The EPA’s Flawed Clean Coal Plan

 

shutterstock_296570639“On August 3, President Obama and the EPA announced the Clean Power Plan – a historic and important step in reducing carbon pollution from power plants that takes real action on climate change.” So begins the Environmental Protection Agency’s homage to the President and itself. The harder question is whether it is true. On this point, there is a sharp division of opinion between the traditional supporters and traditional detractors of these sorts of measures, with few (if anyone) occupying a middle ground that finds some merit but expresses real concern over the structure and function of the plan. Nonetheless, it is better to back off for the moment from extravagant claims that the end is near if we don’t (or do) embrace this particular plan.

Let’s put aside the EPA’s shaky legal authority and concentrate on the plan itself. A sensible approach divides the regulatory inquiry into two halves. The first asks about the best institutional framework to regulate greenhouse gases (GHGs), most notably carbon dioxide. The second asks how to assess, on empirical grounds, the severity of the carbon dioxide problem that the EPA purports to tackle. The EPA falls short on both counts. I shall take them up in order.

The first point to note about the EPA’s clean coal initiative is that, given its inability to secure any congressional action on the subject, the agency is working solely within the existing statutory framework. That is a big mistake from the get-go. The pollution control scheme put into place under the Clean Air Act of 1970 (CAA), as modified by the Clean Air Act Amendments of 1990, is the wrong way to deal with any form of pollution.

The basic conceit of that statute calls for a division of control over pollution between the national and state governments, all under the banner of federalism. No one argues that pollution should be ignored, so the question is how best to combat it. The usual private law remedies allow individuals to collect damages for their private losses and obtain injunctions against future harm. But the diffuse nature of most pollution makes private actions unwieldy. The correct legislative response is to cut down on the enforcement costs by having government agents use fines or taxes on the one hand and explicit prohibitions on emissions levels on the other to control the loss.

The CAA founders in making the transition from private to public enforcement. Instead of imposing an output regime that taxes pollutants and sets emissions levels, it makes two key mistakes.

First, it leaves too much to the imagination of the states in the imposition of the statutory scheme. The key device is the creation of the National Ambient Air Quality Standard (NAAQS), which sets aggregate levels of pollution for a given region, allowing each state through its state implementation plan (SIP) to take the first crack at assigning burdens to individual firms. The SIP is in turn subject to override by a federal implementation plan (FIP) if SIP falls short. Second, the SIPs and FIPs regulate inputs by seeking to determine not pollution levels, but “the best system of emissions reduction” (BSER).

The combination of these two decisions has severely retarded environmental protection. The NAAQS system gives local governments too much discretion in allocating liabilities, so that each polluter takes strategic measures to foist the burdens off on someone else, thereby turning a technical decision into a political one. The BSER system offers no sensible answer to the question of whether some additional precautions are worth their salt. In principle, these decisions should be made at the margin, until the last unit spent on precaution yields a comparable health and safety benefit. But just ask this question: if we can stop 90 percent of pollution at $100, and 99 percent at $1,000, and 99.9 percent at $1 million, are we committed to the last as the best system of pollution control? Does it depend on the size of the firm? Its level of profit and loss? Or what?

One unfortunate consequence of this system is that the gaming has led to the creation of stringent standards for new source pollution standards (NSPS), and consequently far more lenient standards for the modification of existing facilities — the effect of which is to retard the introduction of new and efficient facilities as old ones are patched up year after year. The point is especially important with respect to coal plants, many of which should have turned over years ago. The problem today is that the EPA has to play catch-up for the old plants, which makes it look as if there is a concerted “war on coal” in light of these overdue corrective measures.

Ironically, most of the needed changes for coal plants are important not because of carbon dioxide, but because of all the other acknowledged pollutants emitted by coal (and, in lesser amounts, by natural gas). The EPA therefore is right to attack this issue, but it has picked a ham-handed way of making the change. The first point is that it did not confess error, go to Congress, and ask for a fundamental change in system design to fix up the current problem. Quite the opposite: this plan doubles down on the current system. Here is one key passage (in a 1,560 page report) that shows the basic errors:

In this final rule, the EPA is establishing a CO2 emission performance rate for each of two subcategories of fossil fuel-fired [Electric Generating Units] EGUs — fossil fuel-fired electric steam generating units and stationary combustion turbines – that expresses the “best system of emissions reduction… adequately demonstrated” (BSER) for CO2 from the power sector. The EPA is also establishing state-specific rate-based and mass-based goals that reflect the subcategory-specific CO2 emission performance rates and each state’s mix of affected EGUs.

