The Supreme Court didn’t just issue a strong rebuke to the Obama administration’s environmental agenda last week. In ruling against the Environmental Protection Agency’s “Mercury and Air Toxics Standards” regulation — commonly known as MATS — the justices showed the danger of complying with a federal regulation before its future has been decided in court. This is an important lesson for states as the administration prepares to finalize its “Clean Power Plan” — a rule that could be significantly more costly than the one before the Court last week.
The court’s ruling in Michigan v. EPA came over three years after the EPA first proposed the MATS rule. The regulation, which went into effect in April of this year, sought to cut by 75 percent the amount of mercury, arsenic, and other emissions from coal- and oil-fired power plants. As of January 2015, it had already turned out the lights on nearly 61,000 megawatts — enough to power 15.5 million homes — of coal-powered electricity generation.
Unsurprisingly, this regulation’s costs have been enormous. Even according to the EPA’s own estimates, MATS will cost utilities approximately $9.6 billion per year — making it one of the most expensive rules in U.S. history.
In adopting the regulation, however, the EPA did not consider these costs at all. Regulators simply calculated supposed benefits — between $4 and $6 million per year in direct benefits — as justification. The Court ruled that ignoring these costs “strayed far beyond” a reasonable interpretation of the Clean Air Act. As Justice Scalia wrote for the majority, “It is not rational . . . to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.”
The court was right to order the EPA to consider costs before adopting regulations. But for families and businesses across the country, the ruling comes as too little too late.
Even with the pending legal challenge from 23 states — which was filed shortly after MATS was finalized in 2012 — many utilities began implementing the regulation anyway. Despite the Court’s ruling, this regulatory genie cannot now be put back into its Washington bottle. Americans are still left to deal with higher energy prices resulting from this suspect regulation.
This should serve as a cautionary tale for governors who are now deciding whether their states will submit an implementation plan under the EPA’s proposed Clean Power Plan — especially since the stakes are even higher. With a final rule expected as soon as next month, the regulation seeks to reduce total U.S. greenhouse-gas emissions by 30 percent over the next 15 years. States are forced to cut their emissions by varying amounts relative to a 2005 baseline, with Washington having to cut the most at 72 percent and North Dakota the least at 11 percent.
The costs of this regulation are likely to be even greater than those of MATS. According to NERA Economic Consulting, it could top $350 billion in higher electricity rates by the time it is fully implemented in 2030. Forty-three states could see double-digit electricity-rate increases between 2017 and 2031. Coal-heavy states like Utah, Wyoming, Oregon, and Montana could see spikes of over 15 percent.
In similar fashion to MATS, 14 states have already sued to stop the Clean Power Plan before it takes effect. The D.C. Circuit Court dismissed the lawsuit last month on procedural grounds, but it will continue once the rule is finalized, likely with the support of more states. Their arguments have bipartisan support, including from Harvard Law School professor Laurence Tribe, who argued in the Wall Street Journal that the regulation is unconstitutional and violates the federal Clean Air Act.
States therefore find themselves in a similar predicament to that of utilities under MATS: Preemptively comply with the Clean Power Plan and risk the Supreme Court’s ultimately overturning it, or wait until the Court rules before deciding how to proceed. Governors would be wise to learn from MATS and take a wait-and-see approach, lest they impose on their citizens billions of dollars in higher energy costs that may prove all for naught.
Of course, there are other ways to protect electricity consumers from this regulation’s crippling costs. One is for governors to simply refuse to submit a state implementation plan, thereby retaining sovereignty over their respective states’ energy policies. Senate majority leader Mitch McConnell has advocated this position, which has received support from public-utilities commissioners and other policymakers. Govs. Mike Pence (R., Ind.), Scott Walker (R., Wis.), Mary Fallin (R., Okla.), and Greg Abbott (R., Texas) have already made this decision, with others likely to follow their lead.
Public-utilities commissions could also get involved. Broadly speaking, utilities are required to seek permission before restructuring the energy grid as the Clean Power Plan requires. Commissions can — and should — deny their requests as imprudent investments until the Supreme Court weighs in.
Such a wait-and-see approach is only sensible given the stakes. The Clean Power Plan threatens hundreds of billions of dollars in higher energy costs and a destabilized energy grid. As the Supreme Court’s ruling against the MATS regulation shows, state policymakers would be wise to make the EPA prove its authority in court before delivering economic pain to their constituents.
Thomas Pyle is President of the American Energy Alliance.
Reprinted with permission from the Institute for Energy Research.