PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Department of Energy: Comments on Regulatory Reform and Relief

By at 14 July, 2017, 8:46 pm

Comments on Reducing Regulation and Controlling Regulatory Costs

Re: Regulatory Burden Reduction RFI

Submitted to the U.S Department of Energy

 

Raymond J. Keating

Chief Economist

Small Business & Entrepreneurship Council

 

On behalf of the Small Business & Entrepreneurship Council (SBE Council), I am writing on the matter of reducing unnecessary regulation and controlling regulatory costs, and why that matters to small businesses as energy consumers, energy producers and manufacturers.

SBE Council is a nonpartisan, nonprofit advocacy, research and education organization that works to protect small business and promote entrepreneurship. For nearly 25 years, SBE Council has worked to successfully implement a range of policy and private sector initiatives to strengthen the ecosystem for startups and small business growth. With more than 100,000 members nationwide, SBE Council focuses on advancing policies that are critical to a healthy ecosystem for startups and small businesses.

Small Business and Energy

Given the centrality of energy production and distribution to our economy, reducing unnecessary regulatory costs in the energy arena stands out as a vital undertaking. As energy consumers, small businesses naturally stand to reap rewards from regulatory relief and the resulting reduction in prices, improved reliability, and enhanced incentives for investment and innovation. At the same time, across key energy sectors, it overwhelmingly would be small businesses that experience the firsthand benefits of regulatory relief. After all, small businesses hold dominant shares in terms of the number of employer firms in the energy industry, as illustrated in Table 1.

Table 1: Percent of Small Businesses (Employer Firms) in Key Energy Sectors, 2014
Energy Sectors Percent with Less Than 20 Employees Percent with Less Than 100 Employees
Oil & gas extraction 90.2 96.7
Drilling oil & gas wells 77.5 92.2
Support activities for oil and gas operations 80.7 95.2
Oil and gas pipeline and related structures construction 59.2 84.0
Oil and gas field machinery and equipment manufacturing 52.9 80.5
Coal mining 61.5 83.8
Support activities for coal mining 67.3 86.3

Data Source: U.S. Census Bureau, 2014 latest data

The Costs of Regulation

While the costs of regulations are largely hidden from the average person, that does not mean they do not exist. Indeed, ask just about any small business owner. In October 2016, the Center for Regulatory Solutions (CRS), a project of the Small Business & Entrepreneurship Council (SBE Council), released a report titled “Regulation: Costs, Incentives, and the Need for Reform”. The report examined the causes and costs of government over-regulation. As summed up in the report, “Assorted studies make clear the significant costs imposed by the U.S. regulatory system in terms of lost GDP, costs imposed on small businesses, declining entrepreneurship, reduced job creation, and reduced or restrained investment and productivity. Studies over the past 25 years have consistently found that the cost of regulatory compliance disproportionately affects small firms. Indeed, overly burdensome and complex regulations, along with high costs and uncertainties impact business decisions.” In the end, no one escapes the consequences of misguided, out-of-date and costly regulations.

Department of Energy Examples: LNG Export Permit Approvals and “Energy Efficiency” Regulations

In terms of Department of Energy regulatory matters, consider LNG export permit approvals to nations without which the U.S. has free trade agreements. Over time, the process has been, to say the least, uneven.

For example, in a March 2016, it was noted by the American Council for Capital Formation, “Currently countless LNG export terminal applications are languishing at FERC and the Department of Energy (DOE) waiting for approval before being allowed to move forward with export projects. This lengthy process is costing businesses, and the U.S., millions of dollars as these applications continue to be tied up by bureaucratic red tape… But this delay is also costing the U.S. both money and energy security. As of this week, Chevron’s Gorgon Project in Australia just shipped its first export of natural gas to Asia – a prime market for U.S. natural gas. Canada and Finland also received approval for new LNG terminal projects that will provide LNG to Asia and Europe, respectively. The U.S. needs to act quickly in order to secure its spot in the LNG market before other foreign projects come online.”

Thankfully, some of the logjam has been broken, in particular with a change in the approval process in 2014. Also, it was encouraging that President Trump took note of the Department of Energy approving “two long-term applications to export additional natural gas from the Lake Charles LNG terminal in Louisiana” at the June 29 Unleashing American Energy event.

Still, work remains. According to API, “As of May 2017, the U.S. Department of Energy (DOE) had approved 25 applications from 16 facilities in the lower-48 states for permits to export liquefied natural gas (LNG) to non-free trade agreement nations. There are currently 24 pending applications where U.S. businesses are seeking approval to build and operate terminals to process LNG for sales abroad.” Seventeen applications had been approved, as of May 2017.

