The U.S. Environmental Protection Agency (EPA) recently proposed revising the national air quality standard for ozone, the key pollutant in smog and regional haze. EPA acknowledges that the rule will cost billions of dollars each year to implement. Industry fears the additional regulatory costs, and environmentalists assert the rule does not restrict ozone enough. Select jurisdictions with high levels of background ozone, particularly Western states, will find it more difficult to reach attainment, and current mechanisms to account for naturally-occurring ozone spikes may prove inadequate. Republican leaders in the House and Senate have signaled their intention to oppose the rule in legislation. The EPA must navigate these complex issues as it prepares to finalize the rule by October 1, 2015.

Ozone: EPA’s Next Big Thing

Although much of the EPA’s efforts lately have focused on climate change, the agency is moving forward with a proposed regulation to lower the National Ambient Air Quality Standard (NAAQS) for ground-level ozone. Under the Clean Air Act (CAA), EPA is required to review such standards every five years, and EPA has not updated the ozone standard since 2008. EPA quietly released its proposed regulation on the eve of Thanksgiving 2014, and it was published in the Federal Register on December 17, 2014.

This is the second ozone proposal put forth by the Obama Administration. In 2011, EPA published a proposal of 65 parts per billion (ppb), which was met with fierce industry opposition. Keenly aware of election year dynamics and the danger of handing his Republican opponents an anti-economy issue, President Obama ultimately pulled the proposal, embarrassing his EPA Administrator and frustrating environmental groups.

EPA’s current proposal sets an ozone standard within a range of 65 to 70 ppb, and the agency is accepting comment on whether to adopt a lower standard of 60 ppb. The new ozone standard would phase in for most of the country by 2025, with some smog-prone regions of California phasing in through 2037. EPA is accepting comments on the rule through March 17, 2015. The agency will hold three public meetings on the rule in January 2015.

EPA’s ozone proposal would not impose a specific burden on any industry sector or company. Instead, it would establish a national standard that would have to be met in each state or area within a state called an “air quality management district” or “AQMD.” Once the standard is finalized in October 2015, EPA will then determine which local areas meet it and which do not. According to EPA’s data from 2011-13, 358 counties currently would violate a standard of 70 ppb, and an additional 200 counties currently would violate a standard of 65 ppb. However, EPA projects that by 2025, without needing to take any additional actions, only nine counties outside California would continue to violate the 70 ppb standard and an additional 59 counties outside California would violate a 65 ppb standard.

For those nonattainment areas, the state or local governments will need to develop plans to cut the emissions that become ozone. Each state or AQMD ultimately would decide which mix of regulatory measures to undertake to meet the standard. These measures could include things such as requiring additional controls to reduce smokestack emissions, subsidizing mass transit, or converting municipal bus fleets to cleaner fuels. They could also mean reducing energy-intensive economic activity, which could have substantial impacts on regional and state economies. States or AQMDs that are unable to comply with the new standards on time would also face harsh economic sanctions, too. No new industrial activity could open in that state or AQMD unless the state or AQMD was first able to obtain even greater emission reductions elsewhere.

EPA maintains that its proposal is based on a large body of science and is readily achievable. The Agency also asserts that the rule will prevent 750 to 4,300 premature deaths as well as thousands of hospital visits and hundreds of thousands of asthma attacks. For EPA, the monetized health benefits of the proposed rule—between $6.4 and $13 billion annually for a 70 ppb standard and between $19 and $38 billion for a 65 ppb standard—will far outweigh the costs.

The new standards will mean substantial costs to industry. EPA’s conservative assumptions estimate the costs will range between $3.9 billion for a 70 ppb standard and $15 billion for a 65 ppb standard. Industry estimates of the cost of EPA’s rule are several orders of magnitude higher – as much as $270 billion, according to the National Association of Manufacturers. Areas with oil and gas production in the West could see restrictions on their ability to expand operations.

The actual costs matter in terms of policy arguments, but for a legal challenge, they actually do not. The Supreme Court has long interpreted the Clean Air Act to prohibit the Agency from considering costs when it evaluates which pollutant standards are sufficiently protective of human health and welfare. EPA may consider costs only in helping states develop strategies to meet the standards. That reality begs the question of why the Agency would prepare a 575-page Regulatory Impact Analysis for its ozone proposal. As EPA acknowledged in its proposal, “although an RIA has been prepared, the results of the RIA have not been considered in issuing this proposed rule.”

Download: Three Obstacles to EPA’s O 3 Rule: Industry Opposition, Implementation, and Congressional Oversight

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