Reply Brief — Michigan v. Envtl. Prot. Agency, 135 S. Ct. 702 (2014) (No. 14-46)

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| MAR 18 2015

Nos. 14-46, 14-47 AND 14-49 _|

THE CLERK

IN THE

Supreme Court of the Anited States

STATE OF MICHIGAN, ET AL., PETITIONERS,

Vv.

ENVIRONMENTAL PROTECTION AGENCY, RESPONDENT.

ON WRITS OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA

CIRCUIT

REPLY BRIEF OF PETITIONER THE

NATIONAL MINING ASSOCIATION

CARROLL W. MCGUFFEY III PETER S. GLASER

JUSTIN T. WONG (Counsel of Record)

TROUTMAN SANDERS LLP TROUTMAN SANDERS LLP

600 PEACHTREE STREET, NE 401 NINTH STREET N.W.

SUITE 5200 SUITE 1000

ATLANTA, GA 30308-2216 WASHINGTON, D.C. 20004

202-274-2998

Peter.glaser@

troutmansanders.com

March 18, 2015 Counsel for Petitioner

TABLE OF CONTENTS

pe S FP fe Pw tips + 55: -emem ene th iii

RULE 20.6 STATEMENT. ..........0.cccccccocccoccccccocccccccccees 1

EDGE DEEP BIOS vecceccseewovnsenvesesecsendiainiaie 1

pi y RRC EEE ET ie 2

I. Respondents’ Statutory Analysis Is

i A NN eT Py 2

A. Respondents Misread the Plain Text of

Section 7412(m)(1)(A). ..................cccccsecccececeeceee 2

IT.

B. Respondents’ Context Arguments Ignore

the Most Basic Statutory Context of All—

that Congress Intended a Different

Regulatory Approach for Electric

I. WENNER NE 4

C. The (At Best) Merely Implicit

Consideration of Costs Allowed in Setting

“MACT-Floor” Standards Proves Rather

than Disproves the Relevance of Costs in

Determining Whether Regulation Is

ROUTED. cocesvrscnsnnnneceisssit ee 7

D. Other Section 7412 Context Supports

Congress’ Intent that EPA Consider Costs

under Section 7412(n)(1)(A).............ccccccccceeeceees 8

Respondents Provide No Valid Reason for

Ignoring Costs Given the Rule’s

Extraordinarily Unbalanced Regulatory

Cates edd TBMIIIB. cccesecccessvecccessssanzaceiniacaeanes 10

ILl.NMA’s Acid Gas Argument Is Within the

Scope of the Issue on Which This Court

Granted the Petitions for Writ of Certiorari. .....

TABLE OF AUTHORITIES

Page(s)

CASES

Chevron, U.S.A., Inc. v. Natural Resources

Defense Council, Inc.,

a ls I I as tititiciiinctterciiniteieeeell ee l

Entergy Corp. v. Riverkeeper, Inc.,

LG itt Ae eee 6

Motor Vehicle Manufacturers Ass’n, Inc. v.

