EPA’s Backdoor Approach to Cap-and-Trade
by William O'Keefe
April 2, 2012
Last week, EPA announced its landmark plan to limit greenhouse emissions from newly constructed power plants. The proposed emission rules are the first move by the world’s largest economy to broadly regulate these emissions.
It exemplifies Groucho Marx’s observation that “politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies.” It is based on a faulty premise, will have an immeasurable impact on global CO2 levels, will not improve human health, and will increase electricity prices.
Even though global temperatures have not risen in over a decade and advances in climate science have further undermined the foundation of climate orthodoxy, the Obama Administration continues to wage its war against fossil energy.
In an ongoing effort to regulate greenhouse gases under the Clean Air Act, EPA has stated that that future power plants built in the U.S. cannot emit more than 1,000 pounds of CO2 per megawatt-hour. But here’s the catch: by most accounts, the proposal will do little to curb greenhouse gas emissions. The effect will be immeasurable. That’s because developing nations are now the major source of CO2 emissions
As a result of the shale gas revolution, natural gas-fired plants are likely to be the direction of new projects at home and they also happen to already meet the standard. Existing coal plants, by contrast, and those started before the effective date do not meet the standard, but are exempt from the regulations and so can carry on emitting. But coal fired power is still the cheapest source of electricity, so the rule will raise consumer prices by pricing that fuel out of the market by regulation.
Until the price of gas dropped dramatically, coal fired power was cheaper. If the price of gas increases to the $6-7 mcf range, gas fired power could once again be more expensive, and consumers would be hit with higher prices. Market distortions through regulation are dangerous and unintended consequences can be greater than intended ones.
More troubling, however, is that while the rule is symbolic in many respects, it further empowers EPA to regulate otherwise unregulated greenhouse gas emissions and enforce more onerous regulations on the energy sector down the road. One could easily make the case that this is a backdoor attempt by the Administration to circumvent Congress and implement the key components of a nation-wide cap-and-trade regime.
It’s also an example by the Administration of how it uses market-distorting incentives to push for the adoption of uneconomic and unproven technologies. In this case, the EPA would require that new coal plants use carbon capture technology to reduce carbon emissions, despite the fact that it currently doesn’t exist in market form. Just last year, the nation’s largest CCS project run by American Electric Power in West Virginia, shelved plans to implement a full-scale carbon-capture plant at its 31-year-old coal-fired plant, citing the expense. The push for widespread adoption of CCS technology is similar to the wishful thinking by President Obama to put 1 million electric cars on the road by 2015. And we’ve seen the poor results of that effort.
EPA also claims the regulation will have significant health benefits. That’s a phony argument and should not go unchallenged because to do so would further weaken the standards for judging health benefits. Air quality has steadily improved and will continue to do so. EPA seems to be pursuing a level of air quality that may never have existed.
While the emissions rules are a win for the EPA, they are a loss for American taxpayers. The regulations come with an $11 billion per year price tag and ironically won’t stop coal plants from continuing to emit CO2. But they will undoubtedly reinforce the position, granted erroneously by the Supreme Court, that the EPA can regulate CO2 emissions. They’ll also help the Administration continue to promote the wide scale adoption of costly and uneconomic “green” technologies. Therefore its time that our elected lawmakers tell the Administration to stop using regulations to implement policies rejected by Congress.