The twin vices are these. First, the BSER system works no better here than it does for any other form of pollution. There is no reason to make technology-specific rules when a uniform tax applied to both will allow parties to make the needed adjustments to less dangerous sources. The EPA takes pride in the element of “facilitating” choices at the state level. But there is absolutely no need for the EPA to subsidize wind and solar energy in the belief that these are superior to traditional forms of production. They should pay their own way and be subject to taxation and regulation for the pollution they create anywhere in their production cycle — no exemptions for dead birds, for example.

More concretely, let the needed choices take place without the subsidies and without the EPA’s targets, all of which are necessarily based on little concrete information about the proper mix of different technologies that will emerge in the 15-plus years in which this plan is supposed to stay in effect. The great advantage of the tax system (or an equivalent output system) is that it does not require or invite fundamental regime changes in regulation with each advance in technology. The key issue is what choices and why. Any robber gives you a choice between your money or your life. The real question is whether he can force you into that choice. The EPA is entitled to make polluters pay. It is not entitled to run subsidy systems that introduce yet another level of administrative confusion and political intrigue.

The situation gets no better when the EPA announces that it will set individual goals for each state. Why and how should this be done, especially for carbon dioxide which has the same effect wherever it is released globally? State quotas invite political retribution against those states that put up a fight against the EPA and gentle treatment for those that cooperate. That is no way to run a business when other methods for controlling pollution are available.

These structural concerns are amplified by the dubious empirics that underline this particular debate. The first question is: do we think that carbon dioxide is a pollutant? The answer to that question is complicated. No one wants to reduce levels of carbon dioxide to zero. Unlike sulfur dioxide, carbon dioxide is essential to life. So the key question is “how much?”

When the United States Supreme Court decided that the CAA meant to cover pollution in Massachusetts v. EPA, it indulged in some fancy footwork to reach that result. But it did so confident that Al Gore’s “inconvenient truth” lay less than a decade away. The evidence has not quite turned out that way, as global temperatures have remained essentially flat. It is risky business for anyone to extrapolate with confidence how the past relates to the future, but reading the EPA report one gets a sinking feeling that the weakness of the projections of a decade past have not altered its estimate of the risk one whit.

This matters because the correct way to set the tax is to take the best estimate of the severity of the risk at hand. If the short-term dangers seem weaker, then the plan should ease off on the aggregate level of restrictions that it imposes. The hard question in many cases is whether to invest in this technology today or to rely on general improvements to deal with the problem going forward. No lawyer should ever presume to have independent knowledge of the best estimates. But it is proper for them — and for ordinary citizens — to ask the EPA to deal responsibly with the critics, such as Judith Curry, who take the opposite position, stressing the uncertainty of existing models and the importance of factoring in natural variations as a source of climate change.

Surface temperatures have been constant for 16 years in the face of major increases in carbon dioxide concentrations. It will not do for the EPA to announce that everyone agrees that greenhouse gases (GHGs) contribute to global warming. The question has to be asked in a more fine-grained fashion. What level of GHGs will produce what level of temperature increase, which in turn will result in what level of dislocation? Carbon monoxide and carbon dioxide differ chemically by only one molecule of oxygen. But in every other way they are worlds apart. A little humility can go a long way. The EPA should take that simple reality into account before it goes into regulatory overdrive based on insufficient information about the role of carbon dioxide in climate change.

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  1. Arizona Patriot Member
    Arizona Patriot
    @ArizonaPatriot

    Is the EPA required to do a cost-benefit analysis as a part of its actions?  I wonder how it could do that, in light of the speculative nature of the benefit — or cost — of any reduction in CO2 emissions.

    I include cost because it seems at least possible that even if increased CO2 emissions will lead to increased global temperature, the next effect might be positive.  I would expect agricultural output to increase because CO2 is one of the major inputs to plant growth.  Increased temperature might increase or decrease agricultural output — I would expect longer growing seasons to be offset, perhaps, but some drought-related problems (although warming might cause greater overall precipitation, so this potential cost is speculative).  Also, I’ve read that there are more cold-related than heat-related deaths worldwide, so assuming that CO2 emissions raise temperatures, such higher temperatures would save more lives than they cost.

