Amicus Curiae Brief — Utility Water Water Act Group Group v. Riverkeeper, Inc. (Nos. 07-597, 07-588, 07-589)

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26 CA )

W\ won SA), (Consolidated mee

In The OCT 6- 2008

Supreme Court of the United States

ENTERGY CORP., Petitioner, a

Q-ryv €,

ENVIRONMENTAL PROTECTION AGENCY, ET AL..,

Respondents.

PSEG FOSSIL LLC AND PSEG NUCLEAR LLC,

Petitioners,

Vv.

RIVERKEEPER, INC., ET AL., Respondents.

UTILITY WATER ACT GROUP, Petitioner,

RIVERKEEPER, INC., ET AL., Respondents.

On Writs Of Certiorari To The United States

Court Of Appeals For The Second Circuit

BRIEF OF ECONOMISTS FRANK ACKERMAN,

NATHAN SIVERS BOYCE, PETER DORMAN,

EBAN GOODSTEIN, RICHARD B. HOWARTH,

PETER B. MEYER, JULIE A. NELSON, RICHARD

B. NORGAARD, THOMAS MICHAEL POWER,

KRISTEN SHEERAN, BENJAMIN K. SOVACOOL

AND LYUBA ZARSKY AS AMICI CURIAE

IN SUPPORT OF RESPONDENTS

PROF. DAVID M. DRIESEN PROF. DOUGLAS A. KYSAR

Counsel of Record YALE LAW SCHOOL

SYRACUSE UNIVERSITY 127 Wall Street

COLLEGE OF LAW New Haven, CT 06511

E.I. White Hall (203) 436-8970

Syracuse, NY 13244

(315) 443-4218

October 6, 2008

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2542

TABLE OF CONTENTS

Page

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INTEREST OF THE AMICI CURIAE...................

EE ii ais ialneretclgheebiaciisnatadiibagiancindannbbenil 1

SIATE MEIN. OF THE CASE. ........0..cccccccceccescescees

SUMMARY OF ARGUMENT .................. ccc cee eeee eee 6

esi teint dsaplbniasiniiebienmnduiineenenindanes 10

I. COST-BENEFIT ANALYSIS IS A

WELFARE ECONOMIC DECISION

Pe E intentpnsitsisnipineceniseseuentattininciinsn 10

A. Cost-Benefit Analysis Aims to Identify

Allocatively Efficient Regulation Based

on Monetized Estimates of Policy

Impacts on Human Well-Being............. 11

B. By its Nature, Cost-Benefit Analysis

Cannot Address Many Aspects of Law

a einticnisihciiacitildiidaiuiitdiabaaibiaiiaisnadiniminn 14

Il. COST-BENEFIT ANALYSIS IS NOT

RELEVANT TO IDENTIFICATION OF

THE BEST TECHNOLOGY AVAILABLE

FOR MINIMIZING ADVERSE

ENVIRONMENTAL IMPACT............. panei 17

A. Engineering Analysis Identifies the

“Best” Technology for Minimizing

Adverse Environmental Impact............ 18

B. Economic Analysis Comparing Costs

to Facilities’ Economic Capabilities

Evaluates a Technology’s “Availability”... 21

TABLE OF CONTENTS — Continued

Page

C. Cost-Benefit Analysis Is Irrelevant to

Cost Effectiveness Analysis .................. 29

Ill. EPA'S COST-BENEFIT ANALYSIS

ILLUSTRATES WHY CONGRESS MAY

RATIONALLY HAVE REJECTED ITS

ee ee ED siesniinicseninnibtenscnieiniinpamentieiin 33

A. Incomplete Information Made _ the

Phase II Cost-Benefit Analysis

ED sncdcsncessentetenctnenanntacammnnienseniiiid 33

B. As Traditionally Understood and

Implemented, the Technology-Based

Standard of §316(b) Would Have

Avoided Limitations of EPA’s

Cost-Benefit Analysis ...............:.sesceeeeees 36

REE sitnitonsnnsinsapminniscintinnemesuvagpemnennnmnaninnes 40

APPENDIX: IDENTIFICATION OF AMICI......App. 1

TABLE OF AUTHORITIES

Page

CASES

Alaska Dep't of Envtl. Conservation v. EPA, 540

I a eenidinn 7, 8,19, 21

American Textile Mfrs. Inst., Inc. v. Donovan,

a I onic seicnsinseeientannaniicisuinanaaaiedd 6, 18, 22

Bailey v. U.S., 516 U.S. 137 (1995) ..............sccccssssoeeee 20

Burnham v. Superior Court, 495 U.S. 604

REE A er Wve ee a = CEL DR eS oe Dee oer a 17

Citizens to Preserve Overton Park v. Volpe, 401

I aaa tela ad acd niiaeeniemnignaaiedenel 18

EI. du Pont de Nemours & Co. v. Train, 430

I ee gladiamanpeanneiel 2,6

EPA v. National Crushed Stone Ass’n, 449 U.S.

EER SCN Rae Serene ONnEN HO Ore 7, 18, 21

EPA v. State Water Resources Control Board,

ESTE en Se ree eae one 37

National Renderers Ass’n v. EPA, 541 F.2d 1281

I ea oc aensianeniialel 25

National Wildlife Federation v. EPA, 286 F.3d

Neen nT TT ee enn Ll asdanniaacmnaiies 23

PSEG Fossil LLC v. Riverkeeper, Inc., 128

atoll 6

Riverkeeper, Inc. v. EPA, 358 F.3d 174 (2d Cir.

ESE ear ore ene eee mio cee aee 3, 4, 19, 22, 29

Riverkeeper, Inc. v. EPA, 475 F.3d 83 (2d Cir.

ID wnks-taniiucnsinnnnisiecsinunaioniuninmiinunmiesnnniineniniiniegl passim

TABLE OF AUTHORITIES — Continued

Page

rooG we git St. |. | eee 15

Union Electric Co. v. EPA, 427 U.S. 246 (1976) ........ 18

U.S. v. Riverside Bayview Homes, 474 U.S. 121

Se eie ii lnccniiniceviiahibeatmcantPatinsnantaliinadsendaibeaiinisbsiabaiisinebiiisan 15, 39

Whitman v. American Trucking Ass’ns, Inc.,

I I israel 15

LEGISLATIVE MATERIALS

i sna shs acids serpnaieseianascsaseviamnal 15, 38

I rsa scons peboncsinia tenn didinnemniimaeiel passim

I A Legislative History of the Water Pollution

Control Act Amendments of 1972 (Comm.

RETEST a eRe REECE EON TN 28, 32

ADMINISTRATIVE MATERIALS

63 Fed. Reg. 50,388 (September 21, 1998) .......... 25, 26

64 Fed. Reg. 45,072 (August 18, 1999) ................ 23, 26

65 Fed. Reg. 49,666 (August 14, 2000) ...................... 24

67 Fed. Reg. 17,122 (April 9, 2002).............0........... 38

67 Fed. Reg. 38,752 (June 5, 2002)...................... 24, 25

67 Fed Reg. 64,216 (October 17, 2002) ................ 23, 26

69 Fed. Reg. 41,575 (July 9, 2004)..........0..00.0.... passim

69 Fed. Reg. 54,476 (September 8, 2004) .................. 23

TABLE OF AUTHORITIES ~— Continued

Page

EPA, Economic and Benefits Analysis for the

Proposed Section 316(b) Phase II Existing

Facilities Rule, EPA-821-R-02-001, February

2002, http://www.epa.gov/waterscience/3 16b/

ID a iieiavitiriisisenceseninaneniiniseitondaientinnia 39

EPA, Economic and Benefits Analysis for the

Final Section 316(b) Phase II Existing

Facilities Rule, EPA-821-R-04-005, February

2004, http://www.epa.gov/waterscience/3 16b/

phase2/econbenefits/final.htm............ 4, 5, 22, 34, 35

EPA, Regional Analysis Document for the Final

Section 316(b) Phase [1 Existing Facilities

Rule, EPA-821-R-02-003, February 12, 2004,

http://www.epa.gov/waterscience/3 16b/phase2/

I icccnicicintsstisstntimenivivaadiamaial 34, 35

BOOKS AND BOOK CHAPTERS

Edward I. Altman & Edith Hotchkiss,

Corporate Financial Distress and

Rs Ge eisidersnncscincecicanesindinnsenemiheliameianaen 24

Stephen Breyer, Breaking The Vicious Circle:

Toward Effective Risk Regulation (1993)............... 12

James M. Buchanan, Freedom in

Constitutional Contract: Perspectives of a

Potitical Heonomvist (197'7)........00ceccccsesesecoscscosssesess 15

Scott Callan & Janet Thomas, Environmental

Economics & Management: Theory, Policy,

and Applications (4th ed. 2007)....................cec cece ee 30

TABLE OF AUTHORITIES — Continued

Page

J. HO. Dales, Pollution, Property & Prices:

An Essay in Policy-making and Economics

EERSTE RO no 37

Barry Field, Environmental Economics: An

EET I a 30

Eban Goodstein, The Trade-Off Myth: Fact and

Fiction About Jobs and the Environment

a sdaeuuensooes 8, 28

1 Handbook of Environmental Economics:

Environmental Degradation and Institutional

Responses (Karl-Goran Maler & Jeffrey R.

