(Adds background, comment from EPA and environmental group, paragraphs 5, 16-20))
By Lawrence Hurley and Valerie Volcovici
WASHINGTON, April 15 (Reuters) - In a victory for the Obama administration, a U.S. appeals court on Tuesday upheld a regulation that would limit emissions of mercury and other hazardous pollutants mainly from coal-fired power plants, starting next year.
The decision by the U.S. Court of Appeals for the District of Columbia Circuit could help spur utility companies to shut down some coal-fired plants due to the costs of complying with the U.S. Environmental Protection Agency (EPA) rule.
The EPA's Mercury and Air Toxics Standard (MATS) applies to 1,400 of the country's largest power plants and would come into force in 2015, or in some cases, 2016.
The EPA has said MATS could annually prevent up to 11,000 premature deaths, and generate $90 billion in health benefits.
"These practical and cost-effective standards will save thousands of lives each year, prevent heart and asthma attacks, while slashing emissions of the neurotoxin mercury, which can impair children's ability to learn," the EPA said.
The 2012 regulation, which also targets oil-fired plants, although these are less common, was challenged by industry groups and some states. They said it was too stringent, while some environmental groups said the rule did not go far enough.
The three-judge appeals panel was split, with Judge Brett Kavanaugh writing a dissenting opinion criticizing the EPA for not considering what he said was the estimated $9.6 billion a year cost of the regulation.
"To be sure, EPA could conclude that the benefits outweigh the costs. But the problem here is that EPA did not even consider the costs," Kavanaugh wrote. He agreed with the majority in other aspects of the ruling.
'APPROPRIATE AND NECESSARY'
The court majority rejected the challengers' argument that the rule was not "appropriate and necessary." This is a phrase in the federal Clean Air Act that empowers the EPA to regulate the pollutants in question.
It was appropriate for cost considerations to be excluded from the EPA's analysis, the court majority concluded. The law, the court said in an unsigned opinion, "neither requires EPA to consider costs nor prohibits EPA from doing so."
Sean Donahue, a lawyer for environmental groups that supported the regulation, said the court ruling, along with other regulatory developments, and the rise of natural gas as a competitor to coal, "is going to cause some utilities to face a decision about upgrading or shutting down" coal plants.
The ruling marked "a complete win for EPA," he said.
U.S. companies have shut or converted over 22,000 megawatts (MW) of coal-fired power plants since 2009 and have plans to shut or convert more than 42,000 MW in the next 10 years or so.
Relatively cheap natural gas prices from record shale production have made it unprofitable for many generators to upgrade older and smaller coal plants to meet increasingly strict federal and state environmental rules.
Eventually, the switch away from coal could shut up to 100,000 MW of coal generation across the country, according to some industry estimates.
Countering claims made by industry groups that complying with MATS is too costly and disruptive, the Environmental Defense Fund found that 70 percent of coal-fired capacity already meets the standards as of the end of 2012.
Citing publicly available data from the U.S. Energy Information Administration, the green group also said that an additional 14 percent of capacity has planned retrofits or retirements to meet the standards. It pointed to major coal-reliant utility AEP, which last year lowered its estimated costs of following environmental standards by half, from $8 billion down to $4 to $5 billion.
The appeals court has heard a series of challenges in recent years to Obama administration air pollution rules.
It upheld the administration's first wave of greenhouse gas regulations but struck down a rule that regulates air pollution that crosses state lines. Both cases are now before the U.S. Supreme Court, with final decisions expected by the end of June.
Kavanaugh, who was appointed by former President George W. Bush, had questioned the EPA's approach in both cases. His dissenting opinion on Tuesday could give industry groups hope that the Supreme Court will also review the latest ruling.
The case is White Stallion Energy Center v. EPA, U.S. Court of Appeals for the District of Columbia Circuit, 12-1100. (Reporting by Lawrence Hurley Additional reporting by Valerie Volcovici; Editing by Kevin Drawbaugh and Tom Brown)