The U.S. Supreme Court ruled on Monday that the Obama administration failed to consider costs when deciding to regulate mercury pollution from power plants. (Tweet this)
In a 5-4 ruling, the court ruled that the U.S. Environmental Protection Agency must consider costs before deciding whether regulation is "appropriate and necessary." Justice Antonin Scalia wrote the majority decision. Justices Elena Kagan, Ruth Bader Ginsburg, Stephen Breyer, and Sonia Sotomayor dissented.
The court sent the case back to the U.S. Court of Appeals for the District of Columbia Circuit, which will then ask the EPA to reconsider its rule-making.
Industry groups and some states appealed after an appeals court upheld the regulation in June 2014.
Among companies opposing the rule is Peabody Energy, the nation's largest coal producer. Exelon, the biggest U.S. nuclear power plant operator, is one of several power companies that support the rule.
The 2012 mercury regulation, which covers 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.
The question was whether the EPA should have considered the cost of compliance when deciding to regulate pollutants. Industry groups and some states challenged the regulation to limit emissions of mercury and other hazardous pollutants, claiming costs of up to $9.6 billion.
The regulation could help prompt utility companies to shut down some coal-fired plants due to the costs of compliance. The EPA says the rule, due to go into effect this year, 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.
In issuing the regulation, the EPA said it was not required to consider costs.
The case marks the third time in the past year that the Supreme Court has reviewed Obama's air pollution regulations, with his administration mostly winning the two previous cases.
In April 2014, the court upheld a regulation that limits air pollution across state lines. In June 2014, the court largely upheld the government's ability to regulate greenhouse gas emissions from major utilities.
How the administration fares this time around will be closely watched by industry groups and states in part due to the EPA's plans to issue new regulations aimed at curbing carbon emissions from power plants.
Last week, the Supreme Court handed down two landmark decisions. The court ruled that all states must allow same-sex couples the right to marry. In another ruling, it upheld the federal subsidies that help about 6.4 million people under the Affordable Care Act.
—CNBC's Reem Nasr contributed to this report.