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Wednesday, January 18, 2012

EPA’s Utility MACT: Will the Lights Go Out?

James E. McCarthy
Specialist in Environmental Policy

On December 21, 2011, EPA Administrator Lisa Jackson announced final standards aimed at reducing mercury and other air toxics emissions from electric generating units (EGUs) by about 90%. The rule, commonly referred to as the “Utility MACT” or the “Mercury and Air Toxics Standards” (MATS), has been more than a decade in the making (Congress authorized the standards in the 1990 Clean Air Act Amendments), and it is among the most expensive rules that EPA has ever promulgated. EPA estimates the annualized cost at $9.6 billion in 2015. Industry estimates have been higher.

The benefits are also large, according to EPA, ranging from $37 billion to $90 billion annually. The benefits mostly reflect the monetized value of avoiding up to 11,000 premature deaths annually.

The rule’s costs will fall primarily on older coal-fired units that do not have state-of-the art pollution controls. EPA says that this is a minority of coal-fired plants and an even smaller share of all electric generation: the agency estimates that 56% of coal-fired units have already installed equipment that can be used to meet the standards. In addition, about 55% of the nation’s electricity supply comes from natural gas, nuclear, and renewable sources that are not subject to the rule’s requirements.

This report describes the rule and its potential impact. The report discusses previous EPA efforts to regulate utility mercury emissions, the court decision overturning those regulations, the specifics of the new rule, its estimated costs and benefits, the impact of the rule on electric reliability, and legislation related to it that has been or may be considered in the 112th Congress.

Industry and environmental groups have been keenly interested in both the substance of the rule and the schedule for its implementation, and the House has already passed legislation (H.R. 2401) that would change both. A particular issue has been whether the standards will lead to retirement of a significant number of electric generating units, with negative effects on the reliability of the power supply. EPA and many other analysts maintain that this will not be the case.

To address this question, this report reviews industry data on planning reserve margins and potential retirement of units that do not currently meet the standards. Based on these data, it appears that, although the rule may lead to the retirement or derating of some facilities, almost all of the capacity reductions will occur in areas that have substantial reserve margins. Two areas that may have difficulty meeting reserve margins, Texas and New England, will experience few plant retirements and deratings, according to industry data. Furthermore, to address the reliability concerns expressed by industry, the final rule includes provisions aimed at providing additional time for compliance if it is needed to install pollution controls or add new capacity to ensure reliability in specific areas. As a result, it is unlikely that electric reliability will be harmed by the rule.

Another potential concern, given the rule’s cost, is what impact it may have on the price of electricity. EPA estimates that the average price of electricity nationally will increase by 3.1% by 2015, as a result of the rule. Electricity prices have declined more than 20% in real terms since 1980. The impact of price changes would be relatively small compared to this downward trend, and well within the normal range of historical price fluctuations.

Date of Report: January 9, 2012
Number of Pages: 16
Order Number: R42144
Price: $29.95

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