April 2014

Post image for In Today’s Federal Register: EPA Seeks Nominations for Advisory Board Tasked with Investigating Agency’s Ridiculous Employment Impact Analysis

In a previous post, David Bier exposed the sleight of hand, known as partial equilibrium sector modeling, used by EPA to make the agency’s rules appear cost-effective. Partial equilibrium modeling entails an analysis of a regulation’s effect on only the directly affected industries, i.e., the regulated industry and the relevant pollution control industry, rather than an economy-wide analysis.

If, for example, EPA promulgated new sulfur dioxide emission standards for power plants, then a partial equilibrium sector modelling of the rule’s economic impact would project the employment changes on the utility sector and also the sulfur scrubber industry. Such an analysis would NOT take into account the economic effects of higher energy prices. In practice, EPA invariably finds that job creation in the pollution control industry more than offsets job losses in the regulated industry. Unbelievable as it sounds, EPA’s default assumption is that each $1 million spent on pollution control will engender a net increase of 1.5 jobs, with no ceiling.

Pause for a moment to let that sink in. Under EPA’s default assumption, there is no end to the employment benefits of the agency’s rules. If a given regulation costs $1 billion, it’ll create 1,500 jobs; and if it costs $1 trillion, it’ll create 1,500,000 jobs. And so on, all the way to infinity. Of course, this is plainly stupid.

Don’t take my word for it! Below, I’ve reposted an excerpt from an actual EPA regulatory analysis that employs this absurd assumption (from the Utility MACT):

voodoo3At the behest of Sen. David Vitter, Ranking Member on the Senate Environment & Public Works Committee, EPA has now started the process of updating its ridiculous employment analysis. To be precise, the agency is considering the use of full-economy modeling. Economy-wide modeling, if adopted, should limit EPA’s ability to pull such tricks and thereby result in a better regulatory impact estimate. In late 2013, in exchange for lifting his opposition to the nomination of Gina McCarthy to become EPA Administrator, Vitter won a concession that the Science Advisory Board, an EPA advisory body, would investigate the propriety of full economy modeling. That process has now begun.

In today’s Federal Register, EPA announced it is seeking nominations to staff the Science Advisory Board. If you know of a qualified economist, one that doesn’t suffer fools lightly, then please nominate him or her. Here’s the link to the notice. I’ve re-posted the announcement in its entirety below.

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Summary: Yesterday’s Supreme Court ruling in EPA v. EME Homer Generation, which upheld the EPA’s 2011 Cross State Air Pollution Rule (CSAPR), clarified more than a decade of contradictory interpretations of the Clean Air Act by the D.C. Circuit. For this, we can be thankful.  At the same time, however, there is reason to be wistful, because there can be little doubt that this Supreme Court would’ve upheld CSAPR’s predecessor, the 2005 Clean Air Interstate Rule. That rule was remanded by the D.C. Circuit Court in 2008, but the Bush administration didn’t have time for an appeal.

1. Michigan (2000) & North Carolina (2008): D.C. Circuit  Gives Conflicting Interpretations of the Clean Air Act’s Good Neighbor Provision; Judge David Sentelle’s Key role 

The Clean Air Act’s aptly named “Good Neighbor” provision addresses interstate pollution by prohibiting in-state sources from “emitting any air pollutant in amounts which will … contribute significantly” to downwind States’ non-compliance with national ambient air quality standards. See 42 U.S.C. §7410(a)(2)(D)

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Ruling below. Ginsburg delivered the Court’s opinion, in which Roberts, Kennedy, Breyer, Sotomayor, and Kagan joined. Scalia filed a dissenting opinion, in which Thomas joined.



On Friday last week (April 25), climate economists Richard Tol of Sussex University and Robert Stavins of Harvard University separately posted critiques of the process by which the Intergovernmental Panel on Climate Change (IPCC) drafts, edits, and approves the Summaries for Policy Makers (SPMs) of its huge assessment reports.

Tol caused a stir last month when Reuters reported that, in September 2013, he quit the 70-member team authoring the SPM of Working Group II (Impacts) of the IPCC’s Fifth Assessment Report (AR5). Tol said he pulled out because, “The drafts became too alarmist.”

