By Taylor Kuykendall

Depending on which side of the debate one falls, the U.S. Supreme Court will be deciding whether the U.S. EPA has appropriately crafted an effort to reduce exposure to "brain poison" or has significantly erred and drafted a rule that threatens to leave homes poor and in the cold as a result of grid instability and rising electricity costs.

The court's opinion on March 25 arguments over the 2012 Mercury and Air Toxics Standards for oil- and coal-fired power plants could determine the fate of about 48 GW of coal-fired electricity, according to a January report from Bernstein Research. Because of the high cost of complying with MATS, many coal operators have opted to retire power plants or convert to natural gas. The court is expected to issue an opinion in June.

"You're looking at controls on an older coal plant costing a half billion with a [limited] remaining useful life on that coal plant versus building a new gas plant for maybe $800 or $900 a kilowatt," said Paul Bailey, senior vice president for federal affairs and policy for the American Coalition for Clean Coal Electricity. "In some cases, it just makes more sense for the utility to shut down a coal unit rather than spend the money on controls and shift to a new gas unit."

Bailey said the impacts have turned out to be even larger than what he had thought. The regulation is expected to put a big squeeze on coal capacity and domestic demand, with even more regulations in the pipeline likely to compound that effect.

“Regardless of the outcome of this case, coal is unable to compete with other, cleaner forms of electricity. Coal mining will, eventually, reflect that shift to cleaner forms of energy.”

 Bruce Nilles, senior campaign director of Beyond Coal, Sierra Club

"In 2010, EPA said that all Clean Air [Act] rules cost about $7 billion — everything that applied to power plants. … Then we have MATS that came along and that's about $10 billion," Bailey said. "We see electricity prices increasing. We see EPA regulations becoming more expensive. Now we're facing [the Clean Power Plan] and we're projecting that at $40 billion per year."

Bernstein Research notes that the court may remand the rule to the EPA to simply conduct a cost-benefit analysis and re-promulgate the rule, or it could result in the rule being rolled back altogether. While plants would still be required to comply with the Cross-State Air Pollution Rule, Bernstein's model found that 48 GW of coal-fired capacity owned by companies such as American Electric Power Co. Inc., Duke Energy Corp., Vectren Corp. and NRG Energy Inc. could be spared from a 2015 or 2016 retirement if the rule is delayed.

The Bernstein report found MATS would result in an estimated decrease in utility consumption of bituminous coal of about 67 million tons, or about 19%, from 2011 through 2020. Utility consumption of subbituminous coal burn was estimated to drop by about 36 million tons, or 9%, in the same period due to the rule.

Coal companies facing the loss of customers have few places to turn as metallurgical coal markets are not faring much better and access to foreign markets has been less than ideal for potential sellers. Arch Coal Inc. President and CEO John Eaves noted the coming challenge during a recent earnings call.

"There's no arguing the fact that MATS takes effect this year," Eaves said. "It's going to impact about 25 million tons of coal demand and then if you look at natural gas and some of the other headwinds, we think all in it is probably 50 million, 60 million tons of lost coal demand in 2015. Again, we've strategically put ourself in a good position with our thermal commitments, and on the met side having 60% of that coal under contract makes us feel pretty good."

The ACCCE's Bailey said a typical coal plant would require millions of dollars in pollution controls to comply with the standards, which go into effect April 15 without a court-ordered delay. At some point, he noted, the finances of converting to gas simply make more sense than retrofitting old plants with mercury controls.

Opponents of the industry are hoping those economics will help their mission of eliminating pollution from coal burning. Bruce Nilles, senior campaign director of the Sierra Club's Beyond Coal campaign, said the organization plans to phase coal out in the U.S. within 15 years and replace it with a "clean energy economy."

"Sierra Club's Beyond Coal campaign is designed to pressure utilities to acknowledge these advantages and transition their coal fleets directly to renewable and energy-efficient technologies," Nilles said. "This will not only stop people from getting sick from the byproducts of burning coal (smog, coal ash, fly ash) but will also boost local economies with new, dynamic industries that cater to that transition. Since 2010, 187 coal plants have retired or announced to retire, and we are busy working on the rest."

Luke Popovich, a spokesman for the National Mining Association, warns that such efforts will cost the country in the form of an unstable electric grid. He said the NMA estimates that the EPA missed its retirement estimates by tenfold, and many of the retirements will "very likely" be irreversible, even with a favorable court ruling.

