Reference no: EM133313233

Case Study: The Environmental Protection Agency on Monday moved to restore a federal determination that allowed it to regulate mercury, lead and other toxic metals from coal-fired and oil-fired power plants.

Under the Obama administration, the EPA said it had the authority to regulate emissions of mercury and other toxic metals from power plant emissions under the Clean Air Act as long as EPA officials determined it was "appropriate and necessary."

In 2020, the Trump administration withdrew that determination, saying that regulators made errors when calculating the costs and benefits of the rules. That revocation led a coal producer to ask the U.S. Court of Appeals for District of Columbia Circuit to eliminate the regulations that Obama-era officials had relied on to regulate air pollutants.

In reinstating the policy, the EPA said that controlling toxic emissions reduces cancer risks and neurodevelopmental delays in children.

"Sound science makes it clear that we need to limit mercury and toxins in the air to protect children and vulnerable communities from dangerous pollution," said EPA Administrator Michael Regan.

The Wall Street Journal reported last week that the EPA was moving to toughen rules on power plants as part of President Biden's efforts to curb greenhouse-gas emissions blamed for climate change.

Monday's proposal, if enacted, would mark a setback for coal miner Westmoreland Mining Holdings LLC, which had asked the court to get rid of regulations that require operators of the country's coal- and oil-burning power plants to cut emissions, including by installing filtration equipment that strained the pollutants from the air. A judge has yet to rule on that request.

Public-health and environmental groups said the existing regulations, which set an April 2015 compliance deadline for operators, have been effective at cutting air pollutants emissions. Mercury emissions from power plants dropped by 86% in 2017 compared with 2010 levels, according to an EPA estimate.

Before the regulations, power plants ranked as the largest domestic source of mercury, the agency said.

Mercury, arsenic and other toxic metals are released into the air from power plant smokestacks and make their way into U.S. waterways and to the food chain, leading to fish consumption advisories. They are linked to brain developmental problems in infants and cancer.

Federal law requires regulators who make rules under the Clean Air Act to first determine that the protections are appropriate and necessary. They first made that determination related to coal-fired and oil-fired power plants in 2000, then reaffirmed it as the 2012 regulations were released.

A year ago, Mr. Biden ordered EPA officials to review the Trump administration's revocation related to the mercury emissions rules, known as the Mercury and Air Toxics Standards. EPA officials will take comments for 60 days on Monday's proposal

Based on the article "EPA Moves to Restore Obama-Era Rules on Power Plants" from the Jan 31, 2022 issue of the Wall Street Journal, please respond to the following questions:

Question a. According to the article, coal-fired powered plants that produce electricity emit mercury and other pollutants from burning coal causing negative health effects as well as contributing to climate change. Illustrate a competitive market equilibrium for electricity, assuming no government intervention (e.g. a free market). Identify the market equilibrium price and quantity for electricity as P0 and Q0, respectively.

Question b. Identify the socially optimal (allocatively efficient) price (Ps) and quantity (Qs) for electricity on the same diagram you drew in part (a). Explain the rationale behind your answer. Do we have a negative or positive externality issue here?

Question c. Identify and label the external cost or benefit per unit of electricity in your diagram.

Question d. Identify and label the efficiency loss associated with the free market outcome you identified in part (a).

Question e. What impact would stricter EPA rules on controlling toxic emissions, such as installing filtration equipment, have on the market for electricity? Illustrate and explain how that would affect the diagram from part b.