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Environmental Protection Agency Proposes Changes to Mercury Air Rule

On December 28th, the Environmental Protection Agency (EPA) proposed to rescind the Obama EPA’s justification for its 2012 Mercury Air Toxics Standards (MATS) rule. MATS established first-ever maximum achievable control technology (MACT) standards for mercury and other hazardous air pollutant (HAP) emissions from coal- and oil-fueled power plants. MATS is among the most expensive regulations in the history of the Clean Air Act. The Edison Electric Institute, which supports the rule, estimates that since 2012, owners and operators of coal and oil power plants have spent more than $18 billion to comply.   

EPA is not proposing to remove power plants from the list of stationary sources subject to MACT standards, nor to rescind the MATS rule’s emission standards. Rather, EPA proposes to revoke its determination, first made in 2000 and later affirmed in 2012 and 2016, that MACT regulation of power plants is “appropriate and necessary.” EPA now believes such regulation is not “appropriate” because the costs are out of all proportion to the benefits.

The MATS rule itself estimated that, in 2016 alone, industry would spend $9.6 billion to comply, yet the required reductions in hazardous air pollutants would provide only $4 million to $6 million in quantifiable health benefits. Costs exceed benefits by 1,600 to 1 or even 2,400 to 1. That hardly seems “appropriate.”

What’s the Point?

Two questions leap to mind. First, if EPA believes MATS lacks a valid statutory justification, why does EPA propose to leave it in place? Second, if the current rulemaking will not accomplish any actual deregulation, what is the point?

The answer to the first question is fairly straightforward. Section 112 of the Clean Air Act has separate provisions for adding power plants to the list of MACT-regulated source categories and for removing categories from that list. To add power plants to the list, EPA had to make the aforementioned appropriate-and-necessary finding, under Section 112(n)(1)(A). In contrast, to remove any source category from the list, Section 112(c)(9)(B) requires EPA to determine that no source in the category poses a greater than 1-in-1 million lifetime cancer risk to the individual most exposed to hazardous air pollutants from such sources.  

EPA estimates that the cancer risk to the most exposed individual from power plant HAP emissions is 9-in-1 million. Consequently, under the plain text of Section 112 and the D.C. Circuit Court’s ruling in New Jersey v. EPA (2008), EPA may not “de-list” power plants even if it concludes that MACT regulation is not appropriate and should not have been adopted in the first place.

As to the second question, the draft rule does not explain why the EPA seeks to rescind the MATS rule’s statutory justification even though doing so is not expected to relieve the regulatory burden. EPA’s motivation appears to be “philosophical.” Revoking the “appropriate” determination will uphold the rule of law and repudiate the agency’s previous use of the Clean Air Act as a weapon in the war on coal.

Litigation Background

In the MATS rule, EPA concluded that Section 112 regulation is “appropriate” because power plant HAP emissions pose significant health risks and effective control technology is available, and “necessary” because other Clean Air Act requirements do not eliminate those risks (77 FR 9311). EPA also declined to consider costs in making the appropriate determination, arguing that it need not and should not do so (77 FR 9327).

Industry petitioners challenged EPA’s refusal to consider costs in the appropriate determination. In White Stallion Energy Center v. EPA (2014), the D.C. Circuit Court of Appeals upheld MATS by 2-1 and affirmed that Section 112(n)(1)(A) does not require EPA to consider costs. However, then-Judge Brett Kavanaugh’s powerful dissent, arguing that EPA’s “cost-blind approach” is unreasonable, helped persuade the Supreme Court to review the case.

In Michigan v. EPA (2015), the Supreme Court ruled that EPA had “strayed far beyond [the] bounds” of reasonable interpretation when it excluded cost considerations from the appropriate-and-necessary finding. Quoting Kavanaugh, the court held that “appropriate” is “the classic broad and all-encompassing term that naturally and traditionally includes consideration of all the relevant factors.” Although the term leaves agencies with flexibility, an agency may not “entirely fail to consider an important aspect of the problem” when determining whether regulation is appropriate, and “reasonable regulation ordinarily requires paying attention to the advantages and the disadvantages of agency decisions.”

