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ETR 127 The Impact of EPA Regulations

Jane Van Ryan

Jane Van Ryan
Posted March 1, 2011

In today's episode, I interview the American Council for Capital Formation's Senior Vice President and Chief Economist, Margo Thorning about the Environmental Protection Agency's (EPA) regulations aimed at reducing carbon dioxide and other greenhouse gas emissions.

Use the audio player below to listen to information about the article and follow along with the show notes. I hope you find the podcast informative.

00:12 Starting on January 1st this year, the U.S. Environmental Protection Agency began phasing in regulations that are aimed at reducing carbon dioxide and other greenhouse gas emissions from stationary sources. Those sources include hospitals, power plants, refineries and other facilities. But now serious questions are being raised about whether these regulations make sense for the economy and for the environment. Margo Thorning is the senior vice president and chief economist for the American Council for Capital Formation and she's here in the studio today to explain.

00:57 Before we begin, please tell our listeners about your organization.

01:00 Ms. Thorning: The American Council for Capital Formation is a bipartisan, nonprofit think tank based in Washington, D.C. Our mission is to promote sound, tax, regulatory and environmental policies and to promote capital formation and job growth.

01:18 You recently testified before Congress about a study you conducted on the greenhouse gas regulations that have been proposed. Now these regulations are controversial in part because they are being implemented under the Clean Air Act, is that correct?

01:36 Ms. Thorning: That's correct. The Clean Air Act is not an appropriate vehicle for regulating greenhouse gas emissions, and the policy that EPA has come up with to regulate greenhouse gas emissions, under their best available control technology scenario, will make it costly for companies to try to comply with the new regulations and will also add to the uncertainty facing the business community.

02:02 How many of these stationary sources do we think could be affected by the regulations?

02:07 Ms. Thorning: The tailoring rule sets the limitation on how much greenhouse gas a company has to emit before it's covered by these regulations, and the current tailoring rule says that if a company, or a source, is emitting more than 100,000 tons a year of GHGs then they're subject to regulation. If the tailoring rule holds up in court, and it has been challenged by the environmental community, according to EPA estimates, approximately 900 sources would have to apply for a Prevention of Significant Deterioration Permit and about 1,000 sources would have to apply for Title V (Five) Permits in the initial couple of years.

02:57 And what happens if the Tailoring Rule isn't upheld?

03:00 Ms. Thorning: If that rule is not upheld, approximately 6.1 million sources would be regulated under the Title V Permiting Provision and approximately 81,000 permits would be required under the Prevention of Significant Deterioration Rules. This of course would swamp the regulators. There are simply not enough regulators to process permits. It would grind the economy to a halt.

03:26 Some critics have said that companies that would have to obtain the air permits may not be able to expand or even continue operating without them. Is that right?

03:37 Ms Thorning: That's quite true. That's why it's so important to understand the impact on investment that these regulations will have. Even under the tailoring rule, if it holds up in court, we estimate that U.S. investment will be curtailed between 5 and 15 percent in the regulated entity community, and that could result in as much as 476,000 to as many as 1,400,000 fewer jobs, loss of GDP of between $46 billion and $140 billion and a significant loss of economic activity.

04:20 With the U.S. economy facing a large deficit and an estimated 15 million Americans out of work right now, is this the time to be imposing these regulations in your view?

04:30 Ms. Thorning: I think this is a poor time for the EPA to begin regulating greenhouse gas emissions. The economy is recovering very slowly. GDP growth was only 2.8% in the fourth quarter of 2010. We still have 15 million people unemployed. The Clean Air Act and the GHG provisions add to the uncertainty facing our business community. They already face uncertainty from other sources including the Financial Reform Bill, implementing the healthcare bill, tax policy and the huge federal deficits. This is one more source of uncertainty and our investment spending is down about 25 percent compared to what it was in the fourth quarter of 2007. So this is not helpful.

05:17 The goal of the EPA's regulations is to reduce the greenhouse gasses that have been linked to climate change. But based on your study, will these regulations actually help the environment?

05:30 Ms. Thorning: No, and that's one of the unfortunate things about this regulation moving forward. Lisa Jackson, the EPA administrator, testified recently that unless developing countries like China and India actually undertake strict reductions in the growth of their greenhouse gas emissions, that the EPA's actions here will make no difference because GHG emissions spread globally. It's a global phenomenon. And what one country does is simply inadequate to make a meaningful reduction.

06:01 Basically you're saying the economy could grind to a halt and yet there would be virtually no impact on GHG emissions worldwide?

06:10 Ms. Thorning: Our estimates show that the costs are very significant of EPA regulating GHGs, but there will be virtually no environmental benefits because it is a global phenomenon.

06:21 You've given all of us a lot to think about today, Margo. Thank you so much for sharing your research and for joining us today on EnergyTomorrow Radio.