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Dr. David Harrison Jr.

Environmental Economics

A Victory for Economic and Environmental Rationality: Supreme Court Allows Cost-Benefit Analysis in Setting Important Clean Water Act Standards

22 May 2009
By Dr. David Harrison and Dr. Albert Nichols with former NERA Consultant Meghan McGuinness

On 2 April 2009, the US Supreme Court ruled in Entergy Corporation et al. v. Riverkeeper, Inc. that the US Environmental Protection Agency (EPA) may use cost-benefit analysis in setting standards and issuing permits under Section 316(b) of the Clean Water Act, overturning a 2007 decision by the Court of Appeals for the Second Circuit. This section of the Clean Water Act directs EPA to require large power plants and other relevant facilities to install the Best Technology Available (BTA) for minimizing adverse environmental impacts associated with cooling water intake structures. These facilities often process millions of gallons of water per day, which leads to fish losses when fish and other aquatic organisms are trapped against intake screens ("impingement") or pulled into the cooling system (“entrainment”). 

This NERA paper explains the methods that environmental economists -- working in conjunction with biologists and engineers -- have developed to provide reliable assessments of costs and benefits in individual 316(b) permit cases. The authors begin with a discussion of the significance of the Supreme Court's ruling. The Supreme Court held that EPA may -- not must -- use cost-benefit analysis in making 316(b) determinations. Thus, it is important to demonstrate to the EPA's new leadership and to state regulators that site-specific cost-benefit analysis can be implemented effectively and that it should be an important element of the 316(b) decision-making process, as it was before the 2007 Second Circuit ruling.