Do EPA’s Clean Air Act (CAA) rules produce more than $30 in benefits for every dollar of cost? That’s what the agency claims in a report published earlier this month:

Our central benefits estimate exceeds costs by a factor of more than 30 to one, and the high benefits estimate exceeds costs by 90 times. Even the low benefits estimate exceeds costs by about three to one.

Obama administration officials and their allies tout EPA’s benefit-cost estimates as a reason why Congress should allow the agency to regulate greenhouse gases (GHGs). EPA Administrator Lisa Jackson, for example, cited the 30 to 1 ratio in her Feb. 9, 2011 testimony opposing the Energy Tax Prevention Act, a bill that would strip EPA of its non-congressionally authorized power to dictate national policy on climate change. Jackson suggested that if Congress lets EPA regulate GHGs, net annual CAA benefits will reach $2 trillion by 2020.

EPA’s GHG rules cannot possibly harm the economy, we’re told, because the CAA has a 40-year track record of delivering trillions of dollars in net benefits.

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Today at Pajamas Media.Com, I discuss the latest stratagem of the greenhouse lobby to protect EPA’s purloined power to dictate national climate and energy policy: Sen. Max Baucus’s (D-Mont.) amendment to the small business reauthorization bill.
The Baucus amendment would essentially codify EPA’s Tailoring Rule, which exempts small greenhouse gas (GHG) emitters from Clean Air Act (CAA) permitting requirements.
That may seem innocent enough. However, if enacted, the Baucus amendment would also codify the ever-growing ensemble of EPA climate initiatives of which the Tailoring Rule is only a small piece.
EPA’s current and probable future climate regulations include GHG/fuel-economy standards for all categories of mobile sources (cars, trucks, marine vessels, aircraft, non-road vehicles and engines) and GHG/energy-efficiency standards for dozens of industrial source categories. 
Congress, however, never authorized EPA to determine fuel economy standards for motor vehicles, much less dictate national policy on climate change. The Baucus amendment would put Congress’s legislative stamp of approval on EPA’s end-run around the legislative process.
The amendment has almost no chance of passing in the GOP-led House of Representatives. However, it does not need to pass to perpetuate EPA’s shocking power grab. All it has to do is peel off enough votes in the Senate to prevent passage of the Inhofe-Upton Energy Tax Prevention Act. That bill, which is almost certain to pass in the House, would overturn most of EPA’s current GHG regulations and stop the agency permanently from promulgating climate change policies Congress never approved.
Whether the Baucus amendment is adopted or just blocks passage of Inhofe-Upton, the U.S. economy will be exposed to the risk that EPA will be litigated into establishing national ambient air quality standards (NAAQS) for GHGs, and to the risk that EPA will use BACT (“best available control technology”) determinations and NSPS (New Source Performance Standards) to restrict America’s access to affordable, carbon-based energy. [click to continue…]

Update on the States

by William Yeatman on March 14, 2011

in Blog

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In 2007, then-Minnesota Governor Tim Pawlenty (R) championed and ultimately signed the Next Generation Act, which effectively imposed a moratorium on coal-fired power plants in the State. Evidently, the legislature is having second thoughts about a future without coal, because last week both the House and the Senate moved legislation that would overturn the coal ban. By a 15 to 6 vote, the House Environment, Energy and Natural Resources Policy and Finance committee passed H.F. 72, “A bill for an act relating to energy; removing ban on increased carbon dioxide emissions by utilities.” The Senate Committee on Energy, Utilities, and Telecommunications passed a companion bill, by a 9 to 3 vote.

West Virginia

Last Tuesday, the U.S. Army Corps of Engineers issued a section 404 Clean Water Act permit to a Massey Coal subsidiary for the Reylas Surface Mine in Logan County, West Virginia. The permit was originally issued in 2007, but it became ensnared in the Obama Administration’s war on Appalachian coal (click here or here for more information on that subject). In 2009, the Environmental Protection Agency recommended against granting the permit, so there is a good chance that the EPA will veto this permit. In January, the EPA exercised this authority for the first time in the history of the Clean Water Act in order to veto the Spruce No. 1 mine, which is also in Logan County. Notably, the EPA objects to these mines because they allegedly harm an insect that isn’t an endangered species. But before the EPA could act, environmentalist lawyers won an injunction in a West Virginia federal court.

