Free Markets, Free People

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Why EPA’s attempt at regulatory overreach would end up killing the recovery

I think we all know that the recovery, such that it is, is very fragile.  And, of course, the job picture remains very poor.  Any GDP growth numbers we’ve seen over the past few months have been fueled mostly by government deficit spending.

So a government that was concerned about jobs and economic growth in the private sector should be concerned with getting out of the way and ensuring that growth is allowed to go forward unimpeded.  Instead, we see any number of roadblocks, such as the drilling moratorium, banking regulations and the like being imposed that are having the opposite effect.

Another example of that is the EPA’s attempted usurpation of powers only Congress should wield.  It is a classic example of a bureaucracy now attempting to make the law instead of follow it.

The EPA has chosen to interpret the 1970 Clean Air Act as a mandate for it to regulate Green House Gasses (GHG), not only in automobiles, but in stationary sources as well.  In fact, as the EPA has testified, it would effect up to 6.1 million stationary sources.    The Clean Air Act gave the EPA the ability to regulate air pollutants that effect health, such as soot, but not the ability to regulate GHG which are not considered to be pollutants as defined by the Clean Air Act. 

The obvious solution here, if that is a concern of the administration, is to have Congress address the Clean Air Act with an eye on updating it to deal with the perceived pollution problems today.  But there’s a very good chance that such changes wouldn’t be made given the present makeup of Congress.  In fact, even when Democrats had an overwhelming majority these past two years, they were unable to pass a Cap and Trade bill. 

Given that reality, it seems the Obama administration has chosen to bypass Congress and allow the EPA to arbitrarily assume the power to regulate GHG.

The impact of such regulation would be economically devastating.  And, in an era of uncertainty, it would only add to the uncertainty.  James Pethokoukis noted that, “the only thing certain about the EPA [greenhouse gas] ruling is more regulatory uncertainty leading to less economic growth and fewer jobs.”

For instance:

Consider Nucor Steel.  The company planned a $2 billion investment that would have created 2,000 construction and 500 permanent jobs.  But the project was curtailed-by more than 50%-largely because of the EPA’s regulations.  Lion Oil, a refinery based in El Dorado, Ark., faced a similar fate:  The EPA’s cap-and-trade agenda was, according to the company, a "critical factor" that delayed a "several hundred million" dollar refinery expansion, slated to create 2,000 jobs.

Add that to this sort of economic impact on one industry:

The American Forest and Paper Association estimates that, “about two dozen new regulations being considered by the Administration under the Clean Air Act, if all are promulgated, potentially could impose on the order of $17 billion in new capital costs on papermakers and wood products  manufacturers in the next five to eight years alone.”

EPA’s proposed regulation would hit everyone, especially small businesses:

The burden of EPA’s regulations will fall disproportionately on small businesses, according to a new study released by the Office of Advocacy in Obama’s Small Business Administration. The study, titled “The Impact of Regulatory Costs on Small Firms,” small businesses, defined as firms  employing fewer than 20 employees, “bear the largest burden of federal regulations.” Specifically, the report found that “as of 2008, small businesses face an annual regulatory cost of $10,585 per employee, which is 36 percent higher than the regulatory cost facing large firms (defined as firms with 500 or more employees).”

Some of the regulations EPA is attempting to enforce deal with boilers.  “National Emission Standards for Hazardous Air Pollutants for Major Sources: Industrial, Commercial, and Institutional Boilers and Process Heaters.” This proposal is referred to as the “Boiler MACT.”  Boilers are ubiquitous in the commercial market:

The Boiler MACT (maximum achievable control technology) proposal would impose stringent emission limits and monitoring requirements for eleven subcategories of boilers and process heaters. This proposed rule covers industrial boilers used in, among other industries, manufacturing, processing, mining, refining, as well as commercial boilers used in malls, laundries, apartments, restaurants, and hotels/motels.

So obviously imposing new stringent emission limits on boilers is going to effect a broad and deep swath of the economy, correct?  How deep and how broad? 

A recent study by Global Insight estimates that, depending on the policy EPA chooses, the Boiler MACT could put up to 798,250 jobs at risk. The study found that every $1 billion spent on upgrade and compliance costs will put 16,000 jobs at risk and reduce US GDP by as much as $1.2 billion.