Neen as accsiieccnnsgnnesocences 11

Ahmed Hussen, Principles of Environmental

I I I, I oa cscncchensdvensecsoncassessceccesoosees 30

Jonathan Lesser, Daniel Dodds & Richard

Zerbe, Jr., Environmental Economics and

italic dedi ecnmannsdneneocsoons 29, 30

Richard B. Norgaard & Richard B. Howarth,

Sustainability and Discounting the Future,

in Ecological Economics: The Science and

Management of Sustainability 88 (Robert

ia ceca natdnnedonanesoonncass 16

Orrin H. Pilkey & Linda Pilkey Jarvis, Useless

TEE TE ae 16

Roger Perman, Yue Ma & James McGilvray,

Natural Resource and Environmental

SE Ee 30

TABLE OF AUTHORITIES — Continued

Page

Alan Randall & Michael C. Farmer, Benefits,

Costs and the Safe Minimum Standard

of Conservation, in The Handbook of

Environmental Economics 26 (Daniel

SPIN, SEINE ccrccdccicecnicsniidhpdieaiiesnanineenibhsiiones 16

Clifford Russell, Applying Economics to the

ETERS NORAD eR ORE mR DE 30, 31

Tom Tietenberg, Environmental Economics and

PS Gi Se Picaccnsctccsiievnnicnicndinedinians 11, 30, 31

ARTICLES

Ad Spending of ‘100° Edges Upward,

Advertising Age, Sept. 28, 1988, at 36 ................... 20

Kenneth J. Arrow et al., Js There a Role for

Benefit-Cost Analysis in Environmental,

Health, and Safety Regulation?, 272 Science

STEEL Ak TIITTITTIIID cihicioscuiineehebidethioiddcheipsnahatalineaiesapiaaitinasiedcenainiiaedd 12, 29

Richard C. Bishop, Endangered Species and

Uncertainty: The Economics of a _ Safe

Minimum Standard, 60 Am. J. Ag. Econ. 10

SOEs ssid ptentaesdaieiieiinkealisisiesibibiibatiduibainbabdiaapianinidinaniandiniedaiaiin 16

Daniel H. Cole & Peter Z. Grossman, When is

Command-and-Control Efficient? Institutions,

Technology, and the Comparctive Efficiency

of Alternative Regulatory Regimes for

Environmental Protection, 1999 Wis. L. Rev.

vill

TABLE OF AUTHORITIES — Continued

Page

David M. Driesen, Distributing the Costs of

Environmental, Health, and Safety Protection:

The Feasibility Principle, Cost-Benefit

Analysis, and Regulatory Reform, 32 B.C.

ee BL: | Neen enn 8, 21, 28

David M. Driesen, The Societal Cost of

Environmental Regulation: Beyond

Administrative Cost-Benefit Analysis, 24

I ink I I I i cictdicicsinecinertnniinnatntidesintasned 8

Sanford J. Grossman & Joseph E. Stiglitz, On

the Impossibility of Informationally Efficient

Markets, 70 Am. Econ. Rev. 393 (1980).................. 31

Richard B. Howarth, Sustainability Under

Uncertainty: A Deontological Approach, 71

ey a, I I ie nit nen dtdiinemntidninbddondicneti 16

Adam B. Jaffe et al., Environmental

Regulation and the Competitiveness of U.S.

Manufacturing, What Does the Evidence Tell

C707, GO bd. BOOM. LAL. 1BB CIGBS) ..<000ccecccesesecsoeversevsess 25

Bradley Johnson & Alice Z. Cuneo, AT&T,

Goodby Look to Ax mLife, Advertising Age,

Pg eg rT ee eee 20

Nicholas Kaldor, Welfare Propositions of

Economic and Inter-personal Comparisons of

Utility, 49 Econ. J. 549 (1939) ..............cccecsesecsseceees 11

Thomas O. McGarity, Media-Quality, Technology,

and Cost-Benefit Balancing Strategies for

Health and Environmental Regulation, 46

Law & Contemp. Probs. 159 (1983)........................ 38

TABLE OF AUTHORITIES — Continued

Juan-Pablo Montero, Pollution Markets with

Imperfectly Observed Emissions, 36 RAND J.

ERS IR Ee Nee a Ro OC

W.D. Montgomery, Markets in Licenses and

Efficient Pollution Control Programs, 5 J.

BOO. TOOTH BOS CIGTS) .0cccrcceccosccescssevessesssceseses

Richard Morgenstern et al., Jobs Versus the

Environment: An Industry-Level Perspective,

43 J. Envtl. Econ. & Mgmt. 412 (2002).............

Bryan Norton, Robert Costanza, and Richard

C. Bishop, The Evolution of Preferences: Why

‘Sovereign’ Preferences May Not Lead to

Sustainable Policies and What to Do About

BE, BE TGs. THOOR. TGS CRBS) occcccccccccccccccccccsccssces

Wallace E. Oates, From Research to Policy: The

Case of Environmental Economics, 2000 U.

I cl

Joseph Persky, Cost-Benefit Analysis and the

Classical Creed, 15 J. Econ. Perspectives 199

I a ssa chacihiadulalinrbanenine

Amartya Sen, The Discipline of Cost-Benefit

Analysis, 29 J. Legal Stud. 931 (2000)..............

Cass R. Sunstein, /s Cost-Benefit Analysis for

Everyone?, 53 Admin. L. Rev. 299 (2001)..........

Laurence H. Tribe, Ways Not to Think About

Plastic Trees: New Foundations for

Environmental Law, 83 Yale L. J. 1315

SEE csinescenpenninnimicermitnintbinttdcnanbannemmecoiertaunednipnnehees

— 1]

TABLE OF AUTHORITIES — Continued

Page

Martin Weitzman, The Stern Review of the

Economics of Climate Change, 45 J. Econ.

Se TT iiiceaceretneseeiieiinllisadeuinianinbinintieiiapanbiitininina 16

Richard O. Zerbe, Jr., Comment: Does Benefit

Cost Analysis Stand Alone? Rights and

Standing, 10 J. Pol’y Analysis & Mgmt. 96

(1991)

INTEREST OF THE AMICI CURIAE

Amici are professors and scholars who teach and

write on economic theory and method, particularly

with respect to natural resources and _ the

environment. Amici have an interest in seeing that

the Court is informed on the appropriate use of

economic analysis in the implementation of § 316(b)

of the Federal Water Pollution Control Act, 33 U.S.C.

§ 1326(b), commonly referred to as the Clean Water

Act (CWA).

The end of this brief summarizes the amici’s

qualifications and affiliations. Amici file this brief

solely as individuals and not on behalf of the

institutions with which they are affiliated.’

INTRODUCTION

This brief discusses the roles of various forms of

economic analysis. Cost-benefit analysis (CBA) aims

to identify allocatively efficient actions. Economists,

however, have developed other forms of analysis for

other purposes. Administrative agencies concerned

about technology’s economic availability have

' The parties have consented to the filing of this brief. No

counsel for a party authored this brief in whole or in part, and

no counsel or party made a monetary contribution intended to

fund the preparation or submission of this brief. No person other

than amici, their institutions, or their counsel made a monetary

contribution to its preparation or submission.

employed economic models that compare costs, not to

benefits, but to regulated firm’s financial capabilities

to predict whether regulated firms can afford the best

technology. This brief discusses the relationship of

financial, cost-benefit, and cost effectiveness analysis

to EPA’s task as an agent of the elected legislature

carrying out the instructions issued in § 316(b) of the

CWA, concerning the regulation of cooling water

intake. See E.J. du Pont de Nemours & Co. v. Train,

430 U.S. 112, 138 (1976) (describing the question

before the Court as “what Congress intended for these

regulations,” not “what a court thinks ... generally

appropriate to the regulatory process”) [emphasis in

original].

