The U.S. Supreme Court yesterday announced a ruling that amounts to a setback for an Obama administration initiative to combat climate change by limiting pollution from coal-fired power plants.

In a 5-to-4 decision, the court said that when it enacted the regulation, the EPA had failed to do a cost-benefit analysis – something the justices cited under the Clean Air Act’s requirement that regulations be “appropriate and necessary.”

The EPA said it did take costs into account when setting emissions standards and that the benefits far outweighed the costs.

Billions or millions?

Led by Michigan, a coalition of 20 states and industry groups had mounted the legal challenge, charging that the costs to industry and consumers would outweigh the benefits the regulation would have on health and the environment. The power plant industry estimated annual costs at $9.6 billion and benefits at $6 million. The EPA, on the other hand, projected benefits at tens of billions of dollars.

Not rational or within its authority?

In the majority opinion, Justice Antonin 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. Statutory context supports this reading.”

Justice Elena Kagan, in the minority opinion, wrote: “The agency acted well within its authority in declining to consider costs at the opening bell of the regulatory process given that it would do so in every round thereafter — and given that the emissions limits finally issued would depend crucially on those accountings.”

The decision will delay the regulation, but not derail it completely. It means that the EPA will have to review and rewrite the rule, taking costs into consideration.

A spokesperson for the agency said the EPA intended to move forward with the rule.