April 2012

The Environmental Protection Agency concedes that its recently finalized Mercury and Air Toxics Standards rule, also known as the Utility MACT, would cost $10 billion annually. Industry estimates are much, much higher. Even EPA’s (likely lowball) figure makes the MATS rule one of the most expensive direct regulations ever.

Despite these evident costs, EPA claims that the regulation will not only save the environment, but also benefit the economy. EPA Deputy Administrator Robert Perciasepe testified, for example, “Our analysis shows, particularly on these utility rules, that it will create jobs.” Head Administrator Lisa Jackson has repeated the same claim. “Every model that we run,” she said last year, “shows… that it would actually create jobs.”

But these claims are entirely disingenuous. EPA analysis does not show that the Utility MACT will result in net job creation, only that it will create jobs in the coal industry and those industries that produce pollution abatement equipment. The wider economic implications are ignored. As EPA’s Regulatory Impacts Assessment (RIA) states, “the Agency has not quantified the rule’s effects on all labor in other sectors not regulated by the [mercury standard].” In other words, “every model” Jackson ran cooked the books in favor of EPA’s conclusion.

In economics, such analysis is known as a “broken-window fallacy,” which views only a narrow range of effects of a particular action. “There is only one difference between a bad economist and a good one,” wrote 19th century economist Frederic Bastiat. “The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.” EPA focuses on the “seen”—the workers required to install pollution controls—while it ignores the unseen—the workers who lose their jobs or are forced to take pay cuts due to higher electricity prices.

Nevertheless, EPA continues to promulgate this myth that the Utility MACT will benefit the economy. But consider what it means to benefit the economy. As Bastiat writes, economic development “diminishes the ratio of effort to result… that is, [it] lessens the effort needed to have a given quantity.” EPA regulations do the opposite. The agency’s RIA notes, “regulation leads to more labor being used to produce a given amount of output.” In other words, it increases the ratio of effort to result—it increases the effort needed to have a given quality. In sum, unnecessary regulations do not develop an economy—they impoverish it.

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Despite his speechmaking touting an “all of the above” energy strategy, President Obama’s reelection could depend his willingness to stand in the way of developing America’s resources.

Back in November, at the time of the original Keystone XL pipeline decision, environmental groups threatened to pull their backing for Obama if he approved the pipeline. Michael Brune, executive director of America’s largest environmental group, the Sierra Club, is on record as saying that the President’s decision on Keystone would have “a very big impact” on how they funnel their resources—with the obvious implication being that they would not support the President if he didn’t do their bidding.

Other environmental groups such as the Natural Resources Defense Council (NRDC) and the Environmental Defense Fund took a different tack but with the same goal. A press release from the Rainforest Action Network promised the President that if he denied Keystone, he would see a “surge of enthusiasm from the green base that supported you so strongly in the last election.”

Environmental groups clearly understand they have the ability to influence the President’s decisions based on their claims to support—or not support—his bid for a second term. So far, they must be pleased with his administration’s efforts. On Wednesday, April 18, leading environmental groups came out with their official endorsement of President Obama—“the earliest” the groups “have ever endorsed in a presidential election cycle.” According to The Hill, “The groups are planning a mix of advertising and on-the-ground work on Obama’s behalf.” However, Glenn Hurowitz, a senior fellow at the Center for International Policy, thinks the groups should have waited longer before endorsing the President. He believes the early endorsement removes the “greens’ leverage.”

Most pundits agree that the 2012 presidential election will be a hard fought, close race. In order to win, President Obama needs the four million votes from “greens” the groups represent—and they do not want increased domestic resource extraction.  According to BusinessWeek, funding from environmental groups is currently less than 50% of what it was through the same period in the 2008 campaign—one of the reasons cited: “renewing offshore drilling in the Gulf of Mexico.”

Though receiving little press, the Obama administration is working hard to convince the “greens” that he is one of them.

The NRDC (one of the groups promising support if Obama does the right thing) has launched a major fundraising effort—aided by the actor Robert Redford, to block a proposed mine that would provide America with access to one of the largest known deposits of copper in the world. Copper is essential for electric transmission and America’s industrial future—and highly sought after by developing economies such as China. The land—already designated for mineral exploration and development—also contains gold, silver and molybdenum. Despite the fact that the Native Alaskans living near the proposed Pebble Mine site want the infrastructure and jobs the mine would provide, rich sport-fishermen and out of state environmental groups (NRDC is based in New York City) are claiming to “pressure the Obama administration to reject any permits that could allow Pebble Mine to move forward. And if necessary, we will challenge this disastrous project in federal court.” The fund raising letter states: “Only NRDC combines grassroots power with the legal clout of more than 400 attorneys.”

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The House of Representatives voted overwhelmingly this week for a bill, H. R. 4348, to extend the highway bill for another ninety days after the current extension expires at the end of June.  The final vote was 293 to 127, with 69 Democrats voting for passage.  The extension includes three energy and environmental riders, including Rep. Lee Terry’s (R-Neb.) provision to require permitting the Keystone XL pipeline.  Also included are Rep. David McKinley’s (R-WV) amendment to prevent EPA from regulating coal ash as a hazardous waste and Rep. Reid Ribble’s (R-Wisc.) amendment that would expedite environmental reviews of highway construction projects.

The House bill will now be conferenced with the highway bill passed earlier by the Senate.  White House press secretary Jay Carney made some extraordinary statements about the Keystone provision on Friday. According to the Hill, Carney said that permitting the 1700-mile pipeline from Alberta’s oil sands to refineries on the Gulf coast would be “preemptively sacrificing American sovereignty” and that it would be “a foreign pipeline built by a foreign company emanating from foreign territory to cross U. S. borders.”

Carney also said that Rep. Terry’s amendment had been added to the highway bill in a “highly politicized, highly partisan way.” That is odd, considering that increasing numbers of Democrats in the House support overriding President Obama’s opposition to permitting the pipeline.  One supporter is Rep. Steny Hoyer (D-Md.), the Democratic Whip.  The Senate narrowly defeated an amendment to permit the pipeline last month on a 56 to 42 vote (with 60 required for passage).  Eleven Democrats voted for the amendment.  That’s about as bi-partisan as the Senate gets these days.

Senate Majority Leader Harry Reid (D-Nev.) reacted to the House vote by saying that the Senate had clearly rejected permitting the Keystone pipeline and would not agree to the House language in conference committee.  But the New York Times noticed in a news article that Democratic support for President Obama’s obstructionism was clearly crumbling in the face of public support for the pipeline and the November elections.