SCOTUS says EPA must now consider costs. Are benefits next?
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The Supreme Court ruled on Monday in Michigan v. EPA that statutory language directing the Environmental Protection Agency (EPA) to consider "appropriate and necessary" factors when regulating power plant mercury emissions included costs to the power plants. The short-term effect of the ruling may be minimal, as power plants have been complying with the regulation since it went into effect earlier this year and are unlikely to simply stop doing so.

However, the longer term implications are potentially important. A lower court will now probably order the EPA to consider costs and reexamine the regulation. The EPA, which already estimated the costs of the mercury rule at $9.6 billion, will probably turn around and quickly say that these costs are dwarfed by the benefits of the rule. They will argue that the costs have thus been considered, and the regulation should go into effect. Then things will get interesting.

The EPA estimates the benefits of the rule as ranging from $37 billion to $90 billion per year. Indeed, these numbers were cited in Justice Elena Kagan's dissent from Michigan v. EPA as a reason that the issue of considering costs was not sufficient to overturn the mercury rules. However, the plaintiffs in the case described the benefits as only $5 million per year and this number played a role in Justice Antonin Scalia's majority opinion in the case.

Why the huge difference? It comes down to whether you count "co-benefits." The $5 million number cited by plaintiffs consists of the direct benefits of reducing exposure to mercury as measured by the EPA in their cost-benefit analysis of the regulation ($5 million is likely significantly lower than the actual benefits from reducing mercury exposure because the EPA only counted measurable impacts on people who lived near power plants, but this is not what accounts for the different numbers). The $37 billion to $90 billion estimate includes the benefits of reducing exposure to particulate emissions, which will happen as a side effect of power plants reducing their mercury emissions. Particulate matter exposure is a significant factor in heart disease and cancer.

The difference between these numbers played a significant role at oral argument in Michigan v. EPA. On the one hand, it seems clear that an agency should count all effects, costs or benefits of a regulation when they tally up its impact. Certainly, advocates for industry have long argued that indirect costs such as lost jobs or changes in market conditions should be counted.

On the other hand, the EPA has a standard for particulate matter. By statute, the EPA is required to set this standard at a level "requisite to protect the public health ... allowing an adequate margin of safety." This raises the following question: If the EPA is already protecting public health, then why are there thousands of lives saved adding up to billions of dollars in benefits, for reducing particulate emissions further? If all of these lives will be saved, shouldn't we have a lower particulate emissions standard?

This seemingly arcane accounting question has wide implications. The EPA has regularly used public health benefits from particulate emissions to justify many regulations designed to reduce other pollutants. If, upon returning to the Supreme Court to defend its mercury regulation, the EPA is told that this practice is illegitimate, the court will both reject the mercury rule and make it more challenging for the EPA to defend many of its future air pollution regulations.

Near the end of his opinion, Justice Scalia telegraphed that this question might be in the court's near future, writing: "Even if the Agency could have considered ancillary benefits when deciding whether regulation is appropriate and necessary — a point we need not address ... " They may need to address it soon.

Shapiro is an associate professor and director of the Public Policy Program at Rutgers University and a member of the Scholars Strategy Network.