State Farm Mutual Auto. Insurance Co.,

ee ED ccntccarncisntinnseeneciucanoarceientgiati 1, 10

Russello v. United States,

og ere en 4

Utility Air Regulatory Group v. EPA,

ey ls IIE chcanticnindagiucanibebiinianiattsnnianes 12

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

ee ea: IE CED encotnenemennccdinieetsadbncinionniilldlocktansec 4

STATUTES

tS Te ena eae Ae passim

a te I piiiikte tiie 5

MUsSC 696 i 3.5

ee I sitet ie 6

42 U.S.C. § 7412(c)(9)

Oe I icc ect rseeettcncncencs 13

42 U.S.C. § 7412(d)(3)(A) -o--coeccceescesecseesseecsueecesesnesencee 7

42 U.S.C. § 7412(m)(1)(A) .......-.0e-cseeesseessseeseeeee passim

43 UB.C. & TERMI) anna ncnncsnnsscnesceeccvsececccnseceneen 9

FEDERAL REGISTER NOTICES

76 Fed. Reg. 24,976, 25,060-51 (May 3, 2011)......... 13

We Wi, Dies, at DUI i csascseicessssectsscssiitscnees 13

77 Fed. Reg. 9,304, 9,323 (Feb. 16, 2012) ...............-. 7

WE i I os cissieiniscinicisimetteniorsnainion 13

ch BO EF rere are 11

RULE 29.6 STATEMENT

The petitioner does not have a parent

company, and no publicly-held corporation has a 10%

or greater ownership interest in the petitioner.

INTRODUCTION

Despite hundreds of pages of briefing,

Respondents and their supporting amici fail to

provide a convincing and reasonable explanation for

adopting a rule with annual compliance costs of $9.6

billion and annual benefits of only $4-$6 million.

They could have at least attempted to justify this

result by arguing that Congress prevented EPA from

considering the rule’s cost, but they did not do so.

Instead, they took the position that Congress left the

choice of whether to consider costs in EPA’s hands.

Nor did they contend that EPA rationally concluded

that unquantified benefits and co-benefits tip the

cost-benefit analysis in favor of regulation. Despite

all their words about those benefits, Respondents

were forced to concede that EPA, because it decided

to ignore costs, did not weigh costs and benefits in

making the appropriateness determination.

Respondents were thus left with the

unenviable task of defending the rationality of EPA’s

position that it could determine whether regulation is

“appropriate” without even considering the cost of

that regulation. But EPA’s position is indefensible

either as a matter of statutory construction under

Chevron, U.S.A., Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (1984), or as a matter of

rational decisionmaking under Motor Vehicle

Manufacturers Ass'n, Inc. v. State Farm Mutual Auto.

Insurance Co., 463 U.S. 29 (1983). Congress did not

delegate to EPA the immense power of adopting

regulations that are so costly that they are

transforming the electric power sector without

requiring the Agency to at least consider the impact

of its decision. And even if Congress did delegate

that authority, no rational person, faced with

evidence that the costs of a decision far outweigh its

benefits, decides to simply ignore the costs and

proceed anyway.

Acid gas regulation proves the _ point.

Regulating acid gases will cost over $5 billion per

year yet produce no health benefit (as EPA concedes)

and will create only the vaguest of environmental

benefits in possibly reducing water-body acidification.

None of the Respondents, however, offered a

satisfactory explanation of how a Congress that

adopted an entire Title devoted to cost-effectively

addressing the electric sector’s contribution to water-

body acidification could have _ simultaneously

intended that EPA would adopt hugely expensive

supplemental regulations to achieve virtually no

benefit at all.

ARGUMENT

I. Respondents’ Statutory Analysis Is

Unavailing.

A. Respondents Misread the Plain Text of

Section 7412(n)(1)(A).

Respondents’ statutory analysis begins with a

misreading of what Section 7412(n)(1)(A) actually

says. In Respondents’ reading, Congress directed

EPA to determine whether it is appropriate and

necessary to include electric generators on the

Section 7412(c) list. E.g., EPA Br. 17. Because, for

other source categories, costs are not a relevant factor

in a listing decision, Respondents reason that costs

should also not be a factor in a Section 7412(n)(1)(A)

appropriate and necessary determination. Id. at 24-

25. They buttress their analysis by claiming that,

under Section 7412 and other Clean Air Act (“CAA”)

provisions, costs are relevant only later in the

regulatory process, when EPA sets standards. Id. at

25; State Resp. Br. 28; Brief of American Academy of

Pediatrics, et al. “Env. Resp. Br.”) 31.

