# Respondents Brief — Nat'l Mining Ass'n v. Envtl. Prot. Agency, 135 S. Ct. 703 (2014) (No. 14-49)

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0333%3A15

## Record

- **Collection:** Supreme Court brief
- **Document type:** Respondents Brief
- **Published:** January 1, 2014

## Text

Nos. 14-46, 14-47, 14-49

IN THE

Supreme Coot of the Hnited Stites

MICHIGAN, ET AL., Petitioners,

Vv.

ENVIRONMENTAL PROTECTION AGENCY, ET AL., Respondents.

UTILITY AIR REGULATORY GROUP, Petitioner,
Vv.

ENVIRONMENTAL PROTECTION AGENCY, ET AL., Respondents.

NATIONAL MINING ASSOCIATION, Petitioner,
Vv.

ENVIRONMENTAL PROTECTION AGENCY, ET AL., Respondents.

On Writs Of Certiorari To The
United States Court Of Appeals
For The District of Columbia Circuit

BRIEF OF INDUSTRY RESPONDENTS CALPINE
CORPORATION, EXELON CORPORATION,
NATIONAL GRID GENERATION LLC, AND PUBLIC
SERVICE ENTERPRISE GROUP, INC.

BRENDAN K. COLLINS PAUL M. SMITH
Counsel of Record MATTHEW E. PRICE
ROBERT B. MCKINSTRY, JR. ERICA L. Ross
RONALD M. VARNUM JENNER & BLOCK LLP
LORENE L. BOUDREAU 1099 New York Ave., NW
BALLARD SPAHR LLP Suite 900
1735 Market Street Washington, DC 20001
51st Floor (202) 639-6000
Philadelphia, PA 19103 psmith@jenner.com
(215) 665-8500 Librery of Congress
collins@ballardspahr.com Lisiv o102cty

Counsel for Industry Respondents

RULE 29.6 DISCLOSURE STATEMENT

Respondents Calpine Corporation, Exelon
Corporation and Public Service Enterprise Group, Inc.,
are publicly traded corporations and have no parent
companies. No publicly-held company owns 10% or
more of their stock. Respondent National Grid
Generation LLC is a wholly-owned subsidiary of
KeySpan Corporation. KeySpan Corporation is a
wholly-owned subsidiary of National Grid USA.
National Grid USA is wholly-owned by National Grid
North America Inc., which is wholly-owned by National
Grid (US) Partner 1 Limited. National Grid (US)
Partner 1 Limited is wholly-owned by National Grid
(US) Investments 4 Limited, which is wholly-owned by
National Grid (US) Holdings Limited, which is wholly-
owned by National Grid ple. National Grid plc is a
publicly traded company that has no parent companies,

and no publicly-held company holds 10% or more of its
shares.

i

TABLE OF CONTENTS

RULE 29.6 DISCLOSURE STATEMENT.................... i
pe ey eee Vv
LIN IUTE siicchitnesesiriihcnsianiseniicibeimiingtibdeiatiaditiiniimeiabiaeiasisiiibins l

A. Regulation of Hazardous Air
Pollutants From Power Plants.................. 1

1. Section 112’s Regulatory
BUTI, ‘ccccsttininslecbininaniccnsianesisiniiinninnini 2

2. The Utility Study and

EPA’s Regulatory
ID: scccnieicdissicnnismnacictasnintsitlstieniiivniints 5

B. The Economics of Pollution
Control in Wholesale Electricity

BND cnvedcetnnescaninsenensinniatiimeataqmenmmesenisinanes 7

C. FN Tae iisenieiiiiiniicimnien eimai 11

D. pe er 12
kg gy, 14
TTD ceniticninsintesterbiniietisnniinbinouininiiisiesiiaineidianiiiiiabimaatasinntin 16

I. EPA Permissibly Chose to Regulate
Power Plants in the Same Manner That
Congress Mandated for All Other Sources

of Hazardous Air Pollutants. ..........................000.- 16
A. Section 112(n)(1)(A) Does Not
Unambiguously Mandate

Consideration of Costs. .................c..scss--.- 17

Il.

A.

B.

Surrounding Provisions Confirm
That EPA’s Interpretation Is

Deferring Consideration of Costs
Until the Standard-Setting Phase

Bee Ne I sicisiensncndccnnsinsrsnnnssentionnionncen 24

EPA’s Approach Is Particularly
Suitable Given the Highly
Competitive Nature of Wholesale

Electricity Markets. ............cssssssssssssessres 28

Even If the Court Determines That EPA
Should Have Considered Costs in
Deciding to Regulate, the Court Should
Affirm Because FPA Determined That
Benefits Massively Exceed Costs. .................00000. 33

Petitioners Misrepresent EPA’s

Cost-Benefit Findings. ......................0000+- 34

The Rule Should Be Sustained
Because EPA Has Determined
That Its Benefits Exceed Its

PIII cic ce nes cegieaemusiaekiecmmedninandidaimmumédaeaceienitens 39

& A Remand Would’ Be
Pointless, But Would Inflict
Further Competitive Harm
on Generators That Have
Already Invested in

POMUIOTI COMET OL, ...cccccececccccsccccecees 39

iv
2. NMA’s Argument That
EPA Must Separately
Evaluate the Costs and
Benefits of Regulating Each
Hazardous Air Pollutant Is
Contrary to Statutory Text. ........ 41

epee MIU YS elicited alata esis 44

Vv
TABLE OF AUTHORITIES
CASES

American Textile Manufacturers Institute,
Inc. v. Donovan, 452 U.S. 490 (1981) ................... 19

Baltimore Gas & Electric Co. v. Natural
Resources Defense Council, Inc., 462 U.S.

I RD ccicerseecactceraieahiecearcneei a tan 31
Center for Biological Diversity v. NHTSA,
Fe fly Le en 37

Chevron U.S.A. Inc. v. Natural Resources
Defense Council, Inc., 467 U.S. 843 (1984).... 16, 18

Competitive Enterprise Institute v. NHTSA,

SS FS GRE CIA. Cir, Bi )insccaccnccsesescesnccssscseseses 37
Entergy Corp. v. Riverkeeper, Inc., 556 U.S.

SE IUITTEIITED scrslcisiscnonesionnhiaictiindensslestapisitininibaiaiesi 18, 19, 35
EPA v. National Crushed Stone Ass’n, 449

a ee ieaeiciasinsonscincinsecietcantencindoonaceiesiniiciessiniasiinisiannns 29
Glover v. United States, 531 U.S. 198 (2001)............. 31

Morgan Stanley Capital Group Inc. v. Public
Utility District Number 1, 554 U.S. 527
EE SE ES ane 39-40

National Lime Ass’n v. EPA, 233 F.3d 625
Saas a: BEE csiaihnalacariinissiinseaiastneabiaiidioeiiimeiiibinanianaiinian 44

NLRB v. Wyman-Gordon Co., 394 U.S. 759
TOIT siicniuciinitieihasihnuiaiatibacsinietsiansiubgiiaincaiaiii 40, 41

Natural Resources Defense Council, Inc. v.
EPA, 824 F.2d 1146 (D.C. Cir. 1987)

vi
New Jersey v. EPA, 517 F.3d 574 (D.C. Cir.

RENEE EELS aN Se ee Oe ee 3, 7
Robinson v. Shell Oil Co., 519 U.S. 337 (1997).......... 20
Russello v. United States, 464 U.S. 16 (1983) .......... 20
SEC v. Chenery Corp., 318 U.S. 80 (1943) ................ 40

STATUTES
Sy See ET ciniciitistiniadinisnidscnsetaiiinaniaiimlcdant 2
I See I iinet 2, 20, 42
ee era, IN aici htiacectiieccelieiniacsininccbenatbiasebaiieh 20
A ae a UIE Saniscisnsticiaisetiptinedeitcniciatolennnctieaiiddiicn 3
Oe ts I iieiicichiniciccitanseinssninasietbnnsiiinaieniss 3, 7
Be Ree, Se iaiiiiinticcideiuitieninlinteoicnincenenisibacciainciscaalaidaee 3
Oe Sas eI citric sansciniiiapieiiksptitcseedinsenaieticasia 3, 43
Oe a: SE iiccdicsndiniisnsincisininasiincsiareiasineianiaiin 3, 20, 26
a a iiss siciicnieicieiiiiintitia c 3
ee Ba: I siinieiicibisdisininiscescicniniaiicbcinitcanianetui 25
Ue ie CD icstaiseiinieittiticinieisierininicisiinns 20
EE aac I cesincitinnncusictianciscssiitian 20
I ees SE seitaistctistnci ectiivnsiniscisniiainiaa 24, 33
ke eR LS eee 20, 23
1 Sr as IIE cceuticnsnincishasstnisdainiontsiiateguanieiieamaiiigie 24
Oe a IE TP ciciccntsintinsesissrsenicnonsiosniaieeteidtasieintinanteiiiedi 27
Oe eee TD snticsincnsiseciictepncttiheenitinisiiniiinesnintiainn 27

