Apr 15, 2014 - 4:30pm

It’s Only Common Sense for EPA to Consider Costs When Regulating Power Plants, Appeals Judge Says

Senior Editor, Digital Content

In a split decision, the D.C. Circuit Court of Appeals ruled that EPA doesn’t have to consider compliance costs and potential economic harm in the development of its Utility MACT (A.K.A. the “Blackout”) power plant rule that will take effect next year.

While the majority agreed with EPA’s argument that it could ignore the nearly $10 billion in annual costs it estimates the rule will cost, in a strong dissent, Judge Brett Kavanaugh highlighted the legal and practical irrationality of the court’s decision [emphasis mine]:

Suppose you were the EPA Administrator. You have to decide whether to go forward with a proposed air quality regulation. Your only statutory direction is to decide whether it is “appropriate” to go forward with the regulation. Before making that decision, what information would you want to know? You would certainly want to understand the benefits from the regulations. And you would surely ask how much the regulations would cost. You would no doubt take both of those considerations – benefits and costs – into account in making your decision. That’s just common sense and sound government practice.

So it comes as a surprise in this case that EPA excluded any consideration of costs when deciding whether it is “appropriate” – the key statutory term – to impose significant new air quality regulations on the Nation’s electric utilities.

And EPA’s failure to do so is no trivial matter. The estimated cost of compliance with EPA’s Final Rule is approximately $9.6 billion per year, by EPA’s own calculation. To put it in perspective, that amount would pay the annual health insurance premiums of about two million Americans. It would pay the annual salaries of about 200,000 members of the U.S. Military. It would cover the annual budget of the entire National Park Service three times over. Put simply, the Rule is “among the most expensive rules that EPA has ever promulgated.”

The majority opinion in the case emphasized that, despite EPA’s unwillingness to consider costs as a factor in determining whether or not to regulate, the agency concluded that the impacts would be minor anyway:

[EPA’s final rule concluded that] “the estimated number of early retirements,” of [electric utility steam generating units] “that may result from this rule is . . . less than 2 percent of all U.S. coal-fired capacity” in 2015.

Only the impact won't be minor. To put it nicely, EPA lowballed it.

EPA published the final Utility MACT rule in December 2011.  Just over two years later, the Energy Information Administration published an analysis estimating that the regulation’s enforcement deadline will result to 54 gigawatts of coal retirements—18% of all U.S. coal-fired generating capacity. 

In a very short period of time, EPA’s own projection was shown to be off by nearly an order of magnitude.  EPA’s record on such electricity market projections is worth keeping in mind as the Obama Administration prepares to issue major new greenhouse gas rules on existing power plants later this year. 

Heath Knakmuhs, Senior Director of Policy at the U.S. Chamber’s Institute for 21st Century Energy said in a statement:

Today’s D.C. Circuit opinion unfortunately affirms EPA’s position that it does not need to take into account the grossly disproportionate cost impacts of its Utility MACT rule.  Nevertheless, EPA should not ignore the dramatic impact that this overbearing rule is already having on the composition of America’s electricity mix.  Instead of maintaining our competitive electricity price advantage to help grow our economy, EPA rules such as the Utility MACT rule will raise our electricity rates and stifle economic development.   What’s more, the Utility MACT rule could seriously compromise the reliability of our electric grid, placing millions of Americans at risk.  Because of Utility MACT, plants are now slated for closure that were needed during this past winter to keep homes heated—with no backup sources available.   All American families and businesses should be deeply concerned about EPA’s overbearing and excessive regulatory push. 

The U.S. Chamber filed an amicus brief in White Stallion Energy Center v. EPA in support of those challenging the Utility MACT rule.

William Yeatman has thoughts on Judge Kavanaugh's dissent. 

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About the Author

About the Author

Sean Hackbarth
Senior Editor, Digital Content

Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.