2014

President Obama reportedly is considering a climate change plan that would upend oversight of the electric industry in all 50 States– without a popular mandate from either the Congress or a single State Legislature.

The regulation of electricity provision has been the primary preserve of the States since the New Deal. With the passage of the Public Utility Holding Company Act in 1935, the Congress facilitated State oversight of electric utilities; the law was intended to inhibit speculation in electric utilities, a cause of the Great Depression, by dividing the market into 50 parts (i.e., States).  As such, all 50 States have a regulatory body, usually known as a “Public Utilities Commission,” that functions to overlord electricity production within State borders. If, for example, a utility needs to build a power plant or raise rates, it must get PUC permission. And if a State Legislature were to enact a law affecting the electricity industry, such a mandate would be implemented by the PUC. Thus, States control the electricity industry within their borders.

This state-centric model for electricity oversight would be altered radically by the climate plan President Obama reportedly is considering for release next month. Per Bloomberg:

According to two people familiar with the discussions, the administration is considering an approach that would require a cut of 25 percent in emissions in two stages. In the five years starting in 2019, only limited reductions at the plants would be mandated. Deeper cuts would required from 2024 to 2029 to reach 25 percent, one of the people said…

The rules could achieve steeper cuts at a lower cost if the targets are based on a more holistic view of an electrical system—the operating generating units, power lines, opportunities for renewable energy, and even reductions in use by customers.

Setting aside the conspicuous legal problems attendant to such a “beyond the fence” approach under the Clean Air Act,* the President’s reported proposal raises huge federalism concerns. In practice (as reported by Bloomberg), the President’s plan would bind the hands of all 50 PUCs, by requiring them to re-orient their energy planning to meet a 25% reduction in emissions. In order to achieve the President’s goal, State PUCs would be forced to adopt from among a suit of bad policies, including:

• Soviet-style green energy production quotas;
• silly demand-side management programs that force consumers to use less energy;
• and  regressive ratepayer subsidies to owners of rooftop solar systems.

Because the President’s climate plan is based on the Clean Air Act, EPA would have the authority to impose a Federal Implementation Plan—i.e., a regulatory take-over—if the agency disagrees with a State on energy policy. Pursuant to this authority, EPA would have the power to impose energy Federal Implementation Plans on the States.

[click to continue…]

Irwin Stelzer has a column in the Weekly Standard titled “Let’s tax carbon: It’s the worst form of energy policy except for all the others that have been tried.” Clever but not wise.

Whether or not a carbon tax is better than other ‘green’ energy schemes, it is not better than the free-market policy President Obama and Sen. Majority Leader Harry Reid won’t let us try: A broad-based strategy to “unleash” what Manhattan Institute scholar Mark Mills calls the “North American energy colossus.”

Stelzer worries the feds will run out of money and be forced to raise other taxes if they can’t tax carbon. He doesn’t explain why taxing carbon is preferable to taxing income, except for a glib remark that it’s better to have “taxes on bad stuff rather than on work and investment.” But carbon taxes are a tax on carbon-based (fossil) fuels, which supply 82% of U.S. commercial energy, and energy, like labor and capital, is a factor of production. In fact, without carbon-based energy, few of us would be employed — or even exist. A carbon tax is an indirect tax on labor and production — the good stuff.

Moreover, as Institute for Energy Research scholar Robert Murphy points out, the smaller the base on which a tax of a given size is levied, the more distortionary the effects. The base of a carbon tax — particular commodities or industries — is narrower than the base for retail sales, income, and labor taxes. Stelzer’s got it backwards. Substituting carbon taxes for income taxes — and especially adding carbon taxes on top of income taxes, as he envisions — would make the tax system less “efficient.”

Besides, there is no hope of avoiding fiscal ruin without sustained robust economic growth, and fossil energy development is one of the few bright spots in the economy. Tax a thing, and you get less of it: Econ 101.

Stelzer professes to like fracking and oil and even coal, but somehow sees nothing problematic about promoting a tax the basic premise of which is that fossil fuels are destroying the planet and should be suppressed. Especially in an election year, conservative politicians cannot adopt an agenda so deeply conflicted without dividing the movement and demoralizing its base. [click to continue…]

The Hill (May 16, 2014) reports that almost 8 in 10 U.S. biodiesel producers have cut back production this year. According to a National Biodiesel Board (NBB) survey, 78% of producers reduced output, 57% of companies have idled or shut down plants, and 66% have downsized workforces or are considering it. 

NBB blames the downturn on “uncertainty” over federal biodiesel programs. Specifically:

Almost all of the surveyed companies attribute the industry’s decline to two recent policy developments: the expiration at the end of last year of the tax credit to produce biodiesel and a proposal last year by the Environmental Protection Agency not to increase the biodiesel mandate in the Renewable Fuel Standard.

This, however, is a tacit confession that the biodiesel market is rigged and begins to fall apart as soon as government relaxes its grip on taxpayers and the industry’s involuntary servants.

Two things should be obvious to biodiesel producers.

