Why Michigan v. EPA Requires that the Meaning of the Cost/Rationality Nexus Be Clarified

Abstract

<p>This article examines the recent decision in <em>Michigan v. EPA</em>, in which the U.S. Supreme Court held that the EPA acted unreasonably in not considering costs at the listing phase of the regulation of power plants’ emissions under a specific provision of the Clear Air Act (CAA). In <em>Michigan</em>, the Court interpreted the applicable statutory provision based on the principles of rational administrative decision-making, thereby establishing a connection between cost consideration by administrative agencies and the principles of reasonable exercise of administrative discretion. We contend that <em>Michigan</em> failed to properly appreciate the logical and axiological connection between cost consideration and administrative rationality (i.e., the <em>cost/rationality nexus</em>). More specifically, the Court failed to distinguish between two independent steps of cost consideration: cost determination and cost quantification. Cost determination considers that one set of relevant interests must be made a cost upon someone else, and decides how to allocate rights between competing interests. This decision rests on political considerations and moral factors that are independent of the concept of cost. Cost quantification requires deliberating to what extent one set of interests should be made a cost upon someone else. Unlike cost determination, cost quantification is logically based on the concept of cost. Cost quantification assumes cost determination in order to function. The failure to appreciate this distinction led to illogical reasoning by the Court and to a decision that is inconsistent with Congress’ cost determination. This paper contributes to the legal-economic literature on cost-benefit analysis (CBA) by outlining a functional dimension of cost consideration by administrative agencies that is frequently overlooked in legal-economic literature. While CBA proponents often note that cost consideration provides agencies with a method for promoting social welfare maximization, we emphasize that cost consideration enhances the rationality of administrative action by ensuring a transparent and accountable definition of the set of relevant interests that underpins the definition of costs and benefits. </p>