The mathematics of life-saving regulation

The fate of 11,000 American lives each year may hinge on whether the Supreme Court Justices understand that fractions can’t be calculated without knowing the denominator.

Last week, the Supreme Court heard arguments over the Mercury and Air Toxics Standards—a regulation issued by the Environmental Protection Agency (EPA), designed to reduce mercury, arsenic, and other harmful pollution emitted by power plants.  The rule dramatically improves public health and welfare, especially by reducing premature mortality from heart attacks and respiratory disease induced by exposure to air pollution.  EPA has calculated that the standards’ benefits vastly outweigh the compliance costs: the quantified benefits are as much as $90 billion, versus $9.6 billion in costs.  Yet a coalition of coal-dependent industries and states has challenged the standards, arguing that EPA didn’t consider costs early enough in the regulatory process.

{mosads}The life-saving Mercury and Air Toxics Standards cap a multi-step regulatory process initiated back in 2000, when EPA first determined it was “appropriate and necessary,” under the Clean Air Act to list power plants as a category of sources of carcinogenic and neurologically toxic air pollution.  Once a category is listed, EPA then has authority to subcategorize, distinguishing plants by size or type.  EPA next develops emission standards, typically based on the pollution controls already in place at the cleanest 12 percent of sources in a given subcategory, thus prodding dirtier stragglers to catch up.  EPA’s final regulatory choices include the timeline for compliance and the flexibility of the regulatory scheme.

Nobody denies that, by the end of this process, EPA had calculated the costs of the Mercury and Air Toxics Standards (and found them overwhelmingly justified by the benefits).  Nevertheless, opponents of the regulation insist that EPA was also required, and failed, to consider costs at the very beginning, upon first determining that regulating the toxic pollution of power plants would be “appropriate.”

During last Wednesday’s oral arguments, several Supreme Court Justices reflected on whether EPA needn’t—perhaps couldn’t meaningfully—have considered costs upon listing power plants as a source category, because costs inextricably depend on subsequent regulatory design choices.  Justice Breyer wondered: Couldn’t costs be extremely different if, rather than requiring every plant to match the performance of the cleanest 12 percent of the entire electricity sector, EPA instead subcategorized specific plants facing unusually high compliance costs and set a more achievable standard for that subcategory?  Justice Kagan elaborated: If so, would it even be possible for EPA to calculate costs before subcategorization choices are made?  As the Institute for Policy Integrity argued in its friend-of-the-court brief, if standards are set at the 12 percent level, costs can’t be calculated until the denominator is defined—12 percent of what?  Because subcategorization changes the denominator and adjusts the regulatory stringency, it can have a dramatic impact on compliance costs.  

A recent Wall Street Journal editorial attacking EPA claimed that this line of thinking was a “surprise,” unmentioned prior to the Supreme Court hearing. But the subcategorization issue is discussed in the brief mentioned above as well as in two past D.C. Circuit court rulings (the 2014 ruling for this case and the 2007 concurrence by Judge Williams in Sierra Club v. EPA). More notably, EPA articulated this reasoning when it first explored regulating plants in 2000.

In determining that power plants are an “appropriate” source category, EPA noted that simply listing power plants as a category for future regulation “does not impose regulatory requirements or costs.” Instead, EPA thought it more reasonable to consider the “effectiveness and cost of controls” later, “as a part of developing regulation.”  In particular, EPA planned to “consider subcategorization” when developing regulation. In short, EPA knew that subsequent regulatory design choices could substantially decrease costs, and no accurate method of predicting costs existed until such choices were made.

In 2011, EPA finally proposed the standards. The agency initially created five subcategories, recognizing that applying the same standards to different types of plants would result in expensive retrofits and could “reduce the capacity and efficiency” of the plants.  For instance, plants burning lignite were given much less stringent mercury standards. EPA also asked for comments on whether additional subcategories were warranted.

In the final rule, EPA adopted several changes to make the standards “more flexible and cost-effective.”  The agency extended the compliance timeline for many sources, and allowed some contiguous plants to average their emissions to meet the standards more cheaply.

Another change involved adding new subcategories. Some industry segments called for new subcategories on the grounds of cost differences alone; EPA declined, reasonably noting that those plants were technologically capable of achieving tighter emissions reductions. However, EPA did add new categories when distinct sets of plants could not achieve the proposed standards due to technological and economic infeasibility. For example, “non-continental” oil plants—namely, power plants in Hawaii, Puerto Rico, and Guam—face unique fuel limitations and cost issues, and EPA determined that those island plants warranted a distinct subcategory.

By subcategorizing and changing the denominator, EPA adjusted the stringency of its standards and mitigated costs.  The opponents of the rule completely and willfully overlook the clear evidence both that EPA used subcategorization and other tools to control costs, and that EPA could not meaningfully estimate costs until it had finished subcategorizing. You can’t estimate a fraction unless you know the denominator.

—Jason A. Schwartz is an adjunct professor and legal director at the Institute for Policy Integrity at NYU School of Law.  He contributed to Policy Integrity’s amicus brief in the current litigation over the Mercury and Air Toxics Standards.


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