According to Reuters (Mar. 27):

Tol said the IPCC emphasized the risks of climate change far more than the opportunities to adapt. A Reuters count shows the final draft has 139 mentions of “risk” and 8 of “opportunity”.

Tol said farmers, for instance, could grow new crops if the climate in their region became hotter, wetter or drier. “They will adapt. Farmers are not stupid,” he said.

He said the report played down possible economic benefits of low levels of warming. Less cold winters may mean fewer deaths among the elderly, and crops may grow better in some regions.

“It is pretty damn obvious that there are positive impacts of climate change, even though we are not always allowed to talk about them,” he said. But he said temperatures were set to rise to levels this century that would be damaging overall.

In an op-ed a few days later (Mar. 31), Tol explained his basic disagreement with the SPM perspective on climate impacts: “The idea that climate change poses an existential threat to humankind is laughable.”

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End the Wind PTC

by William Yeatman on April 28, 2014

in Blog

On Friday, thirty-one non-profit organizations (including the free-market Competitive Enterprise Institute, where I work) sent a coalition letter to congressional leaders, urging lawmakers to resist reinstating the wind production tax credit, the wind industry’s lucrative subsidy that expired at the end of 2013. I’ve reposted the letter below.

Ptc Coalition Letter 4-25


On this morning’s Platts Energy Week with Bill Loveless, FERC Commissioner Philip Moeller gave a bombshell interview regarding the clear and present danger to electric reliability posed by the EPA.

By way of background, “FERC” stands for Federal Energy Regulatory Commission, and included among its responsibilities is helping to ensure that the lights stay on. While regional transmission organizations bear the primary burden for maintaining the reliability of the grid, the 2005 Energy Policy Act authorizes FERC to establish mandatory reliability standards for interstate power transmission. As such, Commissioner Moeller is well-positioned to assess threats to the grid. And according to him, EPA’s ridiculous Utility MACT has created the possibility of rolling blackouts. Excerpted transcript and video are posted below:

FERC Commissioner Philip Moeller: “We’re closing an enormous amount of coal generation, through a variety of rules, and a good number of those plants are set to retire next April. (Editor’s note: here, Moeller is referring to EPA’s absurd Utility MACT, which threatens to retire up to 25% of the nation’s coal fleet, starting next spring). But most people would say about 90% of that capacity was running and used and necessary during the polar vortex events. So the question is: Are we going to have mild weather for the next 2-3 years? If so, we can probably get through it. But if we have more extreme weather events, like we had this winter, and that power is no longer available, we could be in a real situation that’s not good for consumers.

Platts Energy Week: Are regional blackouts a possibility?

FERC Commissioner Philip Moeller: They are a possibility.

You’ve probably heard about Years of Living Dangerously, the big-budget, nine-part documentary on the supposedly dire threat posed by global warming.

Part three airs this Sunday on Showtime, and it stars Republican Representative Michael Grimm (NY). The story arc follows Rep. Grimm’s conversion from global warming skeptic to believer. In a nutshell, here’s the plot: Grimm had been a denier, but then he talked to former South Carolina Representative Bob Inglis,* and now he’s really scared of climate change.


This afternoon, only 48 hours before Rep. Grimm was to take his star turn on episode three of Years of Living Dangerously, Politico Breaking News sent out the following headline: “Michael Grimm Expected To Be Indicted.” Reportedly, the charges will include mail and wire fraud. What versatility! Denier, alarmist, mail fraudster, wire fraudster–what role can’t he play?

Snark aside, I think it’s safe to say that Rep. Grimm’s credibility has been damaged. By extension, the same can be said for this week’s episode of Years of Living Dangerously.

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Post image for Economic Freedom Improves Air Quality – Study

A new study by the Fraser Institute in Canada finds that economic freedom is an important cause of air quality improvement.

The study compares average airborne concentrations of particulate matter and economic freedom in 105 countries around the world. The authors, Joel Wood and Ian Herzog, find that in 2010, the 20 countries that were most economically free had average concentrations of particulate matter that were nearly 40% lower than the 20 least-free countries.