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  2. Karon Adams Inactive
    Karon Adams
    @KaronAdams

    and the uninformed will see the accompanying picture and shudder at all the “smoke”. few know or care that the ‘smoke’ is nothing more than steam from the cooling towers. as far from pollution as one can be. but, to sew fear, regulators will happily point out the ‘smoke’ to all and sundry to simply make their job easier.

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  3. Mark Thatcher
    Mark
    @GumbyMark

    Good analysis but I think this whole policy can be more simply summed up.

    According to EPA’s own analysis if the President’s GHG reduction goal is achieved it would lower temperatures by 0.03 degrees C by 2100, a figure that would have absolutely no impact good or bad on climate even if the climate models are accurate.

    This is confirmed by a transcript of the highly secret Administration discussions on the subject that was slipped to me under condition of secrecy regarding the source.

    Otter:  I think we have to go all out. I think that this situation absolutely requires a really futile and stupid gesture be done on somebody’s part!

    Bluto: We’re just the guys to do it.

    D-Day: [stands up] Yeah, I agree. Let’s go get ’em.

    Boon: Let’s do it.

    Bluto: [shouting] “Let’s do it”!

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  4. Ontheleftcoast Member
    Ontheleftcoast
    @Ontheleftcoast

    I believe that Professor Epstein is mistaking form for substance here.

    The substance:

    “So if somebody wants to build a coal-powered plant, they can; it’s just that it will bankrupt them, because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted,” Obama said during a 2008 interview with the San Francisco Chronicle’s editorial board.

    “Under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket. Even regardless of what I say about whether coal is good or bad,” Obama said in 2008. “Because I’m capping greenhouse gases, coal power plants, you know, natural gas, you name it — whatever the plants were, whatever the industry was, they would have to, uh, retrofit their operations. That will cost money. They will pass that money on to consumers.”

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  5. billy Inactive
    billy
    @billy

    Is there any point in noting the fact that without carbon dioxide life on Earth wouldn’t exist?

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  6. James Gawron Thatcher
    James Gawron
    @JamesGawron

    Richard,

    I would describe this in general terms as the “Regulatory Heart of Darkness”. Here an irrational standard is actually preferred. Thus there is no way to easily judge whether that standard is being applied fairly. Now the regulator is free to use this gimmick to extort tribute and reward fealty.

    Corruption plus the destruction of a healthy economy. I hate these guys.

    Regards,

    Jim

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  7. Ross C Member
    Ross C
    @RossC

    I deal with these sorts of issues regularly (i.e. EPA regs) for my work although I don’t do environmental work per se.  It is just that the regulations affect what you can and cannot do with respect to infrastructure investments.

    Without going through war stories, let me say that the end result of these regulations is that there are several lawyers for each project who are hired to navigate the Title V EPA process (which is processed at the state level using EPA rules, so both the people who issue the permits and the those seeking them can complain about the EPA).  IMHO it should not be lawyers but engineers, but that is the byproduct of the regulations.  They are written both with a generality and a complexity such that engineers (or for that matter anyone) cannot understand them.  When something is unclear the party seeking the permit is simply at risk until this item is adjudicated by them or by someone else.  When I say at risk what I mean is, that there is something I may be required to do per the regulations (more often than not to existing equipment that is already permitted) that will have a substantial effect on the cost.  So in a capitalist system where price matters, the party who is willing to take extra risk may well win the business.

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  8. Ross C Member
    Ross C
    @RossC

    The professor suggests a system of straight consumption taxes on all users would be preferable to the existing regulatory framework.  I know that new taxes are anathema to Republicans and Conservatives but it is far preferable IMHO to where we are, and where we are going.  Congress or states could set national or state limits on whatever emission in question.  A tax levy at the point of consumption could be set by congress or the state legislature and if it did not have the desired effect it could be adjusted upward or downward until it did have the desired affect.

    Unlike complex regulation the advantage is that the legislatures could increase or decrease the target amounts upward and downward subject to both the consultation of scientists, industry, and most importantly the voting public.

    Some might say it is preferable to tax the producer rather than the consumer, but I do not understand how it is preferable to tax production which should be encouraged and not consumption which we want to discourage.

    So new taxes are preferable to the quasi-hidden taxation of regulation.

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