By - Michael Drost

Will the U.S. Supreme Court Vacate the MATS Rule?

supremecourt

By Martin Rock, P.E., J.D., LEED-AP
President & Senior Principal
OMNI Professional Environmental
EUCI Instructor

On November 25, 2014, The U.S. Supreme Court released an Order granting Petitions for Writ of Certiorari saying the Court will consider challenges to the Environmental Protection Agency’s (EPA) 2012 mercury and air toxics emissions standards for power plants (MATS), which are among the most costly regulations in EPA history.

The Court announced it will review whether the EPA “unreasonably refused to consider costs” when it determined that it was “appropriate and necessary” to regulate hazardous air pollution from power plants. The court granted certiorari on three separate petitions filed by the Utility Air Regulatory Group, the National Mining Association and 21 states, including Michigan and Texas, and consolidated the cases. Some court watchers have opined the Court would not have granted certiorari if they did not intend to vacate the rule, so these folks will be watching this case like the Superbowl.

The 2012 mercury and air toxics standards (MATS), which apply to all power plants above 25MW, established emissions limits for mercury, filterable particulate matter as a surrogate for toxic metals, and hydrogen chloride as a surrogate for acid gases, and the Rule also generally imposes more monitoring & reporting requirements and requires work practice standards for control of dioxins and furans. The EPA estimates that the standards will cost the power industry $9.6 billion annually. Independent economists have estimated the costs are much higher due to the broader economic impacts of higher energy costs on the US economy as a whole and associated job losses.

The industry groups and states asked the court to review whether it was reasonable for the EPA to determine that it was “appropriate and necessary” to regulate power plant emissions without considering the cost of regulating those emissions. The EPA made a finding in December 2000 that power plants should be regulated under Section 112 of the federal Clean Air Act, this finding was reversed by the Agency itself during the Bush Administration and the CAMR (Clean Air Mercury Rule) was implemented under §111, and then CAMR was vacated and the finding was reinstated during the current administration. This resulted from specific language in the Clean Air Act regarding regulation of the electric utility industry under §112.

White Stallion Energy Center, LLC v. EPA

The U.S. Court of Appeals for the District of Columbia Circuit upheld the MATS rule in April,2014, ruling that the EPA’s decision not to consider costs is permissible under the Clean Air Act because the statute doesn’t expressly require the agency to consider costs in making a finding on the appropriateness of regulating power plant emissions (White Stallion Energy Center LLC v. EPA, 748 F.3d 1222, 2014 BL 103957 (D.C. Cir. 2014)). [Emphasis added.]

However, a strong, coherent dissent issued by Justice Brett M. Kavanaugh appears to have caught the attention of the Supreme Court. One memorable line in Kavanaugh’s dissent was “that’s billion with a ‘B’ . . . “ in referring to the $10 Billion annual cost of the MATS Rule. Kavanaugh then goes further on the cost issue: “To put it in perspective, that amount would pay the annual health insurance premiums of about two million Americans. It would pay the annual salaries of about 200,000 members of the U.S. Military. It would cover the annual budget of the entire National Park Service three times over.”

Coal Plant Retirements

Though MATS compliance is scheduled to take effect in April 2015, state, local, and tribal environmental (S/L/T) permitting agencies are conditionally allowed to extend the deadline by up to one year. MATS requires coal-fired units to install flue gas desulfurization (FGD) equipment or dry sorbent injection (DSI) systems by 2016. In addition to onerous EPA rules, factors that favor either temporary or permanent retirement decisions include higher coal prices, lower wholesale electricity prices tied to natural gas prices, and reduced utilization that renders desulfurization investments uneconomical.

On February 14, 2014, the Energy Information Administration (EIA) released a report showing that more coal-fired power plants are projected to retire by 2016 than previously predicted. Low natural gas prices, slow electricity demand growth, and new environmental regulations are placing significant economic pressure on coal-fired plants. Since EPA’s GHG Rules have yet to be finalized, the higher than predicted number of plant retirements raises serious concerns about adequate power supply and reliability.