Of course, correlation does not prove causation, and other variables often associated with economic liberty, namely wealth and democracy, also foster air quality improvement. Nonetheless, the authors find a “robust” relationship between economic freedom and air quality after controlling for other factors:

After controlling for the effects of income, political freedom, and other confounding variables, we find that a permanent one-point increase in the Economic Freedom of the World index results in a 7.15% decrease in concentrations of fine particulate matter in the long-run, holding all else equal. This effect is robust to many different model specifications and is statistically significant. This effect is in addition to a general 36% decrease over time due to unidentified factors.

The study is based on urban concentrations of airborne particulate matter smaller than 10 microns in diameter (PM10) from the World Bank’s World Development Indicators and on the Fraser Institute’s Economic Freedom of the World (EFW), which in turn is largely based on data from the International Monetary Fund, World Bank, and World Economic Forum. The EFW index “reflects the size of government; the quality of the legal system and strength of property rights; soundness of money; freedom to trade; and burden of regulation.”

So why does economic freedom promote air quality improvement?

  • Property rights defined and secured through a strong justice system enable people to protect themselves and their property from pollution.
  • In contrast, government regulations that preempt private, court-enforced “negotiations between those benefiting from and those being hurt by a polluting activity” prevent “an efficient distribution of the right to the environmental resource” and “cause inefficient levels of pollution.”
  • Freedom to trade “is key to ensuring that new, cleaner technologies can be adopted across borders.”
  • “Bureaucratic inefficiency, the influence of special-interest groups, and the prevalence of state-owned enterprises can all hinder the ability of a government to improve the environment effectively.”
  • State-run firms shielded from market discipline are wasteful resource consumers.

The last point is more important than generally realized. In this connection, I’m pleased to post Hoover Institution scholar Mikhail S. Bernstam’s splendid out-of-print book, The Wealth of Nations and the Environment. Published in 1990, the book is something a post mortem on the Soviet Union. The Soviet empire collapsed largely because it went bankrupt. Economic decline however did not mean less pollution but more. Our worst ecological nightmares were daily realities of people living in the USSR and other eastern bloc countries. Why is that? [click to continue…]

Cooler Heads Digest 25 April 2014 by freedom1001

Post image for Does a Recent Peer-Reviewed Study Say It’s Okay to Lie about Climate Change?

Does a recent science paper say it’s okay to lie about climate change if that’s what it takes to ratify climate treaties? No. But the study is quite silly, going to heroic mathematical lengths to prove what most of us learned on the playground: liars can win friends and influence people — until they get caught.

Today’s Climatewire ($) reviews the study, “Information Manipulation and Climate Agreements,” which some skeptical blogs had denounced for advocating dishonesty in a good cause.

Climatewire reports that the researchers — Fuhai Hong of Nanyang Technological University in Singapore and Xiaojian Zhao of Hong Kong University of Science and Technology — issued a statement online saying their objective was only to explain why certain parties have incentives to exaggerate climate change damages, not to justify lying about climate change.

Critics may have read only the study’s abstract, most of which does seem to take a permissive or even approving view of deliberate exaggeration (i.e. lying):

It appears that news media and some pro-environmental organizations have the tendency to accentuate or even exaggerate the damage caused by climate change. This article provides a rationale for this tendency by using a modified International Environmental Agreement (IEA) model with asymmetric information. We find that the information manipulation has an instrumental value, as it ex post induces more countries to participate in an IEA, which will eventually enhance global welfare.

But the concluding sentence of the abstract hints that honesty may be the best policy after all:

From the ex ante perspective, however, the impact that manipulating information has on the level of participation in an IEA and on welfare is ambiguous.

What are we to make of this kerfuffle?

The study is heavily mathematical, one might say gratuitously so, because the overall conclusion is so obvious: “Information manipulation” — that is, lying — can sometimes fool people into giving you what you want, but it can also backfire and discredit you. The story of the boy who cried wolf leaps to mind (although Hong and Zhao don’t mention it).

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