January 2010

Today, Reps. Lamar Smith (R-TX), Sam Graves (R-MO), Trent Franks (R-AZ), and Lynn Westmoreland (R-GA) sent a letter to Office of Information and Regulatory Affairs (OIRA) Administrator Cass Sunstein sharply critical of EPA’s December 7, 2009 finding that “air pollution” from carbon dioxide (CO2) and other greenhouse gases (GHGs) endangers public health and welfare. 

“On the basis of EPA’s endangerment finding,” the legislators warn, “virtually every economic activity undertaken in America stands to come under the thumb of federal regulation.” They explain: “These actions begin with EPA’s and the Department of Transportation’s proposed new light vehicle emission standards, continue through greenhouse gas (GHG) preconstruction and operating permit requirements for stationary sources and extend as far as the mind can contemplate.” They continue: “In these ways, EPA threatens to burden our economy with vastly expanded regulation not contemplated by Congress when it passed the Clean Air Act.” 

Yes, indeed. As I discuss here and here, EPA’s endangerment finding starts a regulatory cascade that could (1) subject tens of thousands of previously unregulated small businesses to Clean Air Act (CAA) Prevention of Significant Deterioration (PSD) pre-construction permitting regulations, (2) subject millions of small businesses to CAA Title V operating permit requirements, and (3) compel EPA to establish national ambient air quality standards (NAAQS) that would effectively require the United States to de-industrialize. The Supreme Court pushed EPA to make the endangerment finding in its April 2007 Massachusetts v. EPA decision.

The four Members of Congress ask OIRA chief Sunstein to make EPA convene a Small Business Advocacy Review Panel to develop and evaluate regulatory alternatives to mimimize the endangerment finding’s impacts on small business. Until and unless EPA does this, the lawmakers say, the endangerment finding should be “withdrawn.”

The representatives acknowledge that EPA’s proposed October 2009 Tailoring Rule  “seeks to delay for a handful of years the imposition of requirements on sources emitting less than 25,000 tons of carbon dioxide per year.” However, this fix is by design temporary, and it is legally dubious, since EPA would be flouting clear statutory language. Under the CAA, entities must obtain a PSD permit in order to construct or modify a facility with a potential to emit 250 tons per year of a CAA-regulated air pollutant, and a Title V permit in order to operate a facility with a potential to emit 100 tons per year.

EPA estimates that if these provisions are enforced as written, the number of entities applying for PSD permits would jump from 280 to 41,000 per year, and the number applying for Title V permits would jump from 14,700 to 6.1 million per year. The flood of permit applications would overwhelm agency administrative resources, the permitting programs would implode under their own weight, construction activity would grind to a halt, and millions of firms would find themselves in legal limbo — all in the midst of the worst economic downturn since the Great Depression.  

It will be interesting to see how Sunstein responds to the lawmakers’ letter. Will he stick up for small business and honor the spirit of the Regulatory Flexibility Act (RFA), or will he bless EPA’s evasive legal semantics? 

Under the RFA, agencies are to convene a small business review panel unless the agency head certifies that the proposed regulation will not have a “significant impact upon a substantial number of small entities.”  In a recent year, each PSD permit on average cost $125,120 and 866 burden hours for sources to obtain (just the paperwork and administrative costs, exclusive of any associated technology investments). The going rate for Title V administrative fees is $43.75 per ton, implying a virtual carbon tax (exclusive of administrative expenses) of $4,375 for a small business emitting 100 tons of CO2 per year. The Tailoring Rule estimates (p. 55338) that if small sources of CO2 must comply with the law as written, rather than as doctored by EPA, they will incur an expense of more than $38 billion just for Title V compliance over the next six years.  A significant economic impact by any standard.

Note also that the $38 billion figure refers just to the direct expenses small firms would incur to comply with Title V. It does not include the reduced output and job losses due to the diversion of resources to regulatory compliance. Nor does it include the loss of investment in firms that, due to their sheer number, face years of delay and uncertainty in obtaining permits to build or operate their facilities.

The endangerment finding is what tees up all these costs and consequences, so you’d think it would be a no brainer that it has ”significant impact upon a substantial number of small entities.”

Well, EPA says otherwise. In the Endangerment Finding (p. 66545), Administrator Lisa Jackson certifies that EPA’s findings “do not in-and-of-themselves” impose new requirements on small entities. Hence, there’s no need for an RFA review panel. Similarly, EPA’s GHG motor vehicle standards proposal (p. 49628) certifies that it would not have a significant impact on a substantial number of small entities, since the standards would apply to automakers, very few of which are small businesses.

By making new cars more costly, however, the rule could adversely affect thousands of auto dealers, most of whom are small businesses. EPA says not a word about that potential impact. More importantly, the GHG motor vehicle standards are what directly trigger the PSD and Title V requirements.

EPA says the Tailoring Rule (p. 55349) won’t have a significant impact on a substantial number of small entities, because it “will relieve the regulatory burden associated the PSD and Title V operating programs for new and modified major sources that emit GHGs, including small businesses.” So EPA acknowledges there is a burden to be relieved — a PSD/Title V burden. Where does that come from?  The endangerment finding and the GHG motor vehicle emissions rule. Yet EPA claims those actions have no impact of any consequence for small business.   