But Section 7412(n)(1)(A) does not say that

EPA shall assess whether listing is appropriate and

necessary. It directs EPA to determine whether

“such regulation”—that is, regulation “under this

section [7412]’—is appropriate and necessary. Since,

as Respondents state, Congress made costs relevant

(either implicitly or explicitly) when EPA sets Section

7412 regulatory standards, EPA must consider costs

in making a Section 7412(n)(1)(A) determination of

whether regulation under Section 7412 is

“appropriate and necessary.” Thus, the very fact that

EPA must consider costs in adopting Section 7412

regulations proves Petitioners’ point that EPA must

consider costs in the appropriate and necessary

finding—and disproves Respondents’ point that EPA

may ignore costs in making that finding.

B. Respondents’ Contex* Arguments Ignore

the Most Basic Statutor, Context of All—

that Congress Intended a Different

Regulatory Approach (ffor’_ Electric

Generators.

Respondents’ contextual analysis misses an

obvious point. On the one hand, they place a great

deal of weight on what they call Congress’ consistent

practice in Section 7412 and throughout the CAA

generally of barring EPA from considering costs in

making a threshold decision of whether to regulate.

EPA Br. 38-41. On the other hand, they are forced to

concede that Congress did not follow this practice

under Section 7412(n)(1)(A). In their view, under

that provision, Congress left it in EPA’s hands to

make the decision to either consider or not consider

costs, unlike any other program they cite. Jd. at 22-

23, State Resp. Br. 18. And so, by Respondents’ own

admission, a contextual analysis of Section

7412(n)(1)(A) must begin with the recognition that

Congress intended a different regulatory approach for

electric generator hazardous air pollutant (“HAP”)

emissions than it did for other source categories.! Cf.

Russello v. United States, 464 U.S. 16, 23 (1983)

(‘where Congress includes particular language in one

section of a statute but omits it in another ... it is

generally presumed that Congress acts intentionally

' For this reason, Respondents cannot find support in Whitman

v. American Trucking Ass’ns, Inc., 531 U.S. 457, 469 (2001),

where, unlike Respondents’ position here, the Court found that

the statute unambiguously barred EPA from considering costs.

and purposely in the disparate inclusion or

exclusion.”).

Respondents maintain nevertheless’ that

because Congress barred EPA from considering costs

in making a threshold decision to list sources for

regulation under these other programs, EPA must be

seen as acting reasonably here by adopting the same

regulatory approach. EPA Br. 24-25. Respondents’

argument, however, ignores the Section 7412

regulatory structure that Respondents rely on in

justifying EPA’s approach. As Respondents state,

because all of the HAPs that the rule regulates are

listed under Section 7412(b), Congress has already

deemed that these substances, if emitted in amounts

exceeding the Section 7412(c) thresholds, “pose[] an

inherent risk warranting regulation.” Id. at 25.

Thus, if Congress’ intent was as limited as

Respondents claim, it had no need to require EPA to

do a health study and make an appropriate and

necessary finding. To ensure that electric generator

HAP emissions would be regulated if warranted, it

could either have not adopted Section 7412(n)(1)(A)

at all and left in place a regime under which EPA

would be required to regulate those emissions if EPA

determined that they exceeded the _ statutory

thresholds. Or, if there was concern that the

language of Section 7412(c) was not broad enough for

EPA to project forward whether generator emissions

following implementation of other CAA programs

exceeded the Section 7412(c) tons-per-year criteria for

listing, Congress could have simply instructed EPA to

make the necessary forward projection.?

Congress did have a purpose for the health

effects study and the appropriate and necessary

finding, however. The Panel got close to Congress’

purpose when it stated that EPA was required to

consider the results of the health effects study in

determining whether regulation would be appropriate

“based on its assessment of the existence and

severity” of any health hazards. NMA App. 28a. But

the Panel never considered why information about

the existence and severity of impacts would be

relevant to a Congress that had already determined

that HAPs emitted beyond defined threshold

amounts create a significant enough health concern

to warrant regulation. The only possible explanation

is that Congress, in contrast to its otherwise

applicable approach, and because of its concern about

the multiple, costly regulations which it had adopted

for the power sector, wanted EPA to exercise policy

judgment as to whether the severity of the impacts

warrant the type of regulation “under this section”

that EPA has undertaken. That judgment

necessarily involves weighing costs and benefits.

