Mercury enters the environment through natural and man-made sources, including volcanoes, chemical manufacturing, and coal combustion, and poses ecological threats when it enters water bodies, where small aquatic organisms convert it into its highly toxic form—methylmercury. This form of mercury may then migrate up the food chain as predator species consume the smaller organisms. Through a process known as bio-accumulation, predator species may develop high mercury concentrations in their tissue as they take in more mercury than they can metabolize or excrete. Fish contaminated with methylmercury may pose health threats to those that rely on fish as part of their diet. According to EPA, mercury harms fetuses and can cause neurological disorders in children, including poor performance on behavioral tests, such as those measuring attention, motor and language skills, and visual-spatial abilities (such as drawing). In addition, populations that consume larger amounts of fish than the general population—including subsistence fishers, as well as certain Native Americans and Southeast Asian Americans—may face higher risk of exposure to contaminated fish, according to EPA. The Food and Drug Administration (FDA) and EPA recommend that expectant mothers, young children, and those nursing children avoid eating swordfish, king mackerel, shark, and tilefish and limit consumption of other potentially contaminated fish, such as tuna. These agencies also recommend checking local advisories for recreationally caught freshwater and saltwater fish. According to EPA, 45 states issued mercury advisories in 2003 (the most recent data available). Because mercury released to the atmosphere can circulate for long periods of time and be transported thousands of miles before it gets deposited, it is difficult to link mercury accumulation in the food chain with sources of mercury emissions. EPA estimates that about half of the mercury deposited in the United States is emitted by sources within this country. In 1999, the most recent year for which data were available, EPA estimated that man-made sources within the United States emitted about 115 tons of mercury. Of these emissions, the agency estimates that about 48 tons, 42 percent of the total, came from coal-fired power plants. While power plants are not required to limit their mercury emissions, EPA estimates that the plants currently capture about 27 tons of mercury each year, primarily through the use of controls for other pollutants, such as those used to control nitrogen oxides, particles, and sulfur dioxide. EPA estimates that power plants would otherwise emit about 75 tons of mercury per year. The Clean Air Act (CAA) Amendments of 1990 required EPA to study the environmental and health effects of hazardous air pollutants from coal-fired power plants and determine whether it was “appropriate and necessary” to regulate these pollutants. In 2000, EPA determined that mercury was a hazardous air pollutant and that it was appropriate and necessary to regulate mercury using the technology-based option. Under this section of the act, the emissions limit had to be at least as strict as the average emissions of the facilities with the best-controlled emissions. Because power plants did not already use controls specifically intended to control mercury, EPA analyzed the effectiveness of controls for other pollutants that capture mercury as a side benefit. This effort culminated in EPA’s January 2004 proposal for a technology-based option that would reduce mercury emissions from a current level of 48 tons per year to a projected 34 tons per year (a 29 percent reduction) by 2008. At the same time, however, EPA proposed an alternate policy option that would limit mercury emissions in two phases: to 15 tons in 2018 (a 69 percent reduction from current levels), preceded by an as-yet-unspecified interim cap starting in 2010. The alternate policy option, which would rely on a cap-and-trade system similar to that currently used to control emissions that cause acid rain, differs from the technology-based option in that it would not require each facility to meet emission standards based on control technology. Instead, EPA would set a nationwide “cap” for mercury emissions from coal-fired power plants and then distribute tradable emissions allowances that represent a certain amount of the total cap. At the end of each year, each power plant would have to hold sufficient allowances for the mercury it emitted that year. Plants that reduced their emissions below the levels represented by their allowances could sell their extra allowances to other plants. In addition to its proposed mercury rule, EPA has proposed another rule for power plants, the Clean Air Interstate Rule, which is intended to reduce emissions of nitrogen oxides and sulfur dioxide beginning in 2010. EPA expects that this proposed rule would result in the installation of pollution controls that capture mercury as a side benefit, and thereby decrease mercury emissions to 34 tons per year by 2010, the same level of reduction as the technology-based option. Under the cap-and-trade option, EPA has indicated that it may establish a mercury cap for 2010 equal to the control level expected through the interstate rule. EPA postponed its decision on finalizing the interstate rule until March 2005 while the agency awaits congressional action on pending legislation, known as the Clear Skies Act, that would