliance.

 Justice Antonin Scalia  

Instead of going to jail? Is that it?

 MR. SMITH  

Complying with Federal law --

 Justice Antonin Scalia  

I mean, it might still be ludicrous, but it had to be done.

 MR. SMITH  

Well, the other thing I would say is the idea that the $4.6 million benefit is the proper comparator is wrong on so many different levels. First of all, that was a single -- one single health benefit related to mercury. They didn't think --

 Justice Anthony Kennedy  

Is the $9 billion a year recurring annually, or are you saying that most of this is capital investment one time?

 MR. SMITH  

Most of it is amortization of the capital expenditures that have already been made. That's in all the briefs from the Petitioners. There will be something like 40 percent will be operating costs and 60 percent is amortized capital costs, Your Honor.

The industry has been able to do this, and the situation now is we're ready to finally have national standards, which means it's not -- the States that have been regulating in this area very strenuously won't continue to have mercury flowing across state lines as they have. And we have this national, highly competitive electricity market, where some companies have marginal costs that reflect that they're in compliance, and some don't. And that is a problem that really needs to be solved.

 Justice Sonia Sotomayor  

Mr. Smith, I just want you to finish your thought. The four million -- the four billion that they are referring to is only mercury. The agency did not quantify all of the other costs for the other HAPs, correct?

 MR. SMITH  

Actually, it didn't quantity many, if not most, of the costs for mercury, because mercury causes developmental delays, attention deficit disorder --

 Justice Sonia Sotomayor  

Well, let's put that aside.

 MR. SMITH  

-- all these other things that are not quantified in the rule. It causes cardiovascular problems that are not -- a lot of things mercury does, it's an extremely poisonous neurotoxin.

The other thing about the 30 billion to 90 billion, that is particulate reduction, and some of the particulate that is reduced is, in fact, HAPs. It is nonmercury metals that go out in the form of particles. It is mercury that sometimes goes out in the form of particles. It is the acid gases, which when they get out into the atmosphere turn into particles because they become aerosolized, they go into your lungs as tiny droplets.

So all of those are, in fact, being taken care of in the controls of particulate. It is true that in controlling those HAPs, you use the same technology and you end up controlling a lot of other kinds of particulate, primarily sulfur dioxide, which causes premature deaths. And so when they did the calculation, they said we put these particulate controls in to control HAPs. It happens to also save a lot of lives, because of sulfur dioxide that's not otherwise being controlled. And so we'll tell you all the lives we're saving, not just some of those lives.

 Justice Samuel Alito  

Was this the basis for the EPA's decision? I thought the EPA -- I thought the EPA's position was, it doesn't matter how much the benefit -- how much the costs exceed the benefits, we just will not take costs into account at the listing stage.

 MR. SMITH  

That is correct, Your Honor. They did not consider the cost-benefit analysis at the listing stage. That's based on their reasonable -- quite reasonable, I think, interpretation of the statute. The statute, which with respect to every other source, it's conceded you don't do the cost-benefit analysis upfront. This statute came out of a period of regulatory paralysis of 20 years, where the EPA just wasn't regulating effectively.

And Congress came in and said we're going to force regulation of these chemicals that are being spewed into the environment and causing all these health effects. It gave one benefit to the power plant industry and said you have three years. You can prove that there wasn't -- there aren't really health effects that are serious. But it didn't give them the benefit of having a cost-benefit analysis done upfront, or create all the discretion in the world on the part of EPA simply to say, we don't think you should regulate this particular category.

 Chief Justice John G. Roberts  

Thank you, Mr. Smith.

Mr. Lindstrom, you have four minutes remaining.

 United States Supreme Court  

REBUTTAL ARGUMENT OF AARON D. LINDSTROM ON BEHALF OF STATE PETITIONERS

 MR. LINDSTROM  

Thank you, Mr. Chief Justice.