NMA Br. 35-37. As this Court has said, “[e]very real

choice requires a decisionmaker to weigh advantages

against disadvantages....” Entergy Corp. ov.

Riverkeeper, Inc., 556 U.S. 208, 232 (2009).

2 The Section 7412(n)(1)(A) health study and appropriate and

necessary finding would be similarly unnecessary for facilities

emitting below the statutory thresholds. Because these facilities

are “area sources,” EPA was already required to regulate those

sources’ emissions if it found they imperil public health or the

environment. 42 U.S.C. § 7412(c)(3).

C. The (At Best) Merely Implicit

Consideration of Costs Allowed in Setting

“MACT-Floor” Standards Proves Rather

than Disproves the Relevance of Costs in

Determining Whether Regulation Is

Appropriate.

Respondents also trip themselves up by

arguing that EPA properly ignored costs in making

the appropriateness finding because, in line with

other CAA programs, EPA would consider costs in

fashioning regulatory standards. EPA Br. 25. But

EPA did not consider costs in setting standards for

electric generators because virtually all of the

standards it adopted were based on the “MACT-floor”

methodology, NMA Br. 34, which, as EPA has

conceded, 77 Fed. Reg. 9,304, 9,323 (Feb. 16, 2012),

precludes the consideration of costs.

The best Respondents can do is to argue that

costs are implicitly considered in setting MACT-floor

standards in that those standards, by definition, have

been achieved by some currently operating units.

EPA Br. 25-26. Although Respondents recognize

that setting standards in this fashion can result in

extremely high compliance costs for the large

majority of other units and can lead to plant closures,

they argue that result is simply the scheme Congress

intended. /d. at 26. But that claim is directly

inconsistent with Respondents’ admission that it is

8 Actually, by definition, they have been achieved by only a very

small number of facilities. Under Section 7412(d)(3)(A), MACT-

floor standards are based on the average performance of the 12

percent lowest-emitting units, meaning 88 percent (or even 94

percent) of units may not meet the standard.

EPA that chose to ignore costs here, not Congress.

Moreover, Respondents’ argument still leaves

Congress without a reason for requiring a study of

the existence and severity of any health impacts of

electric generator HAP emissions and for directing

EPA to make an appropriate and necessary finding.

Under Respondents’ view, EPA does not weigh the

severity of impacts against the cost of regulation

when EPA makes the appropriate and necessary

determination, and, given that MACT-floor standards

are formulaic, it also does not do so when it sets

regulatory standards.

D. Other Section 7412 Context Supports

Congress’ Intent that EPA Consider Costs

under Section 7412(mn)(1)({A).

First, although focused on the health study

that Section 7412(n)(1)(A) authorizes, Respondents

recognize that the study must also include an

examination of alternative control technologies. EPA

Br. 28, n.6. Respondents argue improbably that a

study of alternative control strategies does not

include the cost of those technologies. Jd. However,

the notion that Congress was interested in knowing

only whether control technologies were technically

feasible, not whether they were economically feasible,

is not credible. Many things are technically feasible

but completely infeasible as a practical matter

because of their cost. Respondents pooh-pooh NMA’s

point that, under their reading of the statute, EPA

could proceed with regulation even if the cost of the

controls was $1 trillion, EPA Br. 43, n.13, but that is

the implication of their view that only the technical

feasibility of controls was relevant for study, not the

cost of those controls.

Second, Respondents recognize the

contradiction of relying on Section 7412(n)(1)(B)’s

reference to environmental effects to justify

consideration of those effects under Section

7412(n)(1)(A), while ignoring costs under Section

7412(n)(1)(A) even though costs are also referred to in

Section 7412(n)(1)(B). Indus. Resp. Br. 21, n.9.