Sank HIND ninnnicirtiensinsinicdcidinaisonnseionenititin 27

Vii

4B UTES. FIESTA sccccccnccceccstccvesicceness 4, 18, 21, 43
Pg at |: | 4,21
ee I Sra ttietaneeiieniunvtsionsinisniiiniaiencinavaiéa 24
ON cesareintinticennnivinsenscnnnicnninanamnsciniatn 5
Clean Air Act Amendments, Pub. L. No. 101-

BED, 106 Beak. BESS CRISS) nnccccccceccsccscccescscsescsssecsescsess 4

LEGISLATIVE MATERIALS

S. Rep. No. 101-228 (1989), reprinted in 1990

ease tes TANUD cinbeiinciionaiasiceiispcnicnbnieisiieaiinessiiiat 2, 43

OTHER AUTHORITIES

40 C.F.R. Part 68, Subpt. DDODDD .............scccccesssereceee 2
65 Fed. Reg. 79,825 (Dec. 20, 2000) ............:ccescceeeees 6, 7
70 Fed. Reg. 15,994 (Mar. 29, 2005)............cccccseeesseeees 7
76 Fed. Reg. 3821 (Jan. 18, 2011) .............sccceccscsseseecees 40
76 Fed. Reg. 24,976 (May 3, 2011)............ 11, 29, 35, 42
77 Fed. Reg. 9304 (Feb. 16, 2012) ..................0.. passim
EPA, Guidelines for Preparing Economic

Analyses (Dec. 17, 2010) (updated May

SU Uiici asieathiencssecaiabaiebsicicasepeiciniel siciacaianiasierialeicebiingasonisceling 36
EPA, Regulatory Impact Analysis for the

Final Mercury and Air Toxics Standards

(Dec. 2011), http//www.epa.gov/

ttnecas1/regdata/RIAs/matsriafinal.pdf ............. 30

EPA, Study of Hazardous Air Pollutant
Emissions from Electric Utility Steam
Generating Units - Final Report to
Congress, Vol. I (Feb. 1998), available at
http://www.epa.gov/ttn/atw/combust/utilto

ISO/RTO Council, The Value of Independent
Regional Grid Operators (Nov. 2005),
http//www.nyiso.com/public/webdocs/med
ia_room/press_releases/2005/isortowhitepa

per_fimall1112005.pdf...........ccccvssssssssesssssssseesenen
Mich. Admin. Code 336.2502a (2013) ..vcc..s:.ccsssese-e

Mich. Admin. Code 336.2503 (2009)..........csssssseseees

E.J. Mishan & Euston Quah, Cost Benefit

Analysis 4-7 (5th ed. 2007) ...ccccocssssessecsessssneeeeee:

Michael Niven & Neil Powell, Coal unit
retirements, conversions continue to
sweep through power sector, SNL
Financial (Oct. 14, 2014),
http://www.snl.com/InteractiveX/Article.a

Spx ?edid=A-29431641-13357.........cccssecseeeeseeee
OMB, Circular A-4 (Sept. 17, 2003) ..........ccccceeeseees

U.S. Energy Information Administration,
Today in Energy, AEO2014 Projects More
Coal-Fired Power Plant Retirements by
2016 Than Have Been Scheduled (Feb. 14,
2014), available at http://www.eia.gov/

todayinenergy/detail.cfm?7id=15081 ...................

sibs 8

Industry Respondents are engaged in the electric
generation business. Together they represent 80
gigawatts of generation capacity, enough to power 60
million homes, using coal, oil, gas, nuclear, wind, solar,
and other energy sources. Industry Respondents’
experience gives them significant insight into the
practical operation of the Clean Air Act’s regulatory
scheme and its consequences for competitive electricity
markets.

The Mercury and Air Toxics Standards (“the Rule”)
imposed by EPA are economically practicable and have
already been achieved by a large portion of the power
sector. Industry Respondents, along with many other
market participants, have invested billions in installing
emissions controls and developing state-of-the-art,
highly efficient, low- or zero-emissions electric
generation units. Yet, until the Rule takes effect, such
plants will continue to be competitively disadvantaged
relative to old, high-emitting facilities that do not bear
the cost of controlling emissions of hazardous air
pollutants, thereby discouraging further investments to
modernize the Nation’s generation fleet.

STATEMENT

A. Regulation of Hazardous Air Pollutants From
Power Plants.

Large power plants are by far the largest source of
mercury and certain other hazardous air pollutants. 77
Fed. Reg. 9304, 9310 (Feb. 16, 2012) (“Final Rule”).
Yet until the Rule takes effect on April 15, 2015—
nearly 25 years after Section 112 was adopted in its

2

current form—there will be no federal requirement
that power plants limit the hazardous air pollutants
they emit. By contrast, EPA has imposed stringent
regulation on source categories emitting far smaller
amounts of such pollutants, including industrial boilers
that are technologically similar to power plants, but are
smaller or sell less of their output to a utility

distribution system. The Rule changes that, by
requiring all coal- and oil-fired power plants to match
the emissions limitations already achieved in practice

by their best-performing competitors.
3 Section 112’s Regulatory Scheme.

Congress amended Section 112 in 1990 in response
to EPA’s failure to aggressively regulate hazardous air
pollutants. Michigan Pet. App. 8a-9a (“Pet. App.”).
Congress had previously permitted EPA to “list”
pollutants for regulation, but in two decades, EPA had
listed only seven. S. Rep. No. 101-228, at 128 (1989),
reprinted in 1990 U.S.C.C.A.N. 3385, 3513.

In 1990, Congress itself designated 189 pollutants
for which it required EPA to develop emission
standards on an expedited schedule. 42 U.S.C.
$7412(b); see Pet. App. 9a-10a. Congress gave EPA one
year to “list” categories of sources that emit those

' See 42 U.S.C. §7412(aX8) (defining “electric utility steam
generating unit”); 40 C.F.R. Part 63, Subpt. DDDDD (national
emission standards for hazardous air pollutants from industrial,
commercial, and institutional boilers and process heaters).

3

pollutants above certain quantities. §7412(c)(1). EPA
was then required to regulate those sources. §7412(d).

Congress did not permit EPA to consider cost in its
initial listing analysis. §7412(c)(1). Similarly, once a
source category is listed, Congress permitted EPA to
“delist” it only if EPA determines that “no source in
the category” emits hazardous pollutants at levels that
threaten public health; cost’ is __ irrelevant.
§7412(c)(9)(B); New Jersey v. EPA, 517 F.3d 574, 581-82
(D.C. Cir. 2008).

EPA must set emission standards for source
categories it has listed. §7412(d), (e)(1). At that stage,
Congress assured that cost would be given due weight.
It directed EPA to establish emission standards that
assure the “maximum degree of reduction” that EPA
“determines is achievable,” “taking into consideration
the cost” of such regulation, as well as other factors.
§7412(d)(2). Congress further mandated that the
minimum. standards for each source category “shall not
be less stringent than ... the average emission
limitation achieved by the best performing 12 percent
of the existing sources.” Jd. §7412(d)(3); see also Pet.
App. 9a-10a. These minimum “Floor Standards”
implicitly reflect cost considerations. Because they are
based on what the “best performing” sources in the
same category are already achieving, they necessarily
have proven to be economically practicable for those
operators. See Pet. App. 29a.

Congress required an additional threshold step
before the largest power plants would be regulated

4

under Section 112. When it amended the statute,
Congress was unsure whether other programs
applicable to power plants would have the ancillary
benefit of substantially reducing their emissions of
hazardous air pollutants. Specifically, to comply with
the Title IV Acid Rain Program (“Title IV”), which
targeted sulfur dioxide (“SO2”) and nitrogen oxides
(“NO,”) emissions from the largest coal-fired plants,
those plants could have adopted controls that would
also reduce emissions of hazardous air pollutants. See
Clean Air Act Amendments, Pub. L. No. 101-549, 104
Stat. 2399 (1990).

Thus, Congress required EPA to conduct, within
three years, a study (“the Utility Study”) “of the
hazards to public health reasonably anticipated to occur
as a result of emissions by electric utility steam
generating units of [hazardous air pollutants) after
imposition of the requirements of this chapter.”
§7412(n)(1)(A). EPA also was to consider “alternative
control strategies for emissions which may warrant
regulation under this section.” Id.” Congress directed
EPA to regulate power plants under Section 112 if it
determined that “such regulation is appropriate and
necessary after considering the results of the study.”
Id.

* Congress also directed EPA to perform a study of mercury
emissions from power plants and other sources (“the Mercury
Study”) on a longer, four-year timeframe. 42 U.S.C.
§7412(nX1XB). In contrast to the Utility Study, the Mercury
Study was to consider “the costs” of available control technologies.
Id.

5

2. The Utility Study and EPA’s
Regulatory Response.

EPA submitted the Utility Study to Congress in
1998. The Study determined that strategies
implemented by power plants to comply with Title IV
would not significantly reduce emissions of hazardous
air pollutants.