STATEMENT OF THE CASE

Electricity generating plants often withdraw

water from rivers, lakes, and other waterways in

order to manage excess heat generated during their

production processes. EPA estimates that cooling

water intake kills over 3.4 billion fish and shellfish

(expressed as “age 1 equivalents”) by either trapping

organisms against components of the cooling water

intake structure or drawing them into the cooling

water system itself. Pet.App.170a-172a (69 Fed. Reg.

at 41,586).° These two mortality threats, referred to

* Citations to Pet.App. refer to the appendix filed in No

07-588.

as “impingement” and “entrainment,” affect not only

the various fish and shellfish species for which EPA

has been able to generate quantitative estimates, but

also certain threatened and endangered species, such

as sea turtles, Chinook salmon, and steelhead, as wel!

as immeasurable quantities of phytoplankton and

zooplankton that lie at the base of aquatic food

chains. Moreover, impingement and entrainment are

only the most obvious and measurable adverse effects

of cooling water intake on aquatic ecosystems.

Cognizant of these kinds of informational

difficulties, Congress in § 316(b) mandated that “the

location, design, construction, and capacity of cooling

water intake structures [must] reflect the best

technology available for minimizing adverse

environmental impact.” 33 U.S.C. § 1326(b). In 1995,

EPA agreed to a consent decree that required the

agency to establish cooling water intake rules in

multiple phases. See Riverkeeper, Inc. v. EPA, 358

F.3d 174, 181 (2d Cir. 2004) (Riverkeeper I);

Riverkeeper, Inc. v. EPA, 475 F.3d 83, 90 (2d Cir. 2007)

(Riverkeeper IT).

Phase I, involving new facilities, generally

required facilities to achieve environmental

performance standards based on what is known as

“closed-cycle cooling technology,” a process in which

cooling water is recycled and only _ periodically

replenished from neighboring waterways, rather than

continuously withdrawn and discharged. Although

environmentalists had argued on behalf of a more

stringent “dry cooling technology,” the Second Circuit

accepted EPA’s conclusion that the expense of this

technology rendered it not reasonably available to

industry. See Riverkeeper I, 358 F.3d at 195-96;

Riverkeeper II, 475 F.3d at 99 n.11.

Phase II involved large existing power plants.

EPA’s final regulations for this phase set forth a

complicated array of compliance options that were

built around a set of impingement and entrainment

performance standards. According to EPA’s own

analysis, the Phase II rules allowed many facilities

to avoid water intake reductions altogether. See

EPA, Econe.aic and Benefits Analysis for the Final

Section 316(b) Phase II Existing Facilities Rule,

EPA-821-R-04-005, February 2004, at D1-1 (Final

Rule EBA).’ Even where the rules required reductions,

they formally mandated no more than 80 and 60

percent reductions, respectively, in impingement and

entrainment. See Pet.App.189a-190a (69 Fed. Reg. at

41,590); Riverkeeper II, 475 F.3d at 105-08. EPA

identified no single technology as the best available

technology and offered no specific rationale for these

numbers. See Riverkeeper II, 475 F.3d at 106.

Notably, EPA declined to use closed-cycle cooling

technology as the benchmark against which other

proposed protection measures might be evaluated.

Despite acknowledging that impingement and

* This document is available at http://www.cpa.gov/

waterscience/316b/phase2/econbenefits/final.htm (last visited

September 29, 2008).

entrainment provide the “primary and distinct types

of harmful impacts associated with the use of cooling

water intake structures,” Pet.App.226a (69 Fed. Reg.

at 41,598), and that “closed-cycle, recirculating

cooling towers ... can reduce mortality from

impingement by up to 98 percent and entrainment by

up to 98 percent,” Pet.App.239a-240a (69 Fed. Reg. at

41,601), EPA nevertheless adopted weaker standards.

The agency did so because it considered the cost

of technologies in relation to the reductions in

impingement mortality and entrainment achieved.

Pet.App.250a (69 Fed. Reg. at 41,603). This

efficiency-oriented approach had a significant effect

on regulatory stringency: EPA estimated that 125

facilities would adopt no impingement and

entrainment controls at all under the Phase II rules.

See Final Rule EBA, supra, at D1-1. Moreover, rather

than up to 98 percent reduction in impingement and

entrainment, as attained by closed-cycle cooling

technology, the agency estimated that most facilities

would only achieve between 30.9-59.0 percent

reduction in impingement and between 16.4-47.9

percent reduction in entrainment. Jd. at C3-2.

The Second Circuit Court of Appeals remanded

the Phase II regulations almost in their entirety. The

basic defect of the rules, in the panel’s view, was

EPA’s apparent decision to use CBA to identify the

performance standard that could be attained by “the

best technology available for minimizing adverse

impact.” According to the Second Circuit, such

best availability technology (BAT) requirements

necessitate a different implementation approach:

Because “Congress itself [already has] defined the

basic relationship between costs and benefits,” EPA’s

responsibility is simply to identify the most

environmentally protective technology available at a

cost that can be “reasonably borne” by the regulated

industry. Riverkeeper II, 475 F.3d at 99 (quoting

American Textile Mfrs. Inst., Inc. v. Donovan, 452

U.S. 490, 509 (1981)).

On April 14, 2008, this Court granted certiorari

to determine “whether Section 316(b) of the Clean

Water Act, 33 U.S.C. 1326(b), authorizes the [EPA]

to compare costs with benefits in determining the

‘best technology available for minimizing adverse

environmental impact’ at cooling water intake

structures.” See PSEG Fossil LLC v. Riverkeeper, Inc.,

128 S. Ct. 1867, 1868 (2008).

SUMMARY OF ARGUMENT

Section 316(b) does not authorize CBA because

the ratio of costs to benefits has no relevance to a

decision about what constitutes the “best technology

available for minimizing adverse environmental

impacts.” 33 U.S.C. § 1326(b). Determination of which

technology best minimizes negative environmental

impacts requires a comparative engineering

evaluation of competing technologies’ capacities to

reduce environmental impacts. See Train, 430 U.S.

at 131 (describing statutory provisions governing

technology-based water pollution rules as requiring

an assessment of available technology’s

“effectiveness”); Alaska Dep’t of Envtl. Conservation v.

EPA, 540 U.S. 461, 475-76 (2004) (discussing EPA’s

use of comparative “top-down” analysis to determine

the “best available control technology” for air

pollution). Under § 316(b), this engineering analysis

focuses primarily on identifying technologies that

minimize water intake that disrupt ecology and kill

fish. Neither compliance cost nor its relationship to

benefits is relevant to identification of the technology

minimizing environmental impact.

Consideration of a_ technology’s economic

availability requires an economic analysis that

compares compliance costs to the financial resources

of regulated firms, rather than comparing these costs

to environmental benefits. To the extent that a

technology proves so costly that an industry cannot

afford to purchase it, it might be considered

unavailable. See EPA v. National Crushed Stone

Ass’n, 449 U.S. 64, 74 (1980) (describing maximizing

technology's use “within” an owner’s “economic

capability” as a site-specific application of the best

available technology concept). The dollar value of

water quality benefits, however, does not bear on

whether a technology is available, as a technology’s

economic availability is solely a function of the

relationship between costs and regulated firms’

finances.

Economic analysis should serve the

decisionmakers’ legally appropriate goals. CBA

focuses on decisions about whether an environmental

program is economically desirable in the abstract, a

task that Congress often reserves for its own

determination. See generally David M. Driesen, The

Societal Cost of Environmental Regulation: Beyond

Administrative Cost-Benefit Analysis, 24 Ecology L.

Q. 545, 605-13 (1997) (discussing CBA’s compatibility

with a general legislative power). Since the elected

legislature already has concluded that clean water is

worth the necessary costs, it may rationally have

assigned EPA the more limited role of deciding which

available technologies maximize environmental

protection. Cf. Alaska, 540 U.S. at 485 n.12

(discussing similar Clean Air Act provisions); David

M. Driesen, Distributing the Costs of Environmental,

Health, and Safety Protection: The Feasibility

Principle, Cost-Benefit Analysis, and Regulatory

Reform, 32 B.C. Envtl. Aff. L. Rev. 1, 19-21 (2005)

(Feasibility Principle) (discussing similar provisions).

Flected representatives chose a BAT approach in

order to maximize ecological restoration subject only

to a technological availability co»*sraint. The

availability constraint addresses’ distributional

concerns about plant shutdowns leading to

unemployment, not concerns about net benefits.