establish emissions caps and an allowance system similar to those in the interstate rule and the cap-and-trade mercury control option. EPA has stated a preference for achieving reductions of mercury, nitrogen oxides, and sulfur dioxide simultaneously through legislation rather than regulations. Responsibility for analyzing the economic impacts—including costs to industry and expected public health effects—of air pollution control policies rests with EPA’s Office of Air and Radiation. EPA provided documentation of its economic analysis for the proposed mercury rule in three primary documents, some of which refer readers to additional documentation on the agency’s Web site or in the public rule-making docket. According to EPA, the agency did not have time to assemble its economic assessment of the proposed rule in a single document prior to issuing the proposed rule. To assist in estimating costs that air quality regulations will impose on the power industry, EPA uses the Integrated Planning Model (IPM), which estimates how power plants would respond to various environmental policies. The assumptions underlying this model, such as those regarding fuel costs, the costs of pollution controls, and future electricity demand, can affect the modeling results, according to EPA officials responsible for the modeling. We identified four major shortcomings in the economic analysis underlying EPA’s proposed mercury rule that limit its usefulness for informing decision makers and the public about the economic trade-offs of the two options. First, EPA did not consistently analyze each of its two mercury policy options or provide estimates of the total costs and benefits of the two options, making it difficult to ascertain which policy option would provide the greatest net benefits. Second, EPA did not document some of its analysis or provide consistent information on the anticipated economic effects of different mercury control levels under the two options. Third, the agency did not estimate the economic benefits directly related to decreased mercury emissions. Finally, the agency did not analyze some of the key uncertainties underlying its cost-and-benefit estimates. EPA’s estimates of the costs and benefits of its two proposed policy options are not comparable because the agency used inconsistent approaches in analyzing the two options. As shown in table 1, EPA analyzed the technology-based option alone, while it analyzed the cap-and-trade option in combination with the interstate rule. In analyzing the technology-based option by itself, EPA estimated the rule would cost about $2 billion annually, and achieve benefits of $15 billion or more annually, yielding net benefits (benefits minus costs) of $13 billion or more annually. In contrast, EPA analyzed the effects of the cap-and-trade option in combination with the proposed interstate rule by combining the costs and benefits of the two proposed rules without separately identifying and documenting those associated with the cap-and-trade option alone. This analysis found that the two proposed rules together would impose costs of $3 billion to $5 billion or more annually, while generating annual benefits of $58 billion to $73 billion or more and annual net benefits of $55 billion to $68 billion or more. Because the estimates for the two options are not comparable, however, it is not clear which option would provide the greatest net benefits. This is particularly important in light of EPA’s decision to delay finalization of the interstate rule. EPA officials responsible for the rule acknowledged the lack of comparability with its analysis of the two proposed options. These officials said the agency analyzed the cap-and-trade option alongside the interstate rule because it viewed these two proposed policies as complementary. They also said it would have been useful to analyze the technology-based option alongside the interstate rule, but the agency did not do so because of time constraints. Nonetheless, it is important for EPA to consistently analyze each policy option and provide decision makers with comparable estimates of net economic benefits. The comparability of EPA’s analysis is further limited because the agency did not provide consistent information on the total costs and benefits of the two options over their entire implementation periods. Specifically, EPA provided cost-and-benefit estimates for 2010, rather than estimates of the total costs and benefits over the entire implementation period. This is important because the economic impact of the policy options could vary from year to year and because the two options have different implementation timelines. For example, under the proposed cap-and-trade option, a second level of mercury reductions would take effect in 2018, which would likely generate additional costs and benefits at that time. Thus, the estimates EPA provided for 2010 did not fully account for the expected costs and benefits over the implementation period for this option. In contrast, EPA officials said that its estimate of the technology-based option in 2010 reflects the full implementation cost because its analysis assumes that power plants would achieve compliance with the technology-based option by that date. However, without estimates of the total value of benefits and costs of each option over the entire implementation period, it is difficult to ascertain which option would generate the greatest net benefits.