On Nov. 25, the U.S. Supreme Court agreed to review the U.S. Environmental Protection Agency’s mercury standard for coal- and oil-fired electric power plants. The court limited review to the question “whether the Environmental Protection Agency unreasonably refused to consider costs in determining whether it is appropriate to regulate hazardous air pollutants emitted by electric utilities.” That raises the more general question of whether environmental standards ought to be judged for consistency with public policy generally. If the rule will, in fact, cause a significant number of older coal-fired power plants to close, should the court consider whether that decision makes sense instead? Is the focus on just costs too narrow? Is it too abstract?

Market failure provides one justification for environmental regulation—indeed, for many forms of regulation. In this view, the unregulated market would allow some costs to be unfairly imposed on some people and avoided by others. So, for example, burning coal causes air emissions of mercury. The mercury ultimately makes its way to water bodies where fish take it up. People eat the fish. Mercury causes health problems for those people. Therefore, the unregulated market will allow those that burn coal to ignore the cost of the health impacts of mercury imposed on anglers. A corrective regulation would require those that use coal to control mercury emissions or to switch to a different fuel, internalizing the externality of the air emission.

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