Energy, Regulatory Developments, Special Topics in Environmental Management

EPA Reverses Coal Plant Mercury Finding, But MATS Stays in Place

In a final action, the Trump EPA has reversed a finding the Agency made in 2000 (and affirmed by the Obama EPA in 2012) that it is appropriate and necessary (A&N) to regulate emissions of hazardous air pollutants (HAPs) from coal- and oil-fired electric generating units (EGUs) under Section 112 of the Clean Air Act (CAA). While now finding that it is not A&N to regulate these EGUs under Section 112, the final action neither removes these sources from the list of industry categories subject to Section 112 nor withdraws the 2012 National Emissions Standards for Hazardous Air Pollutants (NESHAP), commonly called the Mercury Air Toxics Standard (MATS), the Obama EPA promulgated for the EGU category.

Although the MATS remains in place, the ramifications of the EPA’s reversal of the A&N finding may have important implications going forward. First, the Agency’s reconsideration results from what it considers a flawed assessment of the MATS’s costs and benefits the Agency provided in an April 2016 Supplemental Finding. The reconsideration may lead to narrower approaches to estimating costs and benefits the EPA uses when writing other NESHAPs. In addition, the reconsideration is likely to provide fresh opportunities to challenge the legality of the MATS itself and perhaps other NESHAPs should the EPA or stakeholders decide that the A&N findings in these additional rules were also based on inappropriate benefit-cost considerations.

Separate from Delisting

Reversing the original A&N finding while leaving the regulations in place would appear to be contradictory actions. The legal reason for the action, says the EPA, is that under Section 112, the Agency may delist a category only if it undertakes a delisting process that involves satisfying specified statutory criteria. For the moment, the Agency has decided not to engage in that process. Furthermore, if an industry continues to be a Section 112 category, the EPA must issue a NESHAP for that category. Accordingly, the Agency does not at present believe it is legally sound to attempt to withdraw the MATS solely because it has reversed the A&N finding. This thinking derives from the opinion of the U.S. Court of Appeals for the DC Circuit arrived at in New Jersey v. EPA (2008). The EPA states:

“[T]he EPA notes that the D.C. Circuit in New Jersey held that the EPA’s reversal of a prior determination that it was appropriate and necessary to regulate EGUs under CAA section 112 did not by itself effect a delisting of EGUs from the CAA section 112(c) list of source categories. This holding recognizes that the CAA section 112 appropriate and necessary determination is structurally and functionally separate from the EPA’s ability, conditioned on certain predicate findings, to remove source categories from the CAA section 112(c) list.”

The EPA’s decision to leave the listing and the MATS in place was likely also influenced by a general absence of industry opposition to the MATS. While the MATS has been a factor in the retirement of old and inefficient coal-fired EGUs, the power industry adopted quickly to the requirements to meet new HAP emissions limits. For example, in April 2019, the Edison Electric Institute, which represents the interests of all U.S. investor-owned electric companies, told the EPA that the MATS should remain in force because the electric power sector has fully implemented the standard, and its elimination would imperil the industry’s long-term certainty.

RTR Determination

The final rule includes a brief description of the results of the EPA’s CAA Residual Risk and Technology Review (RTR) of the MATs. The Agency has determined that residual risks due to emissions of HAPs from the EGU source category are acceptable and that the current standards provide an ample margin of safety to protect public health and prevent an adverse environmental effect. Based on the technology review of the MATS, the EPA said it identified no cost-effective air toxics controls that would achieve further emissions reductions. Accordingly, the EPA did not promulgate revisions to the MATS based on these two reviews.

The 2012 Rule

Under Section 112, the EPA reviews the risks of HAP emissions from categories of sources that emit HAPs and, if it finds that it is A&N, sets emissions limits for those HAPs for each category. In issuing the MATS in 2012, the EPA estimated that the rule would produce annual benefits of between $37 billion to $90 billion at an annual compliance cost of $9.6 billion. The Agency stated that the “great majority” of the benefits would be attributable to indirect or co-benefits—specifically, reduced emissions of fine particulate matter (PM2.5) resulting from the use of technologies that reduce HAP emissions. Under the CAA, PM2.5 is a criteria air pollutant, not a HAP, as defined under Section 112. But the EPA took the position that in writing the CAA, Congress sought to reduce air pollution as a whole and that the sections of the Act addressing certain kinds of pollutants did not prohibit reductions that could be achieved under other sections that addressed different pollutants.

The EPA estimated the value of the benefits of HAP reductions alone from the MATS at $4 million to $6 million. The Agency also stated that in writing the CAA, Congress expressly precluded consideration of costs when setting the maximum achievable control technology (MACT) floor that constitutes the minimum emissions limit in a NESHAP. The Agency noted that costs must be considered only when the Agency issues beyond-the-floor emissions limits. As the current EPA characterizes it, “In issuing the MATS in 2012, the EPA read cost consideration entirely out A&N determination.”

Challenges to the MATS

In Michigan v. EPA, states and industry challenged the MATS. The DC Circuit upheld the Agency’s decision not to consider costs. The case progressed to the U.S. Supreme Court. There, a majority found it could not agree with assertions by either the EPA or the DC Circuit that cost considerations were not necessary in either the A&N finding or the MATS itself. Writing for the majority, Justice Antonin Scalia stated:

“Read naturally in the present context, the phrase ‘ap­propriate and necessary’ requires at least some attention to cost. 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. In addition, ‘cost’ includes more than the expense of complying with regulations; any disad­vantage could be termed a cost. EPA’s interpretation precludes the Agency from considering any type of cost—including, for instance, harms that regulation might do to human health or the environment.”