For example, on January 7, 2014, during the so-called winter polar vortex effect, PJM (PJM Interconnection is a regional electric transmission organization that serves a large swath of the United States from New Jersey to Illinois) saw the largest-ever peak winter load of nearly 142,000 megawatts. In the rest of that month alone, 8 of the top 10 peak winter loads for PJM occurred. PJM survived without throwing millions of customers into electrical blackout during severe cold weather thanks to using old, coal-fired power plants that are scheduled to be shut down by the EPA soon. “Eighty-nine percent of the coal electricity capacity that is due to go offline was utilized as that backup to meet the demand this winter,” said Alaska Republican Senator Lisa Murkowski at a Senate hearing during April, 2014. Some reports indicate that PJM was only one coal-fired power plant away from losing the grid. The PJM service area includes a population of about 61 million Americans who would be left shivering, even dying, in the cold without electricity in the event of a grid blackout during severe winter weather.

Credibility of EPA’s Benefit Cost Analysis

EPA’s own analysis finds the reduction in mercury emissions brought about by the rule will offer little in the way of health benefits. The EPA assigns a dollar value ranging from $0.5 million to $6.2 million per year to these gains. The agency did not attempt to quantify or value the health benefits of the other air toxic emissions associated with this regulation.

If these were the only benefits of the MATS rule, and if the EPA’s own estimates of costs and benefits are taken at face value, the $9.6 billion in annual cost would be between 1,500 and 19,000 times greater than the benefit. Also, while the U.S. has been diligently reducing mercury emissions, other countries, particularly China and India, have been adding uncontrolled power plant emissions at a rapid rate.

Mercury is a global pollutant that does not respect international borders. Therefore, much of the mercury exposure of children and adults is likely due to the growing “global pool” of mercury in the atmosphere from developing countries, not from U.S. power plants. So, even the small benefit claimed by the EPA may be illusory as any US mercury emissions reductions are likely to be overwhelmed by other global sources. It is also worth noting the previous CAMR rule would have obtained roughly the same mercury reductions much earlier and cheaper.

Yet, EPA actually claims $33–$90 billion per year in economic benefits and 11,000 premature deaths avoided. These figures are derived from EPA models counting “co-benefits” that arise not directly from reducing toxic emissions, but from reductions in PM2.5 and carbon emissions. The EPA’s models predict these other reductions will happen as beneficial side effects of the controls that will be required by the rule.

However, independent studies indicate over counting as these same so-called “co-benefits” have already been counted over 22 times by the EPA in other rules. Also, EPA’s PM-2.5 co-benefit calculation includes concentrations below the National Ambient Air Quality Standard” (NAAQS) for fine particles. By law, EPA has already set the NAAQS at levels that are protective of human health, and both theory and data suggest that thresholds exist below which further reductions in exposure to PM2.5 do not yield changes in mortality response. Other such factors are mentioned in these independent studies indicating that EPA’s reliance on these co-benefits as cost justification of such rules as MATS is simply no longer credible, and reporting or claiming such illusory co-benefits is misleading to the public.

MATS1

Fig 1: Most of the Benefits claimed by EPA for the MATS Rule are not related to reductions of Mercury or Air Toxics emissions.

On the other hand, certain air pollution control technologies do provide possible co-benefits if they are operated and maintained to do so. In North Carolina, the NC Clean Smokestacks Act forced early reductions of PM, N-Ox and S-Ox emissions, and the data shows this effort also resulted in a co-benefit of early reductions of mercury emissions.

However, this is not necessarily the case with the MATS rule, since additional controls generally impose a parasitic energy demand on the base power plants and this, in turn, requires more fuel consumption and more emissions. Also, while some controls may be capable of providing such co-benefits, they may not actually provide or realize such co-benefits when they are being operated and optimized to control the primary target pollutant to a higher degree of efficiency than the co-benefit pollutant. Another factor is that plants originally designed for baseload service are now serving variable loads and this adversely affects the control devices originally designed for baseload units.

MATS2

Table 1: Possible Co-Benefits of Various Emissions Controls

                                                                (Source: NESCAUM)

Another cost-benefit consideration is the broader impact of the MATS Rule and the cumulative adverse impact of burgeoning federal regulations on jobs and the economy. Recent studies have shown that job losses are correlated with a high corresponding frequency of depression, serious illness and even suicide for those who have been displaced. Job losses may help the health of the bottom line but are very unhealthy for the displaced person or persons.

When is EPA Required to Consider Costs ?