Unlike Section 112, Title IV does not impose
mandatory emission limits on individual power plants.
Instead, it uses tradable pollution allowances to give
generators an economic incentive to reduce pollution
contributing to acid rain. See 42 U.S.C. $§7651-7651o.
The owner of any power plant may choose to buy the
allowances necessary to cover its emissions, or it may
choose to reduce its emissions through various means
and sell surplus allowances to other plants. JA117;
EPA, Study of Hazardous Air Pollutant Emissions
from Electric Utility Steam Generating Units - Final
Report to Congress, Vol. I (Feb. 1998) (“Utility Study”)

at 1-3 to 1-4. Generators’ choices among these
compliance options influence their emissions of
hazardous air pollutants.

For example, complying by installing scrubbers
would also reduce emissions of hazardous air pollutants;
however, the Utility Study found that few power plants
had or would install scrubbers to comply with Title [V.

* Portions of the Utility Study are reproduced in the Joint
Appendix. The entire Utility Study is available at
http//www.epa.gov/ttn/atw/combust/utiltox/eurtcl pdf.

6

See JA117-19. Instead, the vast majority of plants
switched to low-sulfur coal or purchased emission
allowances, JA117-18, which had little or no effect on
hazardous air pollutant emissions. Utility Study at 13-
1, 13-3 to 13-7, 1446. The Study also reported that
existing NO, and particulate matter controls were not
expected to reliably reduce mercury emissions. JA94-
95; Utility Study at 13-13 to 13-15, 14-7.

The Utility Study thus concluded that “[ulJtilization
of add-on controls to comply with the acid rain program
{is} not expected to significantly impact [hazardous air
pollutant] emissions due to their limited numbers and
limited [hazardous air pollutant] contro) efficiency
improvement.” JA106-07.

In 2000, after considering the Utility Study, EPA
concluded that it was “appropriate and necessary” to
regulate emissions from power plants. 65 Fed. Reg.
79,825, 79,827-28 (Dec. 20, 2000) (“2000 Finding”). As
EPA explained, such units “are the largest source of
mercury emissions in the U.S.” Jd. at 79,827. Because
“[mjercury is highly’ toxic, persistent, and
bioaccumulates in food chains,” it poses health risks to
humans, and, in particular, to developing fetuses. Jd. at
79,827-29. EPA also identified other metal and acid gas
emissions from power plants—including arsenic,
chromium, nickel, cadmium, dioxins, hydrogen chloride,
and hydrogen fluoride—that were “of potential
concern” because of their health effects. Jd. at 79,827.

Given the health and environmental risks posed by
power plant emissions, and the existence of several

7

options to control them, EPA determined that it was
“appropriate” to regulate coal- and oil-fired plants. 65
Fed. Reg. at 79,830. Such regulation was “necessary”
because implementation of the Act’s other provisions
would “not adequately address” the hazards EPA had

identified. Id.*

In 2005, the agency reversed itself, removing coal-
and oil-fired power plants from the list of source
categories. 70 Fed. Reg. 15,994, 15,994 (Mar. 29, 2005)
(“2005 Revision”). The D.C. Circuit held that decision
unlawful because EPA had failed to find that “no
source in the category” emitted pollutants at levels
that threatened public health. New Jersey, 517 F.3d at
582; see §7412(c)(9)(B). Nonetheless, EPA waited until
2011 to regulate emissions of hazardous air pollutants
by power plants. Meanwhile, large power plants—the
largest source of such emissions—faced no federal
requirement to reduce them.

B. The Economics of Pollution Control in
Wholesale Electricity Markets.

The negative impact of EPA’s regulatory vacuum
has been exacerbated by the economics of wholesale
electricity markets. All power plants are connected to
the nationwide network of electric transmission lines
commonly referred to as the “grid,” where electricity is
transmitted across multi-staie regions to satisfy

. By contrast, EPA declined to regulate natural gas-fired power
plants because emissions of hazardous air pollutants from such
plants were “negligible.” 65 Fed. Reg. at 79,831.

8

demand. Grid operators must balance the amount of
electricity generated with demand in real time, as the
grid has no storage capacity and a supply-demand
imbalance can overload transmission lines or yield
voltage drops that can cause massive blackouts.

In areas served by competitive wholesale electricity
markets—which include many of the Nation’s most
populated areas—grid operators decide which power
plants should be allowed to feed electricity into the grid
at any given time. Power generators offer electricity
for sale at a price that, typically, reflects their marginal
production cost. The grid operator dispatches plants in
order of their bids, selecting progressively more

expensive generation units until supply meets demand.”

The price received by each dispatched generator is
equal to the bid of the most expensive unit needed to
meet demand. This pricing scheme—in which al]
dispatched generators receive the same price—creates
a powerful incentive to reduce operating costs, as
generators with low costs can bid less, be dispatched
more often, and make greater profits when they run.

Operating pollution controls tends to increase a
generator’s marginal costs—for example, costs related

° More than 60% of the electricity supplied to the grid is delivered
through competitive wholesale electricity markets. See ISO/RTO
Council, The Value of Independent Regional Grid Operators (Nov.
2005), at 9410, http//www.nyiso.com/public/webdocs/media.

room/press_releases/20065/Asortowhitepaper_finall11112005.pdf. In
other areas, cost also dictates dispatch, though generators do not
compete to supply power at least cost.

9

to treatment chemicals, waste disposal, and power and
water consumption, in addition to capital costs—and
thus increase the amount it must bid to break even.
Consequently, “clean” generators may be underbid by
similar generators that have not installed or do not
operate controls. Moreover, plants without pollution
controls receive a windfall from participating in the
same market as those with controls: because the
market pays all plants the price needed for supply to
meet demand, plants without pollution controls receive
as profit the higher market price needed to compensate
plants operating with them. These dynamics create
powerful incentives to avoid investing in or operating
pollution controls.

Nonetheless, for several reasons, many coal-fired
plants have invested in control technology that reduces
their emissions of hazardous air pollutants.

First, fourteen states have already adopted limits
on mercury emissions, while others have required
power plants to install mercury monitoring equipment.
See JA306-20; State Resps. Br. 35-36." Some states
have also regulated additional hazardous air pollutants.
JA306-20. Many states that have imposed regulation—
including Illinois, New Jersey, and Maryland—are part
of the same regional grid as states that have not. Even
though plants in the former states suffer a competitive
disadvantage relative to “dirtier” plants in other states,

* Indeed, Petitioner Michigan adopted such a requirement, but
suspended it after EPA adopted the Rule. See Mich. Admin. Code
336.2503 (2009); Mich. Admin. Code 336.2502a (2013); JA314-15.

10

the “clean” plants have remained in business and
continue to compete in the wholesale market.

Second, the applicable federal emission standards
for conventional pollutants (such as SOQz, NO,, and
particulate matter) vary based upon a power plant’s
age. New and modified units must be equipped with
state-of-the-art controls, which may also reduce
emissions of some hazardous air pollutants. Older units
must meet the less stringent emission standards that
were in place when they were built. As a result, plants
constructed before the Clean Air Act was enacted have

few if any modern pollution controls.. Nevertheless,
despite the additional operating costs new plants incur
to meet conventional emission standards, newer units
have remained in the market in part because they are
more efficient than older ones.

Third, many generation owners have anticipated
the Rule and other standards and invested in pollution
control technologies to satisfy them. Since 2008,
Exelon (including Constellation Energy) spent
approximately $1.4 billion to install advanced emission
control technologies on coal-fired generation that it
owned outright or jointly with others. Other companies
likewise have expended significant sums. For example,
between 2001 and 2011, Duke Energy spent $5 billion
retrofitting its existing units with emissions controls,
with the goal of installing scrubbers on 90 percent of its
coal generation fleet. PPL Generation reported in 2011

" In 2007-2008, 59% of the Nation’s coal-fired units, and 34% of the
coal-generation capacity, was over 40 years old. JA579-80.

11

that 96 percent of its competitive coal generation is
scrubbed. JA649-50.

Nevertheless, the economic logic of the wholesale
electricity markets discourages the oldest and least
efficient plants from investing in and operating
pollution controls unless they are required to do so,
and, all else equal, makes pollution more profitable than
pollution control—despite the negative health and
environmental effects that pollution imposes on society.

C. The Rule.

In 2011, EPA proposed to reaffirm its 2000 Finding
that regulation of power plants was “appropriate and
necessary.” EPA reevaluated the record and
considered new data collected after complete
implementation of Title IV. EPA again found that
“(utilities are by far the largest remaining source of
[mercury] in the U.S.,” and are the “largest source” of
several additional hazardous air pollutants. 76 Fed.
Reg. 24,976, 24,999 (May 3, 2011) (“NPRM”). Because
those emissions continue “to pose a hazard to public
health and to the environment,” and because
technologies are available to control them, EPA
proposed to find that it is “appropriate and necessary”
to regulate coal- and oil-fired power plants. Id. In the
same NPRM, EPA proposed emission standards for
these plants. Jd. at 25,026-28.

Following public comment, EPA adopted the Final
Rule. EPA confirmed that it is “appropriate” to
regulate power plants under Section 112 because their
emissions of hazardous air pollutants cause hazards to

12

public health and the environment, and pollution
controls are available. 77 Fed. Reg. at 9310-11. EPA
further concluded that it is “necessary” to regulate
power plants because other requirements of the Act
had not adequately addressed the problem. Jd.

