EPA trying to thread a very fine needle with MATS finding

March 20, 2019 | By Michael Nasi and Mark Walters

Four months after the Environmental Protection Agency announced it would review the Mercury and Air Toxics rule, the agency on December 28, 2018, issued a proposed revised “supplemental cost finding” in which it concluded that the regulation of power plants was not “appropriate and necessary” under Section 112 of the Clean Air Act (CAA).

Notwithstanding this finding, however, the EPA proposed that all of the standards in the so-called MATS rule for electric generating units (EGU) will remain in place. This sounds counter-intuitive, and the EPA is trying to thread a very small needle.

To understand the EPA’s thinking, it is necessary to review some of the background of the MATS rule.

The MATS rule was promulgated under CAA Section 112, which governs emissions of substances the EPA has listed as “hazardous air pollutants” (HAP). Section 112 contains a list of HAPs—and a process by which the EPA can designate additional HAPs. Mercury is a listed HAP. Additionally, under Section 112, the EPA “lists” sources of HAPs and then issues emission standards for those sources.

EGUs, however, are treated differently from other sources of air pollution. Before the EPA could regulate EGUs under Section 112, it was first required, by the text of Section 112 itself, to conduct a study and then find that the regulation of HAPs from EGUs was “appropriate and necessary.” The EPA conducted the required study and made such a finding in December 2000.

Instead of promulgating an emissions standard under Section 112, however, in 2005, EPA promulgated two rules, known collectively as the Clean Air Mercury Rule (CAMR) in which it proposed to “de-list” EGUs under Section 112 and regulate their mercury emissions under CAA Section 111 through a “cap and trade” program. However, in a subsequent lawsuit, New Jersey v. EPA, the United States Court of Appeals for the District of Columbia Circuit held that sources of HAPs, including EGUs, can only be “de-listed” if the EPA makes certain findings required by CAA Section 112(c)(9). Since the EPA had not made those findings, the court set aside CAMR.

Subsequently, EPA in 2011 promulgated the MATS rule, under which it again proposed to regulate mercury emissions from EGUs under Section 112.

A number of legal challenges were raised to the MATS rule. One was that it was not cost effective—the quantifiable benefits of the rule were about $4 million to $6 million, while compliance would cost an estimated $9.6 billion. The rule went up to the Supreme Court on this issue.

EPA took the position that it was statutorily precluded from considering costs. The Supreme Court rejected this argument and sent the rule back to the agency. Thereafter, EPA published a cost-benefit analysis in which it claimed that the benefits of the rule were greater than the costs, but almost all of the benefits identified were “co-benefits” or benefits from reductions in emissions of pollutants other than the one the rule was designed to regulate (primarily sulfur dioxide and particulate matter).

Reliance on co-benefits like these is very controversial because the EPA is already and separately required to regulate emissions of sulfur dioxide and particulate matter under CAA Section 110 at a level that will protect public health, without consideration of costs.

However, in its December 2018 supplemental cost finding, EPA does not reject the existence of the previously found co-benefits, nor does it completely disavow the idea that co-benefits are considered as part of a cost-benefit analysis or that co-benefits can be used to justify a rule. Instead, on this particular instance, the EPA concluded that the regulation of HAPs emissions from EGUs is not appropriate and necessary because:

  • The primary purpose of Section 112 and the MATS rule is to reduce the emissions of HAPs;
  • Sulfur dioxide and particulate matter are not HAPs and are regulated via other sections of the CAA;
  • With respect to particulate matter, most of the co-benefits have not been actually measured in studies but are extrapolations below the lowest emissions measured (based on a controversial model that assumes negative health benefits from any emissions of particulate matter, even minute amounts);
  • There is a large difference between the cost of MATS and the quantifiable benefits in reduced HAPs emissions.

The EPA’s conclusions will give some comfort to those opposed to the use of co-benefits while not impairing the EPA’s ability to rely on them in other rules.

But under the D.C. Circuit’s decision in New Jersey, the emissions requirements of the MATS rule will remain in place because the EPA has not made the necessary findings under CAA Section 112(c)(9) to delist EGUs as sources of HAPs. The EPA has, however, asked for comments on whether these standards should remain in place. If they do, then those EGUs that have not yet complied with MATS will not obtain a competitive advantage over those that already have complied.

However, leaving the existing standards in place may be problematic for the EPA because it would create a paradoxical situation in which: (a) Section 112 says that emissions of HAPs from EGUs cannot be regulated under that section unless the EPA makes a finding that such regulation is “appropriate and necessary”; (b) the EPA has withdrawn its finding that such regulation is “appropriate and necessary”; but (3) the EPA is nevertheless regulating the emissions of HAPs from EGUs, apparently in direct contravention of the plain statutory language.

--Michael Nasi is a partner at the law firm of Jackson Walker and Mark Walters is senior counsel at the Texas-based law firm.