Eakinomics: Co-Benefits Taken to the MATS

To the outsider, it seemed a bit odd. Why was the Trump Administration attempting to roll back the Obama-era Mercury and Toxic Air Standards (MATS) rule when there was even bipartisan support for it? As it turns out, the rule finalized by the Trump Administration's Environmental Protection Agency (EPA) is probably most important for the precedent it set regarding how the benefits of regulations are calculated.

AAF’s Dan Bosch has all the details, but the key elements are that the 1990 amendments to the Clean Air Act (CAA) required the EPA to identify hazardous air pollutants emitted by steam electricity generating units and, where “appropriate and necessary,” regulate them. In a saga that spanned the Clinton, Bush, and Obama Administrations, the EPA ultimately identified mercury as one such hazard and issued regulations to reduce mercury emissions.

But here’s the key part of Bosch’s analysis: “The estimated benefits were up to $90 billion annually, of which just $6 million were from regulating mercury. Nearly all of the remaining $89.994 billion in benefits were co-benefits from reductions in particulate matter, which has its own regulatory standards under the CAA. Those co-benefits helped EPA conclude that total benefits outweighed estimated costs of $9.6 billion annually.”

In other words, the rule only made the benefit-cost cut because of the co-benefits. Excluding them made it clear that the costs of regulating mercury vastly outweighed the benefits of reduced mercury, which led the EPA to argue that it really was not “appropriate” to have the MATS rule.

Bosch notes that there are two implications of the finding. First, the EPA will likely codify the rules on the use of co-benefits in regulation under the Clean Air Act. Second, “a deregulatory-minded EPA could review existing rules where co-benefits outweigh direct benefits or reevaluate existing rules to see if the cost-benefit math changes in light of a greater emphasis on direct benefits.”

The issue, however, is likely to be litigated and, thus, is far from settled.