Respondents argue that EPA’s discretion is broad

enough under Section 7412(n)(1)(A) to either consider

or not consider environmental impacts and to either

consider or not consider environmental costs. Id.

But this argument cuts against Respondents’

principal contention that EPA reasonably ignored

costs because of Section 7412(n)(1)(A)’s focus on

health impacts. Env. Resp. Br. 16; State Resp. Br.

18. This is particularly so given that EPA chose to

consider environmental impacts because it wanted to

extend its appropriateness finding to acid gases,

which, in the amounts emitted by electric generators,

do not, as the Agency conceded, create public health

impacts. See Argument III infra. Given that acid gas

regulation drives more than half of the cost of the

rule, NMA Br. 13, choosing to regulate based on

possible environmental concerns, while ignoring the

resulting cost impacts, is hardly reasonable.

Third, Respondents argue that ignoring costs

in making the appropriateness finding harmonizes

with the fact that costs are not considered in delisting

a source category under Section 7412(c)(9). EPA Br.

32-34. But the high hurdles for undoing an EPA

listing decision further emphasize why Congress

would want to ensure that EPA considered all

relevant factors, including costs, before EPA listed

generators for regulation under Section 7412.

Il. Respondents Provide No Valid Reason for

Ignoring Costs Given the Rule’s

Extraordinarily Unbalanced Regulatory

Costs and Benefits.

Even if Congress gave EPA the choice to either

consider or not consider costs in determining whether

“such regulation” under Section 112 is appropriate,

EPA must provide & reasoned explanation for the

choice it made. State Farm Mutual Auto. Insurance

Co., 463 U.S. at 43-44. Respondents’ principal

rationale for EPA’s decision to ignore the $9.6 billion

cost of the rule was that, however extreme the cost-

benefit imbalance might be, it cannot be

unreasonable because the same imbalance could

occur with regulation of other source categories under

Section 7412. EPA Br. 19. This explanation,

however, suffers from the same problem as EPA's

statutory interpretation. No doubt, if Congress had

not adopted Section 7412(n)(1)(A) and subjected EPA

to the otherwise applicable Section 7412 regulatory

structure, this imbalance would have occurred. But

Congress did adopt Section 7412(n)(1)(A) and directed

EPA to regulate only if “such regulation” was

“appropriate.” EPA thus must do more to justify the

appropriateness of the hugely disproportionate costs

and benefits that occurred here than to pretend that

Congress never instructed it to determine whether

regulation with such consequences is appropriate in

the first place.

Respondents seek to justify the enormous costs

of the rule by arguing that the costs must be

affordable because some facilities have already

complied with the standards. State Resp. Br. 2.

Given that the initial three-year compliance period

expires this April (with many units obtaining a one-

year extension to next April), 77 Fed. Reg. at 9,407, it

is not surprising that some units have already

complied. At the same time, it is no use pretending

that $9.6 billion per year is not a steep price simply

because facilities are being forced to pay it.

Respondents similarly argue that the rule's

costs must be reasonable because the Section 7412

program, in their view, has been successfully

implemented for other industries. Env. Resp. Br. 39.

But none of those industries have experienced the

extraordinary regulatory costs that EPA has imposed

on the power sector under the MATS rule, and none

has seen the wave of plant closures that is occurring

here. Most important, because none are subject to

nearly the same level of regulation under other CAA

programs, Congress did not specify that EPA must

make an appropriateness finding for these other

industries before regulating under Section 7412.

Respondents also argue that the costs must be

affordable because some states have adopted even

more stringent standards, State Resp. Br. 9-11, and

some companies have complied with these standards,

Indus. Resp. Br. 29. But the States supporting EPA

that have adopted these standards (like California

and the northeastern states) are typically located far

from the country’s coal fields and have little coal

generation. Similarly, the companies supporting

EPA historically are not large coal users. These

companies and these States stand to gain a

competitive advantage under the rule, but that does

not prove that the compliance costs are reasonable.