Isn’t legal hair-splitting grand? Of course, the findings “in-and-0f-themselves” regulate nothing — but they compel the adoption of GHG motor vehicle standards under CAA Sec. 202, which then automatically trigger pre-construction permitting requirements under Secs. 160-160 and operating permit requirements under Secs. 501-507.

The endangerment finding also sets the stage for regulation of GHG emissions from motor fuels under CAA Sec. 211, non-road engines and vehicles under Sec. 231, the establishment of GHG new source performance standards (NSPS) for scores of industrial source categories under Sec. 111, and the establishment of economy-wide NAAQS regulation of GHGs under Secs. 107-110.  ”Yes, Your Honor, I pulled the trigger, but I am innocent; the bullet killed the man!”

And if litigation and the logic of the CAA compel EPA to establish NAAQS for CO2 and other GHGs, which could easily qualify as the most expensive rulemaking in history, you can bet your bottom dollar what EPA will say. There’s no significant impact on a substantial number of small businesses, because NAAQS “in-and-of-themselves” don’t regulate anybody. The actual regulation of businesses large and small will be done by the states, through their State Implementation Plans (SIPs). “Once the rockets are up who cares where they come down, that’s not my department,” says Wernher Von Braun.

Small business clearly needs an advocate in the room and at the table whenever EPA deliberates about any regulatory action pertaining to greenhouse gases and CO2. Congress enacted the RFA to protect small business from regulatory excess. Right now it’s not working. Cass Sunstein has an opportunity to ensure that small businesses have a say in regulatory decisions affecting their very survival. He should seize it.

“The glaciers in the Himalayas are receding faster than in any other part of the world and, if the present rate continues, a large number of them may disappear by 2035 because of climate change.” Such was the lede of one of countless articles about how 1.3 billion Asians were in imminent danger of first flooding and then drought. And that’s not to mention the certain extinction of the abominable snowman.

You didn’t need a Cray computer to figure that this was nonsense, that temperatures would have to more or less instantly soar to incredible heights and stay there for this to happen. (As it turns out, 18 degrees Centigrade.) But people wrote it, read it, and believed it. You’d think a magazine with the name Technology Review would know better, yet its latest issue declares: “The Himalayan glaciers that feed rivers in India, China, and other Asian countries could be gone in 25 years.”

Why did they say it? In part, because it was convenient. And in part because the Intergovernmental Panel on Climate Change (IPCC) said it in its Fourth Assessment Report (2007). Now the IPCC is saying, “Whoopsie!”

In a statement released on Wednesday, the group admitted “poorly substantiated estimates.” More specifically, it appears to have been based on a news story in the New Scientist, a popular science journal, published in 1999. That story, in turn, was based on a short telephone interview with Syed Hasnain, a little-known Indian scientist in Delhi. And Hasnain has since admitted his assertion “speculation” unsupported by any formal research.

The IPCC says it will “probably” issue a formal correction. “Probably?”

But admit it guys, wasn’t it fun while it lasted?

Scott Brown’s decisive victory in the Massachusetts Senate race has upturned the Democrats’ Progressive agenda.  Brown, “the people’s seat” senator, had a resonant message that tapped into the electorate’s disenchantment with ever-increasing government (with the health care proposals figuring strongly), huge deficit spending, and increased taxes to pay for the trillions of dollars in new government programs. Jobs and the economy were an overarching issue.

It was a populist victory that carried many of the themes of the “Tea Party” movement, which, so far, haven’t been promoted by either party.  If the Republicans don’t latch onto those themes with an agenda of their own, they really are the “dumb Party.”

What’s a cause for concern, however, is how the Democrats are likely to embrace people’s fear and anger by taking up their own populist cudgel to even more vigorously attack capitalism, consumer choice, and any and all Big Business entities.

There indeed is fierce popular anger at bank bailouts and big bonuses – Wall Street has become a synonym for greed and arrogance that caused the financial meltdown, with little recognition that government and quasi-government entities like the Federal Reserve and Fannie and Freddie contributed to the financial problems.

Though some banks deserve much of the public disapprobrium because of their mismanagement and sellout on TARP funds, even those banks that were healthy or fought their own way back to solvency are being asked to pick up the tab for their less-responsible brethren. Expect the Democrats to exact more such retribution from banks — in the name of the people.

In addressing the big issues of jobs and the economy, the Democrats will have a hard time spending more money on stimulus packages that seem to evaporate before any jobs are created. But there will probably be an even bigger push for “green jobs.” Democratic leadership may decide that a massive and economically destructive cap-and-trade bill isn’t feasible in this political climate.  They may look to more “green jobs” and “alternative fuels” boondoggles through taxes and fees on fossil fuel industries as a better way to sell the idea of restrictions on and higher costs for energy use. Yet those subsidized jobs themselves are costly, as the Wall Street Journal noted in mid-December 2009 about the 253,000 of direct jobs created:

The 253,000 direct jobs works out to a cost of about $90,000 a head-just for one year. Clean-energy manufacturing jobs are even more expensive to create, costing about $135,000 per job.