Thomas Lorenzen, a partner at Dorsey & Whitney LLP, previously of the U.S. Justice Department, said the Supreme Court wasn’t widely expected to grant certiorari on the mercury standards. He said the Court’s decision to hear the case could signal that the Supreme Court is shifting its opinion on cost consideration in environmental regulations. Lorenzen cited a 2009 decision that held the EPA had discretion to consider the cost of regulating large industrial cooling water intake structures under the Clean Water Act, which doesn’t expressly authorize or forbid the use of cost-benefit analysis (Entergy Corp. v. Riverkeeper Inc., 556 U.S. 208, 68 ERC 1001 (2009)).

Lorenzen said that given the decision to hear the MATS case, the court could be considering going further than it did in the Entergy decision and determining that it may be “arbitrary and capricious” for the EPA not to consider costs. “That would be a significant shift and would make it substantially harder for EPA to determine to regulate,” he said. A decision against the EPA could be very wide-reaching because it could set precedent that the EPA should begin to weigh costs when it considers when to regulate, rather than later when it just determines how pollution should be regulated, according to Lorenzen.

Jeffrey Holmstead, a partner at Bracewell & Giuliani LLP who represents the power industry said industry and the states want the court to determine what the word “appropriate” means with respect to EPA’s determination to regulate. He said that the term appropriate “certainly seems to include more” than just health effects.

Holmstead also mentioned that a decision against the EPA could affect industry challenges to the agency’s proposed carbon dioxide standards for existing power plants, which are being promulgated under Section 111(d) of the Clean Air Act. Lawsuits already filed against the proposed GHG rule (such as the Petition For Extraordinary Writ filed by Murray Energy) argue that it is illegal for the EPA to regulate power plants under Section 111(d) of the CAA because power plant emissions are already regulated under Section 112 of the CAA.

If the Supreme Court were to strike down the mercury and air toxics standards, which were promulgated under (CAA) Section 112, that action would remove a potentially strong industry argument against the agency’s carbon (GHG) rule, Holmstead said. Some have even speculated that the four justices who voted to grant certiorari were not a group of four conservative justices who wanted to rein in EPA overreach, but instead included some of the liberal justices who wanted to protect the forthcoming GHG rules from legal challenges. At the DC Circuit, Justice Kavanaugh was not impressed by the EPA’s flawed cost benefit analysis being basically a fig-leaf, bluntly stating as follows: “But EPA did not consider costs here.”

The ultimate answer on the cost consideration issue may be decided based on a trend toward strict construction of the statutory language as was seen in the recent UARG v. EPA decision which struck down EPA’s Tailoring and Timing rules as inconsistent with the statute. In that case, even an arguably rational statutory interpretation was considered illegal under the statutory construct.

Therefore, the issue in the MATS case may also come down to the degree of EPA’s discretion given the statutory construct: If, on the one hand, EPA has discretion to account for cost considerations in some similar rules promulgated under very similar statutes, then is it unreasonable and inappropriate on the other hand for EPA to ignore cost considerations and impose enormous costs on all American electricity ratepayers and society with little or no tangible benefits to the public?

If so, this may be a case with significant implications for the future of EPA rulemaking.

Timing Issues

While several coal-fired power plants have announced that they will be shutting down because they can’t meet the standards, those shutdowns could end up being temporary if the Supreme Court rules against the EPA and MATS is vacated. In some states, the difference between a temporary shut-down and a permanent plant retirement decommissioning is a significant difference in expense.

Alternatively, such plants can request a one-year extension to the MATS compliance date to April 2016, and in the case of the MATS rule a presidential signing statement was added encouraging such extensions should be freely given when requested. Indeed, even a fifth year can be negotiated under an Administrative Order by Consent (“AOC” or “Consent Order”) in the same spirit of the presidential signing statement, allowing these plants to continue to operate until April 2017, particularly if there are grid reliability concerns. (However, such a negotiated AOC may include some type of operating restrictions or other conditions during the extension period.)

The challenge to the mercury and air toxics standards is expected to be argued in March, with closely watched oral arguments, and resolved before the Supreme Court’s term ends in June.

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Want to learn more? If you are interested in more information on this topic, please consider attending EUCI’s upcoming live course “Clean Air Act Rules Currently Affecting the Electric Utilities Sector” March 17-18, 2015 in Houston, TX.

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