Thursday, April 02, 2009

Giving Cost/Benefit a Bad Name

There was little surprise in the Court’s announcement of Entergy v. Riverkeeper yesterday. By a margin of 5-1-3, the Court upheld EPA’s interpretation of Clean Water Act (CWA) § 316(b). CWA 316(b) requires EPA to establish performance standards for so-called “cooling water intake structures,” the sometimes-giant intakes of water that power plants and other industrial sites operate which tend to obliterate the life in the water that passes through them. The text of the Act tells EPA that it should set such standards to require the “best technology available for minimizing adverse environmental impact.” EPA had concluded this language allowed it to weigh the costs of various technologies against the environmental benefits they would produce—an interpretation many criticized as unfaithful to the “legislative intent” and/or true meaning of the CWA.

The technology EPA reviewed ended up being tiered as between new installations of a certain (large) size, large existing-, and small existing installations. EPA’s rules were segmented accordingly into Phase I, II, and III. Of principal concern to the challengers in this case were the so-called Phase II rules applicable to large existing installations, mostly power plants. EPA required these facilities to reduce their impacts (so-called “impingement” and “entrainment”) by between 60 and 95% of existing levels. The reason it did not go further—technology exists which would reduce impingement and entrainment by roughly 100%—is because of what it called the “generally high costs” of installing and operating “closed-cycle cooling” technology or better. It also allowed that some of these Phase II plants could seek variances if their costs were “significantly greater” than the reference case in the rulemaking.

I’ll lay aside a pet peeve of mine that was hammered home yet again in Entergy (that the Supreme Court has repeatedly held that a statute which does not rule out cost benefit analysis normally leaves the choice to the agency and that agencies normally choose to employ it) and instead reach for some optimism. The Phase II rulemaking was done with a sham of a cost/benefit balancing analysis. The costs of impingement and entrainment were backgrounded and discounted while the costs of mandatory closed-cycle cooling retrofits were inflated and foregrounded. But doesn’t this just reflect the identity of the analysts? Had the Bush EPA actually weighed all of the costs and risks of continuing our cooling water intake practices across some 500 facilities sucking in over 200 billion gallons of the nation’s waters every day, stringent retrofits probably would have seemed to make good sense.

At the very least, and as Justice Breyer said in a partial concurrence/dissent, the analysis EPA actually published was incomplete. Why should the “generally high costs” of a particular technology suffice to categorically preclude its adoption for a category as broad and diverse as “large existing power plants” throughout the U.S.? That seems to ignore the reality that benchmarking these plants against each other will reveal their disparities of performance, disparate market positions, and variable opportunities for improvement. Locking in a performance standard that is based on so coarse a data set will lock out better, finer-grained, comparative information which is always hard to amass at any given moment but which can be collected over time.

An Obama EPA almost certainly recognizes as much. What margin it has to act on this hindsight now that the Phase II rules have been defended all the way to SCOTUS is unclear, though. I hope at least that variances from the Phase II rules won’t be easy to get.

More generally, many progressives have long denounced the opacity of cost- or risk/benefit balancing in general. But transparency is inversely related to complexity and risk/benefit analysis—whether it includes monetized values, discount rates, and statistical lives or not—is inherently complex. So the other factor to keep in mind if you are among the Riverkeepers of the world is that transparency also suffers when agencies behave strategically. And there’s a good argument to be made that they behave most strategically of all when they fear their tough choices made on incomplete information will be reviewed with fine-toothed combs. As the Obama administration reshapes the regulatory review that occurs within the Executive Branch, what we all should be urging is more coordination and cooperation in the production, sharing and refinement of specific, accurate information that is highly dispersed and of uncertain strategic value. Litigation like Entergy v. Riverkeeper shows how hard that is.

Posted by Jamie Colburn