Last week the Supreme Court ruled U.S EPA should have considered compliance costs before issuing its Mercury and Air Toxics Standards. Because utilities and coal companies have already implemented the technologies necessary to comply with the rule, how will industry operations be affected by the court's decision? During today's OnPoint, Jeff Holmstead, a partner at Bracewell & Giuliani and a former assistant administrator for air and radiation at U.S. EPA, discusses next steps for the MATS rule and explains why he believes the court's decision helps to strengthen the argument for a stay on the Clean Power Plan.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Jeff Holmstead, a partner at Bracewell & Giuliani and former assistant administrator for air and radiation at U.S. EPA. Jeff, thanks for coming back on the show.
Jeff Holmstead: My pleasure. Thanks for having me.
Monica Trauzzi: Jeff, last week the Supreme Court ruled EPA should have considered compliance costs before issuing its Mercury and Air Toxic Standards. The rule is already active and, in many cases, fully implemented, so what is the impact, then, of the court's ruling on the MATS rule?
Jeff Holmstead: I think it's fair to say that the rule has already done most of what it's going to do. Something like 90 percent or more of the capacity has installed controls or shut down, but there is maybe 100 plants that still have a future compliance date because they were able to get extensions, and I think the ruling could be important at least for those facilities.
Monica Trauzzi: So what does that then mean for the coal industry, for utilities and for those facilities that are still not in compliance?
Jeff Holmstead: Well, it depends a lot on what happens with the D.C. Circuit. As you know, the Supreme Court reversed the D.C. Circuit and then sent it back for further proceedings, and so the next step will be briefing over whether the rule should be vacated or suspended during the reconsideration.
Monica Trauzzi: Up until this point, the courts have said that unless the statute was specific about the consideration of cost, it was up to the discretion of the agency to decide when and where costs would be considered. Why do you think the court took a different approach with this case?
Jeff Holmstead: Well, I do think it's fair to say that this case establishes a new legal principle that unless Congress has told an agency that it shouldn't consider costs when making a specific regulatory decision, it has to somehow take cost into account. And I think that really is the only way to read the decision. Now, they said it doesn't necessarily have to be a formal benefit-cost analysis, but they do have to show somehow that the costs are justified, and I think that that is a principle that the Supreme Court has -- they edged toward that in the Riverkeeper case, but I think it now really does establish that for the first time.
Monica Trauzzi: Right, and EPA -- they did consider cost; it was just later in the process.
Jeff Holmstead: You know something? That's not really true. That defense was kind of invented during the litigation, but EPA conceded in the rulemaking itself that it really didn't consider cost except in deciding whether to go so-called beyond the floor. But in general, once EPA decided it was appropriate and necessary, it said, well, we have to do what Section 112 requires, so they set MAT floor levels for everyone, and that's where the real costs come in.
Monica Trauzzi: So the real question that legal experts have been looking at over the last week is what impact this ruling will have on subsequent Clean Air Act regulation, specifically the Clean Power Plan, which we're all awaiting, could -- the final plan could come out over the next couple of weeks. EPA says the ruling will not change its plans to move forward with the power plan. Costs have been considered by the agency in that plan in its draft proposal. What do you think the impacts should and could be on what the Clean Power Plan looks like?
Jeff Holmstead: Well, I think EPA has decided what it's going to do with the Clean Power Plan, so I don't think they will change their regulation. I think the case is really important because it will be front and center in the debate over whether the Clean Power Plan should be stayed during the litigation. So remember, in MATS, the rule wasn't stayed, and industry has now spent tens of billions of dollars, they've closed dozens and dozens of plants, they've put a lot of people out of work, all to comply with the rule that the court now says was invalid. And I think the states and industry groups who oppose the Clean Power Plan will have a pretty strong case for going in and saying look at this rule, there's a legally questionable, you shouldn't put us in that same position again. And so I do think this will be front and center when we have the first legal battle, which will be over whether the Clean Power Plan should be stayed.
Monica Trauzzi: And if there were to be a stay, then the Obama administration would sort of miss its deadline for having this fully implemented by the time the president leaves office.
Jeff Holmstead: Well, it was never going to be fully implemented by the time the president leaves office. They've had very aggressive deadlines, but even under those deadlines, much of it was going to be left to the next administration. But it would obviously be embarrassing, especially if it happens before they go to Paris. And I think that's a possibility if the court were to act very quickly.
Monica Trauzzi: Having worked at EPA, you have a good sense of what happens behind the scenes. What do you think the conversations at EPA are like right now following the court's ruling and heading towards the final Clean Power Plan?
Jeff Holmstead: Well, anyone who's ever worked at EPA will tell you that when they decided not to consider cost, that was a decision that they didn't take lightly. They took that decision because they thought that was the most legally defensible position. So now they're faced with, I think, a real quandary because how do they justify the $9.7 billion in costs under Section 112, and that's the section that EPA used to promulgate MATS. EPA is only authorized to regulate hazardous air pollutants, and yet, EPA says that 99.5 percent of the benefits of the MATS rule come from fine particle pollution, which is not a hazardous air pollutant. And so that puts EPA in a tricky position legally, and so they're going to have to decide whether they try to use fine particle pollution to justify these costs, knowing that that could be legally problematic as well. And then I think you're also maybe even covered this issue, but this whole question of whether Section 112 regulation precludes EPA from using 111(d), that has to be something that they're now looking at as well because I think that argument turns out to be much stronger than EPA acknowledged in its original proposal.
Monica Trauzzi: All right. There'll be a lot of interesting discussions, and it'll be an interesting summer for us.
Jeff Holmstead: I think it will.
Monica Trauzzi: Thanks for coming on the show.
Jeff Holmstead: Thank you.
Monica Trauzzi: All right. And thanks for watching. We'll see you back here tomorrow.
[End of Audio]