Arguing for Inefficiency

In what topsy-turvy world would we find large energy companies like the Ohio Valley Coal Corporation suing in the Supreme Court to ask for more stringent, complicated, and expensive environmental regulations?

Our world, it turns out. Yesterday, several large energy companies argued against EPA's use of a flexible, market-based approach to cutting air pollution that crosses state lines. Their argument prevailed in the U.S. Court of Appeals for the D.C. Circuit, where it derailed an EPA regulation that provides enormous benefits (estimated at $120 and $280 billion per year at the time the rule was proposed, including tens of thousands of lives saved and over a million missed days of work or school avoided per year) with a cost of under $1 billion per year.

Large power plants in the Midwest emit unhealthy pollutants including the two at issue here -- nitrogen oxides and sulfur dioxide. These pollutants cause asthma, heart disease, and other health problems. Residents in those states enjoy the low electricity bills that come with dirty coal-fired plants that have escaped regulation under the Clean Air Act for decades. But the pollutants generated by those power plants are carried into neighboring states by prevailing west-to-east winds. In states like Massachusetts and New York, they sicken people and lead to increased mortality.

To attack this problem, EPA's rule requires states to be "good neighbors" and reduce their inter-state pollution. To keep compliance costs down, EPA's regulation lets plants trade pollution permits with each other. To see how it works, imagine two coal-fired power plants: Plant A in Ohio, and Plant B in Illinois. Each emits pollution that drifts across state borders, and degrades air quality in New York. Say it would cost Plant B $3 million to reduce its share of the contribution to New York's poor air quality. But Plant A can reduce its own share for just $1 million and for another $1 million, it could reduce enough extra pollution to cover Plant B's share. Under a trading system, Plant B can pay Plant A to reduce those extra emissions. New York gets the same overall air quality benefit, but the overall cost is a lot less.

The alternative to that, and what the litigating power companies are essentially arguing for, is both physically impossible (as the government points out in its brief) and far more costly than the EPA rule. These companies are most likely not using these arguments because they want to spend more money than necessary or because they oppose market-based tools in principle. Instead, they simply want to delay regulation, even though tighter standards to meet federal air quality requirements are inevitable. But while it might be the right tactic for these companies to save some cash in the short run, society will suffer. Each year of delay results in unnecessary mortalities and money wasted on doctors' bills, sick days, and prescriptions.

We hope the Supreme Court reverses the lower court's decision to overturn EPA's use of free-market principles in this rule. The legal foundation for EPA's actions is strong and convincing. But the most powerful ally for this life-saving, cost-minimizing rule is common sense.