EPA air reg’s price tag: Huge, politically toxic — and wrong

By Sean Reilly | 11/10/2021 01:25 PM EST

Debate over EPA's Mercury and Air Toxics Standards has been dogged by a compliance cost forecast that was likely much too high. Claudine Hellmuth/E&E News (illustration); Mrs. Gemstone/Flickr (smoke stacks); Court Documents (text)

It was a big, brassy number that blared its way into a Senate debate, myriad court filings and even a Supreme Court opinion. And it was almost certainly wrong.

$9.6 billion.

That was EPA’s upper limit forecast of the annual compliance costs for its landmark regulations on mercury and other hazardous power plant emissions issued in late 2011 (E&E News PM, Dec. 21, 2011). Now, that price tag is a key issue for the Biden administration in grappling with one of the Trump administration’s most polarizing rollbacks.

For foes of the new standards, EPA’s 2011 estimate became a totem as they seized on the lopsided contrast with the relatively small dollar amount of direct health benefits expected from reduced pollution.

A decade later, there’s broad agreement that the actual expense to the power industry has been far less. But as the agency strives to restore the standards’ legal footing, the episode testifies to the inherent fuzziness that surrounds official projections of the impact of big-ticket environmental regulations — even when they’re turned into political and courtroom fodder.

The $9.6 billion figure “played a key role in the battle for hearts and minds” over the standards, but “nobody in industry ever believed it,” said Brendan Collins, an attorney with the firm Ballard Spahr LLP who has represented businesses that back the regulations. “And industry was right.”

After predicting early on that compliance would cost it at least $1.3 billion, for example, Ohio-based FirstEnergy Corp. later slashed that price tag to $345 million, according to company financial reports. By 2015, a consultant working for several of Collins’ clients at the time concluded that the actual cost to the power sector had been about $2 billion per year, or less than one-quarter the EPA estimate.

Four years later, electric industry trade groups pegged the cumulative expense at more than $18 billion, a formidable sum but still much less than what EPA predicted over time (Greenwire, March 27, 2019).

Nonetheless, the Trump administration last year returned to the $9.6 billion cost forecast in defending its decision to gut the legal underpinning for what are formally known as the Mercury and Air Toxics Standards (MATS) (Greenwire, April 17, 2020). Even if the true number were lower, according to an unsigned EPA memo, it probably vastly outweighed the $6 million in maximum direct health gains predicted in 2011.

Reversing that Trump-era decision has been an urgent priority for the current administration. In one of his first executive orders, President Biden set an August deadline for EPA to publish a proposed rule to suspend, revise or rescind it. Months past that cutoff, however, the EPA draft remains under wraps and bottled up at the White House regulations office while undergoing a customary review (Greenwire, Sept. 10).

EPA spokesperson Tim Carroll referred questions about the reason for the slower-than-expected pace to the White House, where a press aide did not reply to an email. In a separate message, Carroll declined to discuss details of the draft rule but said that “estimating the actual expense” of the standards “is an important piece of the finding.”

The long road to MATS

In the meantime, the delay marks the latest turn in what may be the most tortuous path ever of a major air quality regulation.

EPA had issued the MATS rule only after making a unique Clean Air Act determination that it was “appropriate and necessary” to do so. The rule set first-ever limits on emissions of mercury, arsenic and other dangerous pollutants from coal- and oil-fired power plants. The compliance cost estimate, contained in the “regulatory impact analysis” (RIA) that accompanies major environmental rules, drew on a complex set of assumptions about the cost of the needed pollution controls and other forces.

If those assumptions proved wrong, one reason may lie in a natural trajectory in which individual companies figure out cheaper ways to comply. More fundamentally, EPA overstated the staying power of many coal-fired power plants, a team of economists found in a 2019 report (E&E News PM, Dec. 4, 2019). The agency’s analysis predicted that close to half the nation’s electricity generation would still come from coal by 2015; the actual proportion was about one-third that, meaning there were fewer plants subject to the standards.

“We’ll never have a crystal ball that precisely predicts the future,” Mary Evans, a professor at the University of Texas, Austin, who was among the report’s authors, wrote in an email last week. “As a result, a prospective RIA will always involve some uncertainty.”

Any such nuance was lost in the initial groundswell of opposition to MATS from the power industry and members of Congress.

“It is the largest rule in American history,” then-Sen. Jeff Sessions (R-Ala.) said during a June 2012 debate over a bill to scrap the standards via the Congressional Review Act. “It changes the course of our economy.”

The bill, sponsored by Sen. Jim Inhofe (R-Okla.), narrowly failed by a 46-53 margin. While most repeal supporters were Republicans, they included Democrats like Sens. Mark Warner of Virginia and Joe Manchin of West Virginia, who now chairs the Senate Energy and Natural Resources Committee.

Legal challenges

A barrage of lawsuits, meanwhile, greeted the standards once they were formally published in early 2012.

“According to EPA analyses, it will be extraordinarily expensive to comply with the rule,” lawyers for utilities and other opponents wrote in their opening brief before the U.S. Court of Appeals for the District of Columbia Circuit. A three-judge panel ultimately upheld the standards, but only with a partial dissent from then-Judge Brett Kavanaugh, who objected that EPA hadn’t considered costs in making the “appropriate and necessary” finding.

“And the costs are huge, about $9.6 billion a year — that’s billion with a b — by EPA’s own calculation,” wrote Kavanaugh, who has since joined the Supreme Court. That number bookended the other part of his concerns: that so few of the quantifiable health benefits came from cuts in mercury and other hazardous pollutants directly targeted by the regulations. Instead, almost all of the gains expected from less death and disease — amounting to tens of billions of dollars — stemmed from “co-benefits” tied to reductions in the immense amounts of soot-forming pollutants spewed by coal-fired power generators.

“Fairly dramatic” was how Supreme Court Chief Justice John Roberts in oral arguments described the gap between the $9.6 billion cost and the $6 million in direct benefits when the case reached the high court in 2015. In a 5-4 ruling issued a few months later, the court allowed the standards to remain in effect but found that EPA should have considered compliance costs when embarking on the appropriate and necessary determination (Climatewire, June 30, 2015).

Based on EPA’s numbers, the expense to power plants was at least 1,600 times as great “as the quantifiable benefits from reduced emissions of hazardous air pollutants,” then-Justice Antonin Scalia wrote in the majority opinion. In response, EPA the next year released a “supplemental finding” that concluded that cost factors would have made no difference in its decision to limit plant emissions.

By that point, virtually the entire electric generating sector had complied with MATS, with little, if any, of the economic disruption that Sessions and other critics had warned of. When the Trump administration later moved to revoke the supplemental finding, the industry unsuccessfully lined up in opposition for fear that the loss of MATS’ legal foundation could jeopardize its ability to recoup compliance costs from customers.

The supplemental finding, however, remains the target of another round of lawsuits before the D.C. Circuit. In their opening 2016 brief, power companies, a coal mining firm and Republican-leaning states again cited the $9.6 billion figure and labeled MATS “the most expensive rulemaking in EPA’s history.” Proceedings in the case have now been on hold for more than four years. Some of the initial challengers, including a now-defunct utility trade group, have dropped out.

Two power companies, however, remain as plaintiffs: Atlanta-based Southern Co. and a subsidiary of Vistra Corp., which is headquartered in Texas. Asked in emails last week whether the two companies still believe that the $9.6 billion compliance cost forecast was accurate, spokespeople did not respond.