The Obama administration’s war on coal scored a big win in the U.S. Supreme Court on Tuesday. Six of the Court’s nine justices (including conservatives John Roberts and Anthony Kennedy) went out of their way to uphold the U.S. Environmental Protection Agency’s far-reaching Cross-State Air Pollution Rule for power plants, because, in their view, the rule “makes good sense.”
I think they would have come to a different conclusion, had they been presented with all the facts.
In their decision, the six justices clearly sympathized with EPA’s plight, and for good reason: the Clean Air Act directs the agency to slash air pollution blowing between the states without giving EPA much guidance on how to do it. The Act merely provides that states must reduce the “amounts” of their pollution that “contribute significantly” to air quality problems in other states.
Industry and many lesser polluting states argued that this means EPA can only require states to clean up the actual amounts of pollution that they send across their borders. But, instead of following such an “air quality only” approach, the EPA chose instead to force states to reduce their interstate power plant pollution based on how cheaply they can do it. The result is that the rule causes some lesser polluting states to do more than their fair share.
In the briefs, the challengers had the better legal argument: the Act, after all, only discusses the “amounts” of interstate pollution that crosses state lines; it says nothing about cost. Yet the Court sided with the EPA’s cost-based approach anyway. Why?
Because the majority decided that EPA’s cost-based approach is an “efficient and equitable solution” to the intractable cross-state air pollution problem:
Efficient because EPA can achieve the levels of attainment, i.e., of emission reductions . . . at a much lower overall cost. Equitable because, by imposing uniform cost thresholds on regulated states, EPA’s rule subjects to stricter regulations those States that have done relatively less in the past to control their pollution.
Even Justice Scalia’s scathing dissent, which took the majority to task for legislating from the bench, doesn’t challenge the logic of EPA’s cost-based approach.
But here’s why they’re all wrong.
As I pointed out in the Wall Street Journal in December (after the oral argument), the EPA’s cost-based approach isn’t necessarily more efficient because it ignores a critical factor: the price of electricity.
The EPA’s rule covers 27 states. Of those states, the 10 most-polluting pay an average electric rate of 8.6 cents per kilowatt hour (kWh), or about 20% less than the nationwide average. The 10 least-polluting states pay an average rate of 10.7 cents per kWh, or about 5% higher than the nationwide average. So, although the EPA’s approach might cost less overall, its rule will cause the lesser polluting states to subsidize the more-polluting states, even though the more-polluting states are already paying some of the lowest electric rates in the country.
Let’s look at an example using my home state of Wisconsin. Illinois power plants emit twice as much harmful cross-state pollution as Wisconsin plants. Yet the EPA’s rule requires Wisconsin plants to reduce their emissions by 70% and Illinois plants to reduce by only 10%—all because EPA thinks Wisconsin plants are cheaper to clean up. This means that my rule-related electric rate increase in Wisconsin will be higher than it would be under an air-quality only approach because Wisconsin plants have to offset some of Illinois’s pollution. But my electric rate in Wisconsin is already about 10.5 cents/kWh, while Illinois’s citizens pay only about 8.5 cents/kWh.
Now let’s turn to the Court’s second policy rationale for upholding the rule. According to the Court, the EPA’s cost-based approach is “equitable” because it will ensure that:
Upwind states [i.e., those states sending pollution to their neighbors] that have not yet implemented pollution controls . . . will have to bring down their emissions by installing devices of the kind in which neighboring states have already invested.
In other words, the majority thinks that EPA’s cost-based approach will force states that haven’t yet installed pollution control equipment to do so. This rationale is based on the premise that, after a plant installs pollution controls, it becomes marginally more expensive to reduce the next unit of pollution (i.e., the law of diminishing returns). Therefore, EPA’s cost-based approach should, in theory, require greater emissions reductions from states whose plants have not yet installed pollution controls because it is cost-effective to do so. Although this logic sounds good in theory, it does not play out in practice. The rule may, in fact, force states that have been proactive in addressing air pollution to pay even more.
Take again the example of Illinois and Wisconsin. Simply because it will cost Illinois more to clean up its plants does not mean that those plants have installed more pollution controls than Wisconsin plants. There are lots of other possible reasons for the compliance cost disparity. Illinois might have older power plants that are more expensive to retrofit than Wisconsin; Illinois might have less natural gas generating capacity available at its existing plants than Wisconsin does (thereby allowing Wisconsin to more cheaply switch from burning coal to cleaner natural gas); and/or Illinois power plants might burn more higher sulfur coal than Wisconsin plants, which can make them more expensive to clean up. All of these reasons could lead to Illinois having to reduce its pollution by less than Wisconsin under EPA’s cost-based approach, and none of them are related to Illinois somehow being a better environmental steward than Wisconsin.
Unfortunately, none of these points were presented to the Supreme Court because EPA’s policy rationales for its rule didn’t take center stage until the oral arguments, after the briefing had concluded. The Court seems to have taken the EPA’s post hoc rationalizations for its rule at face value. So when it wrote its decision, the Court didn’t really know that EPA’s cost-based approach might not, in fact, make much sense.
Of course, it’s probably too late now for the Court to change its mind. But it’s not too late for the EPA to do something that does make sense: fix its Cross-State Air Pollution Rule.
Photo Credit: Supreme Court EPA Ruling/shutterstock