Post image for The “Fill Rule” Controversy Explained

Elsewhere, I’ve described two fronts the Obama administration is waging against coal production in Appalachia (see here and here).

Since the President took office, environmentalists have been urging the administration to open a third front against Appalachian coal. This one pertains to the so-called “fill rule.” Here’s how the Sierra Club describes it: “In 2002, the Bush administration changed a key Clean Water Act rule to allow mining companies to dump their waste into waterways. Known as the “Fill Rule,” it allows mountaintop removal coal mine operators to bury Appalachian streams with their waste.”

As I demonstrate below, virtually the whole of the Sierra Club’s characterization of the “fill rule” is incorrect, starting with the fact that the rule originated with the Clinton administration, not the Bush administration. In fact, the “fill rule” is a relatively innocuous regulation that acts primarily to allow the EPA’s long held definition of “fill material” to trump that of the U.S. Army Corps of Engineers.

The “Fill Rule”: A Tortuous History

The Clean Water Act prohibits all pollution discharges into navigable waters, unless the “polluter” obtains a permit. Generally speaking, there are two such variances: (1) Section 402 permits, for “point source” discharges (like a pipe), which are issued by the EPA or by a state agency whose guidelines are EPA-approved and (2) 404 permits, for “dredge and fill” projects (such as filling a swamp to create a new housing development), which are issued by the U.S. Army Corps of Engineers in accordance with guidelines set by the EPA.

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Update on the States

by William Yeatman on February 28, 2011

in Blog, Politics

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Three weeks ago, a federal judge in Louisiana found the Department of the Interior in contempt for its moratorium on oil and gas drilling in the Gulf of Mexico enacted in the wake of last year’s BP spill. As a result of the ruling, the government will have to pay the plaintiff’s legal fees, but it didn’t impact the moratorium, which was lifted on October 22, 2010. Despite the end of the de jure moratorium, the Obama administration has kept in place a de facto moratorium through bureaucratic foot-dragging.

Two weeks ago, the same U.S. District Judge, Martin Feldman, lifted this de facto moratorium, by granting a preliminary injunction requiring that the Interior Department act within 30 days on five pending permit applications. According to Judge Martin’s ruling, “Delays of four months and more in the permitting process, however, are unreasonable, unacceptable and unjustified by the evidence before the court.”

New Hampshire

By a 246 to 104 vote, the New Hampshire House of Representatives last week passed HB 519, legislation that would withdraw New Hampshire from a regional energy-rationing scheme known as the Regional Greenhouse Gas Initiative. Governor John Lynch (D) promised to veto the bill before it was introduced, but this week’s vote is veto-proof. The State Senate is expected to pass HB 519 with enough votes to overturn the Governor’s promised veto.

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The 112th Congress was sworn in on Wednesday, and Rep. John Boehner (R-Ohio) was elected Speaker of the House.  Nineteen Democrats voted against Rep. Nancy Pelosi (D-San Francisco), which is extraordinary when you consider that Pelosi as Minority Leader still controls committee assignments for her party’s members.  The House began Thursday by reading the Constitution (my thoughts on that may be found here), which surprised me by causing a lot of foaming at the mouth on the left.  Later that morning, Senator Barbara Boxer (D-Marin County), who remains Chairman of the Environment and Public Works Committee, held a press conference during which she vowed to block any attempt to prohibit or delay the EPA from regulating greenhouse gas emissions using the Clean Air Act.

Boxer may be very busy.  The hottest item of the first week of the new Congress was introducing a bill to block EPA.  Rep. Marsha Blackburn (R-Tenn.) along with 45 co-sponsors re-introduced her bill (H. R. 97) to remove greenhouse gas emissions from the list of things that can be regulated under the Clean Air Act.  Rep. Shelley Moore Capito (R-WV) introduced a bill to delay EPA from regulating greenhouse gas emissions for two years.  This is similar to the bill that Senator Jay Rockefeller (D-WV) introduced last year and announced this week that he would re-introduce in the 112th Congress.  And Rep. Ted Poe (R-Tex.) introduced a bill to prohibit any funding to be spent on implementing or enforcing a cap-and-trade program to reduce greenhouse gas emissions.

