By Lawrence Hurley
WASHINGTON (Reuters) - The Supreme Court on Monday dealt a blow to a sweeping U.S. air pollution regulation aimed primarily at curbing emissions of mercury from coal-fired power plants by ruling that the Obama administration wrongly failed to consider compliance costs.
With its five conservative justices in the majority, the court ruled 5-4 against the U.S. Environmental Protection Agency (EPA), handing a victory to the industry groups and 21 states that challenged the rule as well as Republicans critical of President Barack Obama's environmental agenda.
The rule stays in effect for the time being, with the case returning to an appeals court that will decide whether or not it will be thrown out entirely.
"EPA is disappointed that the court did not uphold the rule, but this rule was issued more than three years ago, investments have been made and most plants are already well on their way to compliance," the agency said in a statement.
White House spokesman Josh Earnest said there was no reason the ruling should impact the administration's Clean Power Plan, which is aimed at cutting carbon emissions from existing power plants.
The ruling gave an immediate lift to shares of Peabody Energy Corp, the nation's largest coal producer, and other coal mining companies, which have been dogged by concerns over the costs of the regulation and slumping coal prices as power companies turn increasingly to natural gas to generate electricity.
Justice Antonin Scalia, writing on behalf of the court, said a provision of the Clean Air Act stating that the EPA can regulate power plants for mercury and other toxic pollutants if it deems it "appropriate and necessary" must be interpreted as including a consideration of costs. The EPA had decided it did not have to consider costs at that stage of the process.
"The agency must consider cost - including, most importantly, cost of compliance - before deciding whether regulation is appropriate and necessary," Scalia wrote.
"It is not rational, never mind 'appropriate,' to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits," Scalia added.
The EPA says the rule, which went into effect in April, applies to about 1,400 electricity-generating units at 600 power plants. Many are already in compliance, according to the U.S. Energy Information Administration.
Mike Duncan, president of the American Coalition for Clean Coal Electricity, a coal industry lobbying group, said that as a result of the ruling "the EPA will finally have to listen to the nation?s concerns with this poorly constructed, costly rule."
The legal rationale adopted by the court is unlikely to have broader implications for other environmental regulations, according to lawyers following the case.
William Yeatman, a fellow at the conservative-leaning Competitive Enterprise Institute, said the impact is "circumscribed" due to the "narrowness and uniqueness" of the legal provision the court was examining.
Richard Revesz, director of the Institute of Policy Integrity at New York University School of Law, said that "nothing in this decision would in any way call into question the legal legitimacy of the Clean Power Plan."
BIGGER BILLS
Industry groups and 21 states appealed after an appeals court upheld the regulation in June 2014. The challengers said the EPA's refusal to consider the estimated $9.6 billion-a-year costs would lead to bigger electricity bills for Americans.
Peabody shares closed up 9 percent and rival Arch Coal rose 4 percent. The Dow Jones Coal Index, however, shed earlier gains, ending the day down 0.4 percent.
Exelon Corp, the biggest U.S. nuclear power plant operator, was one of several power companies supporting the EPA rule.
The 2012 mercury regulation, which covered oil-fired plants as well as coal-burning ones, was targeted by Michigan and other states in addition to various industry groups, including the National Mining Association.
When the EPA issued the regulation, it outlined what it saw as the rule's costs and benefits, including preventing up to 11,000 premature deaths annually. The agency also said the regulation could generate billions of dollars in benefits including a reduction in mercury poisoning, which can lead to developmental delays and abnormalities in children. Overall, the EPA said the benefits could be worth up to $90 billion a year.
The case was the third recent Supreme Court test of Obama's air pollution regulations. The administration mostly came out on top in the two previous cases.
In April 2014, the court upheld a regulation limiting air pollution across state lines. In June 2014, the court largely upheld the government's ability to regulate greenhouse gas emissions from major utilities.
The three consolidated cases are Michigan v. EPA, 14-46, Utility Air Regulatory Group v. EPA, 14-47, National Mining Association v. EPA, 14-49.
(Additional reporting by Valerie Volcovici and Lindsay Dunsmuir; Editing by Will Dunham)