Indeed, the court stated, “One would not say that it is even rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits. . . . No regulation is ‘appropriate’ if it does significantly more harm than good.”

The court ruled that the EPA interpreted Section 112 “unreasonably when it deemed cost irrelevant to the decision to regulate power plants.” It remanded the case to the D.C. Circuit Court of Appeals, which left MATS in effect while EPA addressed the Michigan decision.

Obama EPA’s Supplemental Finding

In response to Michigan, EPA in April 2016 finalized a supplemental finding that the MATS rule’s compliance costs are “reasonable” whether considered in terms of electric power sector economics or in comparison to the rule’s total benefits. Hence, EPA correctly determined that MACT regulation of power plants is appropriate. The finding may be summarized as follows.

First, MATS compliance costs represent small percentages of the power sector’s annual sales and capital expenditures, and will induce commensurately small increases in consumer electricity prices. The sector can “absorb” the rule’s compliance costs without diminishing its economic viability. The costs imposed on the regulated industry are reasonable (80 FR 75032-36).

Second, MATS compliance costs are small compared to the rule’s total benefits. The rule’s collateral reductions of fine particulate matter (PM2.5) will avoid thousands of premature deaths and non-fatal heart attacks, providing $37 billion to $90 in annual “co-benefits,” according to the MATS rule’s Regulatory Impact Analysis. Thus, total benefits will exceed the rule’s $9.6 billion annual compliance cost by 3-to-1 or 9-to-1. MATS will enhance the economy’s overall efficiency (80 FR 75039-40).

Trump EPA’s Critique

The EPA’s draft rule proposes to find that the 2016 supplemental finding fails to meet the agency’s obligation to consider cost as interpreted by the Supreme Court’s Michigan decision. The finding’s industry-specific “cost reasonableness” test relied on case law for a different Clean Air Act provision, Section 111(b), which deals with emission performance standards for “new sources.” New source performance standards may not be “exorbitant,” “excessive,” or “unreasonable.” Because the power sector as a whole can absorb the MATS compliance costs, the finding concluded those costs are reasonable.

The EPA now considers that approach “misguided.” Section 112 standards apply to all sources in a category, not just a small number of “new” sources that have not yet been built. Every coal power plant in the fleet had to install MATS-compliant technologies within 3-4 years. Section 111(b) case law is not a touchstone for determining under Section 112 “whether it is appropriate to impose control requirements on sources that are already operating.” Moreover, even if the power sector as a whole can afford to implement MATS, costs can still be excessive for individual sources.

More importantly, the finding’s industry-focused reasonableness test did not “make the statutorily mandated assessment of whether the benefits garnered by the rule were worth it—i.e., a direct comparison of costs and benefits.” As noted, for the hazardous air pollutant reductions that are the rule’s statutory purpose, costs exceed benefits by as much as 2,400 to 1.

The draft rule also rejects the finding’s conclusion that large estimated PM2.5 co-benefits make the MATS rule appropriate. Here some statutory background is required to understand EPA’s argument.

PM2.5 is one of several criteria air pollutants regulated under other provisions of the Clean Air Act but not regulated as “hazardous” under Section 112. In the 1990 Clean Air Act Amendments, Congress both expanded the Section 112 HAP program and created a new Title IV acid rain program. Congress understood that Title IV’s extensive new controls on power plant emissions of sulfur dioxide and nitrogen oxides, criteria pollutants that are PM2.5 precursors, would reduce HAP emissions as well.

Accordingly, Section 112(n)(1)(A) directs EPA to consider “other [Clean Air Act] requirements” such as Title IV when determining whether additional regulation under Section 112 is appropriate and necessary.

Because Section 112 requires EPA to consider Title IV’s HAP co-benefits when determining whether MACT regulation of power plants is necessary, the finding assumed EPA could give equal weight to the MATS rule’s PM2.5 co-benefits when determining whether MACT regulation is appropriate. However, there is no indication in the text or legislative history that Congress intended criteria pollutant co-benefits to be a factor in determining whether to regulate hazardous air pollutants.