The Environmental Protection Agency sprang two surprises last week. First, EPA asked a federal judge to allow them to delay issuing the boiler MACT (Maximum Available Control Technology) rule until April 2012, which would give EPA time to reconsider and rewrite the proposed regulation.  The rule is designed to cut air pollution from approximately 200,000 industrial boilers, process heaters, solid waste incinerators, etc.  Industrial users of boilers have made a good case that the proposed standards were going to be impossible to meet in many cases.

Next, EPA announced that the ozone or smog rule would be delayed until July 2011, while it reconsidered the scientific and health studies on smog’s effects.  The announcement suggests that EPA has bowed to intense opposition from Congress, state and local governments, and industry and is now going to re-write the smog rule so that it is less economically catastrophic.  EPA nonetheless is going ahead with regulating greenhouse gas emissions from major stationary sources on January 1, 2011.  There is little reason to think that those regulations are any less damaging than the smog rule.

The EPA also announced last week that it was holding its second National Bed Bug Summit meeting in early February. You may laugh, but at least with bed bugs EPA is addressing a real environmental health problem.

Texas Battles Back

by William Yeatman on November 22, 2010

in Blog

The Washington Examiner last week ran an excellent three part series by Kathleen Hartnett White and Mario Loyola, of the Texas Public Policy Foundation, on a burgeoning conflict between the EPA and the State of Texas.

Part 1: EPA Is Offended by Texas’s Successful Permitting Rules
Part 2: Putting a Lid on Texas’s Economic Growth
Part 3: Doing the Environmentalists’ Dirty Work

Recently on this site and at MasterResource.Org, I discussed the Obama Administration’s proposed rule to establish first-ever greenhouse gas (GHG) and fuel-economy standards for heavy duty (HD) vehicles. The rule, jointly proposed by the EPA and the National Highway Traffic Safety Administration (NHTSA), would set increasingly stringent GHG and fuel economy standards for HD vehicles manufactured during model years (MYs) 2014-2018. HD vehicles include “combination tractors” (semi-trucks), “vocational trucks” (dump trucks, delivery trucks, buses), large pickups and vans.

Do Consumers Undervalue Fuel Economy?

The agencies have long held that “consumers undervalue fuel economy,” as EPA puts it on p. 44413 of its July 2008 Advanced Notice of Proposed Rulemaking: Regulating Greenhouse Gases under the Clean Air Act).  Yes, EPA acknowledges, the addition of fuel saving technology increases the purchase price of a vehicle, but, the agency contends, “the lifetime discounted fuel savings will exceed the initial cost increase substantially” (ANPR, p. 44447).

EPA writes as if the only factors consumers need to weigh and balance when purchasing an automobile are the upfront purchase price and the lifetime fuel costs. Given that premise, consumers who do not spend more for a higher mpg-vehicle are short-sighted (“fuelish”). Like children, they either do not discern their own best interest or lack the self-discipline to pursue it. So the Nanny State must step in and restrict our choices for our own good. Such is the elistist pretension underpinning three-plus decades of fuel-economy regulation.

In reality, consumers are not two-dimensional beings trapped, like agency fuel-economy fetishists, within a two-factor decision framework. In addition to the tradeoff between upfront cost and long-term fuel expenditures, consumers also consider vehicle power, performance, utility, style, safety, comfort, and amenities. Some people, for example, are willing to pay more for gasoline in order to enjoy the panoramic views, cargo space, passenger space, off-road versatility, and towing capacity of a large SUV.

More importantly, when consumers purchase a car, they typically take into account costs that are completely unrelated to the vehicle itself. For example, Mrs. Smith may prefer a lower priced car because she needs more disposable income this year for new home-office equipment, for little Sallie’s music lessons, or for Bill Jr.’s orthodonture. Forcing her to spend more of her disposable income on a higher-mpg vehicle would not enhance her family’s welfare, even if she could recover the extra expense in five years. Each consumer’s welfare is subjective and involves a subtle weighing and balancing of many competing considerations. For EPA to claim that “consumers undervalue fuel economy” is tantamount to saying that Mrs. Smith “overvalues” music lessons.

