Get Ready for MATS 2.0

On June 29, much of the power sector rejoiced when the U.S. Supreme Court struck down the Environmental Protection Agency’s (EPA’s) Mercury and Air Toxics Standards (MATS) rule, finding that the EPA had erred in not considering costs during its rulemaking. But although this ruling may offer fans of coal power some moral support, its practical effect will likely be limited.

Why? The most obvious reason is that the effects of MATS are largely now “baked in,” since the compliance deadline passed before the ruling came down. The scores of plants that shut down to avoid MATS compliance costs are not going to restart. The deeper reason, though, is that the EPA is not in a position to accept defeat and move on. Because of that, “MATS 2.0” is a near-certainty.

To understand where the EPA goes now, it’s useful to consider how it got here. The process began with the 1990 amendments to the Clean Air Act (CAA), which came about due to congressional dissatisfaction with the EPA’s progress in regulating hazardous air pollutants (HAPs). One of the things that changed was that Congress took away much of the EPA’s discretion over whether to regulate a long list of HAPs, and mercury was on that list. The EPA was directed to compile a list of HAP sources and publish emissions standards for them.

Power Play

Power plants, however, got different treatment from other sources. Under Section 112 of the CAA, the EPA must first conduct a study of the public health hazards “reasonably anticipated to occur” as a result of each HAP, and then issue emissions regulations where “appropriate and necessary.”

The mercury study was completed in 1998, and one of the final acts of the Clinton administration EPA—in December 2000—was to find “that regulation of HAP emissions from coal- and oil-fired electric utility steam generating units under section 112 of the CAA is appropriate and necessary.” That put power plants on the list of mercury sources to be regulated and started the clock on a mercury emissions regulation.

Or rather, it would have, had the Bush administration EPA not reversed the December 2000 finding in 2005. The stated rationale for removing power plants from the section 112 listing was a new conclusion that the EPA lacked authority to base regulations under the CAA on environmental considerations as well as health hazards, and that other regulations—including hypothetical future regulations—under the CAA would adequately address mercury emissions. Instead, it issued the Clean Air Mercury Rule, which employed a market-based cap-and-trade system to reduce emissions.

That move, not surprisingly, drew litigation. In early 2008, the D.C. Circuit reversed the action on the grounds that the 1990 amendments gave the EPA no discretion to remove a HAP source from the listing once it had been added.

While the Bush EPA did little in response to the D.C. Circuit ruling, the Obama administration announced almost immediately after taking office that it would accept the decision and craft a new rule. But it also did more than that. In October 2009, the EPA entered a consent decree that required it to develop the long-delayed mercury standards and finalize them by November 2011. Though it would miss that deadline by a month, the final rule, released in December, went into effect the following April. Three-plus years later, a little more than two months after the compliance deadline, came Michigan v. EPA.

Not the End, Just Another Chapter

What all this means is that the Supreme Court ruling does not spell the end of power plant mercury emissions regulations. The decision did not address the CAA’s listing of mercury as a pollutant or the wisdom of the EPA’s decision to include power plants as emissions sources. Those questions were not before the court. Rather, it turned on whether the EPA was required to consider costs in making the decision.

The EPA’s interpretation of the CAA was that it did not have to consider costs as part of the “appropriate and necessary” determination, though it could choose to do so. The D.C. Circuit in 2013 felt this was within reasonable agency discretion, but the Supreme Court, reading “appropriate and necessary” more broadly (and relying on other elements of the amendments that mention costs), ruled that the EPA erred in disregarding such an obvious consideration. The EPA’s position was weakened by the fact that it used an expansive reading of the clause to include a wide variety of environmental impacts in its decision making but turned around and applied a much more narrow reading to exclude economic impacts.

The Supreme Court, though, stopped at that point. “We need not and do not hold that the law unambiguously required… a formal cost-benefit analysis,” it said. “It will be up to the Agency to decide (as always, within the limits of reasonable interpretation) how to account for cost.” In other words, the EPA can still include power plants as sources; it just has to consider costs in a new rulemaking.

It will not have escaped notice that the course of this saga has been greatly affected by the current occupant of the White House. With President Obama leaving office in early 2017, it’s uncertain if the EPA can address the court’s concerns in time, but it hopes to complete the consideration of costs by next April.

Even if the next president decides to rein in the EPA’s current regulatory campaign, such moves will draw more litigation. In any event, the EPA will likely have to issue some sort of mercury emissions rule eventually. Given that uncertainty, and the decisions that have already been made in response to MATS 1.0, the shape of MATS 2.0 may not matter much.

Thomas W. Overton JD is a POWER associate editor.

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