Is the EPA Out of Control?

Jan 9, 2012

As the United States continues its long march out of the Great Recession, there are several factors threatening job creation and economic recovery— heightened competition from foreign markets, the  eurozone crisis, and fluctuating oil prices, to name a few. But there is another significant threat to jobs and growth, and it is funded by U.S. tax dollars.

Last month, the Environmental Protection Agency (EPA) released the Utility Maximum Achievable Control Technology (MACT) rule, which sets a three-year timetable for reducing mercury and other chemical emissions from coal-fired power plants. In terms of direct costs, it is EPA’s most expensive air rule to date. Industry will spend $9.6 billion a year implementing emissions controls, according to EPA’s estimate, at a time when most U.S. businesses are struggling to turn a profit and pay employees.

Scott Segal, director of the Electric Reliability Coordinating Council, estimates that the rule will cost nearly 1.5 million jobs by 2020. A regulatory price tag of this amount spells financial peril for many U.S. businesses, and the aggressive time frame for satisfying the new rule will cause many power plants to shut down either temporarily (while retrofitting emissions controls) or permanently (because the rule’s high costs run the plants out of business), threatening access to affordable electricity. In areas dependent on energy derived from coal, this could mean blackouts, one of many consequences not addressed in EPA’s sweeping regulation.

“We wholeheartedly share this and previous administrations’ goals of protecting public health and the environment, but the rushed implementation of this rule could undermine the nation’s economic recovery,” says U.S. Chamber President and CEO Tom Donohue. “Making these sweeping changes to business operations is a long-term process, and it is unrealistic to think businesses can comply with this rule within three years, with an uncertain prospect for limited additional time, particularly in light of the significant regulatory burdens companies will face in siting and permitting these large projects.”

As the power industry braces to meet the Utility MACT rule, it also strives to comply with the Cross State Air Pollution Rule, which requires industries in 27 states to reduce emissions that once airborne could cross state lines. Making the necessary emissions-control retrofits costs, by  EPA’s estimate, $800 million a year, comes on top of the $1.6 billion industry is already spending to comply with the Clean Air Interstate Rule. The costs add up fast—and so do the number of lost jobs

Bill Kovacs, the Chamber’s senior vice president of Environment, Technology & Regulatory Affairs, says that EPA doesn’t even pay lip service to its statutory obligation to consider how its rules impact jobs. “Almost all environmental laws contain a provision requiring  EPA to conduct continuing studies of the impacts its regulations have on employment, but  EPA rarely, if ever, performs such studies,” he explains. “As a result, their rules consistently do not align with the real, day-to-day challenges to growth and employment that businesses face.”

The Utility MACT and Cross State Air Pollution rules are just two in a long chain of overreaching EPA regulations that burden U.S. industries with high compliance costs and threaten U.S. economic recovery. In the aggregate, these rules constitute one of the biggest threats to U.S. job creation and economic growth.

"By not including cost benefit analyses, the EPA is acting with surprising disregard to the consequences of its actions,” says Andy Card, former chief of staff to President George W. Bush. “It has demonstrated little interest in listening to the concerns of the people impacted by its rules. Regulatory agencies shouldn’t behave in this manner; they should have a more collaborative relationship with the private sector.”

In October, Arnold Baker, CEO of Baker Ready Mix, a concrete supplier in New Orleans, testified before the House Judiciary Committee about how EPA regulations impact his business. He cited regulations limiting emissions and the materials that can be used in cement production, concluding that EPA rules affecting his industry will “add as much as $20 to $36 to the cost of every ton of cement that Baker Ready-Mix purchases. This represents a 33% price increase for one of my company’s most critical manufacturing components. Because we are a small business, we can’t spread our increased costs over a large number of projects the way larger companies can.”

Companies big and small struggle to comply with expensive regulations doled out with unrealistic deadlines. Energy companies are among the most compliant companies in the country, says John Hofmeister, former president of Shell Oil, because their license to operate is entirely dependent on their compliance under the law.

Says Hofmeister, 

The biggest issue I faced in my corporate career with EPA officials was the complete lack of comprehension as to the business implications of the regulatory issues they were managing. It was regulatory enforcement at any cost with an almost mindless disinterest in the implications of such regulatory enforcement. It was as if, not in every case but in many, the government was omniscient and those who represent the government have all the authority necessary up to and including shutting down the facility in the name of regulatory enforcement.

EPA has demonstrated so little regard to how its rules and regulations impact private sector employment and growth that even President Obama, at the urging of industry groups, felt compelled to rein in the agency. Under the Clean Air Act, EPA reviews National Ambient Air Quality Standards (NAAQS) on a five-year cycle. Though the next review of the NAAQS for Ozone is not due until 2013, EPA released draft Ozone NAAQS in 2011, which would have cost industry $20 billion to $90 billion annually to implement, even though there was no judicial or statutory requirement to do so. 

In response, the Chamber, the American Petroleum Institute, and 174 other business organizations sent a letter to President Obama in August highlighting the costs and the voluntary nature of the EPA rules. One month later, the president released a statement on the new air quality standards:

I have continued to underscore the importance of reducing regulatory burdens and regulatory uncertainty, particularly as our economy continues to recover. With that in mind … I have requested that Administrator Jackson withdraw the draft Ozone National Ambient Air Quality Standards at this time.

“We have reached a point of confrontation with EPA regulation in terms of the overall U.S. economy,” says Hofmeister. “I think we need an EPA. I believe in regulation. I believe in enforcement to make sure we do not have low-standard operators. But when the regulators are going up against the highest standard operating companies in the country just because they can, it makes no sense to drive them into a state where the only solution is to shut down the facility.”

Push-Back From Congress

EPA’s aggressiveness hasn’t gone unnoticed by Congress. In the fall, the House passed the Transparency in Regulatory Analysis of Impacts on the Nation Act of 2011 (H.R. 2401), under which the president would establish a committee “to analyze and report on the cumulative and incremental impacts of certain rules and actions of the Environmental Protection Agency.” The act, now under consideration in the Senate, specifically calls on the EPA administrator to take “feasibility and cost” into consideration.

Says Kovacs, “The TRAIN Act would put the brakes on several of EPA’s most damaging regulations until a full study of their cumulative impact is done—one that includes not only health and social benefits but the actual impact on economic competitiveness, trade, energy supplies, consumer spending, and jobs. Legislation of this nature is long overdue.”

Further, the House passed legislation to prevent EPA from regulating dust in rural America without weakening the Clean Air Act and from issuing overly stringent rules governing emissions from cement plants and boilers. EPA’s proposed cement plant regulations, if implemented, could shut down up to 20% of the industry’s plants.

Taking a broader swipe at overregulation, the House also passed a bill—Regulations from the Executive In Need of Scrutiny (REINS) Act—that would require Congress and the president to approve any new regulation projected to have more than a $100 million economic impact. In addition, a bill, the Regulatory Accountability Act of 2011, containing a number of provisions to restore checks and balances to the regulatory process cleared the House.

“Clearly, a number of Washington lawmakers recognize that the balance of power has tipped in favor of federal agencies, and EPA is the clearest example of this,” say Kovacs. “We’re encouraged that Congress took meaningful steps in 2011 to correct this imbalance, and we’ll continue going down that road in 2012.” 

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