Do Truckers Underinvest in Fuel Economy?

Okay, so the notion that consumers “undervalue” fuel economy is dubious. In their joint proposed rule, EPA and NHTSA do not claim that truckers undervalue fuel economy. That would not pass the laugh test. As the agencies acknowledge (p. 315), “Unlike in the light-duty vehicle market, the vast majority of vehicles in the medium- and heavy-duty truck market are purchased and operated by businesses with narrow profit margins, and for which fuel costs represent a substantial operating expense.” Indeed, for truckers, fuel is the single biggest operating expense.


Source: EPA-NHTSA, Draft Regulatory Impact Analysis: Proposed Rulemaking to Establish Greenhouse Gas Emission Standards and Fuel Economy Standards for Medium- and Heavy-Duty Engines and Vehicles, Figure 9-1, p. 9-4

Clearly, nobody has a keener incentive to reduce fuel expenditures than people who haul freight for a living.

Yet the agencies claim that truckers “underinvest” in fuel saving technology. According to their calculations, the proposed rule will compel the trucking industry to invest $7.7 billion in fuel-saving technologies (p. 36), which will cut fuel consumption by 500 million barrels, which will save truckers $28 billion (assuming a 7% discount rate) or $42 billion (assuming a 3% discount rate). In the agencies’ words (p. 315), “the application of fuel-saving technologies in response to the proposed standards would, on average, yield private returns to truck owners of 140% to 420%.”

Unexamined Hypothesis: Opportunity Cost of EPA Emission Control Standards

The agencies propose five “potential hypotheses” to explain why firms with narrow profit margins in a competitive industry where fuel is the chief operating expense are not seizing an opportunity to make billions in easy money. As discsussed in my MasterResource column, none of these explanations demonstrates a “market failure.” In fact, two of the hypotheses suggest that truckers are simply acting like prudent buyers (although, naturally, the agencies don’t put it that way). Specifically, truckers want to make purchasing decisions based on road-tested information, not just agency speculation. Prior to actual deployment of the technologies, nobody knows whether they will yield the promised fuel savings and how they will affect engine reliability and maintenance costs.

The Oak Ridge Laboratory publishes an annual Transportation Energy Data Book. The chapter on heavy vehicles (p. 5-2) reports that the fuel-economy of “single unit” trucks improved 2% annually during 1998-2008. No “underinvestment” there. In contrast, “combination tractor” (semi-truck) fuel economy declined 1.2% annually over that period (p. 5-3). Yet these are the long-haul guys who, according to EPA and NHTSA, will save 18 times as much on fuel as owners of vocational trucks once they comply with the proposed rule (p. 337).

I don’t know if prudent- buyer behavior accounts for the alleged investment “gap” or “energy paradox” (p. 315) in the semi-truck category, but the agencies should have at least mentioned one other obvious “hypothesis”: the opportunity cost of EPA’s emission control mandates.

Back in the year 2000, EPA adopted tough new emission control standards for HD vehicles.  EPA’s Regulatory Impact Analysis (RIA) estimated that the industry’s 11 major diesel manufacturers would have to make substantial commitments of time, money, and personnel to comply with the new standards:

We have therefore estimated that each of the 11 major diesel engine manufacturers will invest approximately $7 million per year on research and development over a period of five years to adapt their engine technology to the advanced emission control technologies described here. Seven million dollars represents the approximate cost for a team of more than 21 engineers and 28 technicians to carry out advanced engine research, including the cost for engine test cell time and prototype system fabrication. [RIA, Chapter V: Economic Impacts, p. V-20]

“In total,” EPA’s RIA continues, “we have estimated that the engine manufacturers will spend approximately $385 million on R&D.” Three hundred and eighty-five million dollars. Presumably, that could crowd out significant R&D on fuel saving technology. Every year for five years, an estimated 21 engineers and 28 technicians at each of 11 major diesel manufacturers would be working on emission control technology. They would likely work less (or not at all) on fuel-saving technology.