While CBA in principle supports efforts to identify

allocatively efficient pollution levels, financial models

provide appropriate tools for predicting whether

pollution control costs might lead to plant shutdowns,

instead of the employment increases that pollution

control expenditures often produce. Cf Eban

Goodstein, The Trade-Off Myth: Fact and Fiction

About Jobs and the Environment 20 (1999)

(associating environmental regulation with a small

net increase in employment); Richard Morgenstern et

al., Jobs Versus the Environment: An Industry-Level

Perspective, 43 J. Envtl. Econ. & Mgmt. 412, 413-14

(2002) (finding environmental regulation likely

increased employment modestly in the plastics,

petroleum, steel, and pulp and paper industries).

Elected representatives may choose a BAT

construct over CBA because of concerns about the

feasibility of correlating costs and benefits in the

water pollution context. CBA requires correlation of

monetized marginal water quality benefits with the

marginal cost of technologies. Because’ any

technology’s effect on environmental quality varies

with the quality of each relevant water body, water

pollution control technology always yields important

water quality benefits that cannot be quantified and

vast uncertainties about those that can be. A BAT

approach may be desirable precisely because it avoids

the need to link environmental protection

expenditures to marginal water quality benefits, as

CBA demands.

ARGUMENT

I. COST-BENEFIT ANALYSIS IS A WELFARE

ECONOMIC DECISION PROCEDURE

To understand why CBA has proven controversial

in the environmental, health, and safety context —

and to perceive why Congress might have eschewed

EPA’s use of it in § 316(b) — it is necessary to know

more about CBA than its surface resemblance to

“common sense” or “basic rationality.”

* See, e.g., Brief for the Federal Parties (“Federal Brief”), at

13 (“In everyday life, people routinely weight costs against

benefits in deciding whether to do something.”); Brief of

Petitioner Utility Water Act Group (“UWAG Br.”), at 28 (calling

“irrational” any interpretation of § 316(b) that would prevent

“translating ... costs and benefits into economic terms for

comparison”); UWAG Brief at 57 (“In the broadest sense, cost-

benefit balancing is a fundamental tool of logical

decisionmaking.”); Brief of Petitioners Entergy Corp., PSEG

Fossil LLC, and PSEG Nuclear, at 29 (“At a basic level, what

respondents and the Second Circuit denigrate as ‘cost-benefit

analysis’ is nothing more than common sense — the imperative of

basic rationality that actions do more good than harm.”); Brief of

Amici Curiae The AEI Center for Regulatory and Market

Studies and 33 Lndividual Economists in Support of Petitioners,

at 5 (“[Ajs a general principle, regulators cannot make rational

decisions unless they are allowed to compare costs and

benefits. .. .”).

A. Cost-Benefit Analysis Aims to Identify

Allocatively Efficient Regulation Based

on Monetized Estimates of Policy

Impacts on Human Well-Being

CBA serves as a tool for identifying allocatively

efficient regulation, defined as regulation that

generates costs equaling benefits at the margin. See

Tom Tietenberg, Environmental Economics and

Policy 25 (4th ed. 2004); 1 Handbook of

Environmental Economics: Environmental

Degradation and Institutional Responses 253-54

(Kar]-Goran Maler & Jeffrey R. Vincent eds. 2003). In

technical terms, CBA pursues Kaldor-Hicks, rather

than Pareto, efficiency. The latter standard only

approves projects that make at least one individual

better off and no one worse off. The former standard

approves projects so long as “losers” could, in theory,

be compensated adequately from project gains

to make them no worse off. See Joseph Persky,

Cost-Benefit Analysis and the Classical Creed, 15 J.

Econ. Perspectives 199, 201 (2001). What this means

in plain terms is that CBA only seeks to promote

value as such and does not compensate those who

lose from the enhancement of efficiency. See Nicholas

Kaldor, Welfare Propositions of Economic and

Inter-personal Comparisons of Utility, 49 Econ. J.

549, 550 (1939).

In order to compare costs and benefits, CBA

evaluates policy choices’ diverse consequences

according to a single numerical rubric. Accordingly,

the framework asks regulators to predict, weight, and

aggregate policy impacts in dollar terms. Once

relevant policy impacts have been estimated and

monetized in this manner, regulators can use CBA to

select the point of marginal equivalence between

social costs and benefits. Similarly, many economists

and other commentators believe that application of

CBA to a range of existing and proposed risk

regulation programs can provide society with a basis

for making efficient use of the entire regulatory

budget that it devotes to risk prevention. See

generally Stephen Breyer, Breaking The Vicious

Circle: Toward Effective Risk Regulation (1993).

In theory, CBA values anticipated policy effects

according to the monetary amount that affected

individuals would be willing to pay if the effect under

consideration were traded in an economic market.

See Kenneth J. Arrow et al., Js There a Role for

Benefit-Cost Analysis in Environmental, Health, and

Safety Regulation?, 272 Science 221, 222 (1996). This

willingness-te-pay approach to valuation makes the

desirability of CBA’s results contingent on the

desirability of the underlying distribution of wealth

and entitlements out of which valuations are being

generated.

Once EPA identifies a technology capable of

reducing environmental impacts, it can use market

data to estimate facilities’ compliance costs, which

constitute the principle direct cost of regulation.

Neither the consideration of cost nor this approach to

its valuation is unique to CBA.

Valuation of regulatory benefits — consisting of

averted harms such as human death and illness,

species loss, or environmental degradation — poses

greater challenges. EPA can often choose the best

technologies for minimizing environmental impacts

by simply comparing the percentage of effluent or

water intake reduction of :ompeting technologies. To

do this, the agency does not need to know anything

about the quality of adjacent waters.

To quantify and monetize the environmental

benefits a technology might generate, however, EPA

must consider the quality of adjacent waters and the

myriad ecological impacts that effluent or water

intake might have. These values and impacts will

vary. For waters most in need of environmental

improvement, the value of benefits may be less than

for waters that require little protection. Water intake

technologies may protect few fish in depleted fisheries

(at least in the short run), but may generate high

benefits estimates in waters with a thriving fishery.

CBA typically entails the monetization of

quantified benefits based on individual] willingness to

pay. Existing markets will not provide reliable price

information for such benefits. Accordingly, in the

environmental context, the CBA practitioner must

attempt to identify individual valuations of averted

harms through indirect or hypothetical means. Even

within the economics profession, much theoretical

and methodological controversy has surrounded the

development and use of such valuation techniques.

See, e.g., Amartya Sen, The Discipline of Cost-Benefit

Analysis, 29 J. Legal Stud. 931, 949 (2000)

(strongly criticizing conventional willingness-to-pay

measurement approaches).

B. By its Nature, Cost-Benefit Analysis

Cannot Address Many Aspects of Law

and Policy

CBA embraces welfare economic assumptions

about how value is defined and measured. According

to economic theory, willingness to pay reflects the

strength of individual preferences for various goods.

Use of a methodology based on estimates of private

preferences for avoiding death, illness, and

environmental degradation assumes that people’s

purchase decisions should determine value. See

Bryan Norton, Robert Costanza, and Richard C.

Bishop, The Evolution of Preferences: Why ‘Sovereign’

Preferences May Not Lead to Sustainable Policies and

What to Do About It, 24 Ecol. Econ. 193 (1998). Thus,

the weight assigned to matters as basic as the

existence of a fish species or the death of a human

being derives from individualistic market behavior.

This contrasts with a model of collective value

choices, such as_ political choices that create

individual rights or give special weight to matters

deemed fundamentally important for reasons not

rooted in welfare economics. Cf. Richard O. Zerbe, Jr.,

Comment: Does Benefit Cost Analysis Stand Alone?

Rights and Standing, 10 J. Pol’y Analysis & Mgmt.

96, 96 n.2 (1991) (observing that when uncertainty

over legal rights “extends beyond the margin, benefit

cost analysis will be of little help”); James M.

Buchanan, Freedom in Constitutional Contract:

Perspectives of a Political Economist (1977); Laurence

H. Tribe, Ways Not to Think About Plastic Trees: New

Foundations for Environmental Law, 83 Yale L. J.

1315 (1974). This Court has implicitly held that

Congress made such value choices in the Clean Air

Act and the Endangered Species Act. See TVA v. Hill,

437 U.S. 153, 176-84 (1978) (recognizing that

Congress decided to save each endangered species, no

matter what the cost); Whitman v. American Trucking

Ass’ns, Inc., 531 U.S. 457, 465 (2001) (recognizing

that Congress chose, in the Clean Air Act, to protect

public health). In the CWA, this Court has likewise

recognized that Congress chose to adopt an

overarching goal of ecological restoration, U.S. v.

Riverside Bayview Homes, 474 U.S. 121, 132-33

(1985) (describing the CWA as a “comprehensive

legislative attempt ‘to restore’” the waters’ ecological

integrity), which is served by subsidiary goals of zero

discharge of pollutants and protection of fish, see 33

U.S.C. § 1251.

