Agency memo reinforces rule’s legality

In a 5-to-4 opinion in Michigan v. EPA (2015), the U.S. Supreme Court remanded EPA’s Mercury and Air Toxics Standards (MATS, February 16, 2012, FR), because the Agency acted unreasonably by not taking cost into consideration in the rulemaking.  In response to the remand, the EPA proposed a supplemental finding (December 1, 2015, FR) in which it stated that consideration of cost does not alter its decision to regulate emissions of hazardous air pollutants (HAPs) from power plants (formally, coal- and oil-fired electric utility steam generating units or EGUs) under Section 112 of the CAA.  At the same time, the Agency released a 30-page memorandum in which it provides more of its legal perspective on the supplemental finding.  Also in the memo, the Agency discusses the ways in which it says it did consider cost in promulgating the MATS. 

The MATS requires that EGUs reduce emissions of mercury and other HAPs.  While not as consequential as EPA’s Clean Power Plan (CPP) to control carbon emissions from EGUs, the MATS is one of the most significant regulatory actions the federal government has ever imposed on the electric power sector.  In the few years since the MATS was promulgated, utility companies have retired coal-fired power plants rather than attempt to meet the standards, which generally have a 2015 compliance date.  Other factors are also influencing the fate of existing coal-fired power plants, including the growing availability of low-cost natural gas. 

The Supreme Court’s ruling was narrow.  The majority did not address whether the EPA was justified in adding EGUs to the list of sectors subject to Section 112.  Neither did the ruling question whether the Agency had the authority to regulate HAPs emitted by EGUs.  The majority simply said the Agency acted unreasonably by not considering cost when it decided that it was appropriate and necessary to regulate HAPs from EGUs.  Furthermore, while directing the EPA to go back and consider cost, the majority did not hold that a particular analysis of cost (e.g., a cost-benefit analysis) was required.  The majority said “it would be up to the Agency to decide how to account for cost.” 

In the proposed supplemental finding, the EPA argues that the compliance cost of the MATS, estimated at up to $9.6 billion a year, is not unreasonable in light of the benefits of the rule and is a “small fraction” of the annual sales of the nation’s electric power sector.   The Agency opened the proposed supplemental finding to public comments for 45 days.  As summarized below, the accompanying memo expands on some of the legal aspects of the proposal and EPA’s decision to regulate. 

Decision to regulate

Section 112 contains many subsections written by Congress to reduce the risks posed by HAPs emitted by industrial sectors.  Section 112 also directs that the EPA undertake specific actions regarding EGUs.  For example, pertinent to the MATS, Section 112(n)(1)(A) instructed that several studies be performed on the hazards of HAPs emitted by EGUs and strategies to control those hazards.  The subsection concludes with the sentence, “The Administrator shall regulate electric steam generating units under this section if the Administrator finds such regulation is appropriate and necessary after considering the results of the study required by this subparagraph.” [emphasis added]

The EPA points out that there is no mention of cost in Subsection 112(n)(1)(A).  Also, argues the Agency, other Section 112 subsections demonstrate that Congress did not intend for the EPA to consider cost when making risk-based determinations.  The Agency states that its review of Section 112 leads to the position that the purpose of the statute is to achieve prompt, permanent, and ongoing reductions in HAP emissions from stationary sources to reduce hazards, with the goal of limiting the risk to the most exposed and most sensitive members of the population. 

“Thus, the EPA concludes that determinations regarding whether HAP emissions from EGUs pose hazards to public health or the environment [first] should be made without consideration of cost, and [second] that cost should be only one of the factors the Agency considers in determining whether regulation of EGUs under section 112 is appropriate,” says the EPA.

Section 112 studies

The EPA says that the studies required under Subsection 112(n)(1)(A) and other studies required by Section 112 informed its interpretation of the role of cost in making the appropriate and necessary determination.  The Agency states:

“The required studies focus on potential hazards to public health and the environment, including the potential hazards to the most sensitive members of the population. The statute also requires the Agency to evaluate available control technologies, and the cost of mercury controls in section 112(n)(1)(B).  Thus, cost is one of the several factors that EPA must consider in addition to the other relevant factors identified in the statute when determining whether regulation of HAP emissions from EGUs is appropriate.  Further, while cost is certainly an important factor, it is one of several factors that must be considered, and section 112(n)(1) does not support a conclusion that cost should be the predominant or overriding factor.”

The MACT factor

Both the Supreme Court majority and the EPA recognize that the CAA is ambiguous in that it does not clarify the manner in which disadvantages of cost are to be considered nor does it address how the EPA is to balance cost against other relevant factors.  To gain a firmer footing on how to consider cost, the Agency said it looked to case law discussing cost determination under other CAA provisions.  For example, CAA Section 111(a)(1) for new stationary sources requires the EPA to take account of the cost of achieving required emissions, along with other factors, but does not specify the weight to give costs when compared with those other factors. 

