The EPA's Mercury Rule Will Cost The Economy At Least $16 Billion Per Year
- Apr 6, 2015 11:00 pm GMTJul 7, 2018 9:16 pm GMT
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The Environmental Protection Agency says its new Mercury and Air Toxics Standard—the legality of which is before the U.S. Supreme Court this term—will produce $24 to $80 billion in net economic benefits to U.S. citizens by improving their health. To put these figures in perspective, the profits of the five largest American health insurance companies were a combined $12.7 billion in 2014. In other words, the EPA says the power of its regulatory pen is roughly two to six times more productive than the Big Five health insurers combined.
The legal question before the court actually has nothing to do with the details of the EPA’s benefit analysis; it’s purely a question of statutory interpretation. Nonetheless, during oral arguments on March 25, Chief Justice John Roberts lambasted the EPA for inflating the rule’s estimated net benefits. At one point, Justice Roberts even called the EPA’s public health benefits “illegitimate.”
I’m a lawyer, not a doctor, so I won’t question the medical veracity of the EPA’s numbers (as an aside, a Harvard toxicologist testified to Congress that the EPA’s methodology for calculating the health benefits was “highly imprecise”). But I can tell you that, in a number of important ways, the Chief Justice is correct: The EPA has doctored its benefit figures.
EPA’s mercury rule will be the most expensive ever
EPA’s mercury rule requires approximately 600 U.S. power plants to emit about 75% less mercury and other toxic pollutants starting in 2016. The EPA acknowledges that its mercury rule will be its most expensive rule ever—approximately $9.6 billion dollars per year.
But, according to the agency, these costs are swallowed by the rule’s enormous public health benefits, which fall into two categories. The first, and most obvious, are the direct health benefits of reducing mercury and other toxic air pollutants (which is, of course, the rule’s focus). EPA says these amount to at most $6 million per year.
Clearly, these benefits pale in comparison to the rule’s billions of dollars in costs. So how does the EPA justify its claim that the rule will nonetheless provide enormous net economic benefits? The answer is that the EPA included a number of “co-benefits” in its calculations—namely, the health benefits associated with reducing other ancillary pollutants, such as CO2 and particulate matter.
You see, when fully implemented, the rule will force a lot of existing coal-fired power plants to shut down because they can’t afford to comply. That will reduce CO2 emissions nationwide, and the EPA estimates that this will produce $360 million per year in “social welfare” benefits. Similarly, when power plants install technology to remove mercury from the emission stream, that technology also removes another pollutant, particulate matter, which, when inhaled, can have negative impacts on public health. According to the EPA, reducing particulate matter emissions will produce another $33 to $90 billion in annual public health benefits.
These particulate matter benefits, however, are enormously overstated. The EPA adopted its mercury rule under a provision of the Clean Air Act that’s aimed at regulating “hazardous air pollutants,” the definition of which doesn’t include particulate matter. Instead, particulate matter is regulated under another portion of the Act, which requires the EPA to set an air quality standard for particulate matter that’s protective of public health. This is important because more than 90% of the mercury rule’s health-related “co-benefits” occur at air quality levels that the EPA has already determined are protective of public health under this other section of the Act.
What’s more, when the EPA calculated the rule’s cost, it only looked at the cost to the electric sector. The agency did not even attempt to estimate any of the rule’s “co-costs,” such as lost manufacturing jobs due to higher electric rates.
Re-computing the rule’s actual costs and benefits
With these facts in mind, let’s re-compute the rule’s actual costs and benefits.
Comparing the rule’s direct costs to its direct benefits is easy. According to the EPA’s own numbers, the rule will cost the electric sector about $9.6 billion per year and will produce $6 million per year in mercury-related health benefits. That’s a cost/benefit ratio of 1600:1.
Including the rule’s co-benefits and co-costs requires a little math. Since at least 90% of the agency’s estimated particulate matter health benefits are, in Justice Roberts’ own words, “illegitimate,” that leaves $3.3 to 9 billion in particulate matter health benefits leftover. Assuming EPA’s CO2 and other benefit calculations are correct (about $366 million per year), the rule’s total health benefits would be reduced to roughly $3.7 to 9.4 billion per year.
On the cost side of the ledger, the EPA acknowledges that the rule will cost the electric sector approximately $9.6 billion per year. In addition, according to a study by NERA Economic Consulting, the rule’s ancillary costs to the economy will be an additional $16 billion per year. That adds up to a total annual cost of about $25.6 billion compared to a total annual benefit of $3.7 to $9.4 billion. In other words, EPA’s mercury rule will—at best—produce costs that are three to seven times greater than its benefits.
Look, it may be the case that mercury emissions have acute health effects on some marginalized populations. And it may be good public policy to issue this rule—despite all its costs—to protect those people. If that’s the rationale for issuing the rule, fine. But EPA, don’t play with the numbers and try to make the rule something it’s not—namely, a boon for the economy.