When such goals are recognized as politically- or

normatively-imposed constraints, economic theory

evaluates them under frameworks that are

analytically distinct from conventional cost-benefit

optimization. For instance, an extensive economic

literature exists analyzing environmental and

natural resource decisionmaking under

“sustainability” or “safe minimum _ standard”

constraints. See, e.g., Alan Randall & Michael C.

Farmer, Benefits, Costs and the Safe Minimum

Standard of Conservation, in The Handbook of

Environmental Economics 26 (Daniel Bromley ed.

1995); Richard B. Howarth, Sustainability Under

Uncertainty: A Deontological Approach, 71 Land

Econ. 417 (1995); Richard B. Norgaard & Richard B.

Howarth, Sustainability and Discounting the Future,

in Ecological Economics: The Science and

Management of Sustainability 88 (Robert Costanza

ed. 1991); Richard C. Bishop, Endangered Species

and Uncertainty: The Economics of a Safe Minimum

Standard, 60 Am. J. Ag. Econ. 10 (1978).

Taking the ecological restoration goal seriously

requires efforts on a variety of fronts when the

immediate benefits produced are small. CBA,

however, calls for scaling down efforts when resources

are in serious trouble, because then individual

actions produce small measurable marginal benefits.

Furthermore, the ecological restoration goal requires

confronting the complex, causally interrelated nature

of ecosystems, which often frustrates attempts to

manage for allocative efficiency. See Orrin H. Pilkey

& Linda Pilkey Jarvis, Useless Arithmetic 6-7, 10-21

(2007) (explaining how reliance on widely used

mathematical models to set sustainable catch levels

led to a fisheries collapse). CBA, for instance,

struggles to address catastrophic or non-linear

potentialities, since CBA typically assumes a smooth

continuous world in which median expectation values

provide reasonably reliable decision criteria. Martin

Weitzman, The Stern Review of the Economics of

Climate Change, 45 J. Econ. Lit. 703 (2007)

(questioning the value of conventional CBA in the

face of climate change’s deep structural uncertainty

and potentially extreme worst case consequences).

Even assuming complete and __ reliable

information, CBA would not prove useful in all law

and policy contexts. Any formal decisionmaking

system such as CBA must — by its very nature —

exclude from evaluation some relevant parameters of

the decisions that the system aims to resolve. CBA

may be appropriate in some circumstances, but it is

not an alternative to foundational po! tical choices

like those found in the Constitution and, in some

cases, in environmental law. It is imperative,

therefore, to recognize that CBA cannot be “read into”

all of a society’s statutes or viewed as an all-purpose

policy device. Cf. Burnham v. Superior Court, 495

U.S. 604, 626 (1990) (Scalia, J., plurality opinion)

(criticizing “totality of the circumstances” and

“freestanding ‘reasonableness’” tests in the due

process context and warning against “injecting them

into the core of our American practice”).

Il. COST-BENEFIT ANALYSIS IS NOT

RELEVANT TO IDENTIFICATION OF THE

BEST TECHNOLOGY AVAILABLE FOR

MINIMIZING ADVERSE ENVIRONMENTAL

IMPACT

As Congress’s agent, EPA must follow statutory

instructions establishing policies for EPA rulemaking.

Therefore, when used to implement specific statutes,

EPA’s economic analysis must examine the factors

that congressional policies make relevant, without

considering factors irrelevant to its instructions.

See Donovan, 452 U.S. at 507-12 (holding that

cost-benefit analysis is not a relevant factor when

a statute demands maximum feasible emission

reductions); Citizens to Preserve Overton Park v.

Volpe, 401 U.S. 402, 411-13 (1971) (holding that

cost-benefit balancing was not among the relevant

factors for determining whether it was “feasible” to

route a highway around a park); Union Electric Co. v.

EPA, 427 U.S. 246, 257-65 (1976) (holding that cost is

not a relevant factor in EPA assessment of state

implementation plans under the Clean Air Act). The

relationship of costs to benefits is not among the

factors relevant to determining the “best technology

available for minimizing adverse environmental

impact.” 33 U.S.C. § 1326(b).

A. Engineering Analysis Identifies the

“Best” Technology for Minimizing

Adverse Environmental Impact

Identification of the “best technology ... for

minimizing environmental impacts” requires an

engineering analysis of competing technologies’

environmental performance characteristics. In the

effluent reduction context, the “best” technologies

generally minimize the amount of water pollution

being discharged. See Crushed Stone, 449 U.S. at 74

(describing BAT as committing “the maximum

resources economically possible to the” pollution

elimination goal); see also Alaska, 540 U.S. at 489-90

n.13 (describing requirements for “best available

control technology” as requiring “the technology that

can best reduce pollution within practical

constraints”) (emphasis added). The focus on water

intake in §316(b) generally requires an inverse

analysis focused on identifying technologies that

minimize the amount of water taken from lakes,

streams, and rivers to cool industrial facilities. As a

rule, technologies minimizing water intake kil! less

fish and disrupt a water body’s ecology less than

technologies that use more water. See Riverkeeper I1,

475 F3d at 101 n.16 (noting EPA's general

assumption that reductions in water flow

proportionally reduce impingement and

entrainment); Riverkeeper I, 358 F.3d at 194 (“EPA

acknowledges that dry cooling” virtually eliminates

water intake and “dramatically reduces impingement

and entrainment”).

The analysis of which technologies minimize

adverse environmental impacts may take into

account a broad range of impacts. EPA may, for

example, take into account adverse air pollution

impacts associated with water pollution technology.

See, e.g., Riverkeeper I, 358 F.3d at 194-95 (allowing

EPA to consider the air pollution associated with

energy efficiency penalties for dry cooling technology

as a basis for rejecting it); Riverkeeper ll, 475 F.3d

at 99 n.11 (describing its prior decision to uphold

EPA’s rejection of dry cooling as based on its negative

environmental effects and unbearable cost). The

amount of economic cost a facility will incur to install

a technology, such as an environmentally superior

water intake system, has no bearing on the question

of which technology minimizes adverse

environmental impacts.

Market participants generally use the term

“best” in conjunction with any technology to signify

the highest quality item regardless of cost. See

generally Bailey v. U.S., 516 U.S. 137, 144-45 (1995)

(holding that courts must give a term its ordinary

meaning considering not just its “bare meaning,” but

also its “placement and purpose” in context). Thus,

consumer discussions of whether a Blackberry or an

I-Phone is the “best” cell phone or whether an Apple

or a PC is the “best” computer focus on design and

features, i.e. on figuring out which technology works

best for its intended purpose. Similarly, advertisers

use the term “best” as a signifier of high quality. See,

e.g., Bradley Johnson & Alice Z. Cuneo, AT&T,

Goodby Look to Ax mLife, Advertising Age, July 14,

2003, at 1, 26 (contrasting advertisements focused on

price with the claim that AT&T has the “best

technology”); Ad Spending of ‘100° Edges Upward,

Advertising Age, Sept. 28, 1988, at 36 (describing Bell

Atlantic as having the “best technology” because its

telecommunications capabilities are the “fastest, with

the most interesting applications.”).

Economists, however, sometimes use the term

“best policy” as signifying a balance between cost and

benefits. And, similarly, consumers sometimes use the

term “best purchase” to signify a balance between

costs and benefits. But the term “best technology,” in

ordinary parlance, means the best technology for its

intended purpose — here minimizing (not just

addressing) environmental impacts.

B. Economic Analysis Comparing Costs

to Facilities’ Economic Capabilities

Evaluates a Technology’s “Availability”

However, § 316(b) qualifies its demand that FPA

formulate standards based upon the environmentally

best technologies by insisting that the technologies be

“available.” 33 U.S.C. § 1326(b). A technology that is

technically or economically infeasible may not be

available. See National Crushed Stone, 449 U.S. at 75

(describing the best available technology provisions

as requiring employment of the “best measures

economically and technologically feasible”); Driesen,

Feasibility Principle, supra, at 21 (describing BAT

requirements as exemplars of the feasibility principle,

which maximizes reductions except when doing so

causes widespread plant shutdowns). Accordingly,

EPA properly employs economic analysis to determine

whether a technology is available.

Economic analysis focused on_ technological

availability models the relationship of costs to

regulated facility owners’ economic capabilities. See

Alaska, 540 U.S. at 498 (upholding EPA's rejection of

a disproportionate cost argument, because a finding

of economic infeasibility requires financial data,

which the regulated firm withheld). This financial

analysis of an industry, combined with an analysis of

technical feasibility (whether the technology works

properly for the industry as a whole), allows the

agency to determine the limits of firms’ capabilities.

