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Utility Mercury and Air Toxics Rule Upheld by D.C. Circuit Court of Appeals

05.08.2014

By Larry J. Kane, Attorney, Bingham Greenebaum Doll LLP

On April 15, 2014, the U.S. Court of Appeals for the D.C. Circuit, in a 2-1 decision, upheld EPA’s Mercury and Air Toxics Rule over the challenges of numerous petitioners. White Stallion Energy Center, LLC v. EPA, Case No. 12-1100. This rule, commonly referred to as the MATS Rule, was established by EPA under Section 112 of the Clean Air Act to control emissions of mercury and other hazardous air pollutants (HAPs) from existing electric utility steam generating units (EGUs). 

Development of the highly controversial MATS Rule, which was adopted by EPA in 2012, at 77 Federal Register 9304, had followed a checkered path. The rule was adopted pursuant to Section 112(n)(a)(1)(A) of the Clean Air Act, which required EPA to perform a study of the public health hazards “reasonably anticipated” to result from HAP emissions from EGUs after imposition of other requirements of the Clean Air Act. The statute went on to require EPA to regulate EGUs under “this section” if EPA were to find from the results of this study (the “Utility Study”) that such regulation of EGUs is “appropriate and necessary.”  

EPA initially issued a finding in December 2000, based on the Utility Study, that regulation of HAP emissions from EGUs is appropriate and necessary, since EGUs were said to be the largest source of mercury emissions in the United States, which posed significant public health risks, particularly to women of childbearing age who consume fish contaminated from atmospheric deposition of mercury resulting from such emissions.  In 2005, however, EPA reversed the 2000 Finding, concluding that regulation of HAP emissions from EGUs under Section 112 was not appropriate, based on a reinterpretation of Section 112(n)(a)(1)(A). Instead, EPA developed and issued a rule controlling mercury emissions from EGUs under Section 111 of the Clean Air Act known as the Clean Air Mercury Reduction rule (CAMR). The CAMR rule was subsequently vacated by the D.C. Circuit, along with the 2005 decision reversing the 2000 Finding, thus setting the stage for EPA’s adoption of the MATS rule.

The primary challenges to the MATS rule, posed by consolidated petitions for review from state, industry and labor union petitioners (the “SIL” petitioners), were that EPA erred in its interpretation of the “appropriate and necessary” threshold finding required for regulation under Section 112(n)(a)(1)(A). In addressing these challenges, the D.C. Circuit followed a traditional Chevron analysis and ultimately concluded that EPA’s interpretations were reasonable and permissible. Perhaps the two most prominent interpretative issues raised by the SIL petitioners involved EPA’s reliance upon the Section 112 delisting criteria in evaluating the public health hazards of EGU HAP emissions and EPA’s exclusion of consideration of costs of regulation from its assessment of whether regulation was “appropriate and necessary.”

Use of Delisting Criteria

Petitioners contended that EPA “wrongly conflated the delisting criteria with the ‘appropriate and necessary’ determination,” while EPA explained that it employed the delisting criteria to inform its interpretation of “hazards to public health,” a term not defined in the Clean Air Act. The court concurred with EPA, concluding that the agency reasonably relied on the delisting criteria in interpreting the undefined term. 

Cost of Regulation

Based on the relative length of the discussion of this issue in the court’s opinion, it can be inferred that the EPA’s exclusion of consideration of the costs of compliance with regulation of EGU emissions was the most hotly contested issue of the case. Concurring again with EPA, the court observed that a facial review of Section 112(n)(1)(A) “neither requires EPA to consider costs nor prohibits EPA from doing so.” The court further noted that the dictionary meaning of “appropriate” is inherently “open-ended” and “ambiguous” and does not mention costs. Moreover, Section 112 was found to mention costs explicitly where Congress intended that they be considered by EPA, contrasting Section 112(n)(1)(A), which did not mention costs of regulation, with the following subparagraph, Section 112(n)(1)(B), involving the Mercury Study requirement, which did contain an explicit requirement to consider costs. Consequently, the court found that EPA’s position was permissible. A lengthy dissenting opinion on the exclusion of consideration of costs of compliance on the determination of the appropriateness of regulation was filed by one of the judges.

Interestingly, the court appears to have reached inconsistent interpretations regarding the import of differences between Sections 112(n)(1)(A) and (B) concerning references to: (1) the costs of regulation of HAPs by EGUs and (2) environmental impacts of HAP emissions from EGUs. As mentioned above, the court viewed the absence of a reference to the costs of regulation in Section 112(n)(1)(A), as compared to the express inclusion of such cost consideration in Section 112(n)(1)(B), to be indicative of Congressional intent for different treatment of costs. 

Remaining Issues

The court similarly dispatched four other, lesser issues raised by the SIL petitioners. Turning to additional issues raised only by industry petitioners, the court methodically rebuffed all challenges. These industry issues included at least two contentions that EPA had selectively used industry data in setting MACT floor limits, a request for a subcategory for circulating fluidized bed EGUs, and a request for a one year extension of compliance deadlines for public utilities.

Environmental petitioners fared no better, as the court rejected two challenges to methods of compliance demonstration, finding again that EPA’s interpretations of statutory requirements were both reasonable and permissible. The final petition addressed by the court was that of an oil and gas energy development company contending that EPA should have imposed stricter emission standards that would have required fuel switching to natural gas.  Here, the court did not reach the merits, rejecting the petition for lack of standing.  More specifically, the court concluded that the petitioner, whose only interest in the litigation was that of a competitor of the coal-fired utilities subject to the MATS rule, fell outside the zone of interests protected by Section 112.

Whether or not a petition for certiorari to the U.S. Supreme Court is filed, the MATS rule will be likely to continue to be a factor in influencing utilities to shutter older power plants which would not cost effectively shoulder the compliance costs of this and numerous other recent or pending environmental rules.


To view a complete PDF of the First Quarter 2014 Air Quality Letter, click here.

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