EPA did not consider the costs of regulation in
making the “appropriate and necessary” determination.
77 Fed. Reg. at 9326-27. EPA observed that the Act
does not require consideration of costs at the listing
stage. Id. In addition, EPA explained that Congress
did not require it to consider costs in other listing
decisions, and that nothing in Section 112(n)(1)(A)
suggests a departure from that approach. /d.

Although EPA was not required to consider costs
under Section 112(n)(1)(A), Executive Orders 12866
and 13563 required it to conduct a cost-benefit analysis
when it established emission standards. EPA did so in
both its proposed and final Regulatory Impact
Analyses (“RIA”). Those analyses were performed
using “methods and assumptions consistent with the
state-of-the-science for human health impact
assessment, economics and air quality analysis.” 77
Fed. Reg. at 9432. The Final RIA determined that the
benefits of the Rule would outweigh its costs by a ratio
of at least 3:1, and potentially by 9:1. Jd. at 9306.

D. The Decision Below.

Several groups challenged the Rule in the D.C.
Circuit, which upheld it in its entirety.

13

As relevant here, State, Industry, ard Labor
Petitioners challenged EPA’s interpretation of the
“appropriate and necessary” standard, contending that
the word “appropriate” required EPA to consider the
costs of regulation. Pet. App. 23a-24a. The D.C.
Circuit majority disagreed. The court explained that
“Tojn its face, § 112(n){1)(A) neither requires EPA to
consider costs nor prohibits EPA from doing so.” Jd. at
25a. The term “appropriate” is “open-ended,”
“ambiguous,” and “inherently context-dependent.” Jd.
at 26a (quotation marks omitted).

Moreover, EPA’s construction of that ambiguous
term was reasonable: in making the “appropriate and
necessary” determination, “Congress directed EPA’s
attention to the conclusions of the study regarding
public health hazards from [power plant] emissions.”
Id. In the remainder of Section 112, “Congress
mentioned costs explicitly where it intended EPA to
consider them.” Jd. Congress’s failure to do so in
Section 112(n)(1)(A) demonstrated that EPA was not
required to consider costs in deciding whether to
regulate power plant emissions—only in deciding how
stringently to do so. Indeed, the majority emphasized,
Petitioners could not “point to a single case” requiring
“EPA to consider costs where the [Clean Air Act] does
not expressly so instruct.” Jd. at 27a-28a.

The majority also rejected the dissent’s view that
Congress would not have “authorized EPA to regulate
without any consideration of regulatory cost.” Jd. at
28a. That argument rested “on a false premise”
because EPA did consider costs, both directly and

14

indirectly, in setting emission standards under Section
112(d). Jd. at 28a-29a. In setting Floor Standards,
EPA required all power plants to meet the emissions
reductions already achieved by their best-performing
peers, thus “leveling the playing field” by requiring
“uncontrolled plants to install and operate technology”
that their competitors were already using in an
economically viable manner. /d. at 32a (quoting
Industry Respondents’ brief). Finally, the majority
pointed out that, contrary to the dissent’s doomsday
predictions, EPA found that “the benefits of th[e] rule
outweigh its*costs by between 3 to 1 or 9 to 1.” Id. at
$2a-33a (quoting 77 Fed. Reg. at 9306).

SUMMARY OF ARGUMENT

The D.C. Circuit did not err in upholding the Rule.
In Section 112(n)(1)(A), Congress asked EPA to decide
whether to proceed with regulation of emissions of
hazardous air pollutants by power plants, applying an
open-ended “appropriate and necessary” standard.
That standard on its face gives EPA discretion to focus
on the health and environmental harms of such
emissions at this initial stage, and to defer
consideration of cost to the later stage when EPA sets
specific emission standards supported by a full cost-
benefit analysis.

Unable to identify any express statutory language
foreclosing EPA’s position, Petitioners argue that
making an initial decision to regulate without
considering cost is so irrational that it falls outside the
range of discretion granted by Congress. That

15

argument fails because EPA simply applied to power
plants the identical regulatory approach that Congress
mandated for every other source of hazardous air
pollutants. Impatient with EPA’s slow pace of
regulation, Congress required in Section 112(c) and
112(d) that EPA establish emission standards for every
other significant source of hazardous air pollutants.
Congress directed EPA to “list” these sources for
regulation without regard to cost. Congress then
expressly directed EPA to consider cost later, in
setting emission standards.

EPA did not act irrationally in applying Congress’s
own chosen regulatory structure to power plants. EPA
conducted the Utility Study as Congress directed. It
concluded that other Clean Air Act programs would not
sufficiently reduce power plants’ emissions of
hazardous air pollutants. And it found that control
technologies were available. Thus, EPA decided that
regulation was “appropriate and necessary.”

That determination was particularly apt given the
nature of competitive electricity markets in which
generators submit bids to sell their electricity based
upon their operating costs. Absent federal regulation,
these markets perversely subsidize uncontrolled plants
and place cleaner plants at a competitive disadvantage.

EPA’s interpretation of the “appropriate and
necessary” standard thus deserves Chevron deference.
Petitioners have not come close to satisfying the heavy
burden of showing that EPA acted unreasonably.

16

The argument for reversal is especially weak
because EPA in fact considered costs and benefits as
part of the process of promulgating the final emission
standards. Using the cost-benefit methodology
mandated by law, it concluded that the Rule’s benefits
would greatly outweigh its costs. Although EPA did
not believe these analyses were legally relevant to its
initial decision to regulate the emission of hazardous air
pollutants by power plants, there is no doubt what the
agency would conclude if it had. For these reasons,
even if EPA misinterpreted the Act (and it did not), the
record provides all the facts and analysis required for
affirmance on grounds of harmless error. A pointless
remand would only further delay regulation that
Congress authorized 25 years ago, and would
perpetuate the competitive advantage enjoyed by
polluting plants in the wholesale electricity markets.

ARGUMENT

I. EPA Permissibly Chose to Regulate Power
Plants in the Same Manner That Congress
Mandated for All Other Sources of Hazardous
Air Pollutants.

In challenging EPA’s interpretation of the statutory
phrase “appropriate and necessary,” Petitioners face a
heavy burden: under Chevron U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 843 (1984),
they must demonstrate that the statute unambiguously
forecloses EPA’s interpretation. Thus, they strain to
read the word “appropriate” as clearly requiring EPA
to consider costs when deciding whether to regulate,

17

arguing that Congress could not have intended EPA to
make that choice based on public health and other
hazards alone.

That argument founders because with respect to all
other sources—including industrial boilers
technologically similar to large power plants—
Congress made the express legislative choice that
Petitioners condemn as irrational: it decided to
regulate based upon public health and other hazards
alone. It directed EPA to consider costs only in setting
the level of regulation, structuring that second stage so
that minimum standards would be based on the
emission levels that the best-performing comparable
sources already had achieved and requiring EPA to
consider cost expressly before regulating more
stringently than these Floor Standards. Nothing in
Section 112(n)(1(A) prohibits EPA from regulating
power plants in the same manner.

A. Section 112(n)(1)(A) Does Not Unambiguously
Mandate Consideration of Costs.

As Petitioners acknowledge, Michigan Br. 23;
National Mining Association (“NMA”) Br. 21; Utility
Air Regulatory Group (“UARG”) Br. 25, in directing
EPA to regulate power plant emissions of hazardous
air pollutants if “appropriate and necessary,” Congress
set an open-ended standard. Certainly there is no

* Petitioners contend that the breadth of the word “appropriate”
requires EPA to consider all “relevant factors.” E.g., Michigan Br.
93. But even assuming that is true, EPA reasonably determined
that costs were not “relevant” in making the threshold decision

18

“express statutory requirement that the Agency
consider costs in making the appropriate
determination.” 77 Fed. Reg. at 9326-27. Thus,
because “the statute is silent or ambiguous” as to
whether costs must be considered in deciding whether
to regulate, this Court will uphold EPA’s interpretation
so long as it constitutes “a permissible construction of
the statute.” Chevron, 467 U.S. at 843; see also, e.g.,
Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208, 218
(2009) (to receive Chevron deference, agency
interpretation need not be “the only possible
interpretation, nor even the interpretation deemed
most reasonable by the courts”).

EPA’s construction is reasonable. Congress
directed EPA to decide whether to regulate power
plants “after considering the results of’ the Utility
Study. §7412(n)(1)A). That Study, in turn, focused on
hazards to public health remaining after the
implementation of other Clean Air Act requirements,
as well as availability of alternative control
technologies. Congress did not mandate consideration
of costs in the Study.

After considering the Study’s results, EPA
concluded that regulation of coal- and oil-fired plants is
“appropriate” because their emissions of hazardous air
pollutants “pose hazards to public health” and the
environment, and because “effective controls are
available to reduce” both mercury and non-mercury

whether to regulate, given the statutory context— including that
Congress itself did not consider costs in listing other sources.

