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US EPA's mercury proposal could pave way for court challenge to Obama-era rule

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US EPA's mercury proposal could pave way for court challenge to Obama-era rule

With its recent proposal to rescind the legal basis for the Obama-era Mercury and Air Toxics Standards, or MATS, the U.S. Environmental Protection Agency has staked out a nuanced position that some believe eventually could give private coal interests cover to challenge the regulation itself.

Others suggest that the move could be part of a broader effort by the agency to limit the consideration of co-benefits or the monetized "side benefits" that flow from regulations in other major rulemakings.

Meanwhile, electric utilities are signaling their approval of what some legal observers have described as a delicate balancing act by the EPA. Although the agency's Dec. 27, 2018, proposal hinges on revoking the legal justification for the MATS rule, it also aligns with a July 2018 request by some utility stakeholders to maintain the current standards curbing mercury pollution.

"EPA has managed to walk a very fine line — reversing the Obama finding that it was 'appropriate and necessary' to regulate [mercury from] power plants under [Clean Air Act] Section 112 while leaving the actual MATS requirements in place," said Jeff Holmstead, an attorney with Bracewell LLP and former head of the EPA's air and radiation office, in an email following the proposal's release.

In addition to rescinding the Obama-era finding, the proposal also would determine that coal-fired power plant operators are not required to install additional pollution control equipment as part of a mandatory "risk and technology review" a potential boon for some coal-heavy utilities.

From Clinton to Bush

The MATS rule can be traced back to a series of amendments made to the Clean Air Act in 1990, when Congress listed 189 air pollutants, including mercury, as hazardous under Section 112 of the statute. The amendments contained a special provision written specifically for the utility industry that requires the EPA to make an "appropriate and necessary" finding when issuing performance standards to reduce hazardous air pollutants from power plants under Section 112.

After years of delay, President Bill Clinton's EPA completed a study in 1998 that found power plant mercury emissions posed one of the greatest public health risks of all the listed pollutants because they can stunt cognitive thinking in infants who were exposed prenatally when their mothers ate mercury-polluted fish. In 2000, the Clinton EPA formally determined that regulating mercury from power plants was appropriate and necessary in part because those facilities together represented the nation's single largest source of mercury emissions.

However, the George W. Bush-era EPA attempted to "delist" power plants under Section 112 by rescinding the previous administration's appropriate and necessary finding. Instead, the Bush EPA sought to regulate mercury emissions under Clean Air Act Section 111, which traditionally has been used to regulate a different set of air pollutants.

In ruling on a legal challenge in a case known as New Jersey v. EPA, the U.S. Court of Appeals for the District of Columbia Circuit struck down the Bush administration's proposed mercury rule. In doing so, the court unanimously held that the EPA cannot delist power plants under Section 112 without first making an extensive series of showings required by the Clean Air Act regardless of its finding that regulating power plants for mercury under that section no longer was appropriate and necessary.

Obama EPA issues MATS

The MATS rule, which was finalized by the Obama EPA in 2012, gave existing coal- and oil-fired power plant operators three years to install pollution control equipment to cut emissions of mercury and other air toxics such as acid gases. At the time, the EPA projected that the required pollution controls would cut mercury emissions from power plants by 90% and acid gases by 88%, and also would reduce sulfur dioxide emissions by 41%. As a result, the agency estimated that those cuts would avoid up to 17,000 premature deaths plus 100,000 heart and asthma attacks annually.

Electric utilities, coal mining companies and coal-reliant states initially opposed the rule, arguing in a legal challenge filed with the D.C. Circuit that the EPA had overstepped its authority under the Clean Air Act. The matter was litigated all the way to U.S. Supreme Court, where a five-justice majority in 2015 declined to vacate the MATS rule but found that the EPA's appropriate and necessary finding was invalid because it did not consider the cost of regulation early enough in the process. The D.C. Circuit subsequently left MATS intact while remanding the rule to the EPA for further rulemaking consistent with the Supreme Court's opinion.

The Obama EPA in April 2016 issued a two-pronged supplemental finding, concluding that the annual cost to comply with the rule was reasonable because it represented 2.7% to 3.5% of the utility industry's annual revenue. The agency also included a separate cost-benefit analysis based on its initial regulatory impact analysis that projected aggregate public health benefits of $37 billion to $90 billion per year compared to annual compliance costs of $9.6 billion. Virtually all of the public health benefits flowed from co-benefits attributed to a reduction in fine particles and sulfur dioxide, which contribute to the formation of airborne soot.

That supplemental finding was swiftly challenged in the D.C. Circuit by the Utility Air Regulatory Group and private coal company Murray Energy Corp. After President Donald Trump was elected on a pro-coal platform, the administration asked the D.C. Circuit to hold the case Murray Energy Corp. v. EPA (No 16-1127) in abeyance pending a review of the MATS supplemental finding.

Meanwhile, between January 2015 and April 2016, about 87 GW of coal-fired plants installed pollution-control equipment and nearly 20 GW of coal capacity retired as a result of the rule, according to the U.S. Energy Information Administration. By July 2018, investor-owned utility groups said the industry had cumulatively spent about $18 billion to install the necessary pollution control equipment and all U.S. power plants were in compliance with the rule.

