There's potentially good news on the environmental front out of Washington D.C., but it's probably more than offset by a devastating announcement Friday.

First, the good news. The U.S. Supreme Court ruled 6-3 that the Environmental Protection Agency, when upgrading older power plants, may consider costs before demanding use of the most advanced technology, as required by law. The ruling was a defeat for environmentalists, who challenged the Bush administration's discretionary practice.

Hans Bader, special projects counsel for the Competitive Enterprise Institute think tank, told us the ruling permits continued cost-benefit analysis as an option in upgrades such as at issue in the lawsuit brought by New York-based environmental group Riverkeeper. The group sued under the Clean Water Act's requirement that upgrades must include "the best technology available for minimizing adverse environmental impact."

If government required the "best technology available" in every case it would cost $3.5 billion a year, according to the EPA's estimate. While the ruling let stand the Bush administration's weighing of costs against environmental benefits, it is unknown how President Barack Obama's EPA will use that same discretion.

The bad news is that the EPA on Friday declared carbon dioxide and five other so-called greenhouse gas emissions to be harmful, under similar discretion provided by a previous high-court ruling. Finding the naturally occurring CO2 harmful gives government the authority to regulate the gas as it does truly harmful air pollutants.

CEI and other free-market advocates had written EPA Administrator Lisa Jackson, warning that such a finding would "set the stage for an economic train wreck." The EPA's determination triggers a rule-making procedure that will affect "1.2 million previously unregulated entities, office buildings, big box stores, enclosed malls, hotels, apartment buildings, even commercial kitchens," said the letter from Marlo Lewis, CEI senior fellow, and others.

In both cases, the Obama administration has the power to determine how much economic pain to inflict. It can and should weigh the high economic cost of protecting tiny fish, but also should minimize the regulatory damage regarding CO2 until the scientific question is settled.