19

emissions. 77 Fed. Reg. at 9310; see id. at 9311. (EPA
found that regulation of natural gas-fired units is not
“appropriate,” because those units’ emissions did not
pose health or environmental hazards. See supra n. 4.)
Regulation of coal- and oil-fired units is “necessary,”
EPA continued, because those “hazards to public
health” and the environment “are _ reasonably
anticipated to remain after imposition of the
requirements of the [Clean Air Act].” 77 Fed. Reg. at
9311; see id. at 9363.

Because nothing in Section 112(n)(1)(A) requires
EPA to consider costs, its decision to focus on health
and environmental factors, as well as the availability of
control technology, is reasonable. See, e.g., Entergy,
556 U.S. at 222 (“It is eminently reasonable to conclude
that [statutory] silence is meant to convey nothing
more than a refusal to tie the agency’s hands as to
whether cost-benefit analysis should be used, and if so
to what degree.”); Am. Textile Mfrs. Institute, Inc. v.
Donovan, 452 U.S. 490, 510 (1981) (“When Congress
has intended that an agency engage in cost-benefit
analysis, it has clearly indicated such intent on the face
of the statute.”).

B. Surrounding Provisions Confirm That EPA’s
Interpretation Is Reasonable.

The provisions neighboring Section 112(n)(1)(A), as
well as the structure of Section 112 generally, confirm
that the word “appropriate” can reasonably be
construed to focus on public health and environmental
harms, and not to encompass consideration of costs.

20

See, e.g., Robinson v. Shell Oil Co., 519 U.S. 337, 341
(1997) (“The plainness or ambiguity of statutory
language” accounts for “the specific context in which
that language is used, and the broader context of the
statute as a whole.”).

As the D.C. Circuit explained, “(tJhroughout § 112,
Congress mentioned costs explicitly where it intended
EPA to consider them.” Pet. App. 26a. Congress’s
failure to address costs in Section 112(n)(1)(A) thus
indicates that it did not require EPA to consider them.
E.g., Russello v. United States, 464 U.S. 16, 23 (1983).

Specifically, EPA may add pollutants or sources to
be regulated without regard to cost. See §7412(b), (c).
Yet the subsections directing EPA to set emission
standards for listed source categories do expressly
require consideration of cost. Those provisions
address, inter alia, emission standards for new or
existing sources (§7412(d)(2)), emission standards and
work practice regulations for coke ovens and coke oven
batteries (§7412(d)(8)(A)Gi), (B)i)), and emission
standards for addressing the remaining environmental
risks after implementation of the statutory provisions
(§7412(f)(1)(A)). EPA permissibly construed
Subsection 112(n)(1(A}—a iisting provision—
consistent with that general structure.

Moreover, in stark contrast to Congress’s omission
of any reference to costs when describing the Utility
Study in Section 112(n)(1)(A), the very next subsection
requires EPA to conduct the Mercury Study
“consider{ing],” among other things, “the costs of

21

[control] technologies.” §7412(n)(1)(B). Yet while
Congress required EPA to complete the Utility Study
“within 3 years after November 15, 1990,” the Mercury
Study was to be completed “not later than 4 years”
from the same date. §7412(n)(1)(A)}(B). Thus,
Congress plainly understood that EPA might make the
“appropriate and necessary” determination before the
results of the Mercury Study—including its
consideration of costs—were available.”

Petitioners argue that unless the phrase
“appropriate and necessary” includes consideration of
cost, it lacks independent meaning. Not so. Congress
required the Utility Study because it did not know
whether power plant emissions of hazardous air
pollutants would continue to cause significant health
harms, notwithstanding implementation of the other
programs included in the 1990 Amendments. It then
told EPA to consider the results of the study and to act
if those results made regulation “appropriate and

* NMA contends that because the Mercury Study directed
consideration of both “environmental effects” and costs, EPA
erred in considering the former, but not the latter, in making the

appropriate and necessary” determination. NMA Br. 32-33. But
the D.C. Circuit upheld EPA’s conclusion that it could consider the
environmental hazards posed by power plant emissions when
deciding whether to regulate, Pet. App. 35a-37a, and that holding
is outside the Question Presented. In any event, by requiring
EPA to consider the results of the Utility Study, Congress did not
preclude EPA from also taking into account other factors, such as
environmental hazards. See 77 Fed. Reg. at 9825. Thus, while
EPA could have chosen not to consider environmental effects—or
to consider costs—the statute does not require either of those
interpretations.

22

necessary.” There is nothing mysterious (or
superfluous) about that statutory standard when read
in context.

Nor are Petitioners correct in contending that on
EPA’s view, “appropriate” and “necessary” are
redundant. E.g., Michigan Br. 34. Indeed, Petitioners
can make that argument only by misrepresenting
EPA’s analysis. The Petitioner States argue that EPA
“accounted for the existence of health hazards through
its finding that regulation was ‘necessary.” Id. But as
previously noted, EPA determined that regulation was
“necessary” because “the hazards to public health” and
the environment from power plant emissions “are
reasonably anticipated to remain after imposition of the
requirements of the CAA”—a factor that EPA’s
“appropriateness” determination did not consider. 77
Fed. Reg. at 9311 (emphasis added); see id. at 9363.
Similarly, EPA’s “appropriateness” analysis rested in
part on the availability of control technology—a
consideration not relevant to EPA’s determination that
regulation of power plants was “necessary.” Jd.

UARG further contends that EPA must consider
costs in making the “appropriate and necessary”
determination because “[cJonsideration of cost-benefit
relationships is especially relevant for emission
standards that address residual emissions and risks.”
UARG Br. 28. On UARG’s view, because regulation
under Section 112(n)(1)(A) addresses “smaller
increments of emissions” that remain after the
implementation of other provisions, consideration of
costs is particularly “appropriate.” /d.

23

UARG’s argument ffails because Section
112(n)(1)(A) is not a residual-risk provision. Emissions
of hazardous air pollutants by power plants are not
regulated by federal law outside of the Rule enacted
pursuant to Section 112(n)(1)(A). Thus,
Section 112(n1)(A) provides the primary method of
regulating those emissions. Principles regarding
“residual” risk are irrelevant.

In fact, Section 112(n)(1)(A) contrasts sharply with
the statute’s actual residual-risk provisions, which
address sources and emissions already regulated by
Section 112. Section 112(f)(1) requires that EPA study
the “risk to public health remaining, or likely to remain,
from sources subject to regulation under this section
after the application of standards under subsection
(d).” §7412(f)(1)(A) (emphasis added). Thus, unlike
Section 112(n)(1)(A), Section 112(f) focuses on sources
that are already subject to regulation, and asks
whether more must be done to reduce the risks from
those sources.

Further, even in setting residual risk standards
under Section 112(f)(2), Congress provided only that
EPA promulgate standards if necessary either to
provide an “ample margin of safety to protect public

° Because Title IV’s Acid Rain program does not target mercury
and other hazardous air pollutants, NMA is wrong to contend that
EPA’s interpretation of Section 112(n)(1A) makes that provision
the “tail that .. wag{s] the dog{]” of Title IV. NMA Br. 27-31.
Regulation of hazardous air pollutant emissions by power plants
under Section 112(n\(1XA) is not the “tail” to Title [V’s “dog”—.it
is a different animal altogether.

24

health,” or “to prevent, taking into consideration costs
.. and other relevant factors, an adverse
environmental effect.” §7412(f)(2(A). EPA may not
consider costs in making “an initial determination of
what is ‘safe,”” because cost has “no relevance” to that
question. Natural Resources Defense Council v. EPA,
824 F.2d 1146, 116465 (D.C. Cir. 1987) (en banc)
(addressing prior version of section 112(f)). Nothing in
Congress’s treatment of this residual risk scenario
suggests that Congress intended to require EPA to
consider costs under Section 112(n)(1)(A) before it
imposed any emission standards. See also §7412(n)(2)
(requiring a study and _ recommendations for
“economically viable control technologies” to “reduce
residual risks” from coke ovens “after implementation
of the standard under subsection (d) of this section”).

C. Deferring Consideration of Costs Until the
Standard-Setting Phase Is Not Illogical.

Deciding whether to regulate based upon health and
environmental hazards, and then considering cost when
setting emission standards, makes practical sense.
Merely deciding to regulate does not impose any costs
in the abstract; costs result from the actual imposition

of emission standards. Those costs will vary

" Section 112’s judicial review mechanism underscores that EPA’s
decision to regulate power plants is merely a preliminary step that
does not by itself affect substantive rights. The statute provides
that listing decisions are not final agency action subject to review.
§7412(eX4). Instead, review may be had “when the Administrator
issues emission standards” for a category of sources, id.—
standards that will reflect cost considerations.

25

depending on what standards EPA promulgates. That
decision, in turn, requires a detailed understanding of
what emission reductions the best performers in the
source category have already achieved, what
equipment will be required to meet those limits, and
what impacts on health and the environment will result.
Yet Petitioners would require EPA to undertake those
analyses before making the threshold determination
whether power plant emissions of hazardous air
pollutants should be regulated at all. Petitioners put
the cart before the horse.