Any subcategorization that was going to happen has already occurred, because we're talking about the rule that's been promulgated, and despite any subcategorization that happened, there's still $9.6 billion in costs that are being imposed on an annual basis --

 Justice Sonia Sotomayor  

You're asking us -- it wasn't the question presented. Is the question presented that -- not that you have to take that into account at listing, but that somehow that ratio makes any emissions standards wrong --

 MR. LINDSTROM  

The question is whether --

 Justice Sonia Sotomayor  

-- even if, for some people, it's really not back-breaking to do it?

 MR. LINDSTROM  

The question is whether costs have to be considered under (n)(1) when you're regulating electric utilities. And there's one thing I'd like to --

 Justice Sonia Sotomayor  

They do say it does when regulating at the emission standard.

 MR. LINDSTROM  

They say that it's being done -- I guess if you think about this, what happens under 7412(c) is you've got a listing decision, first stage. Then you've got a floor standard. And then you've got an above-the-floor standard.

 Justice Sonia Sotomayor  

That's not what --

 MR. LINDSTROM  

In their approach --

 Justice Sonia Sotomayor  

You're taking out the categorization. They don't establish the floor until they categorize, correct?

 MR. LINDSTROM  

So categorization could happen here, but my point is, what happens under (n)(1) is these first two steps are merged. You're making the necessary and appropriate determination, when you're looking not to list, but whether such regulation is appropriate and necessary. That's the language in the statute. It says, is such regulation appropriate and necessary.

So it's not just whether it's going to be listed. It's looking at what's actually going to happen, so that's why it's -- that's why they did both at the same time. Why they made the appropriate and necessary finding at the same time they published the emissions standards. They were looking at the costs ahead because they didn't know what the costs were going to be to figure out if such regulation --

 Justice Antonin Scalia  

Are you saying that they purported to make the categorization decision without taking into account costs?

 MR. LINDSTROM  

Yes, any categorization they've done has already been done, and they didn't consider costs.

 Justice Antonin Scalia  

And didn't consider cost.

 MR. LINDSTROM  

That's correct. And again, I'd like to return to one of the big picture principles, which is, this is an administrative law case, so it does -- this turns or falls on what the agency actually did below. So they've already actually made determinations. They've said costs are not relevant. They've ignored an

important part of the regulatory problem, and adopted --

 Justice Sonia Sotomayor  

I'm sorry. They proposed categories, and everybody had the opportunity to say it's the wrong category, correct?

 MR. LINDSTROM  

Yes, Your Honor.

 Justice Sonia Sotomayor  

And argue why it's the wrong category.

 MR. LINDSTROM  

And the categories --

 Justice Sonia Sotomayor  

And some people submitted complaints about costs relative to their technology and their kinds of plants, correct?

 MR. LINDSTROM  

Yes, Your Honor.

 Justice Sonia Sotomayor  

So, it's not true that -- they proposed them, but everybody gets a chance to tell them, these are -- this technology is different from the others, or this kind of plant is different from the others, and it imposes a cost much greater than you are anticipating.

 MR. LINDSTROM  

I'm saying we're already past that phase. They've already -- any categorization they were going to do has already been done.

 Justice Sonia Sotomayor  

No, what you're saying, it's already past. It's past because that's been -- the final rule has been issued.

 MR. LINDSTROM  

Correct.

 Justice Sonia Sotomayor  

I'm talking during the rulemaking process. The rulemaking process does permit the agency to consider the cost of technology in setting up categorizations.

 MR. LINDSTROM  

They've adopted the exact opposite position, which is that costs do not matter.

 Justice Stephen G. Breyer  

Well, I thought we just heard -- I thought we just heard that say the Lignite people, I can't remember if that's the right name, but they said, look, we have special ways of producing this -- our stuff, and they are much more expensive, so please don't put us in the same category as you put the other people in. Okay? For the purposes of figuring the best 12 percent, and the agency said, right, okay, separate. Now, did that happen?

 MR. LINDSTROM  

Yes.

 Justice Stephen G. Breyer  

All right. Then how would you do that without considering cost? Because their basis was the Lignite people were saying our costs are more expensive?

 MR. LINDSTROM  

We don't know how they -- I don't know how they did it, but they've said throughout that we're not considering costs.

Thank you, Your Honor.

 Chief Justice John G. Roberts  

Thank you, counsel. The case is submitted.