Environmental groups sued in 2011, saying the plan didn't comply with the Clean Air Act and that the state didn't consider cleaner technologies.
But the appeals court disagreed in a ruling released Friday that affirmed a decision from an Ingham County judge. The three-judge panel says the Michigan Department of Environmental Quality conducted an adequate analysis of the best available power-generating technologies.
In 2011, state environmental officials reversed an earlier decision and approved a permit to install a 78-megawatt boiler at the city-owned power plant. It was to replace an 11-megawatt coal generator built in 1953.