(1) What the state can giveth the state can taketh away. Everybody has a natural right to compete for willing buyers in the marketplace. Nobody has a natural right to compel others to buy his products. The Renewable Fuel Standard (RFS) fabricates such rights, but entitlements exist at the pleasure of the powers that contrive and administer them. It is foolish to regard RFS blending targets as property rights that can’t be taken from you — especially when the whole system depends on violating the property rights of others, namely refiners, whose facilities the RFS commandeers to process and sell your product!

(2) The RFS is heading for a crackup. The statutory target for 2014 (18.15 billion gallons) exceeds by approximately 3 billion gallons the amount of biofuel that can actually be sold given the size of the U.S. motor fuel market and the incompatibility of most vehicles and retail fueling infrastructure with blends higher than 10% ethanol. This “blend wall” problem will get worse if refiners’ obligations increase in lockstep with the statutory targets while overall motor-fuel demand declines as forecast. When Soviet-style production quota get too far out of whack with actual market conditions, central planners will make adjustments to avoid outright policy failure and political embarrassment. It is foolish to suppose they will sacrifice their careers to protect biofuel producers’ bottom lines.

Naturally, special interests complain when technical or fiscal constraints intrude on their gravy train. But why should the rest us of bail them out?

We would all be better off in the long-run if government stopped trying to pick energy market winners and losers. The RFS is a system of legal plunder and should be abolished.

In his 1850 classic, The Law, Frederic Bastiat asks: How is legal plunder to be identifed? He answers, in part: “See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.” A sales rep of any company who forced you to buy its products would go to jail.

The pertinent passage from The Law is reproduced below. The final two paragraphs are an apt commentary on the wailing and whining over EPA’s scaleback of the RFS blending targets. [click to continue…]

By 1970, it was commonly held that New Deal era regulatory agencies had been “captured” by the industries they were supposed to oversee. According to this influential school of thought, industry’s political spending and also its close cooperation with regulators led to cozy relationships that undermined effective oversight. The most conspicuous manifestation of regulatory capture was a “revolving door” of employment between regulatory agencies and industry.

The 1970 Clean Air Act was supposed to be the antidote to regulatory capture. The law was unusually long and detailed; it was, moreover, replete with deadlines, which were then a novel legislative tool. Most consequential of all, Congress empowered environmental special interests to litigate in order to enforce the law’s many duties. By so crafting the statute, Members of Congress intended to supplant agency discretion with legislative direction and public oversight, and thereby curtail the possibility of regulatory capture.

Since the enactment of the Clean Air Act, environmental special interests have prospered, primarily by leveraging the unique authorities they were accorded in the statute. In 2012, for example, NRDC and Sierra Club had revenues of approximately $100 million and $80 million, respectively. Thus enriched, both organizations now operate sophisticated campaign to influence political outcomes.**Moreover, by employing a legal strategy known as “sue and settle,” these environmental groups have seized EPA’s regulatory initiative. (Paradoxically, “sue and settle,” which is a means of contemporary regulatory capture, is made possible only by virtue of the Clean Air Act’s many deadlines—i.e., the supposed “solution” to regulatory capture in 1970.) In short, environmental special interests are exhibiting virtually all of the behaviors that defined regulatory capture 40 years ago…

…including a revolving door. Consider the following, non-comprehensive list of current and recent EPA political appointees that have come from green litigation groups (and vice-versa): [click to continue…]

Will EPA’s Carbon Rules implement the defunct Waxman-Markey cap-and-trade bill?

That’s a question I addressed in a previous post and more recently in a comment letter to EPA on its proposed Carbon Rule for new fossil-fuel power plants. Today’s post offers a more complete discussion.

The Waxman-Markey bill (H.R. 2454), officially titled the American Clean Energy and Security Act (ACESA) of 2009, aimed to rapidly phase-out coal-based power in the U.S. via three types of carbon dioxide (CO2) regulation:

1. New source performance standards (NSPS) for coal-fueled power plants (section 116). New coal power plants permitted between Jan. 1, 2009 and Jan. 1, 2020 would have to achieve a 50% reduction in CO2 emissions. The only technology capable of meeting that standard is carbon capture and storage (CCS), which can make new coal power plants 5 times more expensive than new natural gas combined cycle (NGCC) plants (see Table 2 of this EIA report). Unless heavily subsidized, utilities planning to build coal power plants would “fuel switch” and build new NGCC plants instead.
2. A cap-and-trade program covering all major emitters (Title III). Existing coal power plants and other major emitters would have to achieve aggregate CO2-equivalent greenhouse gas emission reductions of 3% below 2005 levels by 2012, 17% below by 2020, 42% below by 2030, and 83% below by 2050.
3. A combined efficiency and renewable electricity standard (Title I). Utilities would have to supply increasing percentages of electricity from a combination of efficiency upgrades and renewable sources (6% in 2012, 9.5% in 2014, 13% in 2016, 16.5% in 2018, and 20% in 2020-2039).

Let’s consider the parallels — both obvious and tacit — between the Waxman-Markey regulatory Troika and EPA’s Carbon Rules. [click to continue…]