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The EPA's 'Creative Math' on Power Plant Pollutants Leads to Over Regulation

Government

By using “co-benefits” in its cost-benefit calculations, the EPA boosts the numbers in favor of regulation.

The Supreme Court dialed back some of the EPA's regulatory power as it pertains to who can require to X. (AP/Matthew Brown)

In one of its last decisions of the term, the Supreme Court ruled that the Environmental Protection Agency should have considered costs before deciding to regulate mercury emissions from power plants.

But while countless headlines have proclaimed the Court dealt a major blow to the EPA, it’s not yet clear whether the ruling will do much to limit the agency’s regulatory power.

The Supreme Court dialed back some of the EPA's regulatory power as it pertains to who can require to X. (AP/Matthew Brown) (AP/Matthew Brown)

Michigan v. EPA concerned a specific section of the Clean Air Act which governs the emissions of certain pollutants from power plants. The Act calls on the EPA to regulate these pollutants if it determines that regulation is “appropriate.” When the EPA decided to regulate power plants’ mercury emissions under this provision, it concluded the regulation was appropriate without considering its cost. The Supreme Court was called upon to answer whether costs should have been a part of that appropriateness inquiry — a question it answered in the affirmative.

It’s a good ruling, but whether it will pose much of an obstacle to the EPA agenda is another question. The Court simply ordered that the EPA take costs into account before regulating, noting that it “will be up to the Agency to decide (as always, within the limits of reasonable interpretation) how to account for cost.”

And the EPA, well-schooled in creative math, knows how to spin numbers and produce regulations brimming with high-value benefits that seem to justify their costs.

Consider the very regulation the Supreme Court was analyzing in the Michigan v. EPA case. The EPA concluded that reducing mercury emissions would cost a whopping $9.6 billion annually while generating a meager $4 to $6 million in benefits. It’s hard to justify something that costs 1,600 to 2,400 times more than it’s actually worth.

But the mercury regulation would also have other benefits, said the EPA, because limiting mercury emissions would incidentally limit the emissions of particulate matter.

Also called PM 2.5, particulate matter is basically soot and ash. By adding these “co-benefits” to its calculations, the EPA was able to claim a staggering $37 billion to $90 billion in annual benefits — much higher than the paltry $6 million directly achieved by the mercury reductions and far outweighing its $9.6 billion price tag. It was by valuing this byproduct of regulation, not the targeted pollutant itself, that the EPA justified what would otherwise be an exorbitantly expensive rule.

It doesn’t stop there.

The EPA already regulates particulate matter under the Clean Air Act’s National Ambient Air Quality Standards. Yet the EPA used reductions in particulate matter below those levels to boost its cost-benefit analysis.

When Susan Dudley of George Washington University’s Regulatory Studies Center testified to Congress in 2012 about the rule, she told lawmakers, “EPA calculates almost all of its monetary benefits for this rule from PM 2.5 reductions well below the levels it has already determined are ‘protective of public health with an adequate margin of safety […].’”

Sen. James Inhofe (R-Okla.) put it even more bluntly: “This means EPA is justifying the rule by cleaning up what it simultaneously defines as clean air — duplicity at its best.”

The EPA’s mercury rule is hardly the only regulation it has justified with co-benefits.

According to 2012 congressional testimony of Anne Smith of NERA Economic Consulting, since 1997, 22 of 27 Clean Air Act rules proposed by the EPA, yet not directed at particulate matter, included particulate matter co-benefits that were responsible for more than half of each regulation’s total benefits. The reliance on this regulatory byproduct is staggering — from 2010 to 2011, Smith noted that particulate matter co-benefits were the source of 99 to 100 percent of all reported benefits in eight out of 12 EPA regulatory analyses.

In short, the EPA routinely justifies regulations by touting high-value benefits that have little to do with the pollutant the EPA is actually authorized to target. And while supporters of using co-benefits contend they’re a natural result of regulation and thus valid, critics contend the EPA does not treat both sides of its ledger equally.

Dudley noted this disparity during her 2012 testimony:

“On the benefits side of the equation, EPA quantifies or lists every conceivable good thing that it might attribute to a decision to set new emission limits, while on the cost side, it only considers the most obvious direct and intended costs of complying with the regulation.”

The EPA knows how to tip the scales in its favor. Now that the Supreme Court has ruled, the case heads back to the Washington, D.C. Circuit Court of Appeals, where we can assume the EPA will offer its inflated benefits figure as proof that the regulation is appropriate. Unless the court finds the use of those co-benefits invalid, the EPA will once again be able to point to a host of regulatory benefits — and relatively little cost.

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