A Free-Market Energy Blog

Michigan v. EPA: Pyrrhic Victory or A Sign of More to Come?

By Josiah Neeley -- July 8, 2015

“If fine particulates are killing one out of eight Americans, then any regulation that even slightly lowers particulate emissions is going to be hugely beneficial. And by including these co-benefits, EPA can justify virtually any regulation it wishes.”

Last week, the Environmental Protection Agency hit a roadblock in its quest to enact new standards for mercury emissions from U.S. power plants. In Michigan v. EPA, the Supreme Court held that EPA had improperly refused to consider costs when it decided to regulate the mercury emissions from electric utilities under its Utility MACT (Maximum Achievable Technology Control) rule.

Coming on the heels of several Supreme Court decisions that were disappointing to conservatives, it’s not surprising that the Michigan case has been seized on as a hopeful sign in the ongoing battle between liberty and the regulatory state. But I wouldn’t break out the champagne bottles just yet.

Athwart Regulation, Shouting ‘Stop’

Strange as it might sound, EPA’s loss at the Supreme Court is unlikely to kill the Utility MACT rule; it will merely slow down final implementation. Of course, even the mere delay of an overly burdensome regulation can be beneficial. As the great British statesman Lord Salisbury once put it, “delay is life.” In this case, however, the fact that the Utility MACT rule was not stayed pending the result of the litigation means that most power plants have already done what the rule required of them, up to and including shutting down.

We can also be pretty sure that forcing EPA to consider costs before deciding to regulate mercury emissions won’t change its decision. That’s because EPA did eventually get around to considering the cost of the Utility MACT rule as part of the cost/benefit analysis required for new regulations. According to EPA, the Utility MACT rule will cost $9.6 billion a year.

That’s a new record, or at least it was when EPA first proposed the rule. But EPA also calculates that the rule will have $37-90 billion in benefits. Per this analysis, the benefits from EPA’s rule would thus easily justify its costs.

Friends with Co-Benefits

Yet as Justice Scalia noted in his majority opinion, there is something curious about EPA’s cost/benefit calculation in this case. As EPA admitted, the benefits from Utility MACT from the reductions in mercury and other hazardous pollutants were only “worth $4 to $6 million per year.” Thus, “[t]he costs to power plants were thus between 1,600 and 2,400 times as great as the quantifiable benefits from reduced emissions of hazardous air pollutants.”

The other 99.994% of the calculated benefits came from what are called “co-benefits.” The idea is that regulations that reduce mercury emissions will have the unintended side-effect of also reducing other harmful emissions, specifically fine particulate matter.

EPA has increasingly relied on co-benefits from reductions in fine particulates to justify its air quality rules. During the first three years of the Obama Administration, EPA performed cost/benefit analysis on thirteen rules. Co-benefits from fine particulates comprised the majority of calculated benefits for eleven of these thirteen rules, and in six of the thirteen cases 100% of the benefits were from co-benefits.

EPA’s reliance on co-benefits from fine particulates is legally curious. The Clean Air Act already requires EPA to set air quality standards for fine particulates that are fully protective of human health regardless of cost. As such, co-benefits from fine particulates shouldn’t exist.

At oral argument, Chief Justice Roberts noted that heavy reliance on co-benefits allowed EPA to skirt procedural requirements of the Clean Air Act, allowing regulation of substances that could never be justified on their own. Yet while the tone of the majority opinion in Michigan v. EPA appears hostile to the idea of co-benefits, it never directly takes up the issue, presumably because it was not raised by the parties.

Peculiar Assumptions

That’s too bad, because a close examination of how EPA calculates the benefits from reductions in fine particulates reveals even more troubling aspects. In 2009, EPA made a methodological change in the way it estimates harm from fine particulates that instantaneously tripled the amount of damage particulates were supposed to cause. Instead of basing its damage calculation on available evidence, EPA assumed without evidence that even miniscule amounts of fine particulates continued to be harmful to human health.

Taking this new methodology seriously leads to absurd results. According to EPA’s calculation, for example, 13 percent of all deaths in America are due to fine particulates. In some regions of the country nearly a quarter of all people supposedly die from particulate inhalation. These numbers are not plausible, but their very implausibility also gives them their potency. If fine particulates are killing one out of eight Americans, then any regulation that even slightly lowers particulate emissions is going to be hugely beneficial. And by including these co-benefits, EPA can justify virtually any regulation it wishes.

Costly Benefits Analysis

Cost/benefit analysis requirements for regulation were originally imposed as a way to rein in regulatory overreach. The Supreme Court’s decision in Michigan v. EPA is based on the same premise: if you require EPA to consider costs when deciding whether to regulate, you are less likely to get harmful regulations. But as an examination of the cost/benefit analysis for the Utility MACT rule shows, EPA has long since learned how to effectively evade the constraints of cost/benefit analysis.

And while the Supreme Court in Michigan v. EPA broke from the typically extreme deference courts show to federal agencies, I don’t think we can rely on courts alone to police EPA’s conduct. Congress should consider recent legislation, such as the Regulations From the Executive in Need of Scrutiny (REINS) Act or the just introduced Ratepayer Protection Act (H.R. 2042), which would prevent the Clean Power Plan from going into effect until legal challenges are resolved, as a way to reassert its authority as a co-equal branch of government.


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