The Supreme Court’s decision in Michigan v. EPA holding that the Environmental Protection Agency should have considered costs when making the decision to regulate mercury emissions from power plants (the "MATS Rule") may have put the brakes on the late-summer release of the final Clean Power Plan ("CPP"), the regulations limiting CO2 emissions from power plants – but not because EPA failed to consider the costs. They did, just not the right ones.

In Michigan, the court held that Section 112 of the Clean Air Act, directing EPA to regulate power plants if the agency found "such regulation is appropriate and necessary," required the agency to consider costs. That was so even though this section of the statute did not explicitly mention analysis of costs.

The CPP, however, was promulgated under Section 111, which directs EPA to establish "standards of performance for any existing source for any air pollutant," which are defined as "a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated." 42 U.S.C. § 7411(a)(1) (emphasis added).

Further, "the State in applying a standard of performance to any particular source under a plan submitted under this paragraph [may] take into consideration, among other factors, the remaining useful life of the existing source to which such standard applies." 42 U.S.C. § 7411(d)(1)(A-B).

No ambiguity here: Section 111 clearly directs EPA and the states to consider cost both when setting the standard for reduction of carbon emissions and when applying that standard to specific sources (presuming that consideration of "useful" life argues against making investments for which there will not be a reasonable return).

So, is it back to the drawing board for the CPP along with the MATS Rule? Maybe, but not because the agency failed to consider costs this time. In the "Legal Memorandum for Proposed Carbon Pollution Emission Guidelines for Existing Electric Utility Generating Units," issued with the preamble to the CPP, EPA counsel argue that the draft regulations "meet the criteria in [S]ection 111(a)(1) and the case law as the ‘best’ system of emission reduction because, among other things, they achieve the appropriate level of reductions [and] they are of reasonable cost, including when viewed through a nationwide lens[.]"

While the estimates vary, no one yet has predicted that greenhouse gas reduction will be done on the cheap. EPA’s own estimates are that the draft regulations will cost the electric industry $5.5 – 7.5 billion by 2020 in compliance costs. 79 Fed. Reg. at 34,934. Speaking for the other side, a study done by NERA Economic Consulting  estimates the costs at $41 billion/year,well in excess of the $10 billion annual cost of MATS.

Notwithstanding arguments over the definition of "reasonable cost," the main problem for the CPP in this context may be that EPA didn’t set a single standard of performance, it set 49 (Vermont, which has no fossil-fuel power plants, has no target). One comprehensive cost-benefit-analysis ("CBA") of the goal of a 30% reduction in greenhouse gas emissions by 2030 might suffice if EPA sets a single, nationwide standard. All indications are that EPA will, in the final rule, maintain the 49 separate targets for emissions, each of which will have a unique impact on the respective state’s power fleet and economy. Shouldn’t EPA then conduct a CBA for each separate standard?

Here in New Jersey, we’ve been wondering how EPA can justify the exorbitant cost to our state of reducing emissions by 43% while neighboring Pennsylvania – which has higher levels of emissions to begin with – must only reduce its emissions by 31%? Average electricity prices in New Jersey, a state that already has one of the cleanest power sectors in the country, will increase by an estimated 11-19%.

EPA has merely stated that "[e]ach state’s goal is different, because each state has a unique mix of emissions and power sources to plug in to each part of the formula."  Sounds like the agency has some work to do.