'Flawed' conclusion

Following its reconsideration of the Obama administration's cost-benefit analysis, the EPA on Dec. 27, 2018, proposed to conclude that the agency's 2016 supplemental finding was "flawed" because it gave equal weight to the benefits of mercury reductions and the co-benefits of reducing non-targeted emissions such as sulfur dioxide and particulate matter. While acknowledging the tens of billions of dollars in annual co-benefits associated with the rule, the EPA proposed to find that the identification of those benefits "is not sufficient, in light of the gross imbalance of monetized costs and" hazardous air pollutant benefits, to support the Obama administration's previous finding.

In its original analysis, the Obama administration found $4 million to $6 million in benefits directly related to mercury cuts by looking at quantifiable health impacts on the children of U.S. recreational freshwater anglers, although it also estimated significant "unquantified and unmonetized effects" associated with mercury emission reductions.

"The Supreme Court observed that agencies have long treated cost a centrally relevant factor when deciding whether to regulate," the EPA said in explaining its new position.

Although the agency did not specifically propose to rescind the MATS rule, it sought comment on whether revoking the appropriate and necessary finding would require it to scrap the regulation itself and whether it could reasonably conclude that the D.C. Circuit's decision in New Jersey v. EPA does not limit its authority to delist power plants under Section 112.

DC Circuit implications

Joseph Goffman, senior legal counsel in the EPA's Office of Air and Radiation under Obama, said in a Jan. 3 interview that a direct line can be drawn between the EPA's recent mercury proposal and the stayed challenge to the MATS supplemental finding. "The seed of this was [the Trump administration's] conclusion in the spring of 2017 that they didn't want to defend the previous administration's position," he said. "In fact, had they done so, it would have been deeply inconvenient to their overall campaign to weaken the application of co-benefits."

The EPA's Dec. 27, 2018, proposal follows an advanced notice of proposed rulemaking released in June 2018 that would reconsider the way co-benefits are calculated, and the agency also has proposed a separate rule that could exclude some public health studies used to quantify co-benefits from consideration in future rulemaking proceedings.

If the EPA finalizes its mercury proposal, Goffman said he thinks "it's a good bet" that Murray Energy then will challenge the MATS rule itself. "Whether it's this EPA or a successor EPA, this proposal, if finalized, will certainly perpetuate the fight over these regulations," he said.

Reached for comment Jan. 3, a Murray Energy spokesman said in a statement that the "EPA's proposal to revisit the outsized role that so-called 'co-benefits' play in the cost-benefit analyses used to justify costly regulations targeting pollutants such as mercury is appropriate and long overdue." The company declined to comment on potential future litigation.

Co-benefits

Whether the EPA's Dec. 27, 2018, proposal could establish a legal precedent that would allow the agency to limit its consideration of co-benefits in other rulemakings remains unclear.

"The dance that they did was somewhat subtle," said Eli Savit, an adjunct professor at the University of Michigan Law School. "They didn't say you can't take co-benefits into consideration at all. They just said you can't give co-benefits equal weight to the direct benefits of eliminating the pollutant that [a] hazardous air pollutant program was meant to address."

Assuming the proposal is litigated all the way to the Supreme Court, a majority of justices could find that "when you're doing cost-benefit analyses with regulations, your primary focus has to be on the stated goal of the program," Savit said in a Jan. 3 interview.

That is an approach electric utilities would be inclined to support, said Angela Jean Levin, a partner with the Troutman Sanders law firm who represents electric utilities. "A key aspect of this rulemaking is to provide clarity on how those types of analyses should be done in the future," she said.

However, Miles Keogh, executive director of the National Association of Clean Air Agencies, stressed the importance of recognizing that co-benefits are real benefits. "If you're thinking about quitting smoking, just considering the price of a pack of cigarettes does not reflect a full accounting of the costs of smoking," he said.

Risk and technology review

Levin said the industry agrees with the EPA's conclusion that no further pollution controls are needed as part of an eight-year residual risk and technology review required under Section 112. The Edison Electric Institute, American Public Power Association and National Rural Electric Cooperative Association sent a letter to EPA air chief Bill Wehrum in July 2018 asking the agency to maintain the MATS rule while proceeding with the review "as expeditiously as possible."

Following that review, the EPA said its analysis indicated that the risks from mercury emissions are "low" for both cancer and non-cancer health effects and therefore "any risk reductions from further available control options would result in minimal health benefits."

"Significant investments have been made by utilities to comply with the [mercury] standards, and we think that EPA's conclusion here is the right one," Levin said.

But Goffman, who now serves as the executive director of Harvard Law School's environmental and energy law program, said he expects public health groups to challenge the EPA's conclusion that the current level of risk related to mercury emissions is acceptable. "What I think is yet to emerge, but will emerge, is that the comment record will show that public health science has moved well beyond where the proposed risk and technology review has landed," he said.