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The State-by-State Economic Impact of Proposed EPA Regulations

As a nation, we’ve made great strides in combining growing the economy and cleaning up air pollution. But as the Environmental Protection Agency (EPA) is setting up to roll out nine new new rules or regulations, most of which are related to coal-powered electricity, it’s worth asking, “Is the gain worth the pain?”

The report, Economy Derailed: State-by-State Impacts of the EPA Regulatory Trainwreck, comes in four sections: what new regulations are under review; how those regulations would affect the economy, on a state by state basis; who is opposing the regulations; and what officials in the states can do to respond.

Economy Derailed is from the American Legislative Exchange Council (ALEC), the demon of the day. But take note: Much of the data in the report comes from various units of the federal government, including the EPA itself.

With that aside, let’s get to a quick overview.

SECTION ONE, “the causes of economic derailment,” explain nine broad categories of proposed regulations, which for the most part deal with coal-based electricity. You’ve probably heard of some (greenhouse gas emissions), but not others (“Utility MACT Rule”). This section describes each regulation as well as recent developments. Most importantly, it outlines some of the potential costs of each new regulation.

Here are some of the potential costs:

Job loss. As a result of new rules on the use of coal, 27,000 jobs in coal mining could disappear. But the effects go far wider than that. The “Boiler MACT rule,” for example, could result in 800,000 jobs gone, nationwide. Rules based on the quantity of ozone (a natural substance) in the air could could threaten 7.3 million jobs by 2020.

Opportunity costs.  The Utility MACT rule could cost $11 billion a year (EPA estimate); a rule on coal combustion could cost anywhere from $1.5 billion a year (EPA) to $20 billion per year (other estimates). You could tell a similar story for other regulations. These sums represent spending that could be spent on paying employs, investing in equipment, and so forth.

Your electronics, lighting, heating, and air conditioning at risk. I’m stretching a bit here, but bear with me. What do the following have in common: your smart phone, computer, TV, refrigerator, air conditioner, and furnace? Most likely, they all depend on electricity. If you’re going to use them, you need to have access to reliable (always there, almost always on) electricity that you can afford.

Enacting just one of the proposed rules–the MACT rule–could result in a moratorium on new electricity plants. The rule is so divorced from the state of the art that even recently completed plants would not meet it.  Restricting the supply of something and what happens to its price? Up, up, and away. Imagine what happens next. Brownouts, anyone?

SECTION TWO gives you estimates of the effects of the proposed regulations, broken out by each state. Here’s a snapshop of the impact on Minnesota:

  • Jobs lost: Roughly 12,000
  • Increase in electric rates: 7.8 percent
  • Electric generating capacity: Enough to power 700,000 homes.

How hard a state is hit will be determined by several factors, including (a) how much of the state’s electricity comes from coal; (b) how many people work in coal mining in the state; and (c) how important larger energy users are to the state’s economy.

SECTION THREE of the report describes the “broad and diverse coalition opposing the EPA.” Depending on your view, this is a list of heroes or a rogue’s gallery. The opponents include the coal industry (of course), including its unionized workforce. But they also include governors, legislators, trade groups, and state regulatory officials.

SECTION FOUR offers up tools that state legislators can use to respond to EPA rules. These include:

  • Hold oversight hearings
  • Write to members of the state’s congressional delegation
  • Pass resolutions of opposition
  • Weigh in with comments on proposed rules

* * *

The report, regardless of how you evaluate it, is a good reminder that we shouldn’t make policy in a vacuum. The EPA is concerned with regulating, not creating jobs. It is concerned with minimizing risks to the natural environment, but it isn’t so concerned with minimizing risks to the economic environment, which bears a great deal upon the quality of the human environment.

Consider what you do when you buy an expensive product such as a house or a car–or even a relatively inexpensive item such as a smart phone or a computer. Take the purchase of a new car. You’ve settled on the make and model, but what happens if the car has three trim lines. The cheapest line has a manual transmission, uses basic materials, and has a cheap stereo. The most expensive line has leather seats, a deluxe stereo, and a larger, more powerful engine. Which one do you pick? Your income and wealth are not unlimited, so you need to balance your desire for a nicer car with your desire to spend money on everything else. Given what you know, does this or that option actually contribute anything to your well being? Only you can make that decision.

But in environmental policy, who makes the call? Can an environment be too clean? Not for the EPA. Quite reasonably, it operates as with a one-track mind, meaning it can seek reductions in particulates or other substances to the Nth degree. So the political class must step in; regulatory items sold as environmental protection measures are but one thing that a member of Congress or (to use the state equivalent) a legislator must consider when surveying the economy. And in this case, as with many others, we have the problem of … politics. There are roughly 300 million Americans, who have a nearly infinite range of preferences and ability to pay for this or that measure sold as the latest in environmental protection. The EPA, whose employees number in the thousands, make decisions for those 300 million. What’s the chance they will get them right?

Policy making might be improved by the increase in technical knowledge, which the EPA accumulates. But it’s also too important to be left to a few narrowly focused experts. Give ALEC credit for bringing the EPA rules to our attention, and giving us all more information to chew on. Read the report and then ask: Should we “buy” these policies? If so, which ones?

You can find the report, as well as related materials, at RegulatoryTrainwreck.com.

Clean Water and Property Rights Case—Sacket vz. EPA Heard By SCOTUS Today!

Sackett v. EPA

Jonathan H. Adler • January 9, 2012 8:10 am

Today the Supreme Court hears oral argument in Sackett v. EPA, a challenge to the federal government’s claim that landowners (and other regulated entities) may not obtain pre-enforcement review of an administrative compliance order under the Clean Water Act.  I previewed the case before.  Here is how the WSJ reports on the casethis morning: (read more here) 

Good News for 2012: Ethanol Tax Credits, Tariffs, End

The federal 46-cents-a-gallon tax credit for corn-based ethanol, and a tariff on imported ethanol, has expired. Mark that as one good start to 2012. A bad policy that is over 3o-years old has (partly) come to an end.

The credit and tariff have cost motorists billions of dollars, contributed to the cluttering of the tax code, served as another example of top-down policy arrogance, harmed the environment, caused food prices to increase, contributed to hunger in the third world.

So the end of the credit and tariff is good news.

Why did the subsidy end? The Economist says the tea party can take credit. So can some players in the the environmental lobby, such as Friends of the Earth, which have (rightly) argued that ethanol drives up the price of food.

Unfortunately, public policy is still tilted towards ethanol: There’s still a separate tax credit for “cellulosic” ethanol made from switchgrass and other products, which stands at $1.01 a gallon.

In addition,  the demand-side requirement of the federal government has increased. As the Argus Leader points out, “The federal government has set its target for biofuels production in 2012, increasing by 1.25 billion gallons the amount of ethanol and biofuels that must be blended into the fuel supply.” This has contributed to some assaults on the English language, such as when advocates warn of the importance of using government mandates to promote an orderly “market.” (“It’s important to let the market develop at a reasonable pace.”) Oh, I get the fact that markets and mandates coexist all the time. But the greater the  mandate, the activity in question (say, making ethanol) becomes less of a market-based one and more of a politically driven one. One pro-mandate group  has an effort to develop cellulosic ethanol, called “Project Liberty.” That’s an ironic name, given that it is being driven, in part, by federal laws requiring fuel sellers to sell ethanol.

The ethanol industry says that rising gasoline prices have helped make its product competitive with regular gasoline. Score one for standard economic theory, which said long ago that ethanol could become more attractive, without government-imposed distortions, if the price of petroleum rose high enough.

 

 

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