Facing that, would you save  your money to upgrade or expand?  Expansion, of course, means more jobs.  Upgrading, however, means less.  And that’s where the EPA would take us.

Then there’s ozone.  The EPA wants to tighten the already stringent standard on ozone.  What the EPA has proposed is to change the standard from 75 ppb to a range of 60-70 ppb.  Here’s a clue as to how preposterous that is – Yellowstone National Park has 67 ppb of ozone as we speak.  So yes, Yellowstone would go from an “attainment” area to a non-attainment area.  That means it gets shut down until it comes into compliance.

That would also be the same for any area.  What does that mean?

Based on 2008 air quality data, a standard of 65 ppb would create 608 new non-attainment areas, while a standard of 70 ppb would create 515 such areas. These areas would be highly concentrated in manufacturing regions and states relying on coal for electricity.

Those counties and cities deemed to be in a non-attainment area would then have to put together a plan as to how to reach attainment (buy offsets from neighboring areas which are in “attainment”) and submit that to EPA.

But here’s the problem.  The new standard would most likely remove from the attainment list many who are now there and move them to the non-attainment list.  Result?  No offsets available to buy:

Consider the case of Ohio. Many areas of the state are still trying to meet the 1997 standard. A further revision now would greatly complicate state efforts to achieve attainment. Bob Hodanbosi, Ohio EPA’s Air Pollution Division Chief, estimates that if the ozone standard is set at 70 ppb, 47 of 49 monitors in Ohio would exceed it; if it were set at 65 ppb, all 49 monitors would exceed it.

In case you’re wondering it takes about 100 ppb of ozone to begin to effect your health.  So there’s really no need to move it from 75ppb.  And, as you can see in the case of Ohio, moving it down 5 points would put most of the state in “non-attainment” and moving it down 10 points would put the entire state in “non-attainment” and require exceedingly costly fixes.

Result?

The costs to Ohio workers and consumers could be severe. For example, in the Cincinnati-Dayton region, assuming an ozone standard of 70 ppb, production would decline by $14.8 billion, killing 91,700 jobs in 2030.  If EPA chooses 65 ppb, the costs in 2030 would nearly double, and 165,000 workers would lose their jobs.

And that’s in one state.

This is the threat posed by the EPA’s attempt at regulating something they have no authority to regulate.  It is being imposed by regulatory fiat.  

There’s a bill in the Senate right now that will prevent the EPA from usurping those powers and imposing those regulations.  It’s the Inhofe-Upton Energy Tax Prevention Act (S. 482).  It is also known as the McConnell amendment.  It is worth supporting.

Not worth supporting are the Rockefeller amendment which only delays the inevitable (and essentially cedes the premise that the EPA can do this) by two years.   No-go.

Neither is the Baucus amendment.  Here’s how Sen. Jim Inhofe (R-OK) describes the smoke and mirrors in that amendment:

The amendment is modeled on the EPA’s "tailoring rule," which temporarily exempts smaller sources-schools, hospitals, farms, restaurants-from the EPA’s cap-and-trade regulations.  That sounds good, but the rule blatantly violates the law, as the EPA changed the emissions thresholds established by Congress.

Hence the Baucus amendment:  It would codify the EPA’s permitting exemptions for stationary sources that emit fewer than 75,000 tons a year of greenhouse gases.  This exemption, which is actually more stringent than the EPA’s, purportedly is designed to help farmers and small businesses.  But as with the Rockefeller bill, it allows the rest of the EPA’s cap-and-trade agenda to move forward.  So businesses and farmers would still face higher costs for diesel and fertilizer, while small businesses would face higher electricity costs. 

The American Farm Bureau is wise to the false charm of the Baucus amendment.  It testified recently that, even with limited permitting exemptions, "Farmers and ranchers would still incur the higher costs of compliance passed down from utilities, refiners, and fertilizer manufacturers that are directly regulated as of January 2, 2011." 

Or said another way, the Baucus amendment also validates the premise that the EPA has the power to regulate GHG and just sneaks it up on us over a longer time period. Both are unacceptable. These amendments are supposed to come up for votes very soon. If you are an activist type and want to weigh in on this with your Senator, I’d recommended you push for passage of the Inhofe-Upton Energy Tax Prevention Act (aka McConnell amendment).

Require those types of decisions be made by elected officials who are accountable to their constituencies, not appointed officials accountable to no one.

~McQ