American Oil and Gas Reporter - August 2015 - 158

Mercury Rule Hits Judicial Roadblock
WASHINGTON-Regulatory agencies
must consider costs when imposing hazardous air pollutant emission standards,
the U.S. Supreme Court says. Under a 54 ruling issued in late June, the Environmental Protection Agency's Mercury and
Air Toxics Standards (MATS) will be
reconsidered by a lower court.
Twenty-three states as well as industry
groups filed suit against the agency in
Michigan v. EPA, arguing EPA should
consider the cost of regulations before
requiring compliance. On June 29, the
Supreme Court agreed. Its decision reversed the U.S. Court of Appeals for the
D.C. Circuit, which upheld the MATS
standards on April 15, 2014.
The rejected EPA regulations were
issued as a final rule Dec. 16, 2011. According to the agency, it issued a legal
determination in 2000 asserting the regulation was "appropriate and necessary"
to control mercury emissions from power
plants. According to EPA, the final rule
established technology-based emission
limitation standards for mercury and other
toxic air pollutants emitted by coal- and
oil-fired electric generating plants with
capacities of 25 megawatts or greater.
The Clean Air Act authorizes EPA to
regulate hazardous air pollutants (HAPs)
from specified stationary sources such
as refineries and factories. Oversight of
power plants is allowed only if the agency
concludes "regulation is appropriate and
necessary" after studying hazards to public
health from those emissions, the Supreme
Court decision states.
According to the decision, EPA found
power-plant regulation appropriate because
the plants' emissions posed risks to public
health and the environment, and because
controls capable of reducing those emissions were available. EPA says it decided
regulations were necessary because imposing other CAA requirements didn't
eliminate the risks.
"The agency refused to consider cost
when making its decision," the justices
said. "It estimated, however, that the cost
of its regulations to power plants would
be $9.6 billion a year, but the quantifiable
benefits from the resulting reduction in
HAP emissions would be $4 million-$6
million a year."
Writing the majority opinion, Justice
Antonin Scalia said, read in the context
of the regulation, the "appropriate and
necessary" phrase required at least some
attention to cost.
"One would not say that it is rational,
never mind 'appropriate,' to impose billions of dollars in economic costs in

return for a few dollars in health or environmental benefits. In addition, 'cost' includes more than the expense of complying
with regulations; any disadvantage could
be termed a cost," he wrote.
Scalia pointed out that EPA's interpretation precluded the agency from considering any type of cost, including the
harm that regulation might do to human
health or the environment. Noting the
government's position that if EPA determined power plant emissions damaged
human health, but the technologies needed
to eliminate those emissions did even
more damage to human health, it still
would deem the regulations appropriate,
Scalia wrote, "No regulation is 'appropriate' if it does significantly more harm
than good."
An EPA spokeswoman says the agency
intends to move forward with the mercury
rule, asserting the court's ruling was
about how and when EPA must consider
costs and not the agency's authority to
impose emission limits.
Future Impact
According to a legal analysis by Crowell & Moring LLP, the mercury decision
could affect not only the HAP standards
but also upcoming carbon dioxide regulations targeting power plants under the
proposed Clean Power Plan (CPP). The
analysis says if the D.C. Circuit Court
vacates MATS, as it says may be likely
given the breadth of the Supreme Court's
majority opinion, electric utilities no
longer would be regulated for HAPs
under the Clean Air Act. That could, in
turn, affect pending and future arguments
for challenging the CPP.
According to the Crowell & Moring
analysis, current and prospective challengers
of the CPP have argued the regulation is
illegal because of MATS. Under a literal
interpretation, the firm says EPA cannot
regulate a source category under Section
111 of the CAA that already is regulated
for HAPs under Section 112. But without
MATS, utilities are no longer regulated
under Section 112. If EPA cannot regulate
electric utilities for carbon dioxide as long
as MATS is in effect, the analysis offers,
if MATS is vacated, the grounds for this
argument would be undercut.
The court's remand to the D.C. Circuit
Court thus sets up another fight over
whether MATS should be left in place
while EPA considers the costs of the
regulations, Crowell & Moring says.
Utilities in the process of complying
with MATS also are dealing with the uncertainties of the decision, Crowell &

158 THE AMERICAN OIL & GAS REPORTER

Moring points out. Many utilities closed
facilities or installed controls to meet the
MATS deadline of April 16, but others
received one-year extensions. Given the
Supreme Court ruling, the analysis says
it is unclear if utilities and regulators
will rethink their approaches to compliance
or allow for more flexibility in their emission controls.
Crowell & Moring says that even if
MATS is vacated, EPA could start a rulemaking process that takes the court's
opinion into account, and promulgate
new rules to control HAPs from the same
sources.
Plant Retirements
William Bumpers, chairman of Baker
Botts' environmental department, argues
the court's decision will not change announced power plant retirements.
"They are not retired because of MATS
only. They are retired because they are
competing with $3 gas," he says. "Older
coal-fired power plants with high heat
rates don't compete well against renewable
energy and really cheap natural gas. There
probably are some units that were retired
that were at least nominally placed into
cold storage that could be brought out if
the rule is vacated or stayed. But from an
industrywide standpoint, I do not think
this will have a tremendous effect."
If the CPP is upheld, Bumpers predicts
an increase in natural gas usage in the
power sector, and a dramatic near-term
impact on demand. The magnitude of
that increase depends on how states develop their own emission plans and how
the electric generation sector reacts-
whether utilities build combined-cycle
gas-fired facilities, continue operating
coal-fired units under a federal MATSbased standard, or adopt controls required
under state requirements, he reasons.
Bicky Corman, a partner in Venable
and former deputy general counsel for
EPA, says she has seen predictions issued
before the Supreme Court ruling was released indicating that the MATS requirements would drive record-setting increases
in this summer's gas demand by the electric
sector, but the dominant factors remain
the low cost of natural gas and the significant expansion of gas-fired generation.
"I also have seen studies indicating
that MATS-driven coal plant retirements
will not, by themselves, yield a proportional increase in gas demand, since many
retiring units operated in 2014 at only 20
percent or lower capacity," she adds.
Corman estimates about 25 percent
of power plants were granted one-year

American Oil and Gas Reporter - August 2015

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