Petitioners nonetheless contend that EPA’s choice
not to consider costs at the first step of the analysis was
unreasonable because “ignoring costs is an irrational
way to regulate.” Michigan Br. 30. That argument
aims at a straw man. EPA did not ignore costs in
promulgating the Rule; it accounted for them in
numerous ways in deciding what emission standards to

impose.

Most notably, the statutory method for setting
emission standards considers costs both directly and
indirectly. As noted above, Floor Standards generally
are determined by taking the “average emissiori
limitation achieved by the best performing 12 percent
of the existing sources.” §7412(d)(8)(A). Thus,
minimum standards are based on what other, similar
sources already have achieved in practice—a test that

26

necessarily ensures that standards will not impose
industry-wrecking costs.~

To set standards more stringent than the Floor
Standards, EPA must expressly “consider{] the cost of
achieving such emission reduction.” §7412(d)(2). Here,
EPA generally decided not to impose standards more
stringent than the Floor Standards. See 77 Fed. Reg.
at 9367, 98369 (EPA adopted a standard more stringent
than the Floor Standard for mercury from one
subcategory of existing coal-fired plants, but this
standard is less stringent than the mercury emission
standard for all other existing coal-fired plants).

EPA also has numerous other ways to ensure that
compliance is practicable, and it used many of them
here.

For example, EPA permitted existing contiguous,
commonly-controlled power plants in the same
subcategory to demonstrate compliance with emission
standards by averaging their emissions, rather than
meeting the requirements on an individual basis. See
77 Fed. Reg. at 9384-85, 9473-76; Pet. App. 59a-64a
(upholding EPA’s use of averaging). As EPA

* Petitioners at times argue that Section 112(dX3) is entirely
insensitive to costs. See, e.g., NMA Br. 34-35. But if that were
true, it would only highlight the irrationality of Petitioners’
position. The D.C. Circuit found it “improbable” that Congress
intended to force an “all-or-nothing” choice, requiring EPA to
consider costs when making the on-or-off determination whether
to regulate, but prohibiting EPA from considering costs as a basis
for relaxing the Floor Standards. Pet. App. 29a.

27

explained, averaging “can provide sources. the
flexibility to comply in the least costly manner while

still maintaining a regulation that is workable and
enforceable.” 77 Fed. Reg. at 9385.

EPA also controlled costs by establishing work
practice standards, which are qualitative standards
typically less costly to achieve and to monitor than
numerical standards. See §7412(h)(1). In the Rule,
EPA adopted several work practice standards “in lieu
of numeric emission standards” for certain units and
pollutants. 77 Fed. Reg. 9401; see id. at 9369, 9438.

In addition, to ease the costs of compliance, EPA
adopted a three-year compliance period, the longest
initial timeframe permitted by the statute. 77 Fed.
Reg. at 9407-11; see §7412(i)(3)(A). EPA further
suggested that “a fourth year for compliance” should be
permitted “in a broad range of situations.” 77 Fed.
Reg. at 9407; see id. at 9410; JA876-77; §7412(iX3)(B).

Given these other methods for accommodating costs,
Petitioners are simply wrong to contend that EPA was
“cost blind,” e.g., UARG Br. 24, or that EPA regulated
with a “deliberate indifference to the regulation’s cost,”
Michigan Br. 20. EPA’s decision to regulate emissions
of hazardous air pollutants by power plants using the
same two-stage approach that Congress mandated for

all other sources was entirely reasonable.”

* Petitioners claim EPA’s statutory construction could justify
“regulations costing $1 trillion even if the benefit was a mere $1.”
NMA Br. 2. But the concern expressed in that hypothetical is

28

D. EPA’s Approach Is Particularly Suitable
Given the Highly Competitive Nature of
Wholesale Electricity Markets.

EPA’s regulatory approach—setting a regulatory
floor based upon the emissions reductions that have
already been demonstrated to be achievable by the
best-performing plants in the source category—is
particularly appropriate given the nature of
competitive wholesale electricity markets. See supra
at 7-11.

As previously explained, the wholesale electricity
markets’ use of an auction mechanism to determine
which units are dispatched and what price they receive
strongly disincentivizes investment and use of pollution
control technology in the absence of regulation. Yet
despite these market dynamics, EPA determined that,
as of 2010, 69 existing coal-fired power plants—or 27
percent of those that reported data to EPA—already
met all of the final existing source emission limits. 77
Fed. Reg. at 9387; JA875. Other data in the record
indicate that substantially more units had already

installed the necessary controls.“

entirely fanciful, because EPA must find sufficient health harms
for regulation to be “appropriate and necessary,” and the features
of Subsection (d), discussed supra, protect against over-regulation.

™ Nearly 60 percent of all coal-fired boilers that submitted stack
test data to EPA regarding mercury emissions were already
meeting the mercury emissions standard. About 70 percent of all
coal-fired boilers that submitted such data regarding particulate
matter and acid gas emissions were already meeting the standards

29

That so many plants have installed the necessary
controls—and have remained in business despite the
cost advantage that polluting plants enjoy—completely
undercuts the notion that the Rule will financially ruin
the industry. To the contrary, the Rule simply requires
that the remaining coal-fired plants meet the

performance already achieved by many of their peers.”

Indeed, until now, these “dirty” units have
benefited from a regulatory framework that has
effectively subsidized power generation by high-
polluting facilities. All else being equal, these plants
have been able to underbid cleaner plants and thereby
be called for dispatch more frequently than they
otherwise would have been. Yet they still receive the

governing one or both of those pollutants. JA627-29. EPA
additionally noted that it “agree{d] with the findings of ...
independent studies” that “over 50 percent of the fleet is equipped
with scrubbers and the number will increase to nearly 2/3 by
2015.” 77 Fed. Reg. at 9417. As noted above, operating a scrubber
will typically allow a coal-fired plant to satisfy the emissions
standards for acid gases. 76 Fed. Reg. at 25,023, 25,038-40.

* NMA argues that “to the extent” Floor Standards “implicitly
consider{]’ cost, “it cannot be assumed that all units ... can bear
the cost of new controls simply because” the best-performing units
have done so. NMA Br. 34 n.16. But nothing in the Clean Air
Act—or in administrative law more generally—requires EPA to
set emission standards that are economically practicable for each
and every source in the category. Cf. EPA v. Nat'l Crushed Stone
Ass’n, 449 U.S. 64, 73-78 (1980) (rejecting argument that EPA
must provide “variances from otherwise valid regulations where
dischargers cannot afford normal] costs of compliance” because
such variances “would undermine” Clean Water Act’s purpose of
“reducfing] the total pollution produced by an industry”).

30

market-clearing price set by the highest-priced power
generator needed to meet demand. By requiring all
plants to meet minimum emission standards
demonstrated to be achievable by peers that have
remained competitive, the Rule levels the playing field
and eliminates the perverse incentives that previously
allowed coal-fired plants to profit by refusing to install
the same emissions controls used by their peers.

To be sure, some coal-fired plants may choose to
retire rather than make ‘the capital expenditures
required to comply with the Rule. But the plants most
likely to retire are very old—between 40 and 60
years—and nearing the end of their useful lives in any
event. JA546, JA579-80; see also EPA, Regulatory
Impact Analysis for the Final Mercury and Air Toxics
Standards 3-17 (Dec. 2011),
http://www.epa.gov/ttnecas1/regdata/R1As/matsriafina
l.pdf (average retired plant expected to be 52 years
old). Moreover, these plants face other economic
pressures much more significant than this rulemaking
in determining whether they retire. Most important is
the declining price of natural gas, which has allowed
natural gas plants to submit lower bids for dispatch.
See 77 Fed. Reg. at 9407. This has resulted in lower
electricity prices and less frequent dispatch for coal
plants, with the result that coal plants on balance have
greater difficulty covering their costs.

EPA carefully considered whether the Rule would
adversely affect electric reliability, and, based on
abundant record evidence, concluded that it would not.
Using modeling that “has been extensively reviewed

ol

and has been utilized in several rulemakings affecting
the power generation sector over the last 15 years,” 77
Fed. Reg. at 9413, EPA predicted that only 4.7
gigawatts of coal-fired plants would retire as a result of
the Rule, as opposed to other factors such as lower
natural gas prices and greater energy efficiency. /d.;
id. at 9407. The 4.7 gigawatts of expected retirements
amount to less than one-half of one percent of total
generating capacity in the United States, and less than
1.5% of total U.S. coal capacity. Jd. at 9407-08.

Petitioners nonetheless suggest that the Rule “is
forcing numerous plants into retirement” and will
“contribute” to the retirement of 54 gigawatts of coal-
fired generation capacity. NMA Br. 27; UARG Br. 20-
21. Yet in the Court of Appeals, “Petitioners [did] not
challenge [EPA’s] conclusion” that the Rule would
cause the early retirement of less than 2 percent of U.S.
coal-fired capacity. Pet. App. 32a; 77 Fed. Reg. at 9416;
see id. at 9408. They therefore cannot do so here. £.g.,
Glover v. United States, 531 U.S. 198, 205 (2001). And
even if they could, in considering EPA’s predictive
judgment about the effects of the Rule—a technical
judgment within its area of expertise—this Court’s
review would be “at its most deferential.” Baltimore
Gas & Elec. Co. v. Natural Resources Defense Council,
Inc., 462 U.S. 87, 103 (1983). That deference would be
well-warranted: the report on which Petitioners
principally rely, see UARG Br. 21 n.8; NMA Br. 15,
confirms that greater numbers of coal plant
retirements are expected because those plants have
been “under significant economic pressure in recent

32

years because of low natural gas prices and slow
electricity demand growth.”

