Considering cost

July 6, 2015
Consideration of cost in regulatory decision-making should be a simple matter of common sense. At this moment in history, though, bureaucratic attention to economic consequence requires a ruling by the Supreme Court.

Consideration of cost in regulatory decision-making should be a simple matter of common sense. At this moment in history, though, bureaucratic attention to economic consequence requires a ruling by the Supreme Court.

With a margin of just one vote, the high court upheld challenges to the Environmental Protection Agency's Mercury Air Toxics Standard (MATS) on grounds of insufficient accounting for cost. The decision, disclosed on June 29, is intellectually satisfying. But that's about all.

A broader problem

The court didn't reject the rule; it only said EPA should have considered costs when it determined, to satisfy the Clean Air Act, that applying MATS regulation to power plants was "appropriate and necessary." The court also didn't address the broader problem: the agency's autonomous, multifront campaign against hydrocarbon energy, starting with coal.

There, the MATS already has done its work. Its requirements, along with those of the Cross State Air Pollution Rule and pending Clean Power Program, have raised the costs of generating electricity from coal punishingly. During 3-plus years of MATS judicial review, power companies have been retiring coal-fired plants.

Offering modest comfort is the prospect that the ruling will make EPA less willing to ignore cost in other initiatives. Some observers expect the agency be more careful about cost in its final Clean Power Plan, covering emissions of greenhouse gases from existing power plants.

But EPA has earned profound suspicion for its analyses of costs and benefits. In the regulatory impact analysis accompanying the MATS, the agency estimated costs to power plants at $9 billion/year and benefits of lowering emissions of covered substances, to the extent it could assess them, at only $4-6 million/year. Yet what EPA called "ancillary benefits"-mainly reductions in emissions of sulfur dioxide and particulates-came to an estimated $37-90 billion/year.

The higher benefit numbers made regulation seem advantageous. But they were based mainly on estimates of "premature deaths" averted by the regulation. When policy-makers pretend to be able to quantify gruesome ambiguity, anything can happen. In the MATS analysis, it did. Independent analysts have challenged EPA's estimates, saying the agency toughened particulate standards and overestimated prevention of "premature death" to inflate its benefit estimates. Costs then looked proportionately lower. No matter. EPA saw no reason to incorporate estimates of the regulatory impact analysis in its appropriate-and-necessary finding.

For EPA, statistical misdirection was nothing new. Last year the agency skewed the cosmetics of its Clean Power Program by pairing global estimates of the climate benefits with cost assessments confined to the US. The ratio thus exaggerated the apparent desirability of the policy. And, as usual, the agency's cost estimates fell far below those of the targeted industry. As it did with the MATS proposal, moreover, EPA magnified the supposed health gains of its proposal to cut emissions of greenhouse gases by including benefits-such as preventing asthma attacks and more of those "premature deaths"-by cutting emissions of other substances.

So if the EPA repairs its MATS proposal with a court-ordered cost estimate, why should anyone believe it? Its assessments of costs and benefits amount to propaganda serving a grab for control of a large and important part of the economy.

Oil, gas affected

The oil and gas industry should understand that whatever benefits it receives from EPA's anticoal rampage, mainly elevated demand for natural gas in power generation, are transitory. The agency's expansionism, motivated by President Barack Obama's late-term grandstanding on the climate, threatens all forms of fossil energy with overregulation and economic restriction.

So far, the Supreme Court hasn't addressed the main problem-the making of energy law by the Executive Branch. Americans haven't voted for an overhaul of energy production and consumption. EPA is just pressing ahead and encountering alarmingly little resistance from the Judicial Branch. When the costs hit energy bills, however, Americans will demand their say. If courts won't stop a stampeding agency, economics-expressed politically-eventually will.