See Donovan, 452 U.S. at 508-09 (defining feasible

regulation as that which is “capable of being done

...”); see, e.g., Riverkeeper I, 358 F.2d at 195 (EPA

found “dry cooling” technically infeasible for some

facilities). Thus, in regulating water intake, EPA

compared the costs of technologies reducing water

intake to the revenues of the regulated fax lities,

Final Rule EBA, supra, at B2 (analyzing cust to

revenue ratios at the firm and facility level);

Riverkeeper I, 358 F.3d at 194 n.21 (discussing the

percentage of revenue necessary to fund “dry cooling”

technology), in order to evaluate whether

environmentally desirable technologies were

economically available to the industry, see id. at 195

(EPA found that dry cooling requirements for new

facilities would discourage their construction);

Riverkeeper Il, 475 F.3d at 99 n.11 (characterizing

Riverkeeper I approval of EPA's rejection of dry

cooling as “ultimately” based on EPA finding dry

cooling “too expensive for industry to reasonably

bear” and air. pollution impacts); see also

Pet.App.272a-273a (69 Fed. Reg. at 41,608-09)

(finding dry cooling unavailable for existing facilities

because it “carries costs that would potentially

cause significant closures.”). If the cost of an

environmentally valuable technology creates a

long-term excess of cost over revenue, requiring that

technology may lead to bankruptcy and/or the

shutdown of facilities. See Effluent Limitations for the

Meat and Poultry Products Point Source Category, 69

Fed. Reg. 54,476, 54,511, 54,514 (September 8, 2004)

(closure comes from regulation producing “negative

long-term earnings” at the facility or company level).

A rule that shuts down a significant portion of an

industry does not cause the technology to be

employed, because it may not be economically

available to the industry as a whole.”

Accordingly, in evaluating _ technological

availability, EPA frequently uses economic models

focused on industry finances. See, e.g., National

Wildlife Federation (NWF) v. EPA, 286 F.3d 554, 565

(D.C. Cir. 2003) (discussing EPA’s use of the Altman

bankruptcy model); Effluent Limitations for the Iron

and Steel Manufacturing Source Category, 67 Fed.

Reg. 64,216, 64,244 (October 17, 2002) Uron & Steel)

(EPA selected Aitman’s Z model to evaluate

bankruptcy possibilities after a review of corporate

financial distress models in the economic literature).

* Likewise, if the compliance cost associated with a

technology required of new sources becomes so onerous that new

facilities do not open, it might be correct to say that the

technology is not “available” to new facilities. See Effluent

Limitations for the Industrial Laundries Point Source Category,

Withdrawal of Proposed Rule, 64 Fed. Reg. 45,072, 45,079

(August 18, 1999) (EPA conducts a “‘barrier-to-entry analysis’ to

determine whether . .. compliance costs would have prevented a

new source from entering the market.”).

Financial analysts and others use financial models to

evaluate whether a projected cost increment might

bankrupt firms and/or lead to facility closures. See

Edward A. Altman & Edith Hotchkiss, Corporate

Financial Distress and Bankruptcy 234-35 (2006)

(discussing financial institutions’ use of models to

predict repayment risk). Such models may take into

account earnings, assets, liabilities, and other factors

relevant to predicting bankruptcy or closures. See id.

at 241-43 (discussing model components).

Economists use a concept of price elasticity to

analyze the question of when facility owners must

bear costs imposed on them in order to avoid sales

declines or, instead, will succeed in passing them on

to customers. See, e.g., Effluent Limitations for the

Metal Products and Machinery Point Source Category

Notice of Data Availability, 67 Fed. Reg. 38,752,

38,769 (June 5, 2002) (Metal Products) (stating that

EPA estimated the “cost elasticity of price.”). For

goods and services with few or no _ substitutes,

consumer demand may remain steady even as prices

rise. See Effiuent Limitations for the Transportation

Equipment Cleaning Point Source Category, 65 Fed.

Reg. 49,666, 49,688 (August 14, 2000) (predicting that

price increases would cause little decline in output in

a sector offering an essential service). Industry

competitiveness is also relevant to a firm’s ability to

pass on costs and, thus, EPA employs econometric

models and analyzes market structure to estimate

how much of projected regulatory cost facilities must

actually pay. See, e.g., Metal Products, 67 Fed. Reg. at

38,768-69. Price rises reflecting regulatory costs,

if significant and not shared by all relevant

competitors, can cause a firm to lose market share,

another possible route to bankruptcy. Cf. Adam B.

Jaffe et al., Environmental Regulation and the

Competitiveness of U.S. Manufacturing, What Does

the Evidence Tell Us?, 33 J. Econ. Lit. 132, 157 (1995)

(environmental regulation has little impact on U:S.

competitiveness); Pharmaceutical Manufacturing

Category Effluent Limitations Final Rule, 63 Fed.

Reg. 50,388, 50,408 (September 21, 1998)

(Pharmaceutical Manufacturing) (analyzing whether

rule might encourage new facilities to locate outside

the United States). In sum, financial models provide

tools for evaluating the many economic factors

associated with assessing a technology’s economic

availability to an industry. See Metal Products, 67

Fed. Reg. at 38,770-71 (discussing several different

models).

This availability requirement has imposed

significant restraints on the EPA’s ability to require

the best technologies. Courts have remanded rules to

EPA when it failed to adequately consider

affordability in cases where there might be a serious

issue in that regard. See, e.g., National Renderers

Ass’n v. EPA, 541 F.2d 1281, 1288-89 (8th Cir. 1976)

(finding a water pollution rule arbitrary because EPA

did not adequately consider whether costs would

affect the economic viability of medium-sized

facilities). And EPA has sometimes refused to require

the best performing technology, when it determines

that a rule based on that technology will close a large

number of facilities. See, eg., id. at 1288 & n.7

(noting that EPA exempted small facilities from its

rule, because it predicted many of them would

otherwise close); NWF, 286 F.3d at 565 (accepting

EPA’s conclusion that a particular technology is not

achievable because requiring it would lead to

bankruptcies).

Analysis of the relationship between costs and

benefits does not reveal whether a technology is

economically available. See Pharmaceutical

Manufacturing, 63 Fed. Reg. at 50,403 (stating that

the agency's economic analysis includes “the impacts

of these rules” on firms and “also” a cost-benefit

analysis) (emphasis added); Effluent Limitations for

the Industrial Laundries Point Source Category, 64

Fed. Reg. 45,072, 45,078 (August 18, 1999)

(describing evaluation of facility closures, firm

failures, and cost-benefit analysis as separate

components of its economic assessment); Jron and

Steel, 67 Fed Reg. at 64,243 (describing an evaluation

of “corporate financial distress” and cost-benefit

analysis as separate components of a regulatory

impact analysis). Instead, CBA shifts the focus from

availability to a broad question about whether

pollution control is desirable in a given instance, a

question not mentioned in section 316(b). See

Riverkeeper Il, 475 F.3d at 98 n.10 (citing OMB

Circular A-94, Guidelines and Discount Rates for

Benefit-Cost Analysts of Federal Programs, Appendix

A (1992)) (CBA is a method of assessing 1 policy’s

desirability) (emphasis added).

To see CBA’s irrelevance to _ technological

availability, consider a simplified example in which a

firm generating $500,000 in annual revenue must

employ an environmental technology requiring $1

million in additional annual cost. This cost produces

$10 million in incremental annual monetized

environmental benefits. Because annual cost exceeds

annual revenue, this technology is not economically

available to the firm, but requiring this technology

would be economically efficient, because the overall

benefits to society exceed the costs. Conversely,

imagine that the same $1 million annual incremental

expenditure occurs at a facility generating $1 billion

in annual revenue, but generates only $1,000 in

annual incremental benefits. In this case, the

measure may be economically available to the facility,

but a rule based on it would be economically

inefficient (assuming that all environmental benefits

have been accurately estimated and appropriately

valued). In each case, conclusions about a

technology’s availability hinge on analysis of the

firm’s finances rather than on the _ relationship

between costs and benefits. Financial analysis of costs’

predicted impacts on regulated firms’ operations in

light of their economic capabilities provides useful

information about a technology’s economic availability.

Monetization and quantification of benefits provides

no information relevant to assessing a technology’s

economic availability.

Economic analysis of the question of whether a

proposed rule will trigger plant shutdowns focuses

upon the distribution, not the total amount, of costs.

