The Economics of EPA Regs

Location: New York
Author: Ken Silverstein
Date: Monday, April 9, 2012

With the presidential election paring down to two candidates, the subject of environmental regulations and economic implications is building up. A new report by a non-partisan think tank is now forewarning the electorate to disregard the political rhetoric and to ask more critical questions.
New York University School of Law’s Institute for Policy Integrity says that when candidates discuss the affect that regulations will have on jobs, voters need to wear their thinking caps. The variables used to arrive at such calculations are hardly ever discussed whereas the “bottom lines” are routinely promoted.
“Perhaps most importantly, analysts and policymakers must recognize that even the most sophisticated job impact analyses (will) have only limited predictive power in our complex and dynamic economy,” says the institute’s report. “The degree of uncertainty ... should be acknowledged.”
The calculations, obviously, can be skewed to favor the advocacy group that is creating or funding an analysis. Case in point: The American Coalition of Clean Coal Electricity has issued a study showing that 1.4 million jobs would be lost if the U.S. Environmental Protection Agency gets all of its desired regulations on coal. On the other hand, the Political Economy Research Institute is predicting that the same set of rules would result in 1.4 million job gains.
What gives? The two groups are using different models and assumptions, says the institute. One underlying factor in any case is whether an economy is in good or bad condition, which helps determine whether anyone who is laid off can quickly find new work. In the case of coal plants that might be closing, one could argue that these workers could seek employment in new gas plants that would replace them. Then, of course, one has to consider the length of the transition period.
The follow up is whether new rules should be delayed during economic lulls. This would depend on the specific circumstances, says the institute. While delaying such regs may avoid costs associated with continued production, it may also minimize the benefits that would be tied to compliance-driven employment, or associated with environmental quality.
Cost of Progress
When a federal agency issues a new regulation, it is because it has been authorized by Congress to do so. To that end, the institute points to some examples in which EPA has acted within its authority to write new rules -- rules that are often derided as “job-killing” measures.
Take the recent one on mercury: Critics are claiming that it will harm employment but the White House Office of Information and Regulatory Affairs is saying that it will result in benefits between $22.2 billion and $54.5 billion a year. By comparison, the office is adding that only $1.9 billion in costs are expected.
In any event, there’s no substitute for first-hand accounts: “At the end of the day, one can use plain ‘ole common sense,” says Tom Borelli, director of the Free Enterprise Project, a free market policy group in Washington. “EPA regulations will lead to higher energy prices, which means consumers will have less money to spend, which will have a negative economic impact.”
If the National Mining Association is correct and utilities will be closing dozens of coal plants that represent 13-15 percent of the current coal-generated power,  then that will result in lost jobs, he adds.  However, the Brattle Group says that those same utilities could spend as much as $181 billion to bring those older plants into compliance, which one could argue would create new wealth and new opportunities.
For their part, investor-owned utilities represented by the Edison Electric Institute are saying that they will comply with the new environmental rules. But, they are asking EPA to slow down its timetables to allow them to make a “rational transition.” In the case of AEP, it is shutting down 6,000 megawatts of coal that it says is running at 60 percent during peak periods.
When asked by this reporter if those requests are delay tactics that are actually intended to scuttle EPA’s efforts or to derail them just long enough until the political chessboard changes, Borelli says ‘no.’ “Even with these new EPA regs, utilities are asking for time to make the investment so that they can comply.”
Maintaining reliable and cost effective service are two critical factors that should be highlighted in any economic analysis. But so, too, are technological and ecological improvements. Progress comes at a cost that will, in turn, produce additional benefits. Whether or not overall jobs increase or decrease requires one to get down in the thicket, or else be duped by the various advocacy groups.

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