Given the uncertain direction the CAA provides regarding the consideration of cost, the Agency said it found its most relevant guidance in Section 112(d), which instructs that the EPA set minimum HAP emissions standards based on what has already been achieved by similar sources in the same source category.  The EPA continues that by establishing this requirement, Congress, in essence, determined that this level of control is reasonable. The EPA thus concluded that, when balancing the disadvantages or costs of regulation against the benefits of addressing risks, it is important to consider whether the power sector can reasonably absorb the compliance costs associated with the maximum achievable control technology (MACT) standards.  More specifically, the Agency said a cost consideration would entail determining if the industry’s expenditures in complying with the MATS would compromise its primary and unique function—the generation, transmission, and distribution of affordable and reliable electricity. 

This process of determining technical feasibility under Section 112 involves identifying the MACT floor, or the average emissions limitation achieved by the best performing 12 percent of sources in a sector.  The EPA asserts that it conducted a “significant” information collection request to determine that it had reliable data to assign the MACT floor to its MATS rulemaking.  The Agency effectively indicated that if 12 percent of EGUs were achieving the MATS, the cost of the standards was not unreasonable for the remaining 88 percent. 

The EPA also points to the work practice standards the MATS requires.  In contrast to emissions standards, which may require installation of new pollution control equipment, work practice standards simply require that managers at EGUs fine-tune their existing operations, typically by conducting regular tune-ups of their combustion units.  Also, the Agency says it provided flexibility as to timing so that sources could plan tune-ups during scheduled off-line periods.  “Thus, for organic HAP, the EPA was able to use its discretion to regulate the HAP with little cost and gain increased efficiency through the requirement, which means fewer wasted resources and less potential for HAP emissions,” says the Agency.

The EPA also employed a subcategorization approach in the MATS, which imposed different standards based on the type of coal (e.g., low-rank or non-low-rank coal) or oil (e.g., continental or noncontinental) being combusted.   The EPA says these subcategory determinations led to less costly standards for certain subcategories of sources. 

Beyond-the-floor analysis

After determining the MACT floor for each HAP, the CAA requires the EPA to determine whether more stringent controls of those HAPs are warranted after considering costs and other factors. The Agency conducted a beyond-the-floor analysis as required for EGUs and established only one standard at a beyond-the-floor level of control—a mercury standard for the low-rank coal subcategory.

In all other cases, the EPA did not set beyond-the-floor levels of control even though additional control would have further reduced the risk posed by HAP emissions mainly because of the additional cost of those controls. The EPA determined that the cost of control was not reasonable in light of the HAP reductions that would result.  With the exception of conversion to natural gas, the EPA did not conclude that EGUs would be unable to afford the additional levels of control.  In other words, the EPA exercised its discretion in determining not to impose additional costs on EGUs.

Surrogates

The EPA says it also reduced compliance costs for EGUs by establishing standards that allow sources to monitor only a few surrogate pollutants instead of all the HAPs emitted from EGUs.

In addition, because all EGUs subject to the MATS rule are also subject to the Title IV Acid Rain Program and are required to continuously monitor sulfur dioxide (SO2) emissions, the use of SO2 as a surrogate for acid gas HAPs reduces the monitoring and reporting costs associated with SO2 almost to zero for those EGUs that choose to comply with that alternative.

Monitoring, recordkeeping, and reporting flexibilities

Regarding monitoring, recordkeeping, and reporting, the following are among the cost-related provisions the EPA included in the MATS:

• EGU owners and operators can elect to utilize existing monitoring equipment rather than install and maintain new HAP-specific monitors.
• In exchange for demonstrating and maintaining emissions much lower than those required by the rule, EGU owners or operators are able to avoid installation and operation of sophisticated measurement instruments.
• The choice to comply with either input- or output-based emissions standards allows EGU owners or operators the ability to take advantage of existing monitoring equipment and to realize output-based emissions reductions through investments in heat rate (efficiency) improvements.
• EGUs in the same subcategory at the same facility may average their emissions among those units.  Averaging gives sources the ability to overcontrol some units and minimally control others and still reduce HAP emissions by the same amount as would be required if each unit complied individually.

“All of these emission quantification flexibilities allow EGU owners or operators to demonstrate compliance with the final rule requirements in a way that is as least burdensome as practicable,” says the EPA.

EPA’s legal memorandum that accompanied the MATS proposed supplemental finding is here.

William C. Schillaci
BSchillaci@blr.com