Cf I A Legislative History of the Water Pollution

Control Act Amendments of 1972 (Comm. Print 1973)

(Leg. Hist.) at 156, 217, 352-53, 375, 452, 456-57,

467, 480, 513-15, 561, 564-65, 613, 656-58, 731-33,

735-36, 738, 743-45, 1128-29, 1143, 1157, 1173, 1215,

1286, 1353-55, 1358-61 (showing overwhelming

Congressional focus on the job loss issue). A high cost

imposed on a very profitable facility might lead to

employment increases, as plant managers hire

technicians to install and operate equipment reducing

environmental impacts. See Goodstein, supra, at 171.

Conversely, a relatively modest cost imposed on a

marginal facility might lead to a shutdown, causing

significant unemployment. Hence, economic models

that compare costs to facilities’ economic capabilities

implicitly focus on cost distribution.

Not only does analysis of direct job losses require

a form of analysis focused on cost distribution rather

than aggregate costs and benefits, but the concern

about job loss itself constitutes a distributional

concern. Se° Driesen, Feasibility Principle, at 35-37. A

complete loss of income constitutes a _ heavily

concentrated cost for the worker losing a job, having a

significant impact on the worker concerned. See id. at

37 (describing the impact). The same amount of cost

producing widespread but modest price increases

usually does not implicate Congressional concerns

about immediate plant shutdowns. See id. at 35-36

(explaining why widely distributed costs tend to have

insignificant impacts). Congressional focus on

availability thus reflects political concern for costs’

distribution, rather than maximization of net

benefits.

Economic theory recognizes that cost-benefit

analysis, because of its focus on economic efficiency,

does not resolve distributional questions. See

Jonathan Lesser, Daniel Dodds & Richard Zerbe, Jr.,

Environmental Economics and Policy 211 (1997)

(recognizing the rationality of pursuit of “non-economic

goals,” such as equity); Arrow et al., supra, at 221

(describing “concerns about fairness” as “important

noneconomic factors that merit consideration”).

Quantification and monetization of benefits does not

help to analyze the distributional concerns implicated

by the legislature's emphasis on_ technological

availability.

C. Cost-Benefit Analysis Is Irrelevant to

Cost Effectiveness Analysis

The Second Circuit held that EPA may consider

“cost effectiveness” in crafting its standards.

Riverkeeper I, 475 F.3d at 98 (Congress intended that

EPA use cost effectiveness analysis in designing BAT

standards). Cost effectiveness analysis identifies the

cheapest means of achieving a predetermined goal.

Id. at 98 n.10 (citing OMB Circular A-94) (describing

cost effectiveness as a “systematic quantitative

method for comparing the costs of alternative means

of achieving the same .. . given objective.”). Concerns

about cost effectiveness motivate a very substantial

economic literature on the form of regulation, and lie

behind economists’ support for pollution taxes and

emissions trading. See, e.g., Lesser, Dodds & Zerbe,

Jr., supra, at 231-33; W.D. Montgomery, Markets in

Licenses and Efficient Pollution Control Programs, 5

J. Econ. Theory 395 (1972).

The economic literature teaches that cost

efiectiveness analysis does not involve monetization

or quantification of benefits and is_ therefore

analytically distinct from CBA.° To carry out a cost

effectiveness analysis, EPA must identify and

compare the cost of several technologies or

approaches capable of meeting its previously

determined goal. Under § 316(b), this previously

determined goal is the minimization of adverse

environmental impacts from cooling water intake and

it is pursued through evaluation of the environmental

capabilities of various available technologies.

EPA may establish a performance standard based

on the best available technology’s capabilities, while

* See, e.g., Scott Callan & Janet Thomas, Environmental

Economics & Management: Theory, Policy, and Applications 170

(4th ed. 2007); Barry Field, Environmental Economics: An

Introduction 13 (1994); Ahmed Hussen, Principles Of

Environmental Economics 188 (2d ed. 2000); Lesser, Dodds &

Zerbe, Jr., supra, at 230; Roger Perman, Yue Ma & James

McGilvray, Natural Resource and Environmental Economics 222

(1996); Clifford Russell, Applying Economics to the Environment

117 (2001); Tietenberg, supra, at 48-50.

allowing facilities to use technologies other than the

technology EPA identified as the best, including

technologies invented after the rule’s promulgation,

to meet the standard. See generally Tietenberg,

supra, at 48-49. This approach invites facility owners

to carry out a cost effectiveness analysis to determine

which technologies provide the cheapest means of

achieving agency goals. Regulated firms usually have

better information than EPA does about the marginal

cost of employing various technologies at their own

plants. This “information asymmetry” supports EPA's

practice of allowing firms some flexibility in choosing

technologies to meet EPA standards. See generally

Sanford J. Grossman & Joseph E. Stiglitz, On the

Impossibility of Informationally Efficient Markets, 70

Am. Econ. Rev. 393, 404 (1980) (discussing market

implications of information asymmetry). But the ratio

of costs to benefits has no bearing on whether a

particular approach offers the cheapest way to meet a

predetermined goal. See Clifford Russell, Applying

Economics to the Environment 112-13 (2001)

(describing cost-effectiveness as “an application of

constrained optimization” that provides an

alternative to CBA); Wallace E. Oates, From Research

to Policy: The Case of Environmental Economics, 2000

U. Ill. L. Rev. 135, 135 (noting that standards under

the CWA are to be set “with little regard to their

economic implications”).

The distinction between CBA _ and _ cost

effectiveness analysis is especially important in a

system of distributed political power, where one

governmental body might wish to delegate only part

of its authority to another. Whereas petitioners and

their supporters analogize regulatory CBA to

“everyday life” decisions such as the purchase of an

automobile, Federal Brief at 13, the better analogy is

to decisions in which authority, resources, expertise,

and responsibility are spread among multiple parties.

In such contexts, individuals might properly hesitate

to confer authority on agents to seek overall

efficiency.

For instance, a client might delegate decisions

about how to litigate a case to an attorney, but

reserve to itself th» decision about when to settle in

light of anticipated costs and benefits. Or a parent

might offer to purchase the automobile of a teenage

child’s choosing, but still limit the extent to which the

child could trade off safety for other factors like speed

or styling. A rational policymaker might choose in

these contexts not to delegate authority to seek

overall efficiency, but instead to establish more

specific policies to guide the agent’s decisionmaking.

See I Leg. Hist. at 518-19 & n.1 (showing

Congressional consideration of CBA).

Ill. EPA’S COST-BENEFIT ANALYSIS

ILLUSTRATES WHY CONGRESS MAY

RATIONALLY HAVE REJECTED ITS USE

IN § 316(B)

Although now generally cited as an unequivocal

supporter of CBA, Professor Sunstein has argued

both that “there is a large difference between CBA

and standards of feasibility or achievability,” and that

the latter “might be preferred ... on the ground that

they greatly ease the agency’s task, and in a way that

makes people far better off on balance.” Cass R.

Sunstein, Js Cost-Benefit Analysis for Everyone?, 53

Admin. L. Rev. 299, 311 (2001). EPA’s attempt to

transform the feasibility standard of § 316(b) into a

cost-benefit standard supports Professor Sunstein’s

claim.

A. Incomplete Information Made the Phase

II Cost-Benefit Analysis Unreliable

In the Phase II rulemaking, EPA focused on

“reductions in impingement and entrainment as a

quick, certain, and consistent metric for determining

performance.” Pet.App.169a (69 Fed. Reg. at 41,586).

Increased fish survival became the primary

determining factor of the rulemaking because — at

least for those fish that are commercially or

recreationally valuable — that factor offered an

ecological benefit that was readily quantifiable and

monetizable.

As the agency acknowledged, however, the

potential impact of cooling water intake structures is

much broader and more complex than _ these

quantified mortality effects. See EPA, Regional

Analysis Document for the Final Section 316(b) Phase

II Existing Facilities Rule, EPA-821-R-02-003,

February 12, 2004, at A9-1 (Final Rule RS)

(documenting numerous ways in which “the

organisms lost to [impingement and entrainment]

are critical to the continued functioning of the

ecosystems of which they are a part” and in which

those ecosystems provide valuable “ecological and

public services”).’ Among these broader impacts

was an unknown but nontrivial level of harm

posed to threatened or endangered species. See

Pet.App.173a-174a (69 Fed. Reg. at 41,587).

Such additional environmental impacts, however,

received no monetary value in EPA’s economic

analysis. Indeed, as the agency candidly admitted,

even its focus on impingement and entrainment

losses was highly incomplete, as it only accounted for

losses insofar as they impacted commercial and

recreational fish harvests; hence, the agency “was not

able to monetize benefits for 98.2% of the age-one

equivalent losses of all commercial, recreational, and

forage species for the section 316(b) Phase II

regulation.” Final Rule EBA, supra, at C3-2. See also

"This document is available at http://www.epa.gov/

waterscience/3 16b/phase2/casestudy/final.htm. .