Writing for Cleveland.com in January of this year, Robert W. Chase, an emeritus professor in the Department of Petroleum Engineering and Geology at Marietta College, observed, “The United States is now a net exporter of natural gas as the global market for LNG continues to grow. Markets for LNG span from South America to the Middle East, Europe, and Asia.

Given the enormous global demand for LNG, it makes no sense to continue using a licensing system that stifles the growth of an industry that could have a huge impact on the oil and gas industry and the U.S. economy… The U.S. energy industry is the greatest in the world. America is well-positioned to become a leader in the global LNG export business if the incoming Trump administration and Congress move quickly to cut through the red tape and expedite the permitting process for constructing LNG facilities.”

And in a letter to Secretary of Energy Rick Perry in March 2017 calling for “expedited approval of all liquefied natural gas (LNG) export authorization applications,” Jack Gerard, API president, explained, “The first shipments of U.S. LNG from the lower 48 states began last year and are having a positive effect on global LNG markets by increasing market flexibility and providing a cleaner-burning reliable fuel option for our allies and trading partners. However, the United States has an even greater opportunity to bolster its emerging role as a leader in the world energy marketplace. There are more than two dozen non-FTA LNG export authorization applications before DOE, with approximately half awaiting consideration since 2014. Expediting the approval of these export authorization applications will help establish regulatory certainty, bolster American job creation and U.S. investment, and allow U.S. companies to compete in the global natural gas marketplace.”

That certainly makes sense.

For good measure, there is movement in Congress to improve the process. On June 26, 2017, for example, U.S. Sen. Ted Cruz (R-Texas) announced the Natural Gas Export Expansion Act, which would “eliminate the current arduous process that discourages liquefied natural gas (LNG) trade and increase LNG exports by facilitating permits to non-Free Trade Agreement (FTA) countries.” The key point of this legislation is that applications to certain nations with which the U.S. does not have a free trade agreement would be treated the same as free trade countries, and “deemed to be consistent with the public interest.”

Also in June 2017, U.S. Senator Bill Cassidy (R-LA) introduced the License Natural Gas (LNG) Now Act, which would remove “decades old restrictions on the exportation and importation of natural gas that have stalled development of previous projects.”

But until Congress acts, it is critical that the Department of Energy maintain a transparent, accelerated approval process whereby it recognize the realities of the marketplace, and the enormous benefits of U.S. exports that most definitely serve the public interest.

On another Department of Energy matter important to small business, the department would be wise to step back from tightening “energy efficiency” standards that raise costs for consumers, and small businesses as both consumers and producers, such as manufacturers. In a March 2017 Heritage Foundation report (DOE Reset: Focus the Department of Energy on Core Missions and Decrease Distractions by Katie Tubb, Nicolas D. Loris, Jack Spencer), it is explained:

“According to the amended Energy conservation and Production act of 1975, the DOE is required to evaluate energy and water efficiency standards for consumer products every six years. The DOE now regulates over 60 categories of products, including refrigerators, air conditioners, furnaces, televisions, showerheads, ovens, toilets, and lightbulbs…

“Although efficiency regulations claim to save consumers money over time, they actually increase the up-front costs for appliances. In reality, energy-efficiency costs and benefits vary widely depending on income, education, and race. The regulations also over little to no environmental benefits for the costs consumers incur.

“The problems of mandating energy conservation extend beyond dubious cost-benefit analyses. Efficiency regulations take away consumer choice by prioritizing the DOE’s definition of energy efficiency over other preferences of customers and businesses, such as safety, size, convenience, or durability. They also ignore and undermine the natural incentive of customers and businesses to move toward efficiency. Thanks to advances in technology, Americans have become almost 60 percent more energy efficient over the past half century.”

Meanwhile, in June 2016, Congress heard from Stephen Yurek, the president and CEO of the Air-Conditioning, Heating, and Refrigeration Institute (AHRI), which represents companies that “manufacture quality, safe, efficient, and innovative residential, commercial, and industrial air conditioning, space heating, water heating, and commercial refrigeration equipment and components for sale in North America and around the world.” Yurek summed up the ills of these “energy efficiency” standards this way: “The Energy Policy and Conservation Act, or EPCA — is almost 40 years old and has not been updated to reflect new technologies and economic realities. An endless cycle of efficiency rulemakings continues to have an adverse impact on our global competitiveness and the American jobs we create. Consumers are being asked to pay more than they can afford for heating, cooling, and water heating equipment, which can lead to use of alternatives, some of which compromise consumer comfort and safety, while saving less energy or in some cases using more energy.”

Indeed, the full impact of government “energy efficiency” standards must be recognized.

In the end, it is crucial for U.S. growth, competitiveness, investment, small business growth, job creation and income growth that any and all unnecessary regulatory impediments to U.S. manufacturing, and energy production, distribution and exports be removed.

 

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