The EPA Should Properly Address the Abuse of Ancillary Benefits in CAA Rulemaking

Daren Bakst

The Environmental Protection Agency (EPA) has a chance to put an end to the abuse of indirect benefits in Clean Air Act (CAA) rulemaking. Specifically, when it finalizes its recently proposed rule on the consideration of costs and benefits in CAA rulemaking, the agency should clarify that there are limits to applying indirect benefits, also known as “ancillary benefits” or “co-benefits,” in regulatory decision-making.

Ancillary Benefits Abuse

The EPA’s practice of using ancillary benefits in CAA rulemaking has raised numerous concerns, including whether such benefits are properly estimated. But this post focuses on how the EPA uses ancillary benefits in CAA rulemaking.

The EPA has promulgated major air pollution rules even when it couldn’t justify regulating the air pollutants targeted by those rules. The Mercury and Air Toxics Standards (MATS) rule is a prime example. After initially arguing that costs didn’t have to be considered at all—and losing a Supreme Court case as a result—the EPA moved forward with the MATS rule, even though 99.9 percent of the monetized benefits didn’t come from regulating mercury and other hazardous air pollutants, but instead came from the ancillary benefits of reducing fine particulate matter (PM2.5).

If this practice of over-relying on ancillary benefits is allowed to continue for future CAA rules, then the agency won’t have to justify the purpose of its CAA rules, as happened with the MATS rule. The EPA can just ignore direct benefits (the benefits from regulating the targeted pollutant) and justify rules based on ancillary benefits, especially the ancillary benefits from reducing particulate matter. This overreliance on ancillary benefits can create other problems, such as the agency using ancillary benefits to regulate a pollutant it has no basis to regulate. Further, as will be explained, the EPA can avoid proper regulatory analysis and do end-runs around the law. To its credit, the EPA recently finalized a rule that rejected this overreliance on ancillary benefits for the MATS rule. However, this problem may resurface for future CAA rules.

The problem isn’t some hypothetical; it’s a description of reality. For example, according to data assembled by NERA Economic Consulting, in just the two-year period from 2009 to 2011, the EPA didn’t quantify any direct benefits for six major CAA rules. The quantified benefits were exclusively from the ancillary benefits of reducing particulate matter. In 21 of the 26 rulemakings analyzed from 1997 to 2011, the particulate matter ancillary benefits accounted for more than half of the total benefits.

The EPA’s final benefit-cost CAA rule can put an end to this abuse. The proposed rule, though, would only require the agency to disaggregate “benefits into those targeted and ancillary to the statutory objective of the regulation.” This transparency requirement shows an appreciation of the problem, but it isn’t an adequate response to the problem because it doesn’t address howancillary benefits should be used in decision-making.

Fortunately, the agency sought feedback from the public on how it should weigh costs and benefits in future CAA rulemakings. In its final rule, the agency should expressly answer the following question: To what extent should ancillary benefits be applied when deciding whether to move forward with a CAA rule?

Important Considerations when Answering the Ancillary Benefits Question

In answering this question, there certainly should be a consideration of sound regulatory practice (and common sense). Agencies should have to justify why they are regulating a specific pollutant. Further, sound regulatory analysis requires proper consideration of regulatory alternatives. This can only happen if the rule’s purpose is properly identified. In fact, identifying the specific problem that is being addressed is a first step in proper regulatory analysis. Only from understanding the purpose of a rule can various regulatory alternatives be properly evaluated.

When purported ancillary benefits from particulate matter vastly exceed the direct benefits of regulating hazardous air pollutants, such as with the MATS rule, the rule can hardly be considered to be a hazardous air pollutant rule. It is a PM2.5 rule in disguise. Therefore, the agency should treat the rule as a PM2.5 rule. This would include showing that PM2.5 can be regulated under the specific statutory section and considering whether there are better alternatives to address PM2.5.

Often, those who try to answer the ancillary benefits question miss a critical consideration: the rule of law. The EPA’s decision-making needs to be consistent with the CAA. For example, the EPA shouldn’t be able to justify a rule based on ancillary benefits from regulating particulate matter when the applicable statutory section doesn’t authorize the regulation of particulate matter. This serves as an end run around the law and ignores the plain language of the CAA and will of Congress. This legal issue becomes even more pronounced when the underlying statutory section is clearly designed to only regulate the targeted pollutant or expressly prohibits the regulation of particulate matter.

The EPA itself appeared to acknowledge this point when it reconsidered the basis for the MATS rule:

While the Administrator could consider air quality benefits other than HAP-specific benefits in the CAA section 112(n)(1)(A) context, consideration of these co-benefits [ancillary benefits] could permissibly play only, at most, a marginal role in that determination, given that the CAA has assigned regulation of criteria pollutants to other provisions in title I of the CAA, specifically the NAAQS regime pursuant to CAA sections 107–110,… [Emphasis added].

Possible Solutions for the EPA’s Final Benefit-Cost CAA Rule

At a minimum, the EPA should state in the regulatory text of the final rule that ancillary benefits can only provide an ancillary justification for a CAA rule. However, this is likely insufficient, especially when it’s clear that the underlying statutory section wouldn’t otherwise authorize the regulation of the pollutants giving rise to the ancillary benefits. So in this case, the EPA should allow ancillary benefits to play at most a de minimis role in determining whether to move forward with a rule.

Conclusion

In the next couple of months, the EPA is expected to finalize its benefit-cost CAA rule. While there are many issues that need be addressed, arguably none are more important than properly addressing the application of ancillary benefits in regulatory decision-making. In taking up this issue and addressing it sufficiently, the EPA should ensure that the agency will properly apply ancillary benefits consistent with the rule of law.

Daren Bakst

Senior Research Fellow in Agricultural Policy

The Heritage Foundation


Federalist Society’s Environmental Law & Property Rights Practice Group

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