Supreme Court: EPA Should Have Considered Cost When Deciding Whether Mercury Limits For Power Plants Were Appropriate

Screen Shot 2015-06-29 at 9.19.29 PMToday the United States Supreme Court held that the Environmental Protection Agency (EPA) improperly refused to consider costs when determining whether it was “appropriate and necessary” to regulate mercury emissions from power plants under the Clean Air Act. Ultimately, EPA may be able to keep the same rules after going back and explaining why the cost of the regulations is justified in the circumstances. But the decision is an important victory for advocates of cost-benefit analysis and those who think environmental agencies should pay more attention to the costs of regulation.

Section 112 of the Clean Air Act directs EPA to regulate hazardous air pollutants from power plants if it finds “regulation is appropriate and necessary.” 42 U.S.C. §7412. EPA said that regulation was “appropriate and necessary” even without considering costs because 1) power plant emissions posed risks to human health and the environment that were not eliminated by other provisions of the Clean Air Act and 2) there were controls available to reduce those dangerous emissions. So there was no need for EPA to consider costs to make its initial decision to regulate, but it promised to consider costs when adopting the actual final regulations for power plants.

Although EPA said it ignored costs when it made its initial decision to regulate, it still estimated the costs and benefits of the final rules that it adopted. EPA estimated that its rules would cost power plants $9.6 billion dollars a year. EPA couldn’t estimate all the possible benefits of limiting mercury emissions, but the little it could quantify came to about $5 million a year—less than 0.1% of the cost of the rule. On the other hand, EPA said that cleaning up mercury would have massive side benefits: it would lower sulfur dioxide emissions and these reductions would be worth between $37 and $90 billion per year. So these ancillary benefits far outweighed the costs of EPA’s rule, but if you didn’t count them, EPA’s rule imposed costs far in excess of its benefits.

Justice Scalia, writing for a 5-4 majority, held that EPA must consider the costs of regulation before making its initial decision to regulate, reasoning that “No regulation is ‘appropriate’ if it does significantly more harm than good.” The four dissenters conceded that, generally speaking, “an agency must take costs into account in some manner before imposing significant regulatory burdens” but agreed with EPA’s argument that the agency could consider those costs later when adopting regulations for specific source categories.

The Supreme Court’s decision may not have much impact on mercury regulation. Power utilities are already complying with the mercury rules that the court struck down in this case. And the case will now go back to the appellate court, which could decide to leave the rules in place while the agency rethinks whether these rules are “appropriate and necessary” factoring in the costs that they impose. EPA already determined that the benefits of the rules far outweighed their costs if you consider ancillary benefits, so it will probably reach the same decision. On the other hand, the Court’s decision raises very important questions for the future.

First: Can agencies consider ancillary benefits? At oral argument, some justices seemed to suspect it was inappropriate to consider the benefits associated with pollutants other than mercury. After all, if the other pollutants are the problem, why not adopt regulations aimed at the other pollutants? On the other hand, it has long been standard practice for agencies to consider ancillary or “co-benefits” of reducing pollutants other than the main target of regulation. If an agency is going to consider all the important costs of a regulation, why shouldn’t it consider all the important benefits? In some ways, the mercury rule may just be an outlier case because EPA estimated that the co-benefits of reducing sulfur dioxide were 10,000 times greater than the direct benefits of reducing mercury itself. But over half of the benefits of EPA’s Clean Power Plan come from co-benefits in reducing pollution other than greenhouse gases, so the question does have wider importance.

Second: How much cost-benefit analysis will the Court require for other regulations? Today’s decision may be seen as part of a trend that is making cost-benefit analysis a kind of default background principle for agency decision-making. Just fourteen years ago, Justice Scalia wrote an opinion for eight justices, holding that EPA could not consider the cost of regulation when the Clean Air Act demanded a standard at the level “requisite to protect the public health.” In that case, Justice Scalia explained that EPA could consider costs later when it implemented the standard. Last year, the Court held that EPA could consider the cost of emissions controls when it decided whether a State “contributed significantly” to air pollution in another state; Justice Scalia dissented. Now, the Court holds that EPA must consider the cost of regulation when it determines whether regulation is “appropriate and necessary.” Justice Scalia writes the opinion, and all justices agree that EPA must consider costs at some stage. Observing this trend, litigants will feel increasingly bold to demand that EPA consider the costs at each stage of adopting new environmental regulations.

China’s Energy Future: Coal, Gas, & A Gargantuan Climate Policy Challenge

With about a fifth of the world’s population, China plays a crucial role in the world’s energy and climate futures.  Right now, the developed world comprises an outsized portion of global energy use and greenhouse gas emissions compared to its population, (http://bit.ly/1bDyIIp), but per capita energy use in developing countries like China will gradually converge with levels in the developed world because of 1) catch-up growth in the developing world, 2) climate and efficiency regulations in the developed world, and 3) movement of heavy industry from the developed world to the developing world.  So one way of thinking about global energy futures is that Chinese policy may some day be of comparable importance to the policies of North and South America, Western Europe, and Australia combined.   (Or maybe “US policy is to China’s policy as Turkey’s policy is to US policy.”)

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Map of the world divided into five regions, each with the same population as China.

So China’s climate policy is crucial.  And it is currently in flux.  Many years of rapid growth in coal-fired power have produced acute particulate matter air pollution problems in China:  a recent study estimated that this air pollution reduced the life expectancy in northern China by 5.5 years.  http://bit.ly/19aFY91.  As a result, China has been seeking to develop alternative power sources such as natural gas and renewable power.  Some hope that this will help slow China’s rapidly rising greenhouse gas emissions.  Citi Research recently put out a report with the hopeful title, “The Unimaginable: Peak Coal in China” (http://citi.us/1cpecdP), and Bloomberg New Energy Finance published one titled “The Future of China’s Power Sector: From Centralized and Coal-Powered to Distributed and Renewable?”  Two recent analyses, however, show why China’s energy policy remains a daunting challenge.
The first analysis, from Armond Cohen and Kexin Liu at the Clean Air Task Force, http://bit.ly/16tPtlf, offers a bracing reality check by simply digging into the Bloomberg and Citi studies.  What they find is that China’s coal-fired plants will be a climate challenge for decades to come.  As a result of the recent boom China now has 750 GW of coal-fired capacity, and even as construction slows, it is due to add 343-450 GW of new coal-fired plants by 2030.  By comparison, the U.S., which until 2008 was the world’s biggest emitter of greenhouse gases, has only 300 GW of coal-fired capacity.  So, China will soon have 3.5-4 times the coal-fired capacity of the United States.  And unlike, the United States where most coal plants are aging, Chinese plants will still be in their prime, and may continue to operate for decades.
The second analysis, published in Nature Climate Change, analyzes China’s plans to produce synthetic natural gas (SNG) from coal at over 40 massive plants.  http://bit.ly/1a675Ru.  Burning SNG instead of coal would lower particulate matter pollution in China’s cities, but SNG takes large amounts of energy to produce, which means that, all things considered, it leads to even more greenhouse gas emissions than coal.  (SNG has roughly seven-times the greenhouse gas impact of regular natural gas, and 136-182% the impact of coal-fired plants.)  Thus, if coal is replaced with SNG, it will just make the world’s climate problems worse.
The Clean Air Task Force analysis suggests that carbon capture & storage may be the only viable option to control greenhouse gas emissions from China’s burgeoning coal plants.  And the SNG paper suggests that shale gas might be a viable alternative to SNG within China.  Both potential solutions have detractors.  What is clear, however, is that Chinese energy policy will be a crucial and daunting challenge for decades to come.