[UPDATED] Federal Court Upholds Final MATS Rule, Thwarts Industry Challenges

A federal court on April 15 upheld the Environmental Protection Agency’s (EPA’s) February 2012-finalized Mercury and Air Toxics Standards (MATS), ruling in a 2–1 decision that the agency is not required to take costs into account when it promulgates rules that are “appropriate and necessary” to address hazards to public health.

In the U.S. Court of Appeals for the D.C. Circuit’s four-part per curiam decision in White Stallion Energy Center, LLC v. EPA—a case it called “complex”—the court denied petitions challenging the final rule that promulgates emission standards for a number of listed hazardous air pollutants (HAPs) emitted by coal- and oil-fired power plants in the U.S., including mercury, arsenic, and cyanide.

“Appropriate and Necessary”

The EPA promulgated the rule under Section 112(n)(1)(A) of the Clean Air Act (CAA), a provision that allows the EPA to regulate electric utility steam generating units (EGUs) if the agency finds, after conducting studies on the hazards of power plant emissions to public health, that the rules are “appropriate and necessary.”

Industry groups have challenged the EPA’s interpretation and application of the “appropriate and necessary” requirement. Specifically, in the case decided today, they contested the legal validity of the Clinton administration’s 2000 finding that utility emissions of mercury and other HAPs must be regulated under a maximum achievable control technology (MACT) standard. The Bush administration in 2005 removed EGUs from the Section 112 categories list, delisted mercury from the list of HAPs, and later issued the Clean Air Mercury Rule (CAMR). However, in February 2008, the D.C. Circuit threw out that rule, saying that the EPA’s actions violated the CAA and were  “unlawful.”

And today, the court said the EPA’s final MATS rule is “substantively and procedurally valid,” and that “purported defects in the 2000 finding have been cured.” It also ruled that “[b]ecause EPA’s approach is based on a permissible construction of § 112(n)(1)(A), it is entitled to deference and must be upheld.”

The Cost Question

Of perhaps more prevalence is the court’s rejection of industry challenges to EPA claims that Section 112(n)(1)(A) allows the agency to promulgate rules without considering costs. The decision is a defeat for the power sector, which has decried staggering costs of about $9.6 billion per year it will have to bear to comply with the rule. However, the EPA says monetized benefits of the rule could exceed $37 billion to $90 billion.

The challenges hinge on the EPA’s current interpretation of the statute—which is a U-turn from 2005, when the EPA construed it to allow consideration of costs in determining whether regulation of EGU HAP emissions is “appropriate.” It now “precludes consideration of costs,” because if Congress wanted the EPA to do so, the statute would have included an “express statutory requirement” that the agency consider costs, the EPA reasoned.

Today, the court agreed. “On its face, § 112(n)(1)(A) neither requires EPA to consider costs nor prohibits EPA from doing so,” it ruled. “In the absence of any express statutory instruction regarding costs, petitioners rely on the dictionary definition of ‘appropriate’ — meaning ‘especially suitable or compatible’ or ‘suitable or proper in the circumstances” — to argue that EPA was required ‘to take into account costs to the nation’s electricity generators when deciding whether to regulate EGUs,'” it said.

“For these reasons, we conclude that the statute does not evince unambiguous congressional intent on the specific issue of whether EPA was required to consider costs in making its “appropriate and necessary” determination under § 112(n)(1)(A),” wrote Judge Judith Rogers for the court.

But Judge Brett Kavanaugh dissented on this point, arguing that the term “appropriate” necessarily implied that costs—and benefits—should be taken into account in making the listing decision. “[T]hat’s just common sense and sound government practice,” he wrote.

“To be sure, EPA could conclude that the benefits outweigh the costs. But the problem here is that EPA did not even consider the costs. And the costs are huge, about $9.6 billion a year – that’s billion with a b – by EPA’s own calculation,” he added.

Major Sources and the “Best of the Best”

Among several other challenges to the final MATS rule, petitioners also argued that in setting emission standards for EGUs, the EPA should have distinguished between “major sources”—which are automatically subject to MACT—and “area sources,” which the EPA can choose to regulate under alternative standards. Because the EPA did not distinguish the different types of sources, the petitioners argued that the final MATS rule is compromised because EGU emission standards should have been based exclusively on data from major source EGUs.

However, the court upheld the EPA’s decision not to draw a distinction, calling it “reasonable,” because distinguishing them runs counter to the separate statutory provisions governing EGUs, it said.

The court also threw out petitioners’ claims that because the EPA collected emissions data from only those EGUs that were best performing for mercury emissions, the mercury MACT standard reflects the results achieved by the “best of the best” EGUs, and not the results of the best 12% of all EGUs, as is required by law. The court ruled that assertions of a “biased or irrational data collection process” were not supported by a review of the record.

No Separate Categories 

The EPA’s decision not to create a subcategory for circulating fluidized bed (CFB) EGUs was also “reasonable,” the court ruled, even though, as a group of utilities and industry groups argued, CFBs differ from conventional pulverized coal units in that they can better control emissions without using add-on controls.

“Among other things, EPA noted that CFBs were among the best and worst performers for various pollutants, indicating that CFBs have emissions profiles similar to other coal-fired units despite their operational differences,” it ruled.

Implications

The case, White Stallion Energy Center, LLC v. EPA, consolidates a total of 30 petitions for review challenging MATS, including those brought by 24 states. But industry experts agreed that chances are slim that the D.C. Court’s ruling will be overturned by the Supreme Court.

For Kevin Poloncarz and Ben Carrier, attorneys at law firm Paul Hastings, the decision is important—though not particularly “noteworthy”—in that it clears the way for implementation of the MATS rule. The majority’s decisions are “rooted squarely in the statute, governing principles of administrative law and discretion afforded to EPA by them—and particularly … the central holding relies heavily upon Supreme Court precedent touching directly upon EPA’s obligation to consider costs under the [Clean Air Act],” they write.

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)

Originally published on April 15. Updated to  reflect Judge Kavanaugh’s dissenting opinion and to include possible implications from the ruling.