The limited retirements anticipated to result from
the Rule will leave grid operators with substantial
capacity reserve margins, particularly after accounting
for anticipated new investments in_ electrical
generation. The industry has anticipated the Rule for
many years, and participants have made numerous
investments that will result in a more modern and
environmentally friendly fleet. Some retiring coal

plants will be re-powered as natural gas-fired plants.”
For example, after acquiring in 2010 two primarily coal-
fired plants in New Jersey and Delaware representing
approximately 780 megawatts of capacity, Calpine
redeployed them to operate primarily on gas. Exelon
has invested billions of dollars in installing emissions
controls on coal plants and in operating low- and zero-
emission generation such as nuclear plants. Similarly,
PSEG has spent more than a billion dollars installing
pollution control technologies on its coal plants. There

* US. Energy Information Administration, Today in Energy,
AEO2014 Projects More Coal-Fired Power Plant Retirements by
2016 Than Have Been Scheduled (Feb. 14, 2014), available at
http://www.eia.gov/todayinenergy/detail.cfm?id=15031.

17

As of October 2014, nearly 11 gigawatts of coal-to-gas-
conversions had been announced or were under construction, more
than twice the 4.7 gigawatts EPA projected to retire due to the
Rule. Michael Niven & Neil Powell, Coal unit retirements,
conversions continue to sweep through power sector, SNL
Financial (Oct. 14, 2014), http:/Awww.snl.com/InteractiveX/
Article.aspx?cdid=A-29431641-13357.

33

also has been phenomenal growth in the number of new
natural gas-fired plants. Between 1999 and 2008, the
electric sector added almost 270 gigawatts of natural
gas-fired generating capacity. JA558. Moreover, gas-
fired plants still have relatively low utilization rates
compared to coal plants because for many years, coal
has been cheaper than gas, see, e.g., JA564-66, meaning
that significant quantities of generation could be
switched from coal-fired plants to gas-fired plants
without any adverse consequences for electric
reliability.

In sum, the record amply supports EPA’s
conclusion that the Rule is economically practicable,
and will have no adverse impact on electric reliability.

II. Even If the Court Determines That EPA
Should Have Considered Costs in Deciding to
Regulate, the Court Should Affirm Because
EPA Determined That Benefits Massively
Exceed Costs.

Even assuming EPA was required to consider costs
when determining whether to regulate hazardous air
pollutant emissions by power plants, the Rule should
still be affirmed. Under Subsection 112(e)(4), a listing
decision is not itself final agency action that should be
reviewed in isolation; instead, the decision to regulate
may be reviewed only “when the Administrator issues
emission standards for such pollutant or category,”
§7412(e)(4), at which time the costs and benefits of the
action will be known.

34

Here, EPA determined that the Rule’s benefits
massively exceed its cost: the Rule’s “annual quantified
net benefits (the difference between benefits and costs)
are $27 to $80 billion using a 3 percent discount rate or
$24 to $71 billion using a 7 percent discount rate.” 77
Fed. Reg. at 9306. In addition, EPA identified many
non-monetized benefits, including various health and
ecosystem effects. Jd. Because EPA has already
determined that the benefits of regulating power plants
exceed the costs, a remand would serve only to further
delay regulation that is already many years overdue
and to harm industry participants that have already
invested in pollution reduction.

A. Petitioners Misrepresent EPA’s Cost-Benefit
Findings.

Petitioners repeatedly claim that “the quantified
costs of hazardous air pollutant regulation are more
than one-thousand times greater than the quantified
benefits: $9.6 billion versus $4 million to $6 million.”
UARG Br. 3; see also id. at 19, 23; Michigan Br. 13, 32,
47; NMA Br. 1, 2, 14, 19, 25. This constant refrain flatly
misrepresents the record. As a matter of fact—made
clear in black and white on the Rule’s opening pages—
EPA found that the benefits outweigh the costs by a
ratio of at least 3:1, and as much as 9:1. 77 Fed. Reg. at
9306. Moreover, EPA explained that many of the
benefits of reducing hazardous air pollutants cannot
easily be quantified, and thus are not accounted for by
these already lopsided ratios. See id. (EPA “could not
monetize some costs and important benefits, such as
some [mercury] benefits” and those for other hazardous

35

air pollutants, but “[u}pon considering these limitations
and uncertainties, it remains clear that the benefits of
this rule ... are substantial and far outweigh the
costs.”). Thus, contrary to Petitioners’ efforts to
obfuscate, this is simply not a case where EPA has
required plants to “spend billions to save one more fish
or plankton.” Entergy, 556 U.S. at 232-33 (Breyer, J.,
concurring) (quotation marks omitted).

To be sure, most of the quantified benefits identified
by EPA are “co-benefits”—that is, benefits resulting
from the Rule that do not arise exclusively from
reducing emissions of hazardous air pollutants.
Petitioners simply pretend that these co-benefits do not
exist. But they are real benefits from the Rule and
cannot be ignored when weighing its benefits against
its costs—just as ancillary or indirect costs cannot be
ignored, either.

Indeed, the many benefits of regulating hazardous
air pollutants are inextricably connected with the
benefits of regulating certain “conventional” pollutants.
For example, some fine particulate matter consists in
part of non-mercury metals. Thus, controlling
emissions of non-mercury metals can also reduce
emissions of particulate matter, and vice-versa. 77 Fed.
Reg. at 9420; 76 Fed. Reg. at 25,038-40; JA105-06;
JA110; Utility Study at 2-10, 2-13, 13-22. Similarly,
limiting hazardous acid gas emissions may also limit
SO, emissions. 76 Fed. Reg. at 25,038-40, 25,050-51.

Petitioners provide no rationale or authority for
ignoring such co-benefits when conducting a cost-

36

benefit analysis. In fact, EPA’s consideration of co-
benefits, as well as ancillary costs, was entirely proper
and consistent with established Office of Management
and Budget (“OMB”) directives and peer-reviewed
EPA guidance. The relevant OMB directive,
promulgated in 2003, explains that an agency’s

analysis should look beyond the direct benefits
and direct costs of [its] rulemaking and consider
any important ancillary benefits and
countervailing risks. An ancillary benefit is a
favorable impact of the rule that is typically
unrelated or secondary to the statutory purpose
of the rulemaking (e.g., reduced refinery
emissions due to more stringent fuel economy
standards for light trucks) while a countervailing
risk is an adverse economic, health, safety, or
environmental consequence that occurs due to a
rule and that is not already accounted for in the
direct cost of the rule (e.g., adverse safety
impacts from more stringent fuel-economy
standards for light trucks).

OMB, Circular A-4 at 26 (Sept. 17, 2003). EPA’s
internal guidelines likewise make clear that “[a]n
economic analysis of regulatory or policy options should
present all identifiable costs and benefits that are
incremental to the regulation or policy under
consideration. These should include directly intended
effects and associated costs, as well as ancillary (or co-)
benefits and costs.” EPA, Guidelines for Preparing
Economic Analyses at 11-2 (Dec. 17, 2010) (updated
May 2014) (emphasis added). Thus, contrary to

37

Petitioners’ insinuations, there was nothing
aberrational or irregular about EPA’s consideration of
co-benefits when weighing the benefits of the Rule
against its costs.

Petitioners do not challenge as arbitrary and
capricious the basic principle that an agency, when
weighing costs and benefits, should consider all the
costs and benefits of regulatory action. The notion that
the agency should count only some benefits, and
presumably only some costs, would have far-reaching
consequences and would be contrary to well-

established economic principles” and case law. See,
e.g., Competitive Enter. Inst. v. NHTSA, 956 F 2d 321,
327 (D.C. Cir. 1992) (reversing agency for failing to
consider whether benefits of fuel economy standards
outweigh ancillary costs in terms of lives lost due to
smaller vehicles); Ctr. for Biological Diversity v.
NHTSA, 538 F.3d 1172, 1198-1203 (9th Cir. 2008)
(reversing agency for quantifying ancillary costs of fuel
economy standards (the impact on vehicle sales and
employment) but not quantifying ancillary
environmental benefits).

a

Petitioners also do not dispute that EPA faithfully
implemented the applicable OMB and internal agency
guidance regarding how to conduct cost-benefit
analysis. Indeed, as EPA acknowledged, studies
submitted by commenters, including Exelon, suggested
that EPA’s estimate of benefits was, if anything,

" See, e.g., EJ. Mishan & Euston Quah, Cost Benefit Analysis 4-7,
104 (5th ed. 2007).