Importantly, the majority did not specify the contents of the required cost consideration.

“We need not and do not hold that the law unambiguously required the Agency, when making this preliminary estimate, to con­duct a formal cost-benefit analysis in which each ad­vantage and disadvantage is assigned a monetary value,” wrote Scalia. “It will be up to the Agency to decide (as always, within the limits of reasonable interpretation) how to account for cost.”

Coal Plant

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‘Preferred Approach’

The EPA responded to the Supreme Court in April 2016 with a supplemental A&N finding. Given that the Court did not mandate a specific type of cost consideration, the Agency took several approaches. The main or “preferred approach,” called the cost reasonableness approach, indicated that the power sector can reasonably absorb the compliance costs associated with the MATS without impairing its ability to perform its primary and unique function: the generation, transmission, and distribution of reliable electricity at a reasonable cost.

The EPA also conducted an “alternative” benefit-cost analysis, which, the Agency emphasized, was not required by the Supreme Court. As noted, this analysis addressed the reduction of emissions of PM2.5, as well as sulfur dioxide (SO2), a PM2.5 precursor, that would result as a co-benefit from the installation and operation equipment to control HAP emissions. The Agency concluded that the “benefits (monetized and non-monetized) of the rule are substantial and far outweigh the costs.”

“There is no statutory provision prohibiting consideration of direct co-benefits,” the Agency continued. “The EPA believes that, consistent with economic principles and best practices regarding benefit-cost analysis and the fundamental linkages between reducing HAP emissions and reducing SO2 and PM2.5 emissions as a direct consequence of actions taken to meet the standards, it is reasonable to consider co-benefits in making the appropriate and necessary finding.”

The EPA concluded “that under every metric examined, the cost of the MATS is reasonable and that no new information provided during the public comment period demonstrates otherwise.”

Meaningful Cost Consideration

The current reconsideration specifically addresses the supplemental finding. The Agency first asserts that it is within its legal authority to “revisit” a prior A&N finding under Section 112. The final rule refers to CAA Section 112(n)(1)(A), which Congress inserted into Section 112 specifically for electric power plants. That provision directed the EPA to conduct a study of power plant emissions and, based on that study, issue emissions reduction requirements if they are found to be A&N.

“The only clear requirement with regard to timing or sequence found in the text of the provision is that the Administrator may not make the finding prior to considering the results of the Utility Study, which the EPA completed in 1998,” says the EPA. “The statute does not restrict the Administrator’s ability to revise or reconsider a prior finding made under CAA section 112(n)(1)(A).”

Second, the EPA has concluded that the “preferred approach” in the 2016 Supplemental Finding did not meaningfully consider cost, which the Michigan Court observed to be a “centrally relevant factor” in making the CAA section 112(n)(1)(A) A&N finding.

The EPA acknowledges that neither the text of Section 112(n)1)(A) nor Michigan requires the Agency to consider cost in a particular fashion. However, the EPA goes on to state:

“[W]e do not think the ‘preferred approach’ in the 2016 Finding gave sufficient weight to cost as a ‘centrally relevant factor,’ (Michigan)—that is, we do not think that a cost standard that is satisfied by establishing that regulation will not fundamentally impair the functioning of a major sector of the economy places cost at the center of a regulatory decision—and we are in this action heeding the Michigan Court’s reading of the Administrator’s role under CAA section 112(n)(1)(A), which directed the Agency to meaningfully consider cost within the context of a regulation’s benefits.”

Co-Benefits

Furthermore, says the EPA, the alternative benefit-cost approach used in the 2016 supplemental finding improperly considered co-benefits from non-HAP emissions reductions. According to the Agency, the preferred approach implied that an equal weight was given to the non-HAP co-benefit emissions reductions and the HAP-specific benefits of the regulation. In these circumstances, the EPA continues, to give equal weight to the monetized PM2.5 co-benefits would permit those benefits to become the driver of the regulatory determination. The Agency states, and frequently restates, in the reconsideration:

“In CAA section 112(n)(1)(A), Congress directs the EPA to decide whether regulation of EGUs is appropriate and necessary under CAA section 112, i.e., whether the deployment of specific CAA provisions targeted at reducing HAP emissions from the EGU sector is warranted. The EPA believes that it cannot answer this question by pointing to benefits that are overwhelmingly attributable to reductions in an entirely different set of pollutants not targeted by CAA section 112. The EPA believes that it is illogical for the Agency to make a determination, informed by a study of what hazards remain after implementation of other CAA programs, that regulation under CAA section 112, which is expressly designed to deal with HAP emissions, is ‘appropriate’ principally on the basis of criteria pollutant impacts.”

The Agency further reasons that Congress’s instruction to the EPA that it study HAP effects under CAA Section 112 after implementation of other CAA provisions—that is, those sections addressing criteria air pollutants—cuts against any suggestion that such benefits should be given equal consideration in a CAA Section 112(n)(1)(A) determination.

The Agency says it acknowledges the existence and importance of co-benefits under the MATS.

“However, when the EPA is comparing benefits to costs as a required prerequisite to regulation, it is critical to examine the particular statutory provision that is being implemented,” the EPA concludes. “That statutory provision may limit the relevance of certain costs and benefits—e.g., serve to establish that any benefits attributable to the ancillary reduction of pollutant emissions that are not the focus of the provision at issue are not ‘an important aspect of the problem’ that Congress is seeking to address.”