The RIA also estimated that, in the “near term” (MY 2007), the average semi would incur fixed, variable, and operating costs of $280, $2,946, $3,785, respectively (p. V-7). So in the near term, owners would have about $7,000 a year less per vehicle to spend on fuel saving technology. For perspective, EPA and NHTSA estimate that their proposed GHG/fuel economy standards will increase the cost of a “combination tractor” by $5,896 in MY 2014 (p. 7-3). Presumably, some truckers who spent $7000-plus for mandated emission control technologies did not have $5,896 to spend for new fuel saving technology.
Finally, EPA’s year 2000 RIA says that the diesel particulate filter will “negatively impact fuel economy by approximately one percent” but that this will be “more than offset through optimization of the engine-PM trap-NOx adsorber system” (p. V-32). Whether this forecast turned out to be accurate or not, I do not know. 
What does seem clear is that EPA’s own rules may be responsible for the alleged “paradox” that the freight goods industry is not making cost-effective investments in fuel-saving technology.

Request for Information

Unfortunately, the latest information I have found on the industry-wide R&D costs and per-vehicle costs of EPA’s HD vehicle emission standards, and whether the associated technologies enhance or reduce HD vehicle fuel economy, is EPA’s year 2000 RIA, which offers projections rather than a retrospective, real-world, assessment. I would be grateful to anyone who can point me to later information.

Can environmental agencies use BACT determinations to require major emitting facilities to switch fuels?

This arcane-sounding question is of great practical importance to energy consumers and the economy. It is a question addressed in EPA’s long-awaited PSD and Title V Permitting Guidance for Greenhouse Gases, posted online yesterday in Politico.

EPA’s guidance document is intended to assist permit writers and permit applicants determine what constitutes “best available control technology” (BACT) for greenhouse gas (GHG) emitting facilities. On January 2, 2011, EPA’s motor vehicle GHG emission standards will go into effect, making GHGs air pollutants “subject to regulation” under the Clean Air Act’s Prevention of Significant Deterioration (PSD) pre-construction permitting program. Any firm planning to build or modify a large GHG-emitting facility (e.g. a coal-fired power plant, an oil refinery, a cement production facility) will first have to obtain a PSD permit from EPA or a State environmental agency.  To obtain a PSD permit, the applicant will have to demonstrate that the new or modified facility incorporates BACT by virtue of its combustion processes, work practices, technology controls, or some combination thereof.

A question that has come up time and again in discussions of EPA regulation of GHGs is whether BACT can be interpreted to require facilities to change the fuels they use. For example, could a permitting agency decide that an electric generating unit is not BACT-compliant unless the facility switches fuels from coal to natural gas, or from natural gas to a mixture of gas and wind?

Waxman-Markey died in the Senate when the public realized that cap-and-trade is a stealth energy tax.  Cap-and-trade functions as an energy tax in large part because it is designed to suppress and, ultimately, eliminate electricity production from coal, America’s most abundant and affordable electricity fuel.

If BACT can be interpreted to require fuel switching, then it can empower activist bureaucrats to implement the anti-coal agenda that the American people rejected on November 2.

Where does EPA’s guidance document stand on this critical issue? Here’s what it says:

While Step 1 [of the BACT determination process] is intended to capture a broad array of potential options for pollution control, this step of the process is not without limits. EPA has recognized that a Step 1 list of options need not necessarily include inherently lower polluting processes that would fundamentally redefine the nature of the source proposed by the permit applicant.* [p. 25]

* In re Prairie State Generating Company, 13 E.A.D. 1, 23 (EAB 2006).

EPA does not interpret the CAA to prohibit fundamentally redefining the source and has recognized that permitting authorities have the discretion to conduct a broader BACT analysis if they desire.**  The “redefining the source” issue is ultimately a question of degree that is within the discretion of the permitting authority. [p. 28]

** In re Knauf Fiber Glass, 8 E.A.D. at 136; In re Old Dominion Cooperative, 3 E.A.D. at 793.

So, although BACT options “need not necessarily include inherently lower polluting processes that would fundamentally redefine the nature of the source,” EPA “does not interpret” BACT “to prohibit fundamentally redefining the source,” leaving such decisions to the “discretion of the permitting authority.”

It would be prudent to suppose that anti-coal bureaucrats at EPA and State agencies will do whatever they think they can get away with.