On December 28, 2018, the U.S. Environmental Protection Agency (“EPA”) released a pre-publication version of a proposal revisiting the cost analysis underlying the Mercury and Air Toxics Standards (“MATS Rule” or “MATS”) for coal- and oil-fired electric generating units (“EGUs”) and conducting the residual risk and technology review required by the Clean Air Act (“Proposal”). The Proposal would reverse a previous finding, issued by EPA under the Obama Administration, that regulation of hazardous air pollutant (“HAP”) emissions from EGUs under the MATS Rule was “appropriate and necessary” but would nonetheless leave the rule in effect. The Proposal also concludes that more stringent HAP emission limits are not warranted by the required risk and technology reviews.

The MATS Rule was finalized in 2012 and was based on a finding by EPA, required by Section 112(n) of the Clean Air Act, that regulation of HAP emissions from EGUs was “appropriate and necessary.” In making this finding, EPA did not consider the cost of regulation. This decision was challenged by numerous petitioners and ultimately was heard by the U.S. Supreme Court in Michigan v. EPA (“Michigan”). In 2015, just two months after the deadline for compliance, the Court ruled that EPA had acted unreasonably by concluding that the cost of regulation need not be considered in determining whether it is appropriate to regulate EGU HAP emissions.

In response to the Supreme Court’s decision in Michigan, EPA issued a supplemental finding in 2016 concluding that even after considering cost, it remained appropriate to regulate EGU HAP emissions (“2016 Supplemental Finding”). One of the theories EPA used to justify its 2016 Supplemental Finding was that the co-benefits of regulating EGU HAP emissions (i.e., the indirect benefits associated with reductions in criteria pollutants such as particular matter, which are regulated under other provisions of the Clean Air Act), outweighed the costs of regulation. The current rulemaking proposes to rescind and replace the 2016 Supplemental Finding.

In the Proposal, EPA concludes that its 2016 Supplemental Finding was flawed, in part due to its reliance on co-benefits to justify MATS. Instead, EPA now says that, because the focus of Section 112 is on reductions in HAP emissions, the previous finding should not have relied on co-benefit reductions as a primary justification for MATS. Moreover, EPA concludes that even if Congress had intended for EPA to account for ancillary co-benefits in deciding whether to regulate HAP emissions from EGUs under Section 112, the gross disparity between monetized HAP benefits and the costs of regulation is simply “too large” to justify regulation using co-benefits.

Despite proposing to find that regulation of EGU HAP emissions is not appropriate and necessary, EPA is not proposing to rescind MATS or delist EGUs from the list of sources regulated under Section 112 because EPA was previously precluded from delisting EGUs by the D.C. Circuit in New Jersey v. EPA, decided in 2008. Nevertheless, the Agency does ask for comment on whether it is authorized to rescind MATS or may even be compelled to do so if it finalizes the Proposal as currently drafted. However, if the Agency finalizes the rule as proposed, the main impact of the Proposal would be to establish precedent for how cost-benefit analyses should be performed in the future and would not impact MATS itself.

EPA also proposes the results of its residual risk and technology reviews, which Section 112 mandates to be performed within eight years of finalizing any Section 112 standard, including MATS. EPA concludes that the residual risk from EGU HAP emissions does not warrant making the MATS emission limits more stringent and that no new technologies have been developed since the MATS Rule was finalized that would support more stringent standards.

Although the shutdown of the federal government will delay publication of the Proposal in the Federal Register, the comment period will be open for 60 days once the Proposal is published. A pre-publication copy of the Proposal can be found here.