Introduction [footnotes omitted]:

A coincidental benefit (or co-benefit) of federal regulatory action is officially defined by the Office of Management and Budget as “a favorable impact of [a] rule that is typically unrelated or secondary to the statutory purpose of the rulemaking.” Under longstanding and heretofore uncontroversial Executive Branch analytical practice, federal agencies assess and include the coincidental impacts of regulatory action in
studying proposed rules. For decades, benefit-cost analyses that inform federal regulatory decisions have included the value of co-benefits.

However, since 2011, critics of the Obama Administration’s Environmental Protection Agency (EPA) have challenged the role of co-benefits in recent air pollution regulatory impact analyses (RIAs). Because air quality control technologies installed to capture particular pollutants like mercury often reduce other types of pollution as well, regulatory analyses identify and attempt to monetize the value to society of all the expected emissions reductions from proposed air rules. Critics allege that the EPA has inappropriately and erroneously over-relied on these coincidental effects to justify new regulations, especially with respect to the health benefits from reducing particulate matter (PM) concentrations.

Approved in 2011, the EPA’s Mercury and Air Toxics Standards (MATS) for power plants are expected to result in sizeable coincidental PM-related health benefits, which according to the MATS RIA, greatly exceed the value of the rule’s mercury-related benefits. Since regulatory action was thus found cost-effective by the Obama Administration, the MATS rule proceeded, with the EPA acknowledging but not legally relying on the results of the RIA for its regulatory authority. To at least some petitioners challenging the MATS rule in the on-going case Michigan v. EPA, this represents a “textbook case of the administrative misuse of statutory authority.”

Critics and petitioners in Michigan ground their legal argument in the fact that the statutory authority for the MATS rule comes from Section 112 of the Clean Air Act (CAA) devoted to regulating mercury and other hazardous air pollutants (HAPs), while a different section—Section 110—addresses ambient PM levels. Other critiques have similarly suggested that PM health benefits can only be obtained (legally and efficiently) through setting Section 110 standards. The present controversy raises at least three key questions about the use of co-benefits in regulatory impact analyses:

• History – Does the consideration of co-benefits in previous presidential administrations and agencies rise to the level of an established bipartisan administrative practice?

• Analytical Practice – Is the inclusion of co-benefits in agency benefit-cost studies considered sound analytical practice by economists and other experts?

• Legal Justification – Was the EPA justified in considering cobenefits in the particular legal context of Section 112 and the MATS RIA?

This paper contends that the answer to each of the above is yes. The sections below address the history and analytical practice of using co-benefits to inform federal regulatory decision-making before turning to the particular legal context of the MATS rulemaking at issue in Michigan v. EPA.