“[I]f anything,” the draft rule argues, the directive to consider “other requirements” is “support for the conclusion that it is not proper to place much weight on the co-benefits of further criteria pollutant reductions as part of the CAA section 112(n)(1)(A) determination.” The draft rule explains: “Directing the EPA to study HAP effects under CAA section 112 after other provisions of the CAA had been implemented suggests that Congress envisioned that the judgement about whether additional regulation was appropriate and necessary should be predicated primarily on an assessment of HAP emissions from this source category.”

Silly Criticisms 

E&E News (subscription required) recently interviewed several prominent environmentalists who denounced the draft rule. Their criticisms are silly.

Sen. Tom Carper (D-DE) claimed the proposal “rolls back years of critical protections that keep toxic emissions out of the air we all breathe.” Flat-out ridiculous. The power sector has spent billions of dollars to comply with MATS, and nearly all power plants are in compliance. There is no going back. Moreover, as explained above, EPA’s proposal expressly leaves the MATS rule and its regulatory standards in place.

Environmental Defense Fund President Fred Krupp suggested the MATS regulatory standards would be next on the chopping block, because “no one can truthfully claim they are demolishing the foundation of a building but they still expect the building to stand.” Sounds plausible until you read the draft rule’s express denial of EPA’s authority to topple the building based on the agency’s reading of CAA 112(c)(9)(B) and New Jersey v. EPA.  

American Lung Association President Harold Wimmer said there is “no legitimate justification for this action,” because mercury can cause brain damage in babies. MATS has reduced annual power plant emissions of mercury and other HAPs by 96 percent. EPA is not proposing to repeal or relax any MATS emission standards. The “legitimate justification” for EPA’s action is that the MATS rule’s regulatory justification was itself illegitimate.

Former EPA Administrator Gina McCarthy opined that Trump officials want “to cut the legs off of EPA in terms of our ability to protect public health and the natural resources from toxics that are impacting our kids’ lives today.” Colorful commentary but it bears no resemblance to the proceeding she smears.

Final Thoughts

EPA’s draft rule barely scratches the surface of the MATS rule’s irrationality. The Competitive Enterprise Institute’s June 2012 study, “All Pain and No Gain,” explains why the MATS rule’s health benefits, both the paltry $4 million to $6 million in mercury-reduction benefits and the mindboggling $37 billion to $90 billion in PM2.5 co-benefits, are illusory. My April 2014 blog post applauding then-Judge Kavanaugh’s dissent in the White Stallion case provides a fully referenced summary of our paper.

My co-author and former CEI colleague William Yeatman posted a cartoon that humorously deflates the MATS rule’s pretensions:

Yeatman commented:

That’s no joke: The actual justification for the Utility MACT, one of the most expensive and consequential regulations of all time, is to protect a supposed population of pregnant subsistence fisherwomen, who consume hundreds of pounds of self-caught fish from exclusively the most polluted inland bodies of fresh water. . . .Notably, EPA never identified a single member of this putative population of super-angler, pregnant women, who feed exclusively off self-caught fish from polluted bodies in water, despite the abundance of warnings, in multiple languages, posted about the river or lake where these amazing ladies do their sustenance fishing. Rather, they are modeled to exist.

As discussed above, to justify MATS, the Obama-era EPA had to invoke the rule’s PM2.5 co-benefits. However, as Anne Smith of NERA Economic Consulting argues, about 99 percent of the PM2.5 reductions were projected to occur in areas that would already be in attainment with the National Ambient Air Quality Standard (NAAQS) for PM2.5. By law, NAAQS are set at a level requisite to protect public health, with an adequate margin of safety, based on the best available science. Reducing PM2.5 levels below the NAAQS may have health benefits, but those are too uncertain to be monetized. The MATS rule’s astronomical PM2.5 co-benefit claims are flimflam.

Steve Milloy’s recent CEI study, “Will the Trump Fuel Economy Reform Proposal Create Deadly Air Pollution?,” provides a more fundamental critique of the dogma that PM2.5 kills thousands of Americans every year. After reviewing epidemiological, clinical, and real-world evidence, Milloy concludes: “It is clear that the available evidence fails to link PM2.5 in outdoor air with death.”