It will be difficult to relate the Democrats’ health care proposals to jobs and the economy when the costs are projected by the Congressional Budget Office at $1 trillion in additional federal spending over the next 10 years. But that figure – while astronomical — doesn’t include the states’ mandates, which will cost $25 billion more over 10 years or the unknown costs of the mandates for individuals and employers to buy insurance. Those costs will be paid for by increased yet hidden taxes – and not just on the so-called rich.

Plus, the closed-door negotiations on the bills have resulted in deals that most people consider unfair and outrageous, for instance, Nebraska is the only state that won’t have to pay future unfunded Medicare and Medicaid mandates; Louisiana gets $300 million for agreeing to support the Senate bill; and union members don’t have to pay “Cadillac-plan” taxes on their generous health care plans. These proposals will actually hold back job creation by causing uncertainty among both small and large businesses and thus reluctance to expand jobs. And taxpayers rightly understand that they will bear the increased costs.

In the wake of Scott Brown’s election, whether the Democrats will continue their shenanigans on their health care proposals isn’t yet clear.  Right now, they’re damned if they do and damned if they don’t.

Recently, CEI’s president Fred Smith wrote an article titled “Change we can really believe in,” which sets out a blueprint to stimulate the economy by liberating it.  Fred must have been prescient when he wrote this on January 4 — before the surge for Scott Brown:

This year holds promise for a new start for America. As 2010 begins, we may be teetering on a cliff, but Americans aren’t lemmings. Support for statist policies is dropping, and taxpayer anger is growing. There is a renewed understanding that the limitations on government of the Constitution are the best protections of our liberties. Their restoration should be the primary hopeful change advanced by all friends of liberty.

A pithy column in Foreign Policy by the Breakthrough Institute’s Ted Nordhaus and Michael Schellenberger says that ”twice-fooled” Democrats, who have been “BTUed” by two Democratic administrations, “are unlikely to sign up for more of the same in the next Congress” (cap-and-trade being the regulatory form of a BTU tax on carbon-based energy).  

The phrase “BTUed” calls to mind Paul Simon’s great ’60s cut-the-hype, get-out-of-my-face folk anthem, A Simple Desultory Philippic (Or How I was Robert McNamara’d Into Submission), and inspired me to attempt a bit of musical parody. Here it is, with apologies to Rhymin’ Simon:

I been Al Gore’d and Yvo de Boer’d.
I been Rajendra Pauchauri’d and regulatory’d.
I been UN’d and CRU’d till I’m blind.
I been Climategated and often hated
Called a skeptic ‘cause I follow the data
That’s what real science is about, well, never mind!
I been BTU’d and cap-and-traded.
I been Hockey Sticked, Hide-the-Decline-Tricked.
Well, I paid all the taxes I want to pay.
And I learned to doubt by debating these louts,
And offsets don’t mean no regrets,
So I blog about Gorethodoxy each day.

Dr. Rob Bradley, CEO of the Institute for Energy Research, documents in Political Capitalism how fraud and corruption at Enron were the inevitable consequence of a business strategy emphasizing the political pursuit of market-rigging regulations as a strategy to reap windfall profits and grow market share.

Enron, for example, was a key lobbyist for the Kyoto Protocol, a treaty calculated to increase demand for Enron’s services as a natural gas distributor, renewable energy seller, and cap-and-trade broker.

Today at MasterResource, the free-market energy blog, Bradley reveals that Enron also spearheaded the push for renewable energy mandates that made Texas the leading windpower state in the country.

Bradley worked at Enron for 16 years and frequently clashed with senior management over its infatuation with get-rich-quick green energy schemes. “Oh how sad I am that Enron purchased Zond [Corporation, a struggling wind energy company] and did so much to enable the artificial windpower boom in Texas and United States,” he writes.

The tragedy in Haiti can teach us something about the extreme policies of global warming alarmists.

The 1989 San Francisco earthquake measured a 7.1 on the Richter scale and the death toll was 62 people killed.

The recent earthquake in Haiti was measured at 7.0 on the Richter scale and the death toll could reach 50,000-100,00 people killed.

Why did Haiti suffer so many more lost lives than San Francisco?  The answer is  the country doesn’t possess the wealth necessary to build better infrastructure.

Yet, the alarmists want to push policies, such as cap and trade, which would drastically reduce our wealth.  They want countries like Haiti and other developing countries to take steps to reduce carbon emissions at the expense of their national well-being, including their health and infrastructure.

If we want to best survive the impact of natural disasters, wealth generation is the best means to do so.  Ask Haitians if they would have preferred to be in Port-Au-Prince or San Francisco when the earthquakes hit.

Assuming (for the sake of it) that global warming will lead to natural disasters, building better infrastructure and adapting to any changes is a far wiser choice than pushing policies that will have no measurable impact on global temperature while undermining any chance countries like Haiti would have to protect themselves from such disasters.

Pushing damaging policies that undermine wealth generation and having the arrogance to impose those policies on nations like Haiti is unethical, to say the least. If developing countries have to give up what we as Americans already enjoy, such as good infrastructure, the death toll for what should be relatively minor earthquakes will remain astronomical.