"The typical household will eventually find rising utility bills as a direct result of a less competitive market for power generation as baseload power will be forced to rely on natural gas," Popovich said. "We saw in the [polar vortex] experience in 2014 how it was the coal-based power plants that provided [over 90%] of incremental power needed during that frigid period, according to several power companies. These plants for the most part have been scheduled for retirement due to MATS and will be unavailable after next year. So consumers should think about the impact on reliability as well as costs."

“We support reducing mercury emissions from power plants. … Over 99% of the benefits have nothing to do with the purpose of the rule. EPA does this over and over again. They're doing the same thing on [the Clean Power Plan].”

 Paul Bailey, senior vice president for federal affairs and policy, American Coalition for Clean Coal Electricity

A recent report from the Department of Energy's National Energy Technology Laboratory found that while MATS-related retirements will be effective at reducing criteria emissions, they will also result in higher electricity prices. By 2025, the NETL report said, on-peak prices increase by 81% more in the MATS retirement case, and the cost of meeting annual demand increases by 50%, or $30 billion.

The report also projects a 7% net drop in Eastern U.S. generating capacity by 2025 and that the U.S. will become more dependent on imported Canadian power. The NETL projects that about 60 GW of capacity additions would be needed to satisfy summer peak demand and to meet targeted reserve levels.

"The analysis found that in both cases, the Eastern Interconnection experiences price increases and becomes increasingly reliant on electricity imports," the report notes. "The price impacts are significantly greater in the retirements case, with the difference in price impacts between the cases being primarily linked to increased prices during periods of peak demand."

Popovich said that virtually all of the touted benefits of the rule have already been claimed by the EPA as the benefit of other rules. Nilles said the industry's argument that "the monetized costs outweigh the monetized benefits" is misleading because the EPA has acknowledged that monetized benefits are only a fraction of the total benefits.

"Direct issues with mercury include a variety of neurological harms, especially to children born after being exposed to elevated mercury levels in utero," Nilles said. "Those include impaired attention, loss of fine-motor function, as well as reduced language skills and verbal memory — all of which substantially limit children's ability to learn and achieve."

John Walke, director of the climate and clean air program for the Natural Resources Defense Council, told SNL Energy that industry interests fighting the rule have presented a "cramped and dishonest framing of the rule's health benefits."

"Mercury is a potent neurotoxin, or brain poison, that can endanger a fetus, a breast-feeding child, or even adults based on associations with heart attacks," Walke said. "The exposure pathway is through ingestion of fish contaminated with methylmercury, following deposition of mercury into water bodies."

Nilles said that the "writing has been on the wall" for the coal industry. He said not only are other forms of energy becoming more competitive, but general public sentiment is shifting away from the fuel source.

"Regardless of the outcome of this case, coal is unable to compete with other, cleaner forms of electricity," Nilles told SNL Energy. "Coal mining will, eventually, reflect that shift to cleaner forms of energy."

At issue in the case is the grammatical understanding of the phrase "appropriate and necessary" as it appears in the Clean Air Act. The pro-MATS side said the phrase applies to whether the agency should regulate certain sources of pollution and therefore cost does not enter into the reasoning. The industry side says the phrase means the agency must look at cost in writing the regulation, after the determination is made.

Nilles said that everyone at the arguments — including the lawyer for the MATS opponents — agreed that toxics from power plants, and mercury especially, "posed grave harms that were worthy of regulation" and most of the judges agreed that the EPA's application of statute avoided inappropriate costs.

Bailey said that "if you just look at mercury alone — the costs wildly outweigh the benefits." He said that nearly all the benefits that the EPA projects come from pollutants other than mercury.

"We support reducing mercury emissions from power plants," Bailey said, adding: "Over 99% of the benefits have nothing to do with the purpose of the rule. EPA does this over and over again. They're doing the same thing on [the Clean Power Plan]."

Walke said that those hazardous air pollutants are required to be reduced by law and that going back to the recent Bush administration, the EPA calculated the indirect benefits of hazardous air pollution by including the indirect benefits of reducing particulate matter with the direct benefits of reducing hazardous air pollutants.

"EPA conducted this more honest benefit-cost analysis under its regulatory impact analysis and determined that the full benefits from the rule exceeded $100 billion annually, compared to under $10 billion in costs. Those enormous benefits came primarily from reducing deadly fine particulate matter, or PM2.5, and achieving health benefits from avoided premature deaths, avoided heart attacks, avoided asthma tax, ER visits, days not missed from work and school, etc.," Walke said. "Recognize that it is impossible to reduce all the [hazardous air pollutants] from power plants required by law without reducing simultaneously the PM2.5 emitted in the same gas stream. Therefore, it would be completely irrational and disingenuous to refuse to recognize and calculate the benefits of these reductions in PM2.5."