38

conservative. 77 Fed. Reg. at 9415; JA689."" EPA also
considered comments that the Rule would result in
indirect economic costs due to reduced employment and
higher electricity prices, but it found that any job losses
were likely to be more than offset by increased
employment in “manufacturing steel, cement and other
materials needed to build pollution control equipment,”
as well as “jobs creating and assembling pollution
control equipment, and jobs installing the equipment at
power plants.” 77 Fed. Reg. at 9414. EPA further
noted “{pljotential job increases from increased output
by lower-emitting facilities.” Jd. As for electricity
prices, EPA found that prices are likely to increase
only around 3 percent, and “the downstream economic
effects” of any such increase is likely “to be small
because electricity is only a small factor in the
production of most goods and services.” Jd.

Petitioners do not challenge these findings as
unsupported by substantial evidence. Instead, they
simply ignore the findings that EPA actually made,
claiming that they are irrelevant because EPA stated
that it did not rely on these co-benefits in deciding that
regulation was “appropriate and necessary.” NMA Br.
17, 41-42; Michigan Br. 47-48. Of course EPA did not
consider these co-benefits when deciding whether to

"Ina peer review of EPA’s analysis for the proposed rule, Dr.
Charles Cicchetti, an economist, concluded that if one were to
consider benefits that EPA had not attempted to monetize as well
as positive impacts on the Natior.’s economy, the Rule would
create $52.5 to $139.5 billion in annual net benefits. JA691; 77 Fed.
Reg. at 9415.

39

regulate. That is because, under EPA’s view of the
statute, the decision whether to regulate should turn on
whether hazardous air pollutant emissions from power
plants were causing public health and environmental
harms. EPA concluded that they were, and had no
cause to inquire further at that stage. But if Section
112(n)(1)(A) had required a cost-benefit analysis as a
predicate to the decision to regulate power plants, then
it would have been irrationa] for EPA to consider only
some of the benefits of regulation—just as it would
have been irrational for EPA to consider only some of
the costs. Thus, there is no basis for Petitioners to
treat tens of billions of dollars of co-benefits resulting
from the Rule as though they do not exist.

B. The Rule Should Be Sustained Because EPA
Has Determined That Its Benefits Exceed Its
Costs.

1. A Remand Would Be Pointless, But
Would Inflict Further Competitive
Harm on Generators That Have
Already Invested in Pollution Control.

In light of EPA’s actual finding that the benefits of
the Rule significantly exceed its costs, this Court
should affirm the Rule even if it determines that EPA
should have considered costs when deciding whether
regulation was “appropriate.”

A remand for EPA to make the very cost-benefit
determination that it already has made in the Rule
would be “an idle and useless formality.” Morgan
Stanley Capital Grp. Inc. v. Public Util. Dist. No. 1,

40

554 U.S. 527, 545 (2008) (quoting NLRB v. Wyman-
Gordon Co., 394 U.S. 759, 766-67 n.6 (1969) (plurality
op.)). EPA received voluminous comments regarding
its proposed cost-benefit analysis, and it considered and
responded to them. 77 Fed. Reg. at 9313-19, 9413-19,
9424-39; e.g., JA885-903. EPA not only found that the
benefits justified the costs, see supra, but it needed to
so find in order to promulgate the Final Rule. Under
Executive Order 13563, an agency may “propose or
adopt a regulation only upon a reasoned determination
that its benefits justify its costs.” 76 Fed. Reg. 3821,
3821 (Jan. 18, 2011) (emphasis added).

Affirming the Rule on the basis of EPA’s cost-
benefit analysis, rather than remanding, would be
consistent with SEC v. Chenery Corp., 318 U.S. 80
(1943). There, the Court explained that the principles
governing judicial review of administrative agency
decisions are akin to those governing judicial review of
jury verdicts. Although a reviewing court is not
permitted to substitute its own policy judgments or
factual findings for the agency’s, it need not remand a
case to an agency merely to reinstate a factual finding
that the agency has already made. Instead, the
agency's decision—like a decision of a lower court or a
jury—“must be affirmed if the result is correct
‘although the lower court relied upon a wrong ground
or gave a wrong reason.” Id. at 88 (quoting Helvering
v. Gowran, 302 U.S. 238, 245 (1937)). In short,
“Chenery does not require that we convert judicial
review of agency action into a ping-pong game.” NLRB
v. Wyman-Gordon Co., 394 U.S. 759, 766-67 n.6 (1969)
(plurality op.).

4}

Given the administrative record before the Court,
“{tJhere is not the slightest uncertainty as to the
outcome” of any further cost consideration this Court
might direct EPA to undertake. Jd. It would therefore
“be meaningless to remand.” Jd. In fact, a remand
would accomplish nothing but further delay, frustrating
Congress’s purpose to expedite regulation of hazardous
air pollutant emissions. That delay also would
perpetuate the distortion of wholesale electric markets
to favor dirtier plants at the expense of cleaner ones.
And it would chill the industry from making further
investments that will modernize America’s generation
fleet and expand the natural gas _ pipeline
infrastructure, as companies are reluctant to build
replacement, cleaner generation or to modernize
existing plants when their competitors are not required
to comply with modern emission standards. See JA425-
27.

2. NMA’s Argument That EPA Must
Separately Evaluate the Costs and
Benefits of Regulating Each Hazardous

Air Pollutant Is Contrary to Statutory
Text.

Finally, NMA contends not only that EPA was
required to consider costs and benefits, but that it
needed to separately evaluate those costs and benefits
for each pollutant, and failed to do so for acid gases.
NMA Br. 38-39 (arguing that EPA failed to identify
health hazards or environmental impacts from acid gas
emissions). Even were this Court to hold that EPA
should have considered cost in making the “appropriate

42

and necessary” determination, NMA’s argument would
provide no basis for a remand.

NMA’s contention, which was unanimously rejected
by the D.C. Circuit, falls outside this Court’s grant of
certiorari. It also is contradicted by the record. EPA
noted the significant health benefits produced by
control of acid gases. 76 Fed Reg. at 25,050-51.
Moreover, as NMA grudgingly acknowledges, EPA
relied upon a study of hydrochloric acid deposition in
the United Kingdom, which showed that hydrochloric
acid can be a significant driver of acidification. 77 Fed.
Reg. at 9362; NMA Br. 39. NMA asserts that this
study is somehow irrelevant because it was conducted
in the United Kingdom, and that EPA could not
identify an example in which “domestic electric
generator hydrochloric acid emissions have affected
acid deposition.” NMA Br. 39. NMA provides no
reason to believe that the laws of chemistry and
atmospheric science are any different in the United
Kingdom than in the United States, and EPA was
plainly within its discretion to credit that study.

In any event, the statute squarely forecloses NMA’s
notion that EPA must separately make an “appropriate
and necessary” finding for each individual pollutant.
Cf. NMA Br. 42-44. Section 112 regulates sources, and,
for covered sources, requires that emission standards
be established for the pollutants listed in Subsection
(b). §7412(b). Thus, Section 112(n)(1)(A) states that
EPA “shall regulate electric utility steam generating
units under this section” if it finds such regulation

43

“appropriate and necessary.” §7412(n)(1)(A) (emphasis
added).

“(Tjhis section,” id., in turn, requires that EPA
“promulgate regulations’ establishing emission
standards for each category or subcategory of major
sources and area sources” of the pollutants that
Congress has listed. §7412(d)(1) (emphasis added).
While the statute goes on to give EPA discretion to
“distinguish among classes, types, and sizes of sources
within a category or subcategory in establishing such
standards,” id., it never suggests that EPA must, or
even may, distinguish among pollutants, and set
emission standards for some pollutants but not for
others.

The legislative history confirms that Congress
intended for EPA to promulgate, for covered sources,
emission standards for all pollutants listed in
Subsection (b). Congress amended Section 112 in 1990
in part because EPA had failed to regulate enough
pollutants under the prior provisions. The Senate
Report, for example, explained that “(ijn 18 years, EPA
has regulated cnly some sources of only seven
chemicals ... The legislation reported by the
Committee would entirely restructure the existing law,
so that toxics might be adequately regulated by the
Federal Government.” S. Rep. No. 101-228, at 128,
reprinted in 1990 U.S.C.C.A.N. at 3513. Congress
therefore added the specific list of pollutants for which,
for each covered source, emission standards must be
set. In sum, the D.C. Circuit correctly and unanimously
rejected “[t]he notion that EPA must ‘pick and choose’

44

among [pollutants] in order to regulate only those
substances it deems most harmful.” Pet. App. 42a; see
Natl Lime Ass’n v. EPA, 233 F.3d 625, 633-34 (D.C.
Cir. 2000).

CONCLUSION

For the foregoing reasons, the decision below
should be affirmed.

February 25, 2015 Respectfully submitted,
Brendan K. Collins Paul M. Smith

Counsel of Record Matthew E. Price
Robert B. McKinstry, Jr. Erica L. Ross
Ronald M. Varnum JENNER & BLOCK LLP
Lorene L. Boudreau 1099 New York Ave. NW
BALLARD SPAHR LLP Suite 900
1735 Market Street Washington, DC 20001
51st Floor (202) 639-6000
Philadelphia, PA 19103 psmith@jenner.com
(215) 665-8500
collins@ballardspahr.com

Counsel for Industry Respondents

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0333%3A15. Public record. Not legal advice.