Pet.App.499a (69 Fed. Reg. at 41,661) (“The Agency’s

direct use valuation does not account for the benefits

from the remaining 98.2% of the age 1 equivalent

aquatic organisms estimated to be _ protected

nationally under today’s rule.”).

In light of such incompleteness and uncertainty,

the agency warned that “(tJo rely only on estimated

use values would substantially undervalue the

benefits of the final section 316(b) rule.” Final Rule

RS, supra, at A9-8. Elsewhere, the agency offered the

sage advice that “[a] comparison of complete costs

and incomplete benefits does not provide an accurate

picture of net benefits to society,” Final Rule EBA,

supra, at D1-5, and that “there is a real possibility

that ignoring non-use values could result in serious

misallocation of resources,” Pet.App.499a (69 Fed.

Reg. at 41,660). Nevertheless, the agency ultimately

appeared to give these unquantified benefits no

weight in its conclusion about whether closed cycle

cooling was acceptable. See Final Rule EBA, supra, at

D1-4 (mentioning only monetized benefits).

With so many effects remaining off the balance

sheet, regulators had little reason to be confident

that the conclusions offered by CBA _ were

welfare-maximizing. Instead, alternative, more

stringent standards of environmental protection

might have been preferable to the CBA-based

approach, given the many non-quantified

environmental benefits of cooling water intake

reduction. See Frank Ackerman, Comments on

Proposed Rule (August 1, 2002) at 9 tbl. 2, J.A. at 296

(discussing additional ecological impacts).

B. As Traditionally Understood and

Implemented, the Technology-Based

Standard of §316(b) Would Have

Avoided Limitations of EPA’s

Cost-Benefit Analysis

Even within the terms of welfare economics,

non-efficiency maximizing policy approaches such as

technology-based standards may appear desirable

when evaluated in real world policy contexts, where

information is incomplete and uncertain, where

administrative resources are limited, and where

technology is dynamically impacted by law itself. See,

e.g., Daniel H. Cole & Peter Z. Grossman, When is

Command-and-Control Efficient? Institutions,

Technology, and the Comparative Efficiency of

Alternative Regulatory Regimes for Environmental

Protection, 1999 Wis. L. Rev. 887, 888-89 (observing

that historical, technological, and institutional factors

can occasionally render technology-based approaches

“the most efficient means of achieving a society's

environmental protection goals”); Juan-Pablo

Montero, Pollution Markets with Imperfectly

Observed Emissions, 36 RAND J. Econ. 645 (2005)

(demonstrating that when regulators can accurately

monitor abatement technology but not emissions and

output levels, standard-based approaches may

outperform alternatives under certain market

conditions).

Such second-best considerations are at the heart

of the CWA, given the great difficulty experienced

attempting to identify and enforce standards prior to

the 1972 amendments. Cf. J. H. Dales, Pollution,

Property & Prices: An Essay in Policy-making and

Economics 39 (1968) (a _ leading economist’s

statement, prior to the Act’s passage, that an

economist cannot say that one policy is superior to

another because he “is quite unable to draw up a neat

table showing all benefits and costs”). As is well

recognized, Congress’s general approach in the

amendments was to circumvent the informational

demands, scientific uncertainties, and valuation

questions that had frustrated the task of basing

standards for dischargers on the effect of pollution on

water quality. See EPA v. State Water Resources

Control Board, 426 U.S. 200, 202-03 (1976).

Because the language of §316(b) closely

resembles the language of the most stringent

technology-based standards in the CWA, EPA should

have focused simply on the affordability of

increasingly efficacious environmental control

technologies, recognizing that Congress itself already

had determined that the benefits of cooling water

intake regulation are sufficiently vast and difficult to

quantify that only the “best” control technology will

suffice. Instead, EPA essentially relived the failed

pre-1972 experience under the CWA through its failed

effort to complete a reliable CBA of the Phase II

rulemaking.

In this respect, it is useful to recall that the

stated goal of the CWA 1s “to restore and maintain the

chemical, physical, and biological integrity of the

Nation’s waters.” 33 U.S.C. § 1251(a). The goal is not

to view those waters as merely contingent resources,

to be impaired or sacrificed at any moment for the

promotion of an abstract and undifferentiated

maximization of welfare.

Earlier, EPA seemed to recognize that allowing

the degraded condition of a water body to reduce the

level of legal protection that it receives — as the agency

ultimately decided to allow through its CBA-based

approach — would be inconsistent with the CWA’s more

dynamic, long-term goal of progressively restoring the

ecological integrity of the nation’s water bodies. Cf.

Thomas O. McGarity, Media-Quality, Technology, and

Cost-Benefit Balancing Strategies for Health and

Environmental Regulation, 46 Law & Contemp.

Probs. 159, 199 n.194 (1983) (quoting Senator Bayh

as explaining that the technology-based standards of

the CWA were intended to “force industry to do the

best job it can do to clean up the nation’s water and to

keep making progress without incurring’ such

massive costs that economic chaos would result”).

When offering its proposed Phase II rule, for instance,

EPA stated that, in addition to expressly quantified

impacts, it was “concerned about the cumulative

overall degradation of the aquatic environment as a

consequence of... intakes located with or adjacent to

an impaired waterbody.” See 67 Fed. Reg. 17,122,

17,136 (April 9, 2002).

Conversely, a “comprehensive ... attempt ‘to

restore’” the ecological integrity of waters, Bayview

Homes, 474 U.S. at 132-33 (1985), through pollution

controls, wetlands conservation, and other measures

should increase fish populations, and therefore the

value of the benefits of technology reducing water

intake, over time. See EPA, Economic and Benefits

Analysis for the Proposed Section 316(b) Phase II

Existing Facilities Rule, EPA-821-R-02-001, February

2002, at C1-6, item 5.1° (acknowledging likely

underestimation of benefits because current water

quality has improved since the 20-year-old data relied

upon was generated). Through its subtle shift from

expressing concern over the impact of cooling water

intake structures on impaired water bodies to using

estimated impairment levels as an efficiency-oriented

rationale for lowering levels of protection, EPA

seemed to abandon the CWA’s mandate _ to

progressively restructure the economic’ and

technological landscape that gives rise to any

momentary depiction of costs and benefits.

* This document is available at http://www.epa.gov/

waterscience/3 16b/phase2/econbenefits/ (last visited September

30, 2008).

CONCLUSION

Regulators should use economic methods

appropriate to the decision before them. CBA

provides a tool for choosing allocatively efficient

regulation. Other modes of economic analysis,

however, fit a mandate to minimize environmental

impacts within the limits of available technology.

Respectfully submitted,

PROF. DavID M. DRIESEN PROF. DOUGLAS A. KYSAR

Counsel of Record YALE LAw SCHOOL

SYRACUSE UNIVERSITY 127 Wall Street

COLLEGE OF LAW New Haven, CT 06511

E.I. White Hall (203) 436-8970

Syracuse, NY 13244-1030

(315) 443-4218

App. 1

APPENDIX: IDENTIFICATION OF AMICI

Frank Ackerman

Director of the Research and Policy Program,

Global Development and Environment Institute

Senior Economist, Stockholm Environment Institute

— US Center

Tufts University

Nathan Sivers Boyce

Associate Professor, Economics

Chair, Willamette University Sustainability Council

Willamette University

Peter Dorman

Faculty, The Evergreen State College

Eban Goodstein

Professor, Economics

Lewis & Clark College

Richard B. Howarth

Pat and John Rosenwald Professor,

Environmental Studies Program

Dartmouth College

Editor-in-Chief, Ecological Economics

Peter B. Meyer

Professor Emeritus, Urban Policy and Economics

Director Emeritus, Center for Environmental

Policy and Management

School of Urban and Public Affairs

University of Louisville

Julie A. Nelson

Associate Professor, Economics

University of Massachusetts, Boston

Senior Research Fellow, Global Development

and Environment Institute

App. 2

Richard B. Norgaard

Professor, Energy and Resources

University of California, Berkeley

Thomas Michael Power

Research Professor, Economics

University of Montana

Kristen Sheeran

Associate Professor, Economics

St. Mary’s College of Maryland

Executive Director, Economics for Equity

and the Environment: E3 Network

Benjamin K. Sovacool

Adjunct Assistant Professor, Government

& International Affairs Program

Virginia Polytechnic Institute & State University

Lyuba Zarsky

Associate Professor, Graduate School of International

Policy Studies

Monterey Institute of International Studies

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.