In the end, as EPA intended, the rule is having

a transformative effect on the electric power sector,

with projected retirements of one-sixth to one-quarter

of all coal-fired electric generation, NMA Br. 15,

which only a few years ago supplied half of the

country’s electric power. Energy Information

Administration, http://www.eia.gov/electricity/

capacity/, Congress cannot be seen as having

authorized regulation of such “vast economic and

political significance,” Utility Air Regulatory Group v.

EPA, 134 S. Ct. 2427, 2444 (2014), by instructing

EPA to regulate only if “appropriate.”

Ill. NMA’s Acid Gas Argument Is Within the

Scope of the Issue on Which This Court

Granted the Petitions for Writ of

Certiorari.

NMA’s third argument in its opening brief

addressed EPA’s alternative justifications for

regulating acid gases—first, that regulating acid

gases is appropriate and necessary because they

contribute to water-body acidification and second,

that EPA is compelled to regulate acid gases even if

they pose no health or environmental threat if EPA

determines that it is appropriate and necessary to

regulate any other electric generator HAP. NMA Br.

37-44. Respondents claim that NMA’s response to

this second justification is not within the scope of the

issue this Court set for briefing. EPA Br. 52-53.

Respondents are incorrect. The Court asked

the parties to brief whether EPA unreasonably

ignored costs. EPA argues alternatively that it could

reasonably ignore the benefits and costs of acid gas

regulation because those benefits and costs became

irrelevant when EPA determined that it was

appropriate and necessary to regulate other electric

generator HAP emissions. 77 Fed. Reg. at 9,361.

NMA maintains that the costs and benefits of acid

gas regulation did not become irrelevant when EPA

made that determination. NMA Br. 42-44. Given the

interplay between Sections 7412(n)(1)(A) and 7412(d),

NMA maintains that Congress did not intend that

EPA would regulate electric generator emissions that

EPA had determined did not “warrant regulation.”

Id. Respondents and NMA dispute this point, but

EPA’s reasons for ignoring the cost of acid gas

regulation are unquestionably relevant to the overall

issue of the reasonableness of EPA’s decision to

ignore the cost of HAP regulation asa whole. -

Respondents barely engage the merits of the

acid-gas arguments that NMA made. They claim

that EPA did find that acid gases harm the public

health. Env. Resp. Br. 42, n.7. But their citation is

to 76 Fed. Reg. 24,976, 25,050-51 (May 3, 2011),

where EPA discusses the health effects of acid gases

if inhaled in sufficient amounts. In contrast, they

ignore EPA’s conclusion in the same Federal Register

notice that acid gases in the amount emitted by

electric generators (and dispersed over very wide

areas) do not pose a cancer risk and that “our case

studies did not identify significant chronic non-cancer

risks from acid gas emissions.” Jd. at 25,016.

As to environmental impacts, Respondents

argument that the study of acidification in the United

Kingdom supports EPA’s position, Indus. Resp. Br.

42, misses the point that the United Kingdom study

obviously does not show that electric generators in

the United States emit acid gases in sufficient

amounts to affect the acidification levels in domestic

water bodies. The fact remains that EPA chose to

force the domestic power sector to spend over $5

billion per year to reduce emissions of a substance

that EPA concedes does not present a significant

health risk and that it cannot provide any concrete

evidence is causing material acidification anywhere.

It did so even though Congress adopted a separate

program that was intended to cost-effectively

ameliorate the power sectors contribution to

acidification. NMA Br. 25-27. Given the paucity of

evidence of any continuing impact that power sector

acid gas emissions might be having on acidification,

and given the huge costs that EPA’s acid gas

regulations imposed, EPA’s refusal to consider the

cost of those regulations was unreasonable.

CONCLUSION

The Court should vacate the rule.

Respectfully submitted,

CARROLL W.MCGUFFEY III #PETERS. GLASER