The Supreme Court's ruling this week that U.S. EPA should have considered the cost of its Mercury and Air Toxics Standards has reignited a debate about the agency's practice of counting health "co-benefits" in justifying the economic impacts of its Clean Air Act rules.
Industry maintains that practice double-counts health benefits for ancillary reductions of pollutants that aren't the regulation's focus. These co-benefits loom large in the proposed Clean Power Plan, which EPA predicts will lead to big reductions in soot and smog, curbing emissions of sulfur dioxide, nitrogen oxides and particulates along with reducing heat-trapping carbon dioxide.
In the mercury case, industry and states had challenged EPA's use of co-benefits, but the Supreme Court didn't rule on that issue.
"The decision leaves unanswered questions regarding how the costs and benefits of the contemplated regulations are quantified and whether indirect benefits are appropriately considered, which presumably remain within the reasonable discretion of the agency," said Kevin Desharnais, a partner at Mayer Brown LLP.
In its 5-4 ruling, the Supreme Court sent the standards back to the federal appeals court, finding EPA should have considered costs when it found that it was "appropriate and necessary" to regulate hazardous air emissions from power plants (Greenwire, June 29).
But the court didn't offer guidance to EPA on how it should consider cost.
"It will be up to the agency to decide (as always, within the limits of reasonable interpretation) how to account for cost," Justice Antonin Scalia wrote in the majority opinion.
Although EPA didn't consider cost when it found power plants' toxic emissions should be regulated, the agency did do a cost-benefit study later in the rulemaking process that relied heavily on co-benefits.
The EPA analysis found that the rule would cost industry $9.6 billion a year, while overall benefits would tally as much as $90 billion annually. Of those total benefits, up to $6 million would come from reduced mercury pollution.
The majority of the rest of the monetary benefits would largely stem from reductions in particulate matter, a Clean Air Act criteria pollutant that is not a target of the mercury rule.
During oral arguments, Chief Justice John Roberts grilled Solicitor General Donald Verrilli about the analysis, suggesting EPA was using the mercury rule to get reductions in particulate matter that it wouldn't be able to do otherwise in the Clean Air Act.
"It's a good thing if your regulation also benefits in other ways," Roberts said. "But when it's such a disproportion, you begin to wonder whether it's an illegitimate way of avoiding the different -- quite different limitations on EPA that apply in the criteria program."
Lorie Schmidt, associate general counsel at EPA, said that the Supreme Court didn't offer direction in the opinion because there was likely a lack of agreement among the justices.
"Given the extensive discussion at oral arguments of both the cost-benefit analysis and co-benefits issue, I think it's interesting that the court either specifically did not prohibit us from looking at co-benefits or require that we do a cost-benefit analysis," she said, adding that it "leads me to wonder whether the court had five votes for that type of requirement."
Though the high court ultimately did not offer any formula for how EPA should treat co-benefits, the majority and dissenting opinions of the court suggested that the justices held different opinions about whether the benefits of the rule outweighed its costs. The majority focused on the $6 million benefit from reductions in mercury pollution, while the minority's dissenting opinion frequently referred to the much higher figure that includes particulate matter benefits.
"Clearly there are different perspectives on whether co-benefits can and should be considered," said William Wehrum, a partner at Hunton & Williams LLP, which represented the Utility Air Regulatory Group in the case. Wehrum served as acting EPA air chief for two years in the George W. Bush administration.
In the wake of the Mercury and Air Toxics Standards (MATS) ruling, industry has doubled down on its criticism of EPA's practice.
Chet Thompson, who served as EPA's deputy general counsel from 2004 to 2006, yesterday called co-benefits a type of "post hoc rationalization" of costly air rules and suggested the agency relies on studies of the same group of people for multiple regulations.
"Look, at some point, someone's going to call EPA on how many times [it counts benefits] from the same cohort. I bet this is the same cohort that we relied on when I was at EPA," said Thompson, who's now president of the refining group American Fuel & Petrochemical Manufacturers. "They keep recycling. I don't mean to make light of it, but they keep talking about the cohort, the benefits of [particulate matter] controls."
Jim Pew, a staff attorney at Earthjustice, slammed industry's arguments against accounting for indirect benefits as morally suspect.
"They're not denying that 11,000 people would get to live if the rule is left in place or would be left to die if the rule is taken away. That's not even in dispute," he said. "They're saying whether those people will live or die is kind of irrelevant. And I don't think that's right. I think it's very relevant."
Pew added that he believed a court would find that EPA's practice is within the bounds of the law.
"I don't think you would find a lot of support for the idea that ignoring co-benefits is rational," he said. "I don't think you would find much support for the idea that EPA would be acting arbitrarily if it considered co-benefits."
Co-benefits in Clean Power Plan
Industry has also focused its criticism of co-benefits on EPA's analysis of the costs of the Clean Power Plan. EPA expects that requiring reductions of greenhouse gas emissions at power plants will reduce Clean Air Act criteria pollutants and their precursors, including sulfur dioxide, nitrogen oxides and emitted particles, by amounts "well beyond" what's been achieved by previous rules.
In its regulatory impact analysis, EPA estimated the rule would result in between 2,700 and 6,200 fewer particulate-matter-related premature deaths by 2030. By 2030, the rule would also result in 180,000 fewer missed school days by children due to ozone-related illnesses. Asthma instances would also drop significantly, according to the analysis.
Net climate and public health benefits are projected to be up to around $90 billion by 2030.
"If the Supreme Court were to question the co-benefits in Michigan v. EPA, why not question the inclusion of international climate benefits and U.S. co-benefits for a rule that creates a tiny climate benefit for U.S. taxpayers, especially when compared to the costs of producing it?" wrote Michael Wara, associate professor of law at Stanford University.
"If some benefits count more than others, what's to stop the Supreme Court from blocking climate regulations because U.S. climate benefits are tiny when that case comes before them in a few years time? That at any rate was the worry."
In a friend-of-the-court brief in the MATS case, New York University's Institute for Policy Integrity argued that both federal law and "long-accepted economic methodologies" supported EPA's practice. EPA has taken indirect benefits into account in its economic analyses since at least 1978, the institute said.
Many experts believe that when the MATS rule is sent back to EPA, the agency will rely on the cost-benefit analysis it already did to justify the rule, which includes co-benefits.
"If EPA cannot use these ancillary benefits -- something it routinely does -- the agency may have a hard time justifying the MATS regulations," wrote Ann Carlson, an environmental law professor at the University of California, Los Angeles.
She also noted that the agency's analysis did not quantify a number of other benefits that are difficult to put a price tag on, such as reductions in cardiovascular and neurological effects.
Pew of Earthjustice said EPA may try to better quantify those benefits in a new analysis for the rule.
"Leaving aside the co-benefits issue," he said, "I think it's entirely fair to say the rule has enormous benefits, whether we can quantify them or not."
Wehrum, the attorney at Hunton & Williams, said that the co-benefits issue was still ripe for litigation.
"I think if EPA goes forward," he said, "that's an issue that's certainly going to come up in any kind of litigation that follows."