EPA’s Proposed Horror Reg

By at 2 June, 2014, 3:24 pm

Center for Regulatory Studies

by Raymond J. Keating-

Today, the Environmental Protection Agency (EPA) unveiled its plan to reduce carbon emissions from existing power plants. The proposal is downright frightening.

[See SBE Council and Center for Regulatory Solutions president & CEO Karen Kerrigan’s statement here on the proposed rules: Electricity Mandate Bad for Small Business.]

The EPA's newly proposed regulation  for existing power plants will impact electricity prices, thereby disrupting the finances and budgets of American families and small businesses.

The EPA’s newly proposed regulation for existing power plants will impact electricity prices, and negatively impact the budgets of American families and small businesses.

The Obama EPA already has proposed regulations imposing strict carbon dioxide emission limits on any new power plants in the U.S. Specifically, the limits make it exceedingly difficult to build a new coal-fired plant. When the proposal was released last year, Hal Quinn, president and CEO of the National Mining Association, pointed out, “The rule effectively bans construction of the most efficient power plants the nation will need to provide affordable electricity for a growing economy and will certainly create further economic hardships for millions of families, especially those most vulnerable to higher energy costs.” As reported by USA Today, while the limits would force new plants to limit CO2 emissions to 1,100 pounds per megawatt-hour of power produced, existing coal plants run in the range of 1,600 to 2,100 pounds. For good measure, there is the problem that the technology required to meet the standards, as widely reported, has never been used on a commercial level.

Before the official announcement on the newest EPA regulation, the administration and its supporters have been peddling the notion that states have so-called “flexibility.” In a Bloomberg report, it was noted: “The administration is focusing on an approach that would let states set up their own systems to achieve mandated cuts, including linking into existing cap-and-trade networks, or expanding the use of renewable energy, according to people familiar with the plan.” A Wall Street Journal reportchimed in: “The Obama administration will next week unveil a cornerstone of its climate-change initiative with a proposed rule aimed at allowing states to use cap-and-trade systems, renewable energy and other measures to meet aggressive goals for reducing carbon emissions by existing power plants.”

Environmental groups, the Obama administration and others advocating these measures will speak of a fantasyland in which flexible government mandates and regulations actually reduce costs, create jobs and aid the economy. But the realities of increased government regulation are clear and not in any serious dispute, that is, more regulation generates higher costs, slower economic growth, and lost jobs.

The phrase “aggressive goals for reducing carbon emissions” noted above translates into the following reality about this entire effort: “Massive costs are being imposed, due to mandated reductions in carbon emissions, no matter what regulatory scheme might be chosen.”

Just how costly will these mandates be?

The U.S. Chamber of Commerce’s Institute for 21st Century Energy released a study titled “Assessing the Impact of Potential New Carbon Regulations in the United States.”

The study, done by IHS Energy and IHS Economics, “focuses on the economic impacts of … forthcoming EPA rules covering CO2 emissions from fossil fuel-fired electricity generating plants.” It was noted: “The analysis in this report is based on a detailed existing power plant regulatory proposal by the Natural Resources Defense Council (NRDC), and the Obama Administration’s announced greenhouse gas reduction goals. The NRDC proposal was utilized for this effort due to the widespread view that it incorporates many of the features that are likely to be adopted by the EPA in its regulatory regime applicable to existing power plants.”

What were the key findings?

• “Not unexpectedly, baseload coal plant retirements would jump sharply in the Policy Case [with federal standards covering both new and existing fossil fuel-fired power plants], with an additional 114 gigawatts—about 40% of existing capacity—being shut down by 2030 compared with the Reference Case [with no additional federal regulations targeting U.S. power plant CO2 emissions]… These changes mean coal’s share of total electricity generation decreases from 40% in 2013 to 14% in 2030…”

• “When the costs for new incremental generating capacity, necessary infrastructure (transmission lines and natural gas and CO2 pipelines), decommissioning, stranded asset costs, and offsetting savings from lower fuel use and operation and maintenance are accounted for, total cumulative compliance costs will reach nearly $480 billion (in constant 2012 dollars) by 2030… To date, the Mercury and Air Toxics Standard (MATS) is the most expensive power sector rule ever issued by the EPA, at a projected total cost of $9.6 billion per year. Over the 17-year study timeframe utilized for the Policy Case, the average compliance cost of the EPA’s CO2 regulations is nearly triple that amount, at $28.1 billion annually during that period.”

• “Overall, the Policy Case will cause U.S. consumers to pay nearly $290 billion more for electricity between 2014 and 2030, or an average of $17 billion more per year.”

• “In the Policy Case, GDP is expected to average about $51 billion lower than in the Reference Case to 2030, with a peak decline of nearly $104 billion in 2025. These substantial GDP losses will be accompanied by losses in employment. On average, from 2014 to 2030, the U.S. economy will have 224,000 fewer jobs, with a peak decline in employment of 442,000 jobs in 2022. These job losses represent lost opportunities and income for hundreds of thousands of people that can never be recovered. Slower economic growth, job losses, and higher energy costs mean that annual real disposable household income will decline on an average of more than $200, with a peak loss of $367 in 2025. In fact, the typical household could lose a total of $3,400 in real disposable income during the modeled 2014-30 timeframe.”

Average losses of $51 billion a year in real GDP, $200 in annual real disposable household income, and 224,000 jobs per year are simply breathtaking and devastating.

Of course, small businesses will be hit hard, as is the case whenever government imposes regulations that raise costs, and diminish economic growth and income.

However, it also must be noted that small businesses play a major part in the coal industry, as well as in the electricity business.

For example, consider that 60 percent of the employer firms in the coal mining industry had fewer than 20 workers in 2011 (the latest U.S. Census Bureau data), and 94 percent had less than 500 employees.

Also, in the electric power generation, transmission and distribution industry, 40 percent of employer firms had fewer than 20 workers, and 93 percent less than 500 employees.

The EPA’s plan to reduce carbon emissions from existing power plants promises to be a horror show for the economy, for household incomes, for jobs, and for small businesses.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s new book published by SBE Council is titled Unleashing Small Business Through IP: Protecting Intellectual Property, Driving Entrepreneurship and available from here.

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