On April 14, 2015, the U.S. Environmental Protection Agency
("EPA") submitted for publication in the Federal Register
a Supplemental Finding,1 explaining how the agency took
costs into account in promulgating Mercury and Air Toxics Standards
for power plants (the "MATS Rule") under Section 112 of
the Clean Air Act. The Supplemental Finding is EPA's response
to the U.S. Supreme Court decision in Michigan v.
EPA.2
Background
Section 112 of the Clean Air Act authorizes EPA to regulate
hazardous air pollutant emissions from power plants if the agency
finds that such regulation is "appropriate and
necessary."3 EPA initially issued such a finding in
2000,4 and reaffirmed the finding when it first
promulgated the MATS Rule in February 2012.5 EPA's
finding was primarily based on its determination that certain
hazardous air pollutant emissions from power plants pose risks to
public health and the environment. The Rule was subsequently
challenged in the United States Court of Appeals for the District
of Columbia Circuit, in part on the grounds that EPA was required
to consider costs in making its "appropriate and
necessary" determination. The D.C. Circuit rejected that
argument and upheld EPA's decision not to consider
costs.6
On June 29, 2015, the United States Supreme Court reversed the D.C.
Circuit, holding that EPA must consider costs, including costs of
compliance, before deciding whether it is appropriate and necessary
to regulate emissions of hazardous air pollutants from power
plants. The MATS Rule was remanded to the agency, which proposed a
Supplemental Finding in December 2015,7 ultimately
leading to the current and final Supplemental Finding.
The Supplemental Finding
In the Supplemental Finding, EPA declares that the consideration of
costs, including the estimated $9.6 billion annual cost of
compliance, did not cause the agency to alter its previous
conclusion that regulation of hazardous air pollutant emissions
from power plants is appropriate and necessary. EPA emphasized that
no new information provided during the public comment period on the
Supplemental Finding convinced the agency otherwise. EPA took two
approaches to considering costs.
First, the agency evaluated the costs of the MATS Rule as compared
to other metrics relevant to the power sector, including sales,
capital expenditures, consumer costs, and reliability. EPA found
that the projected annual cost of MATS compliance is between 2.7
and 3.5 percent of annual electricity sales from 2000 to 2011. In
response to comments on the proposed Supplemental Finding, EPA
added information on historical total production expenditures to
its consideration of capital expenditures and determined that the
incremental cost due to requirements under the MATS Rule
constitutes a small portion (between 3.0 and 5.9 percent) of the
power sector's annual capital and production expenditures over
a 10‐year period. The agency also concluded that the
projected impact of the MATS Rule on electricity rates,
approximately 0.3 cents per kilowatt hour, was within the range of
recent price fluctuations. EPA further reasoned that retirements
that may result from the MATS Rule would primarily affect older and
smaller units, and that the power sector would be able to comply
with the MATS Rule and still satisfy projected electricity demands.
After considering each of these metrics, EPA concluded that the
cost of compliance with the MATS Rule is reasonable when compared
to benefits such as addressing potential harms to public health and
the environment.
Second, EPA relied on the formal cost–benefit analysis
included in the 2012 final MATS Rule.8 In that analysis,
EPA estimated that the MATS Rule would yield total annual monetized
benefits of between $37 billion and $90 billion (using a 3 percent
discount rate), or $33 billion and $81 billion (using a 7 percent
discount rate)9 in addition to unquantified benefits.
These numbers were calculated by monetizing the benefits of
reducing certain health outcomes, including mercury-related IQ
points lost, premature deaths, nonfatal heart attacks,
hospitalizations for respiratory and cardiovascular diseases, lost
work days, restricted-activity days, respiratory illnesses, acute
bronchitis, and asthma attacks. Many of these benefits are
associated with reductions of sulfur dioxide and particulate matter
emissions, which will also occur as a result of the reductions in
hazardous air pollutant emissions called for by the Rule. EPA also
monetized effects from the reduction in carbon dioxide emissions
using the "social cost of carbon" methodology. EPA
compared these figures to the projected $9.6 billion in annual
compliance costs and found that the benefits (monetized and
nonmonetized) of the MATS Rule outweigh the costs.
Future Implications
Aside from memorializing its consideration of costs, EPA did not
amend any other aspects of the MATS Rule through the Supplemental
Finding. Challenges to the Supplemental Finding may be filed within
60 days of publication in the Federal Register. Those challenges
may focus on whether it is permissible for EPA to support the MATS
Rule primarily through reliance on "co-benefits," meaning
the ancillary health benefits resulting from reductions in
emissions of criteria pollutants normally regulated under other
provisions of the Clean Air Act (rather than reductions of the
hazardous air pollutants addressed through Section 112). In
Michigan, the Supreme Court did not decide whether the
Clean Air Act allows EPA to rely on co-benefits,10 but
some of the questions raised during oral argument suggest that, if
the Court were presented with the issue, it could decide that EPA
may consider only the direct benefits of regulating hazardous air
pollutants under the MATS Rule, and may not "bootstrap"
the benefits resulting from associated emissions reductions of
other pollutants.11
Because the MATS Rule remained in effect throughout the litigation
and while EPA was working on the Supplemental Finding, many power
plants have already taken significant steps to achieve the
standards set by the Rule. The MATS Rule establishes emissions
limits for heavy metals (such as mercury, arsenic, chromium, and
nickel) and acid gases (including hydrochloric acid and
hydrofluoric acid). The Rule's limits are primarily achieved by
installing controls such as scrubbers or filters. The initial
deadline for coming into compliance was April 16, 2015, but many
local permitting authorities granted one-year extensions pursuant
to existing Section 112 authority.12 EPA may grant
subsequent deferrals of up to one year, but the agency has made
clear that further extensions are not as broadly available as the
initial one-year periods.13 Most power plants have
therefore already installed necessary controls and are or will be
coming into compliance by this month. However, certain issues,
including whether co-benefits may be considered in making an
"appropriate and necessary" determination under Section
112, could affect future rulemakings, and therefore further
challenges to the MATS Rule are expected.
Footnotes
2 Case No. 14-46, 135 S. Ct. 2699.
3 42 U.S.C. § 7412(n).
4 65 Fed. Reg. 79825 (Dec. 20, 2000).
5 77 Fed. Reg. 9304 (Feb. 16, 2012).
6 White Stallion Energy Center, LLC v. EPA, 748 F. 3d 1222 (2014).
7 80 Fed. Reg. 75025 (Dec. 1, 2015).
8 EPA,Regulatory Impact Analysis for the Final Mercury and Air Toxics Standards (Dec. 2011).
9 EPA's estimates are in 2007 dollars.
10 135 S. Ct. at 2711 ("Even if the Agency could have considered ancillary benefits when deciding whether regulation is appropriate and necessary—a point we need not address—it plainly did not do so here.").
11 Case No. 14-46 Official Argument Transcript at 59–65.
12 42 U.S.C. § 7412(i)(3)(B) (allowing extensions of up to one year if necessary for the installation of controls).
13 EPA,Enforcement Response Policy for Use of Clean Air Act Section 113(a) Administrative Orders in Relation to Electric Reliability and the Mercury Air Toxics Standard (Dec. 16, 2011).
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